Commodities Today: Saudi Arabia's Latest Oil Move, Oil Acquisitions And Tobacco News

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Includes: GPOR, HK, LO, MHRCQ, PM, RAI
by: Matthew Smith

Summary

GPOR announces a share offering to pay for an acquisition that will give the company 24,000 net acres in the Utica's dry gas window.

PM is rising sharply after exceeding both revenue and EPS estimates.

Saudi Arabia continues to boost oil production as it seeks greater market share and attempts to beat Iran to market.

Saudi Arabia last month took the last big step in bringing its oil production up to the 10.3 million barrels per day level that Oil Minister Ali Al-Naimi announced earlier this month would be Saudi Arabia's production output level. To get to 10.3 million BOPD, the Kingdom had to increase production by almost 660,000 BOPD. This means that Saudi Arabia has now ramped up production to a level where they are not keeping a lot of excess capacity in reserve, and the only reason we can think that they would be doing this is because they are positioning their production to hit the market ahead of fresh Iranian crude exports.

The two sides are already essentially fighting a war in Yemen, so we think it is highly likely that Saudi Arabia will attempt to make Iran's return to the international oil markets as unpleasant as possible.

Chart of the Day:

In another bullish sign for oil investors, WTI Crude is continuing to hold onto its gains achieved during the past five sessions. WTI Crude continues to trade above $56/barrel and it appears that based off of today's range that the $54-$55/barrel area might be setting up to provide some support.

Source: CNBC

Commodity prices are as follows (at time of submission):

  • Gold: $1,196.90/ounce, down by $4.40/ounce
  • Silver: $16.235/ounce, down by $0.044/ounce
  • Oil: $56.24/barrel, down by $0.15/barrel
  • RBOB Gas: $1.9273/gallon, down by $0.087/gallon
  • Natural Gas: $2.678/MMbtu, up by $0.068/MMbtu
  • Copper: $2.7745/pound, up by $0.062/pound
  • Platinum: $1,156.00/ounce, down by $4.00/ounce

Gulfport Shares Lower On Share Offering, Acquisition

Gulfport Energy (NASDAQ:GPOR) announced that the company had entered into an agreement to purchase Paloma Partners III, LP for $300 million in cash. Gulfport announced that it will hold a secondary offering of 9,500,000 shares to pay for the transaction while also raising additional capital to fund ongoing operations. It should also be noted that the underwriters for the deal can purchase up to an additional 1.425 million shares through an overallotment option good for the next 30 days. By purchasing Paloma, Gulfport will add another 24,000 net acres in the Utica to its portfolio, with this acreage being in the heart of the dry gas window. The acreage is non-producing, so Gulfport will not only have to drill it out but also figure the best methods to optimize production.

Gulfport paid a rich price, especially in the current environment, with the cost per acre coming in at $12,500 per acre. While this is not the greatest news for Gulfport shareholders, it does further highlight the value that could be hidden on certain companies' balance sheets who operate in the Utica, including Magnum Hunter Resources (MHR) and Halcon Resources (NYSE:HK).

Gulfport also announced a new $300 debt offering and Moody's upgraded Gulfport's debt to B1 and said its outlook was 'Stable'.

King Tobacco Is Back

With Philip Morris International's (NYSE:PM) strong quarterly report, investors have been forced to rotate back into shares of the world's largest tobacco company. Philip Morris easily topped analysts' estimates of $1.01/share in earnings for the quarter, beating the consensus by $0.15/share. The company's full year guidance was also lifted by a nickel to $4.42/share after the strong first quarter showing. Revenue also surprised to the upside, coming in at $6.6 billion versus the estimate from analysts of $6.2 billion.

Shares in Philip Morris are leading consumer stocks higher, and although it is not a pure commodity company, we did want to take the opportunity to highlight the name as the world's tobacco companies brace for further change. In the US, assuming that Lorillard (NYSE:LO) and Reynolds American (NYSE:RAI) are allowed to merge by regulators, EPS growth will be achieved via cost cutting measures and increased pricing power. The beauty of Philip Morris International is that it is experiencing organic growth coupled with increased pricing power with its portfolio.

Disclosure: The author is long HK.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: GPOR, HK and PM have previously been recommended.