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Oil and gas companies have closed or winding down many US Gulf operations ahead of a very late in the year Hurricane Ida. The weekend reports had this one dissipating then the reports early this morning had this making landfall as a tropical storm with [a possibility of it being hurricane. This morning Ida became a tropical storm again at the National Hurricane Center. In order to not have to out-guess ahead of time which companies will be least or most impacted had this been a full hurricane at the time it met rigs and the coast, we looked at the Oil Services HOLDRs (NYSE: OIH), the United States Oil (NYSE: USO) ETF and the iPath S&P GSCI Crude Oil Total Return Index ETN (NYSE: OIL) reactions based upon the supply data. While the infrastructure is now not as likely to be hit as hard and while a tropical storm is far less of a threat than a hurricane, NYMEX WTI Crude is actually still up $1.78 at $79.21 as of 10:13 AM EST.
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Posts for Ticker ‘MRO’
Ida: The Hurricaneless Hurricane (OIH, USO, OIL, MUR, MRO, RDS, CVX, XOM)
Marathon’s Angola Stake Not Going to China After All (MRO, CEO, SNP, TOT, XOM)
Angola’s state-owned oil company, Sonangol, has exercised its right of first refusal to purchase a 20% stake in block 32 offshore Angola from Marathon Oil Corp. (NYSE:MRO). In July, Marathon announced that it had reached a definitive agreement with China’s CNOOC Ltd. (NYSE:CEO) and China Petroleum & Chemical Corp. (Sinopec; NYSE:SNP) to sell Marathon’s working interest in block 32 to the two Chinese companies for $1.3 billion. Sonangol’s action pulls an estimated 300 million barrels of reserves out of Chinese hands. Read More
Refiners’ Second Take: Valero’s Risk of Irreparable Harm (VLO, MRO, HES, TSO, SUN, TOT, VSUNQ)
Valero Energy Corp. (NYSE: VLO) may have caused some irreparable harm to itself and to shareholders this week. Losing money is just not something that the investing public was ready to stomach. Dumping news of a large secondary offering right on top of projecting a loss was no different than pouring salt and peroxide on your kid’s cut hand when he wasn’t looking. This has added pressure on other refiners such as Marathon Oil Corporation (NYSE: MRO), Hess Corporation (NYSE: HES), Tesoro Corporation (NYSE: TSO), and Sunoco Inc. (NYSE: SUN). Valero has always had what always looked like a dirt cheap price to earnings ratio, and now you know why. This may have put some serious future questions on the sector, even if much of this news is company-specific.
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Top Analyst Downgrades (BMO, BIG, BMR, CTXS, HMY, MRO, ODP)
These are some of the top pre-market analyst downgrades and negative research calls we have seen from Wall Street firms early this Wednesday morning:
Bank of Montreal (BMO) Cut to Market Perform at CIBC.
Big Lots (BIG) Cut to Neutral at JPMorgan.
BioMed Realty (BMR) Cut to Neutral at UBS.
Citrix Systems(CTXS) Cut to Neutral at JPMorgan.
Harmony Gold (HMY) Cut to Neutral at UBS.
Marathon Oil (MRO) Cut to Equal Weight at Barclays.
Office Depot (ODP) Started as Underperform at Oppenheimer.
JON C. OGG
Refiners in for More Trouble? (VLO, TSO, MRO, HES)
This week’s report from the Energy Information Administration noted that “strong supply availability from refiners now running at low utilizations in both Europe and the U.S. is likely to moderate gasoline price increases this summer.” That statement may be true, but even if it is, refiners could still be squeezed before the leaves begin to fall next September. This has continued implications for Valero Energy Corp. (NYSE: VLO), Tesoro Corp. (NYSE: TSO), Marathon Oil Corporation (NYSE: MRO), Hess Corporation (NYSE: HES) and others.
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Top 10 Analyst Upgrades & Downgrades (ANF, CE, FLEX, FCL, HD, HMIN, LNC, MRO, OSG, SON)
These are ten of the top analyst upgrades and downgrades from Wall Street we have seen early this Wednesday morning with more than two hours until the market opens for trading:
Abercrombie & Fitch (ANF) Raised to Buy at Jefferies.
Celanese (CE) Cut to Hold at Citigroup.
Flextronics (FLEX) Cuto Sell at Collins Stewart.
Foundation Coal (FCL) Cut to Hold at Jefferies.
Home Depot (HD) Raised to Buy at Citigroup.
Home Inns (HMIN) Raised to Outperform at Oppenheimer.
Lincoln National (LNC) Raised to Outperform at Wachovia.
Marathon Oil (MRO) Cut to Market Perform at Bernstein.
Overseas Shipholding (OSG) Cut to Perform at Oppenheimer.
Sonoco Products (SON) Cut to Hold at KeyBanc.
JON C. OGG
Top 10 Analyst Upgrades & Downgrades (ADBE, RATE, BWA, MRO, RHT, SEPR, SYMC, SINA)
Monday is starting the week off with a pretty light wave of analyst calls. The top 10 analyst upgrades and downgrades are not even a full 10 calls with more than two hours until the market opens:
Adobe Systems (ADBE) Cut to Hold at Citigroup; Cut to Neutral at UBS.
Bankrate (RATE) Cut to Market Perform at JMP Securities.
BorgWarner Inc. (BWA) Cut to Equal Weight at Barclays.
Marathon Oil (MRO) Cut to Neutral at Credit Suisse.
Red Hat (RHT) Raised to Buy at UBS.
Sepracor (SEPR) Raised to Overweight at JPMorgan.
Symantec (SYMC) Raised to Overweight at Thomas Weisel.
Sina Corp. (SINA) Cut to Perform at Oppenheimer.
JON C. OGG
Refiner’s Earnings Mixed (VLO, MRO, TSO)
The best thing to say about the 2009 first quarter at refiner Valero Energy Corporation (NYSE:VLO) is that it was better than the first quarter a year ago. Refining margins are higher now, and the cost of energy to run the refinery is lower. Revenues, though, are sinking. Valero is the first of the major refiners to report. Marathon Oil Corp. reports first quarter earnings on Thursday and Tesoro Corp. (NYSE:TSO) reports earnings next week. The overall story story line will probably not be much different.
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Refiners and Oil Prices, Conundrum and Quagmire (VLO, MRO, TSO, WNR, XOM, CVX)
There has been a never-ending battle between rapidly changing energy prices and the effect on margins at refineries. Since the beginning of the year, the best-performing crude oil refiner has been Western Refining Inc. (NYSE:WNR). With a market cap of $885 million, it is also the smallest of the large refiners among competitors Valero Energy Corp. (NYSE:VLO), Marathon Oil Corp. (NYSE:MRO), Tesoro Corp. (NYSE:TSO), and Frontier Oil Corp. (NYSE:FTO).
Western’s share price has risen more than 60% since January, while the best the others can do is around 20%, with Valero actually dropping by nearly 10%. Valero’s purchase of the assets of failed ethanol maker VeraSun did not boost its shares. As if anyone really expected that to happen.
The increase in the refiners’ share prices has almost everything to do with the rise in crude oil prices. Or does it? Rising crude prices, provided they don’t rise too high too fast, usually benefit refiners that can market their refined products at higher prices and generally higher margins.
However, in today’s slow economy, demand for gasoline has been dropping steadily, forcing refiners to turn to distillates and other refined products in a search for profits. For a while, European demand for diesel fuel kept the party going, but that demand has now cooled. Exxon Mobil Corp. (NYSE: XOM) has joined in the ranks of companies looking for reduced demand in oil ahead.
For a look into what may be in store for refiners, let’s ponder what Chevron Corp. (NYSE:CVX) had to say about refining in its interim update for the first quarter of 2009. Barrels/day of crude processed is flat with the fourth quarter of 2008, but up about 4% compared with the first quarter of 2008. Chevron’s refining margins rose on the US West Coast, but fell on the Gulf Coast.
Chevron’s marketing margins in the US were down substantially. In the fourth quarter of 2008, margins on the West Coast were at $9.11/barrel. In the first two months of the first quarter of 2009, the margin was $0.01/barrel, and the expecteded margin for the full first quarter is just $0.83/barrel. The Houston margin for Eastern gasoline is down nearly 40%.
Western’s gross refining margins for all of 2008 were about $4/barrel less than in 2007, and the first quarter of any year is typically a low-profit quarter for refining and marketing. Marathon’s refining margins for the 2008 fourth quarter were about 75% lower than the previous quarter. And while crude prices did gain some during the first quarter of this year, the prices are not substantially better than they were in December 2008.
Reduced gasoline consumption in the US, seasonal declines, and likely hits to marketing margins could lead to a tough first quarter for refiners. The real debate may be on whether this dilemma is a quarterly issue or a much longer-term issue.
Paul Ausick
April 13, 2009
Diesel Fuel Getting Cheaper Than Gasoline (MRO, VLO)
For the past couple of years, diesel fuel prices have been higher than gasoline prices. In the US, that is a real anomaly. Now, industry observers are predicting a return to normalcy, with prices for diesel fuel dropping below gasoline prices by April.
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Marathon Takes Loss on Oil Sands Charge (MRO)
Marathon Oil Corporation (NYSE:MRO) this morning reported a net loss of -$41 million (EPS of -$0.06) on revenue of $14.8 billion for the fourth quarter of 2008. Adjusted income, which excludes certain items including a $1.4 billion non-cash impairment charge, totaled $1.03 billion (EPS of $1.44). Analysts had expected EPS of $0.90 and revenue of $13.32 billion.
Preliminary Bad News From Refinery Sector (MRO, TSO, VLO)
Lower oil prices were supposed to be good for the refiners. Yesterday, Marathon Oil Corporation (NYSE:MRO) released its interim update for the fourth quarter of 2008. Today, Tesoro Corporation (NYSE:TSO) followed suit, releasing preliminary fourth quarter results. The short version is that neither company anticipates matching third quarter results, or for that matter, even coming close. Valero Corporation (NYSE:VLO), another major refiner, has not publishedan interim report, but plans to report third quarter results on January27th.
Refiners Squeezed Again (BP, MRO, VLO)
On December 12th, the US Energy Information Agency reported that the cost of a barrel of crude in the US was $36.58/barrel. On December 22nd, conventional regular gasoline in the US sold for $1.635/gallon at retail. For convenience, figure that it takes two barrels of oil to make one barrel of regular gasoline (it’s actually a bit more). That means the raw material to make a 42 gallons of gasoline cost $73.16. The gasoline in the refined barrel fetched a retail total of $68.61. Is that any way to make money?
Goldman Sachs Hits Oil Sector (BHI, EP, XOM, KMP, MMP, EPB, MRO, MUR, KGS, SLB)
In a perhaps late research call in the oilpatch, Goldman Sachs has downgraded the exploration & production sector to Neutral from attractive and downgraded the oil services sector to Neutral from Attractive. Interestingly enough. in all of the downgrades for these sub-sectors there are actually some upgrades in the group. Below are some of these top calls in the sector from Goldman Sachs:
Earnings Heading Up For Refiners? (MRO, CVX, VLO)
Marathon Oil (NYSE:MRO) today gave an interim update on its third quarter performance. The company will announce earnings on October 30th. Production is expected to be up by about 34,000 barrels of oil equivalent/day (boepd) from the second quarter, and production available for sale is expected to be 388,000 boepd. That is higher than previous guidance. This also leads one down the path of wondering if things at Chevron Corp. (NYSE: CVX) and Valero Energy (NYSE: VLO) might be close to coming around too.
Short Selling Very Mixed In Oil Companies (BHI, CVX, XOM, HES, MRO, SLB, HAL, NOV, RIG, VLO)
As you will see below, there were many key changes to short sales in oil stocks. Some of these would have been expected to have gone up because oil was so weak. But there were many surprising gains as well. Here are the mid-September short sale numbers:
COMPANY (TICKER) Sep 15 Aug 29 Change
Baker Hughes Inc. (BHI) 6,133,690 6,061,556 1.19%
Chevron Corporation (CVX) 22,795,662 20,202,281 12.84%
Exxon Mobil Corporation (XOM) 31,416,108 29,473,462 6.59%
Hess Corporation (HES) 4,447,432 4,382,553 1.48%
Marathon Oil Corporation (MRO) 7,261,748 5,969,911 21.64%
Schlumberger N.V. (SLB) 14,953,601 13,375,004 11.80%
COMPANY (TICKER) Sep 15 Aug 29 Change
Halliburton Company (HAL) 30,099,107 38,571,133 -21.96%
National Oilwell Varco (NOV) 7,514,971 7,778,930 -3.39%
Transocean Inc (RIG) 13,948,428 14,367,494 -2.92%
Valero Energy Corp. (VLO) 14,846,937 15,028,560 -1.21%
Jon C. Ogg
September 25, 2008
Are Refiners Coming Back? (VLO, MRO, TSO, RDS, XOM)
Oil refiners have had a very tough year. Since January, Marathon’s (NYSE:MRO) stock is off nearly 30%, Valero (NYSE:VLO) has plunged more than 50%, and Tesoro (NYSE:TSO) is off more than 60%. All got a bit of a boost yesterday as a result of the approaching hurricane and refinery shutdowns caused by the storm. Valero’s Port Arthur refinery (325,000 b/d), Shell’s (NYSE:RDS.A/RDS.B) Motiva refinery in Port Arthur (285,000 b/d), and Exxon’s (NYSE:XOM) Beaumont refinery (349,000 b/d) plan to shutter operations today. But the outlook could be stronger and longer term than that.
The Energy Information Agency’s weekly status report showed that commercial stocks of crude oil are down 6.7% from the same time last year, and 1.9% from a week earlier. Total gasoline inventories are also lower than last year by 3.5%. Refinery utilization was down to 78.3%.
Refining Cap-Ex, Shrinking or Being Diverted? (VLO, LEH, MRO)
Valero Energy (NYSE:VLO) today released a presentation it will be making at the Lehman Brothers (NYSE:LEH) Energy and Power Conference later this week. The presentation put a bit of meat on the bone of a statement in Valero’s earnings release that the company was reducing cap-ex by $700 million, from $4.5 billion to $3.8 billion.
Energy Watch Part III: Big Oil Well Off Highs (XOM, COP, RDS.A, CVX, BP, MRO, PCZ, APA)
Even with oil prices well off of recent highs, these are still very much considered as above historical highs. The large integrated oil companies have experienced either declines or very small gains in value over the last year, and these are generally well off of their 52-week highs. Exxon Mobil (NYSE:XOM) has declined almost 4.5% over the last year but is down about 20% from its 52-week highs. BP (NYSE:BP) has fallen over 25% from its highs; Royal Dutch Shell (NYSE:RDS.A) is down 22% from its highs. ConocoPhillips (NYSE:COP) is off about 18% from its highs and Chevron (NYSE:CVX) is off almost 20% from its highs. Among smaller companies, the losses from recent highs are even worse. Apache (NYSE:APA) is down more than 28% from recent highs, Marathon (NYSE:MRO) is down about 28% from its recent highs%, and PetroCanada (NYSE:PCZ) is down about 31% from its recent highs. As you will see below, there are many reasons for these exaggerated drops and perhaps some underlying opportunities as well.
Marathon Shows Refining is Still Reeling (MRO, TSO, VLO)
Marathon Oil (NYSE:MRO) stock is indicated lower this morning in pre-open trading following release of the company’s interim update for the second quarter. Shares of Tesoro Corp. (NYSE: TSO) and Valero Corp. (NYSE: VLO) have been under pressure on an almost daily basis that would currently give you the feeling that energy prices this high are impossible for these players whether they rise or fall.
Marathon’s production is expected to reach 372,000 boe/d, slightly above previous guidance, but slightly below the year ago production of 375,000 boe/d. Estimates for sold barrels is off by 22,000 boe/day. Production is expected to be 20% below earlier guidance in Marathon’s oil sands operations, but climbing prices for bitumen cover that up pretty well.Price realizations for oil and natural gas are up, but the company expects a $250 million after-tax write-down on its derivative hedges for synthetic oil sales.
But refining margins are the really bad news. Marathon expects second quarter refined products sales to be lower than last year by about 4%. Gross margins drop nearly 80% y-o-y, from $0.3925 in 2007 to $0.0850 this year. Derivative instrument losses on refined products adds another $190 million worth of bad news.
Then there’s Tesoro Corp. (NYSE:TSO), which hit a 52-week low yesterday. Tesoro issued second quarter guidance in June, aiming for a 10% reduction in their inventory by the end of the second quarter. The company hopes to reduce demands for working capital by reducing inventory. Hedges will cost the company $125 million in the quarter, and higher than expected energy costs will increase expenses by $0.30-$0.50/b. The news from Marathon didn’t help Tesoro, although its stock is up marginally after a nightmare Wednesday.
Finally, there’s Valero Corp. (NYSE:VLO). Yesterday the company announced a quarterly cash dividend of $0.15 per share. This morning, the stock is trading down again at levels challenging its 52-week low. Valero has not issued an interim update on its operations yet, but don’t expect any good news if and when it does.
As bad as things were for refiners last quarter, they’re only going to get worse this quarter. Watch EIA crude and refined products inventory reports. Commercial crude inventories are below the lower boundary of the average range for this time of year. Inventory management is the single best weapon refiners have for managing operational costs and cash flow. There aren’t many other arrows in their quivers.
Paul Ausick
July 10, 2008
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