Commodities Today: Upgrades, Deals And News In Oil Sector

Includes: BP, CVX, EOG, HNR, XOM
by: Matthew Smith

The oil and natural gas names are starting to see more interest and readers should be on the lookout for a fresh IPO in the shale industry as Aubrey McClendon has filed papers to bring his firm public in a bid to raise $2 billion to continue to build his new venture. He has been spending heavily to accumulate acreage and looks well positioned to be a major player in the Utica. Our guess is the new capital will be used not only for drilling purposes but also for further leasehold acquisitions.

Chart of the Day:

With it appearing that the sector has found support, Aubrey McClendon might be onto something with what could turn out to be a well-timed IPO. Investors' appetite is high for new issues and many E&P IPOs have done well over the past year or two.

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Source: Yahoo Finance

Commodity prices this morning are as follows:

  • Gold: $1,235.20/ounce, up by $0.60/ounce
  • Silver: $19.66/ounce, up by $0.056/ounce
  • Oil: $97.18/barrel, up by $0.58/barrel
  • RBOB Gas: $2.663/gallon, up by $0.0337/gallon
  • Natural Gas: $4.275/MMbtu, down by $0.076/MMbtu
  • Copper: $3.3675/pound, up by $0.0155/pound
  • Platinum: $1,356.30/ounce, down by $6.60/ounce

Oil Field Deals

BP (NYSE:BP) has agreed to develop a large gas field with Oman that will ultimately cost $16 billion over 15 years but increase total natural gas production in Oman by one-third after about 300 wells are drilled. The field, Khazzan, has some difficult aspects to it and is a tight gas sandstone formation. BP has already spent $1.5 billion developing the project (which is part of the $16 billion estimated total) and will use some new techniques that could make this a very important technological experiment for the entire industry. Due to the nature of the project, BP will be drilling down roughly 15,000 feet and will utilize horizontal drilling and fracking to unlock the trapped natural gas and associated NGLs. Oman will participate via the Oman Oil Company and take on a 40% stake in the project.

Harvest Natural Resources (NYSE:HNR) has sold its properties in Venezuela, a transaction reported earlier but now hitting the first benchmark. Today the company announced the deal totals $400 million and will get the company out of the country for good as Harvest Natural Resources sold 29% of subsidiary Harvest-Vinccler Dutch Holding B.V. for $125 million with the remaining 51% held by Harvest to be purchased for $275 million once approved by the Venezuelan government. The total price of $400 million is roughly $95 million less than previously reported by the company but this is an important step in getting the company out of Venezuela and able to reinvest in safer locales with better prospects. The company also announced that there were a number of insider buys recently.

Goldman Sachs Bullish On Integrateds

It has been a very large move in a very short period of time at Exxon Mobil. Goldman Sachs however does not think it has been too much too fast and is still bullish on the name.

(Click to enlarge)

Source: Yahoo Finance

Both Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) were praised by Goldman Sachs as a research report laid out the bull case for the so-called "super-majors". The firm did issue a "Buy" rating for Exxon Mobil shares on valuation but refrained from doing so for Chevron shares. As readers will remember, we were bullish on Exxon Mobil shares as they traded lower in October towards the mid-$80s with the dividend yield becoming inflated. At the time it was one of the few spots we could find value in the oil and gas industry and we thought that it should be purchased, even with refiners out of favor at that time. The move paid off handsomely, especially after the news broke that Warren Buffett had been purchasing shares recently. Although we still think that the stock has some room to run, we could see investors wanting to take profits here and reinvest the proceeds in an oil company with a better dividend, think Chevron, possible better overseas exposure in a name like BP or a company levered to the shale revolution taking place here in the US such as EOG Resources (NYSE:EOG).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.