Today - Monday, April 27, 2015
- South Dakota's Public Utilities Commission votes to delay a key hearing discussing construction of the long-delayed Keystone XL pipeline through the state, agreeing with Keystone opponents who asked for the postponement because they said the original schedule was too tight.
- The hearing, which had been planned to begin next week, now likely will be held later this summer.
- The state initially authorized TransCanada (NYSE:TRP) to construct the project in 2010, but state rules dictate permits must be re-authorized if the construction of the project does not start within four years of their issuance.
- Land drilling activity cuts that began late last year are nearing an end with the bottom likely this quarter, Goldman Sachs says as it upgrades land drillers Patterson-UTI Energy (NASDAQ:PTEN), Nabors Industries (NYSE:NBR) and Helmerich & Payne (NYSE:HP) to Buy from Neutral.
- Goldman believes the sharp reduction in rig activity - with rig declines reaching 900-plus rigs on average in Q2 2015 v- has started the self-correcting mechanism in oil supply, and that oil production should flatten in Q2 and is unlikely to grow Y/Y by Q4; the firm now expects the U.S. land rig count to increase by ~430 rigs by year-end 2016, with the horizontal rig count increasing by nearly 300 rigs.
- Earlier: Helmerich & Payne upgraded to Buy from Neutral at Goldman
- Select energy E&P stocks are ready to be bought on weakness following the recent rally in the space, Cowen says as it names Anadarko Petroleum (NYSE:APC), Pioneer Natural Resources (NYSE:PXD) and Range Resources (NYSE:RRC) its top picks; the three are started at Outperform with respective price targets of $72, $216 and $73.
- Cowen says its top picks have low-cost assets and high quality balance sheets that will allow them to emerge from the oil price downturn with higher margins.
- Devon Energy (NYSE:DVN), Noble Energy (NYSE:NBL) and Cimarex Energy (NYSE:XEC) also are initiated with Outperform rating, while Apache (NYSE:APA) and Continental Resources (NYSE:CLR) are started at Market Perform.
- InterOil (NYSE:IOC) says it has begun flow testing at the Elk-Antelope gas field in Papua New Guinea as part of its field appraisal.
- IOC says Antelope-5 has the best reservoir thickness, quality and fracture density of all wells on the field, and signifies a "world-class reservoir."
- The data from the testing will help the Elk-Antelope LNG Project, a joint venture of IOC, Total (NYSE:TOT) and Oil Search (OTCPK:OISHF), to optimize design of the liquefied natural gas plant and associated infrastructure.
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- Emerge Energy Services (EMES -10%) and Hi-Crush Partners (HCLP -5.9%) are both downgraded to Hold from Buy at Wunderlich, which now believes frac sand market conditions are much worse than previously anticipated.
- Wunderlich says its downgrades are based on an assumption that even though oil prices have seemingly found a bottom, the deep discount in frac sand prices might not recover nearly as fast; price concessions secured by E&P companies would not be for just the short-term and could put a lid on low sand prices for 12-18 months even if oil prices stage a convincing recovery.
- The firm cuts its stock price target for EMES to $40 from $65 and for HCLP to $35 from $53.
- Royal Dutch Shell (RDS.A, RDS.B) and Total (NYSE:TOT) have delayed multibillion-dollar offshore oil projects in west Africa as part of efforts to rein in costs and shore up cash flow following the collapse in crude prices, FT reports.
- Shell reportedly has postponed until next year a final investment decision on the offshore Bonga South West project in Nigeria, which would require an estimated $12B of spending and include the construction of one of the world’s biggest floating production platforms.
- TOT is said to have delayed a final investment decision on Zinia 2, an offshore satellite of Angola’s Pazflor field, on concerns that projected capital spending is too high relative to the field’s 78M boe reserves.
- The two projects highlight how oil majors are hoping the waters off west Africa can be a major source of future crude production, but Shell and Total will give themselves time to bring down contractors’ costs by delaying final investment decisions.
- Any fine above $2B against BP (BP -0.5%) for the 2010 Gulf of Mexico oil spill would be "extraordinary and severe," double the highest-ever U.S. water pollution fine and potentially crippling its U.S. oil business, BP said in court documents filed late Friday that marked its final legal argument before a federal judge is clear to render environmental fines as high as $13.7B for the spill.
- BP says a fine above $2B would be 58x greater than any civil Clean Water Act fine before Deepwater Horizon, and that it should not have to pay a high penalty because it has already spent $27.5B to clean up the spill and compensate claimants along the Gulf; it also wants credit for its $1.25B criminal penalty.
- U.S. government prosecutors blasted BP’s argument that a high penalty would render the U.S. unit insolvent, arguing that U.S. oil unit BPXP was insolvent in 2011-12 with no evidence that the insolvency changed or jeopardized BPXP’s operations in any way, and that the BP parent company alone makes investment decisions for the group.
- China’s probe into alleged corruption involving senior executives at state firms has widened to ensnare the no. 2 exec at Sinopec (SNP +3.3%), who has been placed under investigation for suspected "serious law and discipline violations," according to the state's top anti-graft authority.
- The official resigned from all his positions at SNP, including vice chairman and non-executive director.
- The news that the probe into China’s state-owned energy industry is still expanding after China National Petroleum and its listed PetroChina arm lost more than a dozen senior officials to government investigations.
- Declining output from shale oil fields has in turn cut demand for key types of railroad cars, according to new industry figures, in the latest sign of the fallout from lower crude oil prices.
- Buyers ordered 4,470 new railway tank cars during Q1, down 6% Y/Y and ~70% below the nearly 15K tank cars ordered during Q4, according to the Railway Supply Institute trade group.
- Q1 orders for covered “hopper” cars, used mostly to deliver fracking sand to drill sites, also fell to 131 cars from 11.5K a year ago and 8,627 cars during Q4.
- Tank car orders had surged with shale oil output, generally transported to refineries by rail, but output from North Dakota’s Bakken Shale field dropped in both January and February, and the U.S. Energy Department predicts continued declines in output there for April and May.
- Relevant tickers: TRN, ARII, GBX, WAB, CSX, NSC, UNP, CNI, CP, KSU, BRK.A, BRK.B
- PetroChina (PTR +3.2%) is higher even after reporting a larger than expected 82% drop in Q1 profit due to lower international crude prices and inventory writedowns at its refining division.
- PTR's Q1 net profit tumbled to 6.15B yuan ($989M), its lowest since Q3 2007, from 34.2B in the year-ago period and well below the analyst consensus average of 9.98B yuan.
- Q1 sales fell 22% to 410B yuan and the average realized crude price was halved to $48.87/bbl from a year ago; oil and gas output rose 4.9% to 381M boe.
- Earlier: PetroChina, Sinopec surge on industry merger speculation
- The British's government signal that it would make life difficult for any potential bidder for BP indicates the company's vulnerability to a takeover bid and that a more politically palatable tie-up with Royal Dutch Shell (RDS.A, RDS.B) no longer seems to be an option, Reuters reports.
- Although the U.K. always has maintained a special interest in BP, in the past when the company has looked vulnerable there was always the notion that Shell would be OK as a white knight in a merger deal that would preserve British interests; but with Shell now tied up in a $70B takeover of BG, that seems much less likely, prompting the government to say it would oppose any bid for BP, according to the report.
- "Everyone is thinking that Shell is probably out of the... game for a while. So inevitably, it makes BP more vulnerable as you don't have Shell as a white knight anymore," says an unnamed oil investment banker.
- Sinopec (SNP, SHI) and PetroChina (NYSE:PTR) are dismissing reports that their parent companies could merge to create a state giant, saying they have never received any official information about such a restructuring.
- It is the first time Sinopec and PTR have formally downplayed Chinese and foreign media reports in recent months that the government is considering merging Sinopec's parent with China National Petroleum, which controls PTR.
- Shares are off earlier highs but still sport strong gains, particularly SHI, up nearly 15% in U.S. trading.
- Seadrill (SDRL +2.8%) moves higher even as shares are downgraded to Sell from Neutral with a 20%-plus downside at Citigroup, which sees SDRL breaching debt covenant levels in 2016 with risks in 2015 if contracts are renegotiated.
- While a waiver likely will be renegotiated in the short term, the firm sees SDRL's financing picture becoming more difficult, especially in the context of financing new deliveries and refinancing of existing debt.
- Despite a 40% drop in spot deepwater floater dayrates over the last 12 months, Citi sees a potential for another 30% fall before the cycle bottoms; for SDRL, at least 40% of the fleet is uncontracted in 2016, and Citi sees downside risks to both earnings as well as the market’s and lenders’ valuation of the fleet as more units become idled.
- SDLP +2.8%.
- Helmerich & Payne (HP +3.2%) is upgraded to Buy from Neutral with an $85 price target, raised from $51, at Goldman Sachs, which notes HP's high exposure to increased demand for high-spec U.S. land rigs in 2016.
- The firm foresees 1,500HP or larger rigs to see the sharpest increase in utilization, increasing from 62% currently to the mid-80% range by late 2016, and that HP will be the biggest beneficiary of the demand pick-up since it controls nearly 50% of such available rigs.
- Goldman also likes HP's pristine balance sheet, with estimates 2016 net debt/capital of less than 1% vs. a 20% average for land drilling peers, and projects HP to generate substantial free cash flow in 2016 which can be used for dividend increases or share buybacks.
- Precision Drilling (PDS +1.6%) opens higher after its Q1 earnings plunge 76% Y/Y on a 24% drop in revenue, but results beat expectations as job cuts and other cost-cutting measures helped maintain margins despite a steep decline in drilling activities.
- Contract drilling services operating expenses fell 21% Y/Y to C$251.2M, helping PDS mitigate demand for North American land drilling services that "failed to meet even the most pessimistic forecasts," CEO Kevin Neveu said.
- PDS's U.S. rig count fell to 80 in Q1 from 94 a year earlier, and Canada rig count fell to 69 from 127, and says it current workforce is 2,200 fewer (~28%) than at the end of 2014.
- However, PDS raises its 2015 capital spending forecast by 8.3% to C$506M due to a stronger dollar.
- PDS also says it will maintain its quarterly dividend at C$0.07/share.
- Statoil (STO +1.3%) must move ahead with the delayed expansion of the Snorre oil and gas field in the North Sea because it is a time-critical investment, Norway's energy minister says.
- STO last month delayed a decision on the $4B Snorre upgrade, which could yield an additional 300M barrels of oil, saying margins on the project were too low, particularly after the recent drop in crude prices; STO expects to decide in late 2016 whether to move ahead with building a new platform and extending the field's lifetime to 2040.
- Exxon Mobil (NYSE:XOM) owns a 17.4% share of Snorre.
- LSB Industries (NYSE:LXU) +4.1% premarket after reaching an agreement with activist investor Starboard Value regarding corporate governance and board composition.
- LXU says that, once its El Dorado facility expansion projects have been completed and brought online in 2016, it plans to separate its chemicals unit from its climate control unit and to explore an MLP structure for the chemicals business.
- LXU agrees to add five Starboard nominees as new directors, expanding the board to 13 from 10.
- Starboard, which has been critical of LXU's performance for nearly a year, owns ~7.6% of the company's outstanding shares.
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