Dec. 20, 2014, 1:29 PM
- 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)
Dec. 19, 2014, 3:33 PM
- U.S. energy producers continued to idle rigs for a second straight week, as the number of rigs searching and drilling for oil and gas across the U.S. fell by 18 this week to 1,875, according to the latest weekly data from Baker Hughes (NYSE:BHI).
- The rig count has fallen for the past two weeks, but a serious cutback in drilling remains in its early stages, as the count is still 107 higher than last year’s count at this date of 1,768.
- According to estimates by Raymond James and Wunderlich Securities, rig counts may have to fall by more than as 500 before supply and demand in the oil market reach an equilibrium.
- ETFs: USO, OIL, UCO, OIH, SCO, XOP, BNO, DTO, DBO, XES, IEO, CRUD, IEZ, UWTI, PXE, USL, DWTI, DNO
Dec. 18, 2014, 11:43 AM
- RBC upgrades Baker Hughes (BHI -1.2%) to Outperform from Sector Perform with a $72 price target, but the praise isn't earning the gains enjoyed by Key Energy (KEG +38.1%) and Superior Energy (SPN +4.5%) after the firm's similar upgrades.
- RBC likes BHI in its belief that sentiment will start to shift on North American land names as the oil price improves throughout 2015; BHI and Halliburton both generate ~50% of their operating income in North America, the firm notes.
- BHI continues to trade at a discount to the deal price of its merger with HAL, and should trade closer to the deal price throughout the year assuming U.S. government hurdles are met.
Dec. 12, 2014, 6:27 PM
- U.S. oil drillers idled the most rigs in almost two years last week, dropping by 29 to 1,546 for the lowest level since June and the biggest decline since December 2012, according to Baker Hughes' (NYSE:BHI) latest survey.
- This week’s slowdown is one of the first significant drops seen in the rig count since oil began to fall from highs of more than $100/bbl this summer; nearly all of the idled oil rigs were in Texas.
- Rig counts remain higher across the board in 2014 than a year ago, but "the bulk of the cuts are yet to come,” says a Wood Mackenzie analyst. “The trend is pointing down and we’re entering into a period of new budgets. January and February are the months to watch.”
- ETFs: USO, OIL, UCO, OIH, SCO, XOP, BNO, DTO, DBO, XES, IEO, CRUD, IEZ, UWTI, PXE, USL, DWTI, DNO
Dec. 10, 2014, 12:58 PM
- Energy stocks are slammed across the board as oil prices take another nosedive (I, II), with the losses heaviest on shares of small, U.S.-based oil and gas producers.
- “Financial leverage is being thrown out the window, and everything else is being purged as well,” says Simmons analyst Bill Herbert, who adds that cuts to production budgets in the coming year likely will mean more pain for oil service companies.
- Among the hardest-hit shares: TPLM -15.2%, CRK -12.4%, GDP -11.9%, NOG -9.5%, AREX -8.6%.
- Investors have been less quick to dump shares of integrated oil companies, but today they have been smacked too: XOM -2.8%, CVX -2.9%, COP -2.3%, BP -2%, RDS.A -2.2%, TOT -2.3%.
- Today's worst performers on the S&P 500 include OKE -8.2%, DNR -7.4%, NE -5.6%.
- Service companies also are down: SLB -2.6%, HAL -2.7%, WFT -6.6%, BHI -2%.
- ETFs: XLE, ERX, VDE, OIH, ERY, DIG, DUG, IYE, XES, IEZ, PXI, FENY, PXJ, RYE, FXN, DDG
Dec. 9, 2014, 6:42 PM
- Oilfield contractors hired to drill wells and fracture rock will have to lower prices by as much as 20%, analysts say, which could cut more than $3B from the 2015 earnings that had been expected for the likes of Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), Baker Hughes (NYSE:BHI) and Weatherford International (NYSE:WFT).
- Oil producers will be pushing for discounts wherever they can find them, and may begin to take shape as early as this month, with fracking services perhaps seeing the biggest chunk of pricing discounts because it is the largest part of the cost of drilling a new well.
- Earnings estimates for oil service companies that have been cut since last week will continue to be revised lower, says Credit Suisse's James Wicklund: “We’ve just gotten started.”
Dec. 5, 2014, 8:18 AM
- Halliburton (NYSE:HAL) appoints CFO Mark McCollum to oversee the joint integration team and take the title of chief integration officer for its pending $35B acquisition of Baker Hughes (NYSE:BHI).
- From BHI's end, Belgacem Chariag, president of global products and services, will lead the effort.
- The integration process is expected to begin after the merger closes in 2015; the deal is expected to face significant antitrust hurdles as regulators look closely at the combination of the world’s no. 2 and no. 3 oilfield service firms.
Dec. 3, 2014, 3:59 PM
- Oppenheimer initiates coverage on Schlumberger (SLB +1.6%), Halliburton (HAL +1.4%) and Weatherford (WFT +1%) with Outperform ratings and rates oilfield services rival Baker Hughes (BHI +1.6%) at Perform.
- The firm views the drop in oil prices as an opportunity, believing investors should take advantage of recent stock price weakness and build or add to positions in SLB, HAL and WFT; on SLB, Oppenheimer says the stock tends to outperform peers in down markets, and SLB is clearly well positioned to benefit from an increase in E&P spending should oil prices rebound.
- The market is taking a myopic view on HAL's combination with BHI, the firm says, as the proposed merger will create a more valuable entity that can more effectively compete with SLB internationally.
Dec. 2, 2014, 10:33 AM
- BofA Merrill Lynch downgrades the energy sector to Marketweight following OPEC’s decision to maintain rather than cut production, now seeing $70-$75 as Brent crude's 2015 range, while warning of value traps.
- "With the collapse in crude, the sector now trades at a 20% discount to the S&P 500, where it has historically traded in-line with the market," the firm says, "but further estimate cuts are likely to come, [as] prices are falling faster than earnings are deteriorating."
- Seeing WTI possibly falling as low as $50 in the coming month, BofA warns that "volatility in oil prices translates to volatility in earnings."
- For exposure to the sector, the firm prefers big, lower beta stocks such as Exxon Mobil (XOM +0.5%).
- Citi also cautions against assuming that oil prices have found a bottom, and wants to see a more thorough confirmation of a technical base of support before proclaiming anything more than the latest trading bottom; however, Citi's Scott Gruber recommends moving aggressively on oil services if WTI crude falls into the $50s - his top picks, in order, are Baker Hughes (BHI +0.1%), Halliburton (HAL -1.3%) and Weatherford (WFT +2.7%).
- ETFs: XLE, ERX, VDE, OIH, XOP, ERY, FCG, DIG, GASL, DUG, IYE, XES, IEO, IEZ, PXE, PXI, FENY, PXJ, RYE, FXN, DDG
Nov. 28, 2014, 10:35 AM
- Oil service companies mull OPEC's threat to the U.S. shale boom by its decision to hold production and the resulting tumble in oil prices.
- C&J Energy (CJES -17.6%), RPC, Inc. (RES -14.5%), GreenHunter Resources (GRH -9.5%), Seventy Seven Energy (SSE -16.5%), Pioneer Energy (PES -13%).
- Larger names: Halliburton (HAL -11.5%), Schlumberger (SLB -9.7%), Superior Energy (SPN -15%), Baker Hughes (BHI -9.1%).
Nov. 24, 2014, 11:31 AM
- Weatherford (WFT +0.2%) is the most vulnerable among the big four oil services companies to falling crude oil prices based on price-to-book valuations, which help offer a sense of where the floor in valuations might be in a down cycle.
- The minimum price-to-book ratio WFT reached during 2010-13 was 0.87x, while today it trades at 1.62x - the potential drop of 46% is the widest of the big four.
- The smallest of the group, WFT's market share in technology-intensive services of less than 10% is about one-third that of Schlumberger (NYSE:SLB) or a merged Halliburton-Baker Hughes (HAL, BHI), according to Morgan Stanley’s Ole Slorer.
- Another factor against WFT is its net debt; using management guidance and current consensus profit forecasts, WFT should end the year still more than 2x EBITDA, while the other four are below 1x EBITDA.
Nov. 21, 2014, 12:31 PM
- Halliburton's (HAL +2.4%) takeover of Baker Hughes (BHI +1.3%) will create an oilfield services powerhouse in North Dakota with more than half of the cementing market and a leading position in fracking, Reuters reports.
- In the Williston Basin, the combined company will control 53% of the market to line a new well with cement to prevent leaks, as well as 36% of the market for fracking and 35% of the market for directional drilling, according to the data.
- The North Dakota market share projections for the combined company will be of interest to competitors and regulators, as the deal is expected to face stiff antitrust hurdles and receive close scrutiny from regulators in the U.S. and Europe.
Nov. 18, 2014, 6:48 PM
- Halliburton’s (NYSE:HAL) $34.6B buyout of Baker Hughes (NYSE:BHI) has caused HAL shares to plunge 12% since the deal was announced Monday, the worst two-day performance for an acquirer’s stock this year; on average, a company announcing a deal has seen its stock pop 3.1% on the news.
- But analysts say the deal may present game-changing opportunities for a few small and mid-cap oilfield services firms with enough cash on hand to buy a chunk of HAL's expected divestments without diluting their stock or damaging their credit rating.
- Tudor Pickering Holt's Jeff Tillery speculates that Forum Energy Technologies (NYSE:FET), National Oilwell Varco (NYSE:NOV) and GE would be interested in HAL's manufacturing businesses that may come up for bid, while Superior Energy Services (NYSE:SPN) and Frank's International (NYSE:FI) might want certain services-oriented businesses.
- Weatherford (NYSE:WFT) would seem like a logical buyer of some assets and could make it happen with a mix of cash and stock, but RBC's Kurt Hallead thinks HAL might not want to cooperate with a company that could essentially become what Baker Hughes was.
Nov. 18, 2014, 3:19 PM
- Baker Hughes (BHI -1.7%) would be required to pay Halliburton (HAL -0.4%) a $1B termination fee if the merger agreement is terminated, according to a just-released SEC filing.
- Meanwhile, analysts continue to come out positive on the deal, with BofA Merrill saying today that adding BHI would help fill the artificial lift and chemicals gaps in HAL’s portfolio and add greater scale internationally that would enhance fixed cost absorption.
- HAL would face a $3.5B termination fee if the deal falls through.
Nov. 18, 2014, 12:37 PM
- Halliburton's (HAL -0.1%) decision to purchase Baker Hughes (BHI -0.1%) was not driven by current low oil prices but by current conditions in the industry, and that "a bigger, stronger integrated company was what was needed to compete in this marketplace," CEO Dave Lesar tells CNBC.
- Responding to a WSJ analysis that the deal's value for shareholders will have to come from a higher multiple down the line, Lesar said he believes HAL's multiple will indeed increase; he expects the deal to be accretive on a cash flow basis one year after the deal closes, and plans for HAL to buy back shares with proceeds from interests it expects to divest in order to win approval from anti-trust regulators.
- The CEO says he spoke to its largest customers and they unanimously liked the deal, and adds that the energy industry can weather the current low oil price market so long as prices settle for a while.
Nov. 17, 2014, 7:11 PM
- The 56% premium Halliburton (NYSE:HAL) is paying for Baker Hughes (NYSE:BHI) is the largest of any merger in the past two decades worth more than $20B that targeted a U.S. company, so it’s little wonder that HAL shareholders sent the stock plunging 10% today even as most analysts reacted favorably to the deal.
- For HAL investors, the deal’s benefits will have to come from the stock being rewarded with a higher multiple down the line, as the bigger company shows it can compete more effectively; with antitrust scrutiny and falling oil prices to navigate first, that's going to take a while.
- BHI’ shares closed near $65, ~17% below HAL’s offer, with tells S&P Capital that the market views antitrust hurdles as significant; if the deal goes through, the merged firm and Schlumberger (NYSE:SLB) combined could have 70%-90% of the market in some service areas, according to the American Antitrust Institute.
- Even if the two companies can close the deal and find the promised $2B/year in cost synergies, analysts are still concerned about volatile commodity prices; also, "market share losses and execution challenges have plagued [HAL] in the past and could be an overhang going forward," a Susquehanna analyst says.
BHI vs. ETF Alternatives
Baker Hughes Inc operates in the oilfield services industry. It provides products and services for drilling and evaluation of oil and gas wells, completion and production of oil and gas wells, fluids and chemicals and reservoir technology.
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