24/7 Wall St. » DO

24/7 Wall St. Closing Bell (DELL, EW, AKS, STLD, BRCM, GMCR, EDMC, NDAQ, QCOM, BZH, BSX, BCO, DO, LEA, MRK, TTWO, VIAB, ZNGA, MNOV, RGDX, BIOS, URG)

Paul Ausick — Thu, 02 Feb 2012 21:08:53 +0000

All three major US stock indexes opened higher this morning, and spent the rest of the day bouncing around the neutral line. The reports from retailers on same-store sales in January were mixed, but overall sales failed to meet expectations. Fed chairman Ben Bernanke testified in Congress today, but did not really give the market much of a push one way or the other. The IPO filing from Facebook after markets closed last night pushed some social media stocks up on a halo effect. WTI crude oil is down 1% at $96.63/barrel and Brent crude is up 0.78% at $112.43/barrel. Gold closed up 0.67% at $1,761.30/ounce.

The unofficial closing bells put the DJIA down about 11 points to 12,705.41 (-0.09%), the NASDAQ rose more than 11 points (0.4%) to 2,859.68, and the S&P 500 rose 0.11% or nearly 1.5 points to 1,325.54.

There were several analyst upgrades and downgrades today, including Dell Inc. (NASDAQ: DELL) raised to ‘overweight’ at JPMorgan; Edwards Lifesciences Corp. (NYSE: EW) cut to ‘neutral’ at Credit Suisse; AK Steel Holding Corp. (NYSE: AKS) cut to ‘underperform’ at BofA/Merrill Lynch; Steel Dynamics Inc. (NASDAQ: STLD) cut to ‘neutral’ at BofA/Merrill Lynch; and Broadcom Corp. (NASDAQ: BRCM) started as ‘buy’ at Canaccord Genuity.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Green Mountain Coffee Roasters Inc. (NASDAQ: GMCR) is up nearly 24% at $66.30; Education Management Corp. (NASDAQ: EDMC) is down -17% at $21.19; Nasdaq OMX Group Inc. (NASDAQ: NDAQ) is down -0.6% at $24.62; Qualcomm Inc. (NASDAQ: QCOM) is up 2.2% at $60.88 after posting a new 52-week high of $61.93 earlier today; Beazer Homes USA Inc. (NYSE: BZH) is up 3.2% at $3.27; Boston Scientific Corp. (NYSE: BSX) is down -3.9% at $5.85; Brinks Co. (NYSE: BCO) is down -17.5% at $24.43; Diamond Offshore Drilling Inc. (NYSE: DO) is up 0.35% at $63.29; Lear Corp. (NYSE: LEA) is down -1.2% at $42.48; Merck & Co. (NYSE: MRK) is down -0.3% at $38.51; Take-Two Interactive Software Inc. (NASDAQ: TTWO) is down -0.3% at $15.71; and Viacom Inc. (NASDAQ: VIAB) is down -0.9% at $46.53.

Other standouts from today include the following stocks:

Zynga Inc. (NASDAQ: ZNGA) is up nearly 18% at $12.49 after posting a new post-IPO high of $12.91 earlier today. The social games company got a big boost from Facebook’s IPO filing. Our coverage is here.

MediciNova Inc. (NASDAQ: MNOV) is up nearly 31% at $2.47. The company received a favorable patent notice for a multiple sclerosis treatment device.

Response Genetics Inc. (NASDAQ: RGDX) is up more than 27% at $1.50. The drug maker announced the private placement of about 5.3 million shares at $1.50/share, about 28% higher than last night’s closing price.

BioScrip Inc. (NASDAQ: BIOS) is up more than 15% at $6.73. The pharmacy services provider has sold a portion of its assets to Walgreen Co. (NYSE: WAG) for $225 million.

Ur-Energy Inc. (AMEX: URG) is down more than -13% at $1.22. The uranium miner has issued 1.5 million shares of new stock to agents who will attempt to sell at CDN$1.00.

Stay tuned for Friday. We have noted the following events on the schedule (all times Eastern):

8:30 a.m. – Non-farm payroll report
10:00 a.m. – Factory orders
10:00 a.m. – ISM non-manufacturing (services) index

Paul Ausick

Filed under: 24/7 Wall St. Wire Tagged: AKS, BCO, BIOS, BRCM, BSX, BZH, DELL, DO, EDMC, EW, GMCR, LEA, MNOV, MRK, NDAQ, QCOM, RGDX, STLD, TTWO, URG, VIA-B, ZNGA

24/7 Wall St. Closing Bell (CSCO, DO, LVS, LULU, PM, SLB, CIEN, COST, SFD, LAYN, KFY, DMAN, AFFY, DANG, IVC, PNCL, TSLA)

Paul Ausick — Thu, 08 Dec 2011 21:08:15 +0000

Stocks opened lower this morning and trailed mostly lower throughout the day. Today’s wholesale inventory reported showed a gain of 1.6% and the initial jobless claims were substantially lower than expectations of 395,000, at 381,000. The two reports probably cancelled each other out as word hit the street that Europe is forecasting weaker growth and that today’s expected interest rate reduction was agreed with less than a unanimous vote by the ECB. The stress test results for European banks were released today, causing shares in some European banks to fall. WTI crude has fallen by more than $2 to $98.33/barrel and Brent crude is also down by about $1.65 at $107.86. Gold is down nearly -2%, at $1,710.40.

The unofficial closing bells put the DJIA down more than 198 points to 11,997.93 (-1.63%), the NASDAQ fell nearly 53 points (-1.99%) to 2,596.38, and the S&P 500 fell -2.11% or nearly 27 points to 1,234.35.

There were several analyst upgrades and downgrades today, including Cisco Systems Inc. (NASDAQ: CSCO) reiterated as ‘buy’ with a price target of $24 at Argus. Other ratings actions today include Diamond Offshore Drilling Inc. (NYSE: DO) started as ‘sell’ with a target price of $70 at Goldman Sachs; Las Vegas Sands Corp. (NYSE: LVS) cut to ‘neutral’ at Janney; Lululemon Athletica Inc. (NASDAQ: LULU) restarted as ‘buy’ at Sterne Agee; Philip Morris International, Inc. (NYSE: PM) cut from ‘buy’ to ‘neutral’ at Nomura; and Schlumberger Ltd. (NYSE: SLB) started as ‘neutral’ at Goldman Sachs.

Here are today’s post-earnings news reactions with prices during the last half-hour of trading: Ciena Corp. (NASDAQ: CIEN) is up 2.7% at $12.23; Costco Wholesale Corp. (NASDAQ: COST) is down -1.3% at $86.33; Smithfield Foods, Inc. (NYSE: SFD) is down -2.6% at $24.29; Layne Christensen Co. (NASDAQ: LAYN) is down -4.1% at $23.61; and Korn/Ferry International (NYSE: KFY) is down -8% at $15.77.

Other standouts from today include the following shares:

DemandTec, Inc. (NASDAQ: DMAN) is up nearly 56% at $13.15. The cloud-software company has accepted a takeover bid from IBM Corp. (NYSE: IBM) of $13.50/share, a 57% premium over yesterday’s closing price.

Affymax, Inc. (NASDAQ: AFFY) is up more than 38% at $8.10. The US FDA has approved the company’s anemia drug for dialysis patients suffering from chronic kidney failure.

E-Commerce China Dangdang Inc. (NYSE: DANG) is up nearly 24% at $5.76. The Chinese e-commerce company has announced that it will issue an e-reader later this month and split content revenue with producers, keeping 40% for itself.

Invacare Corp. (NYSE: IVC) is down more than -25% at $15.39, after posting a new 52-week low earlier today. The medical supplies maker is in danger of having the US FDA close down some of its operations because Invacare has failed to comply with quality standards.

Pinnacle Airlines Corp. (NASDAQ: PNCL) is down about -23% at $1.47, after posting a new 52-week low of $1.40 earlier today. The regional airlines has initiated a program to cut costs and raise liquidity.

Tesla Motors Inc. (NASDAQ: TSLA) is down nearly -3.5% at $30.75. The electric car maker’s stock was downgraded by Morgan Stanley from ‘overweight’ to ‘underweight’ and the target price was slashed from $70 to $44.

Stay tuned for Friday. Here are some noteworthy events on the schedule (all times Eastern):

8:30 a.m. – International trade report for October
9:55 a.m. – Reuters/University of Michigan consumer sentiment report

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: AFFY, CIEN, COST, CSCO, DANG, DMAN, DO, IVC, KFY, LAYN, LULU, LVS, PM, PNCL, SFD, SLB, TSLA

Top Analyst Upgrades & Downgrades (CELL, CSCO, DECK, DO, FTE, HTS, HWAY, HERO, LVS, LULU, MPEL, NRG, PM, SLB, SAH, STFC, VE, VRSN, WFT, YUM)

Administrator — Thu, 08 Dec 2011 13:21:30 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Thursday morning.

Brightpoint Inc. (NASDAQ: CELL) Reiterate as Buy with a $14 price target objective at Canaccord Genuity.
Cisco Systems Inc. (NASDAQ: CSCO) Reiterated as Buy with $24 price target objective at Argus.
Deckers Outdoor Corporation (NASDAQ: DECK) Reiterated as Buy with a $122 price target objective at Canaccord Genuity.
Diamond Offshore Drilling Inc. (NYSE: DO) Started as Sell with a $70 target price objective at Goldman Sachs.
France Telecom (NYSE: FTE) Cut to Underperform and named as Bear of the Day by Zacks Investment Research.
Hatteras Financial Corporation (NYSE: HTS) Cut to Neutral at Stern Agee.
Healthways Inc. (NASDAQ: HWAY) Raised to Buy at Stifel Nicolaus.
Hercules Offshore, Inc. (NASDAQ: HERO) Started as Neutral at Goldman Sachs.
Las Vegas Sands Corp. (NYSE: LVS) Cut to Neutral at Janney Capital Markets.
Lululemon Athletica Inc. (NASDAQ: LULU) Reinitiated as Buy at Stern Agee.
Melco Crown Entertainment Ltd. (NASDAQ: MPEL) Raised to Outperform from Neutral at Credit Suisse.
NRG Energy, Inc. (NYSE: NRG) Cut to Neutral from Buy at UBS.
Philip Morris International, Inc. (NYSE: PM) Cut to Neutral from Buy at Nomura.
Schlumberger Limited (NYSE: SLB) Started as Neutral at Goldman Sachs.
Sonic Automotive, Inc. (NYSE: SAH) named as value stock of the day by Zacks Investment Research.
State Auto Financial (NASDAQ: STFC) Raised to Buy from Neutral at Janney Capital Markets.
Veolia Environnement S.A. (NYSE: VE) Cut to Hold from Buy at Deutsche Bank.
VeriSign, Inc. (NASDAQ: VRSN) Raised to Outperform and featured as the Bull of the Day by Zacks Investment Research.
Weatherford International Ltd. (NYSE: WFT) Started as Buy with a $22 price target objective at Goldman Sachs.
Yum! Brands, Inc. (NYSE: YUM) Reiterated Buy with $65 fair value target at Janney Capital Markets.

JON C. OGG

Filed under: Analyst Calls Tagged: CELL, CSCO, DECK, DO, FTE, HERO, HTS, HWAY, LULU, LVS, MPEL, NRG, PM, SAH, SLB, STFC, VE, VRSN, WFT, YUM

S&P Rates Oil & Gas Stocks Stable (XOM, CVX, COP, APA, CHK, SLB, HAL, BHI, NE, RIG, DO, VLO, TSO, MPC)

Administrator — Mon, 08 Aug 2011 16:32:22 +0000

As the markets swoon today from Friday night’s downgrade of US debt, Standard & Poor’s is making other changes to its debt ratings. One sector that is unchanged is oil and gas, about which S&P says that it believes “robust oil prices are sustainable throughout the remainder of the year and into 2012, which benefit any producer focused on oil and natural gas liquids.”

The S&P ratings note affects integrated oil and gas biggies like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), and ConocoPhillips Corp. (NYSE: COP) as well as E&P companies like Apache Corp. (NYSE: APA) and Chesapeake Energy Corp. (NYSE: CHK). Field services firms and drilling contractors are also rated stable. These are firms like Schlumberger Ltd. (NYSE: SLB), Halliburton Co. (NYSE: HAL), and Baker Hughes Inc. (NYSE: BHI), Noble Corp. (NYSE: NE), Transocean Ltd. (NYSE: RIG), and Diamond Offshore Drilling Inc. (NYSE: DO). S&P is upbeat on refiners as well, which means Valero Energy Corp. (NYSE: VLO), Tesoro Corp. (NYSE: TSO), and Marathon Petroleum Corp. (NYSE: MPC) ought to prosper.

Unfortunately, the market has fallen about -2.5% so far this morning, and all these oil and gas companies are getting an even worse beating. That is due to the price of oil falling below $84/barrel on the belief that the global economy is still weak and will get weaker before it improves.

S&P puts its forecast for WTI crude in 2011 at $97.67/barrel and for 2012 at $103.59/barrel. Those prices would indeed be good news for the oil & gas sector. S&P notes that consumers have not cut back significantly on driving either, further propping up demand for oil.

Demand for oil could also boost prices for natural gas according to S&P, although the firm warns that over-supply will set the course for natural gas prices.

It’s difficult to know what to make of S&P’s note. If oil prices remain high, then the companies will make profits. But oil prices will suffer if the US — and the global — economy doesn’t improve faster than it is at present.

To some degree this is a perception issue. High US unemployment lowers the amount of gasoline commuters require and also lowers the amount of gasoline US consumers need for vacation or discretionary driving. And even though the US no longer drives the global demand for oil, cuts in US demand punch way above their weight among oil traders. Some of that has to do with oil being priced in dollars.

As the economy weakens, the dollar weakens and that should drive up the price of oil. Dollar weakness becomes, in effect, a hedge against falling demand for oil. To that extent, S&P is probably correct to anticipate higher prices for oil.

And while it’s always dangerous to talk about US consumer sentiment, the S&P downgrade “reflects our view that the effectiveness, stability, and predictability of American policy-making and political institutions have weakened at a time of ongoing fiscal and economic challenges.” If the downgrade of US debt can be based on taking a political temperature reading, then gauging US consumer sentiment can figure significantly into forecasting oil prices.

Exxon Mobil shares are down about -3%, roughly equal to the DJIA decline, while Chevron and Conoco are both down between -4.5% and -5%. Chesapeake is off around -6%, at $28.76, in a 52-week range of $19.68-$35.95. Services firms are down anywhere from -4.5% to nearly -7%, as are drillers. Refiners are taking the most punishment, with Tesoro down more than -9% to $19.48, in a 52-week range of $10.77-$28.74.

Paul Ausick

Filed under: Analyst Calls, Commodities, Oil & Gas, Research Tagged: APA, BHI, CHK, COP, CVX, DO, HAL, MPC, NE, RIG, SLB, TSO, VLO, XOM

Stunning: Petrobras Spending $224.7 Billion on Offshore Oil (PBR, NE, DO, RIG, HAL, BHI, SLB)

247wallst — Sat, 23 Jul 2011 13:30:30 +0000

Brazil’s Petroleo Brasileiro SA (NYSE: PBR), commonly called Petrobras, has approved a plan it announced last September to spend $224.7 billion developing an estimated 5 billion barrels of reserves. The spending, which will happen between now and 2015, is the largest planned capex spending in an industry used to spending huge sums.

Petrobras raised about $70 billion in a secondary offering last year, including about $43 billion in new shares to the Brazilian government for the rights to produce oil from the six fields.

The company expects to spend about $55 billion in 2011, slightly less than the $57 billion it spent in 2010. There could be some good news in this planned spending for drilling companies like Noble Corp. (NYSE: NE), Diamond Offshore Drilling Inc. (NYSE: DO), and Transocean Ltd. (NYSE: RIG). Services companies like Halliburton Co. (NYSE: HAL), Baker Hughes Inc. (NYSE: BHI), and Schlumberger Ltd. (NYSE: SLB) could also see a boost. Then again, maybe not.

A lot depends on how Petrobras chooses to proceed. The company announced a tender in June for construction of 21 new drilling rigs that are to built in Brazil. The idea of course is to boost the Brazilian economy by providing jobs. Seven rigs are already under construction in Brazil.

It’s also possible that Petrobras will withdraw the tender, as it did recently with a request for new ships. The company decided the shipbuilding bids were too high.

Earlier this week Petrobras extended its contract for two Diamond semi-submersible rigs in exchange for a $10,000/day drop in the the rental price. Diamond, no doubt, is looking ahead for a bigger piece of the action in the $224.7 billion spending.

Leasing rigs would almost certainly be cheaper than building and maintaining new rigs that Petrobras owns. But there’s always a political dimension to spending figures of this size, and the government may push for more domestic purchasing.

Either way, the company thinks it can nearly triple its production, from around 2 million barrels/day to 6 million by 2020. That is both an aggressive and very expensive plan.

Paul Ausick

Filed under: Oil & Gas Tagged: BHI, DO, HAL, NE, PBR, RIG, SLB

Top Analyst Upgrades & Downgrades (BCS, BIIB, BSX, COG, DO, FFIV, FRX, FFN, JDSU, PHG, RL, UHS)

Administrator — Wed, 22 Jun 2011 12:26:15 +0000

These are some of the top analyst upgrades, downgrades, and initiations seen from Wall Street research calls this Wednesday morning.

Barclays PLC (NYSE: BCS) Cut to Neutral at HSBC.
Biogen Idec Inc. (NASDAQ: BIIB) Raised to Outperform at Credit Suisse.
Boston Scientific Corporation (NYSE: BSX) Raised to Buy at Stifel Nicolaus.
Cabot Oil & Gas (NYSE: COG) Raised to Outperform as Bull of the Day at Zacks.
Diamond Offshore Drilling Inc. (NYSE: DO) Raised to Outperform at Wells Fargo.
F5 Networks, Inc. (NASDAQ: FFIV) Raised to Overweight at Barclays.
Forest Laboratories Inc. (NYSE: FRX) Raised to Buy at Argus.
FriendFinder Networks Inc. (NASDAQ: FFN) Started as Buy at Ladenburg Thalmann.
JDS Uniphase (NASDAQ: JDSU) Underperform as Bear of the Day at Zacks.
Philips Electronics NV (NYSE: PHG) Cut to Hold at S&P Equity Research.
Polo Ralph Lauren Corporation (NYSE: RL) Started as Outperform at Wells Fargo.
Universal Health Services, Inc. (NYSE: UHS) Reiterated Strong Buy as Value Stock at Zacks.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

Filed under: Analyst Calls Tagged: BCS, BIIB, BSX, COG, DO, FFIV, FFN, FRX, JDSU, PHG, RL, UHS

Natural Gas Prices Expected to Rise, But Value Is Not in the Commodity (UNG, FCG, SGY, COG, HK, SWN, SD, XOP, WTI, EQT, PXJ, BHI, NBR, HAL, FTI, DO)

Administrator — Fri, 10 Jun 2011 17:38:36 +0000

Late Wednesday night, natural gas prices inexplicably dropped by about 8% on the NYMEX, well after the exchange had closed for the day. It took only a few seconds for the price to bounce back up, but the experience — a “mini-flash crash” perhaps — is so far unexplained.

Natural gas prices at the Henry Hub have been rising, coming within a hair’s breadth of $5.00/million BTUs, a level last seen in August 2010. The low prices have slowed the growth in onshore drilling for natural gas in the US, at the same time that it is encouraging some utilities to look at natural gas as a fuel for baseload power generation.

The abundant supplies of US natural gas available throughout the drilling technique known as hydraulic fracturing, or ‘fracking’ or ‘fracing’, has swept the industry, leading to massive amounts of new gas discoveries and production, as well as to lower prices. The industry needs prices to rise to around $7-$8/million BTUs in order for it to make a decent profit, but with prices stuck below $5, that day appears to be well into the future.

Investing in natural gas purely as a commodity play is best left to experienced traders. There are, of course, other ways. Four funds we’ll look at here are United States Natural Gas Fund (NYSE: UNG), First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG), SPDR S&P Oil & Gas Exploration and Production (NYSE: XOP), and PowerShares Dynamic Oil & Gas Services Fund (NYSE: PXJ).

United States Natural Gas Fund (NYSE: UNG) invests in near-month natural gas NYMEX futures contracts. In the past 52-weeks, the fund has lost more than -25% of its NAV, but with $1.9 billion in assets it is the largest natural gas fund available. Because it invests only in near-month contracts, UNG must roll-over its contracts every month, in effect selling its about-to-expire position and purchasing new contracts for the following month. In a contango market, where future-month contract prices exceed near-month contract prices, such a strategy loses money every month. Thus, even when natural gas prices rise, UNG can lose money because the future contract price will rise at least as quickly as the current price.

Why own such a thing? Primarily as a hedge against inflation and almost no correlation with equity prices. Pretty small beer, all things considered. UNG is trading at $11.93 at about mid-day, within a 52-week range of $10.02-$17.68.

The First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG) tries to replicate the ISE-Revere Natural Gas Index by investing at least 90% of its funds in the common stock of that index’s companies. The fund’s top five holdings are Stone Energy Corp. (NYSE: SGY), Petrohawk Energy Corp. (NYSE: HK), Cabot Oil & Gas Corp. (NYSE: COG), Southwestern Energy Co. (NYSE: SWN), and SandRidge Energy, Inc. (NYSE: SD). These five comprise 18.95% of the fund’s holdings. The fund’s assets total $586 million and it is trading today at $21.19, within a 52-week range of $14.39-$23.75. In the past year, the fund has gained more than 30%.

The SPDR S&P Oil & Gas Exploration and Production (NYSE: XOP) invests in equities of companies that explore for and produce oil and natural gas. The fund’s top five holdings are Cabot, W&T Offshore, Inc. (NYSE: WTI), Petrohawk, EQT Corp. (NYSE: EQT), and Southwestern Energy. The fund’s assets total $908 million. The fund is trading at $56.55 today, within a 52-week range of $37.44-$65.76. Over the past year, the fund has gained about 42%.

The PowerShares Dynamic Oil & Gas Services Fund (NYSE: PXJ) tracks an equity index called the Dynamic Oil Services Intellidex. It invests at least 80% in common stock of oil and gas services companies, and may invest up to 90% of its assets in the Intellidex index companies. Its five largest holdings are Baker Hughes Inc. (NYSE: BHI), Nabors Industries, Ltd. (NYSE: NBR), Halliburton Co. (NYSE: HAL), FMC Technologies, Inc. (NYSE: FTI), and Diamond Offshore Drilling, Inc. (NYSE: DO). The fund’s assets total about $247 million and it is trading today at $23.35, in a 52-week range of $13.98-$26.84. The fund has gained about 66% in the past year.

A reasonable conclusion from this quick survey is that investing in natural gas producers pays off nicely, but the real gains have come in the services sector. Holding natural gas futures has very limited appeal, but plenty of investors do it.

Growth in the services sector is likely to continue as drilling picks up both onshore in the US and offshore in the US Gulf of Mexico. As for the producers, Cabot, Stone, and Petrohawk are all involved in natural gas plays that produce significant amounts of liquids. And that’s where the money is, not in gas. Gas may become worth more over the next year or so, but the price differential between liquids and gas is never likely to close again.

Paul Ausick

Filed under: Commodities, Oil & Gas Tagged: BHI, COG, DO, EQT, FCG, FTI, HAL, HK, NBR, PXJ, SD, SGY, SWN, UNG, WTI, XOP

US Gulf of Mexico Opens for More Deepwater Drilling (NBL, ESV, HLX, NE, DO, RIG, CVX)

247wallst — Tue, 01 Mar 2011 16:23:48 +0000

Two weeks ago, Federal Judge Martin Feldman told the Obama administration to act within 30 days on a number of drilling permits for the deepwater Gulf of Mexico. The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) has now issued the first deepwater Gulf permit since last year’s Macondo well disaster that killed 11 workers and spewed millions of barrels of crude into the Gulf of Mexico. Now the issues becomes how fast will drilling resume.

Noble Energy Inc. (NYSE: NBL) has received a permit to restart drilling at its Santiago prospect. The drilling rig on the project belongs to Ensco plc (NYSE: ESV) and the well is located in 6,500 feet of water. The well had been drilled to more than 13,000 feet below the sea floor before the moratorium was instituted, and is targeted for total drilling depth of 19,000 feet. Noble Energy is a partner in the group of E&P companies that formed a consortium led by Helix Energy Solutions Group, Inc. (NYSE: HLX) to develop improved subsea control and containment capabilities.

The restart signals good news for other drillers, including Noble Corp. (NYSE: NE; not related in any way to Noble Energy), Diamond Offshore Drilling Inc. (NYSE: DO), and Transocean Ltd. (NYSE: RIG), owner of the Deepwater Horizon rig that exploded last April. At the time the moratorium was first initiated, 16 wells operated by 13 different companies were shut-in. These 16 wells will be the first projects to get going again, but the outlook for new wells is more problematic.

BOEMRE has made the requirements stricter for getting a new deepwater Gulf permit. A new project is likely to need a site-specific environmental assessment, which is also required of a continuing project, but may also be required to get a supplemental environmental impact statement, at a much costlier and much lengthier procedure. In its annual survey of US E&P companies, Grant Thornton LLP reports that 68% of senior gas & oil company executives believe an increase in drilling costs by 20% or more due to government regulation would make new E&P projects too expensive to pursue.

As pump prices for gasoline rise in response to political upheaval in Libya (and potentially elsewhere in the oil-rich nations of North Africa and the Middle East), US drivers, who are also voters, will raise a clamor for lower prices and politicians will react. After all, the next election is less than 18 months away.

The New York Times cites the president of Chevron Corp.’s (NYSE: CVX) North American E&P division as calling the Noble Energy permit “a step in the right direction,” but also adding, “It is time for the government to clear the backlog of deepwater drilling permit applications so industry can create the energy, jobs and economic growth our nation needs so badly.”

Notice that Chevron’s executive didn’t say that it’s safe to go back into the deepwater, or that the industry knows what to do to prevent another disastrous blowout. BOEMRE’s chief did note that Noble Energy had met new safety and environmental rules put into place since the Macondo blowout, and that the Helix subsea system Noble Energy will use is capable of meeting government spill-response requirements.

Now that the first permit is out, the pressure on BOEMRE to issue more will only intensify. Industry associations, politicians, and industry players will all be pushing for quicker approval of restarts and faster review and approval of new drilling projects. Everyone who matters assumes that the new regulations will make deepwater drilling safer. The rest of us are left to hope everyone who matters is right.

Paul Ausick

Filed under: General Tagged: CVX, DO, ESV, HLX, NBL, NE, RIG

Offshore Drilling May Not Be as Strong as Expected (ESV, PDE, RIG, BP, WOPEY, DO, PBR)

Administrator — Mon, 07 Feb 2011 18:07:42 +0000

Today’s announcement of a definitive merger agreement between Ensco plc (NYSE: ESV) and Pride International Inc. (NYSE: PDE) is the first major deal among offshore drillers since the Macondo well explosion last April. The combined company will be the second-larges offshore driller in the world, behind only Transocean Ltd. (NYSE: RIG). The deal has been talked about for some time, and is largely grounded on the ideas that scale will work to the combined companies’ favor and that offshore drilling is about to boom. But is that really true?

The disaster in the Gulf of Mexico at the Macondo well owned by BP plc (NYSE: BP) has led to stricter proposed regulation in the US portion of the gulf. And Reuters noted in January that “the oil industry worldwide is preparing for a crackdown on risky and expensive offshore drilling” as a result of the Gulf disaster. Australia tightened its permitting regime before issuing permits to BP and Woodside Petroleum Ltd. (OTC: WOPEY), and Brazil is also considering tightening its regulations.

The Financial Times recently reported that the five largest oil companies in the world are set to spend $128 billion on capital investment in 2011. A lot of that spending will occur onshore in North America, where drilling for shale gas is much easier, surer, and less risky financially. It’s a rare hole in a shale gas play that comes up dry.

Shale gas development has also begun in Europe, particularly in Eastern Europe and, interestingly, in France, as well as projects ramping up in China. The catch is that shale gas does not fill the world’s demand for transportation fuel. Currently, only oil does that.

MarketResearch.com has estimated that $64.2 billion will be spent on offshore drilling in 2011, about half the total $128 billion investment predicted by the FT. The bulk of the investments are expected to be made in the Asia-Pacific region, although MarketResearch.com also notes expected growth in the US Gulf of Mexico, Brazil, and West Africa.

Another hitch is the availability of offshore drilling rigs. According to PennEnergy’s weekly offshore rig count, there are a total of 790 offshore rigs in the world’s supply, of which 571 are currently in use. The global utilization rate is 72.3%.

With that much spare capacity, day rates could come under pressure, hurting revenue and profits at drillers like Ensco, Transocean, and Diamond Offshore Drilling Inc. (NYSE: DO). Rig utilization in western Africa, arguably the least regulated offshore drilling area in the world, is still just under 72%.

Drilling in the Arctic will also not begin in earnest this year, although drilling activity is expected to increase in the North Sea. Utilization of offshore rigs in Europe is at nearly 80%, so this could be a bright spot for drillers in 2011.

Transocean shares are trading at around $80, with a mean price target for the next 12 months of $82.57. The company’s 52-week range is $41.88-$92.67. Ensco’s target price (before the merger announcement) was $57.19 and its 52-week range was $33.33-$55.88. Ensco’s shares closed last Friday at $54.41. Diamond’s 52-week range is $54.70-$93.42, its mean price target is $69.67, and it is currently trading around $72.55.

The offshore drillers will feel the effects of the slowdown in the US Gulf of Mexico, and are vulnerable to tighter regulations in Australia and, perhaps, even the North Sea. As long as there is regulatory uncertainty surrounding offshore drilling, it is best to be cautious about the cheery outlook for these drillers.

And let’s not omit Petrobras (NYSE: PBR). It now sits on billions of barrels of oil that were purchased from the Brazilian government.

Paul Ausick

Filed under: Mergers and Buy Outs, Oil & Gas Tagged: BP, DO, ESV, PBR, PDE, RIG, WOPEY

Top Analyst Upgrades & Downgrades (ARO, APC, DO, MMM, FDX, SOLR, IPG, JBHT, KLIC, LIZ, MON, MWW, JWN, NSC, PM, RAX, UPS)

Administrator — Fri, 07 Jan 2011 13:01:02 +0000

These are some of this Friday’s key analyst upgrades, downgrades, and initiations seen in Wall Street research calls.

Aeropostale, Inc. (NYSE: ARO) Cut to Underperform at Wells Fargo.
Anadarko Petroleum Corporation (NYSE: APC) Cut to Market Perform at Wells Fargo.
Diamond Offshore Drilling Inc. (NYSE: DO) added to Goldman Sachs’ Conviction Buy List.
3M Co. (NYSE: MMM) Raised to Neutral at JPMorgan.
FedEx Corporation (NYSE: FDX) Started as Buy at Jefferies.
GT Solar International, Inc. (NASDAQ: SOLR) Added to BofA/ML Endeavor List.
Interpublic Group of Companies Inc. (NYSE: IPG) Reiterated Buy at Argus.
JB Hunt Transport Services Inc. (NASDAQ: JBHT) Started as Buy at Jefferies.
Kulicke & Soffa Industries Inc. (NASDAQ: KLIC) Raised to Outperform at Oppenheimer.
Liz Claiborne Inc. (NYSE: LIZ) Kept as Undeperform but cut target to $4 at BofA/ML.
Monsanto Co. (NYSE: MON) Reiterated Neutral but raised target to $75 at BofA/ML.
Monster Worldwide Inc (NYSE: MWW) kept as Outperform but target raised to $32 at Credit Suisse.
Nordstrom Inc. (NYSE: JWN) Raised to Overwight at Morgan Stanley.
Norfolk Southern Corp. (NYSE: NSC) Started as Buy at Jefferies.
Philip Morris International Inc. (NYSE: PM) Cut to Hold at Citigroup.
Rackspace Hosting, Inc (NYSE: RAX) Removed from BofA/ML Endeavor List.
United Parcel Service, Inc. (NYSE: UPS) Started as Buy at Jefferies.

If you missed yesterday’s analyst calls from 247WallSt.com, the Top Analyst Upgrades & Downgrades included tickers AMZN, AGNC, AXP, NLY, BUD, ATHR, BJ, BRCD, CHL, DHI, XOM, MSFT, MSI, RAX, GOLD, and TOL.

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JON C. OGG

Filed under: Analyst Calls Tagged: APC, ARO, DO, FDX, IPG, JBHT, JWN, KLIC, LIZ, MMM, MON, MWW, NSC, PM, RAX, SOLR, UPS