Saturday, December 20, 2014
- These five oil and gas producers have among the highest net debt-to-capital ratios in the industry, writes Avi Salzman, which could be an issue if oil prices stay at these levels:
- Ultra Petroleum (NYSE:UPL) at 115%, EXCO Resources (NYSE:XCO) at 90.3%, Halcon Resources (NYSE:HK) at 68.7%, W&T Offshore (NYSE:WTI) at 68.1%, Energy XXI (NASDAQ:EXXI) at 65.2%.
- Previously: Barron's: Five oils to buy now (Dec. 20, 2014)
- The super majors are probably the first place to look when oil prices fall, writes Avi Salzman, as their stocks tend to slide less drastically than smaller players, and maintenance of dividends is a priority for management. Favorites: Shell (RDS.A, RDS.B) and Chevron (NYSE:CVX).
- While smaller producers appear risky, Occidental (NYSE:OXY) came into the price plunge well-positioned with one of the industry's cleanest balance sheets.
- EOG Resources (NYSE:EOG) could be the pick among shale drillers, says Salzman, as it's chosen drilling spots carefully and its break-even price is among the lowest in the industry. "[The] best management team in Houston," says one fund manager.
- Oil service stocks look especially vulnerable with capex budgets being cut, but Schlumberger (NYSE:SLB) "should have protection in the downturn," writes Salzman, noting the company repurchased 1% of the float in Q3 and at 1.8% yields more than (soon to-be-merged) Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).
- See also: Barron's: Five oils to be wary of (Dec. 20, 2014)
- With crude oil prices near five-year lows, some analysts say gas stations may be the best way to play the energy sector right now, with CST Brands (NYSE:CST), Murphy USA (NYSE:MUSA) and Marathon Petroleum (NYSE:MPC) as pure plays worth watching.
- Gasoline retailers enjoy their largest profit margins in falling price environments such as today, says Again Capital's John Kilduff.
- The gas station trend is clearly seen with refinery Valero's (NYSE:VLO) 2013 spinoff of its retail CST Brands, which operates 1,900 gas stations in North America and whose stock has easily outperformed VLO in recent months; Gabelli last week increased its 2014 EPS estimate on CST because of lower oil prices.
- MUSA and MPC, also created as gas station spinoffs from refineries, have outperformed their parent companies as well.
- Tesoro (NYSE:TSO) said its retail segment enjoyed record performance in the most recent quarter, while big box stores such as Costco (NASDAQ:COST) that have gas stations connected to their stores also noted the benefit of lower oil prices in their earnings reports.
- The mothballed refinery on St. Croix will remain closed after the Virgin Islands legislature yesterday rejected a proposed agreement to sell and reopen the Hovensa refinery.
- A local company reached an agreement earlier this fall to buy Hovensa, a joint venture between Hess (NYSE:HES) and Venezuela's PdVSA, but closing the deal hinged on winning government approval.
- Legislators worried about the agreement's provisions releasing Hovensa from all liability upon the sale, and that the purchaser would be able to raise the $1B-plus needed to restart the refinery.