24/7 Wall St. » MRO

Fitch Reviews Oil & Gas Operations and Reserves

Paul Ausick — Fri, 11 May 2012 17:34:44 +0000

Fitch Ratings is out with a statistical review of operational metrics at a number of oil & gas companies. The review notes a handful of emerging trends:

Finding, development, and acquisition (FD&A) costs are rising.
Reserves are growing.
Proved, developed reserves are shrinking.
Reserve additions are not well matched to production.
Liquids are in every E&P company’s sights.

To even out the changes a bit, Fitch computed a three-year average as well as a year-over-year average change.

FD&A costs for the entire group of companies fell by an average of -14% over three years, but the variation was large. The three-year average cost of a barrel in 2008 was $20.76, falling to $16.46 in 2011. Exxon Mobil Corp. (NYSE: XOM) posted an increase of 45% in FD&A costs over three years, while Chevron Corp. (NYSE: CVX) lowered its costs by -41% and ConocoPhillips lowered its costs by -36%. Occidental Petroleum Corp. (NYSE: OXY) showed a 1% increase in FD&A costs over the three years and Hess Corp. (NYSE: HES) paid 60% more per barrel in FD&A costs. FD&A costs for SandRidge Energy Corp. (NYSE: SD) rose 42%, while the largest drop in costs came at Range Resources Inc. (NYSE: RRC), at -65%.

Total proved reserves posted median gains of 4.8% year-over-year and 24% since 2008. Some of the largest reserves gains came from additions of natural gas, which drove up the reserve equivalent barrels count, but weighed on valuations due to the low prices for natural gas. Among the bigger companies, Exxon increased its reserves by 14.1% over the three-year span, while Chevron’s reserves grew by just 0.4% and Conoco’s fell by -18%.

Proved, developed reserves declined for all the companies in the sample by -3.5% over the three-year period. Fitch defined proved, developed reserves as “proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods, or through relatively minor expenditures.” Essentially that means that the companies are increasing production from existing wells and driving down the amount that’s left to get out of a producing well. As a percentage of total reserves, proved, developed reserves rose the most at Marathon Oil Corp. (NYSE: MRO), a total of 8% in the three-year period. Proved, developed reserves fell the most at Plains Exploration & Production Co. (NYSE: PXP), a total of -16.4%.

The mismatch between production and reserves replacement is described as “lumpy” by Fitch. The problem is mainly one of timing. A project with a long startup cycle, like Chevron’s liquefied natural gas project offshore of Australia, delays reserves booking well past the time the company spent billions of dollars to develop the project. This effect will become a bigger issue as new projects are developed in ultra-deepwater and other difficult environments by smaller companies.

Finally, the push to develop liquids production has been well-documented over the past couple of years. With natural gas prices near historic lows, liquids development is critically important to companies that once focussed almost exclusively on dry natural gas. The largest three-year average gain in liquids reserves was 40% at SandRidge, followed by 12% gains at Pioneer Natural Resources Co. (NYSE: PXD) and Newfield Exploration Co. (NYSE: NFX). Chesapeake Energy Corp. (NYSE: CHK) grew its liquids reserves by 11% over the three years.

Fitch notes that what it calls ‘efficiency’ — which is essentially the sum of all the factors it looked at in this operational review — “helps determine the relative credit quality and competitiveness of a firm when indexed against its peers … [B]eing a low-cost, efficient producer remains a key credit protection in the event of lower oil prices.”

The full report from FitchRatings is available here.

Paul Ausick

Filed under: Oil & Gas, Research Tagged: CHK, COP, CVX, HES, MRO, NFX, OXY, PXD, PXP, RRC, SD, XOM

24/7 Wall St. Closing Bell (CHK, COP, RSH, STM, AIZ, ABX, MRO, MA, AGN, AUY, TWX, CLX, RDC, RRD, MSO, IACI, FSLR, DSX, COCO, APA, OWW, WNR, CMCSA, SVNT)

Paul Ausick — Wed, 02 May 2012 20:09:45 +0000

The major US stock indexes opened lower this morning following dismal reports from Europe on manufacturing (our coverage here) and unemployment (more coverage here). The ADP report on US unemployment provided more gloomy news ahead of Friday’s official unemployment numbers (more coverage here). The US EIA petroleum inventory report helped push oil prices down (more coverage here), but the weak economic news ruled the day. Only the Nasdaq index has managed to pull into positive territory at all today, and that by less than 0.2% about an hour before closing. The US dollar index rose today, now up 0.39% at 79.130. The GSCI commodity index is up fractionally at 687.61, with commodities mostly lower on the rising dollar. Chicago wheat fell more than -4.5% to post the biggest loss of the day. WTI crude oil closed down -0.9% at $105.22/barrel, and Brent crude trades down -1.23% at $1118.19/barrel. Gold settled down -0.5% today, at $1,654.00/ounce.

The unofficial closing bells put the DJIA down nearly 11 points to 13,268.65 (-0.08%), the NASDAQ rose more than 9 points (0.31%) to 3,059.85, and the S&P 500 fell -0.25% or more than 3 points to 1,402.31.

There were several analyst upgrades and downgrades today, including Chesapeake Energy Corp. (NYSE: CHK) cut to ‘neutral’ at R.W. Baird; ConocoPhillips (NYSE: COP) cut to ‘underperform’ at BofA/ML and started as ‘overweight’ at JPMorgan; RadioShack (NYSE: RSH) raised to ‘buy’ at Auriga; STMicroelectronics NV (NYSE: STM) raised to ‘buy’ at Goldman Sachs and raised to ‘neutral’ at Citigroup; and Assurant Inc. (NYSE: AIZ) cut to ‘underperform’ at BofA/ML.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Barrick Gold Corp. (NYSE: ABX) is down -2.8% at $39.30 (more coverage here); Marathon Oil Corp. (NYSE: MRO) is down -4.4% at $28.85; Mastercard Inc. (NYSE: MA) is down -0.8% at $452.14; Allergan Inc. (NYSE: AGN) is down -4.3% at $92.29; Yamana Gold Inc. (NYSE: AUY) is down -2.6% at $14.36; Time Warner Inc. (NYSE: TWX) is down -1.6% at $37.30; The Clorox Co. (NYSE: CLX) is down -3.3% at $67.74; Rowan Companies Inc. (NYSE: RDC) is up 1.3% at $34.97; R.R. Donnelley & Sons Co. (NASDAQ: RRD) is down -7% at $11.79; Martha Stewart Living Omnimedia Inc. (NYSE: MSO) is down -1.2% at $3.41; and IAC/InterActiveCorp. (NASDAQ: IACI) is up 3.3% at $50.34 after posting a new 52-week high of $52.77 earlier today.

Tomorrow we get earnings from First Solar Inc. (NASDAQ: FSLR), Diana Shipping Inc. (NYSE: DSX), Corinthian Colleges Inc. (NASDAQ: COCO), Apache Corp. (NYSE: APA), Orbitz Worldwide Inc. (NYSE: OWW), and Western Refining Inc. (NYSE: WNR) among many others.

Other standouts from today include the following stocks:

Chesapeake Energy is down -13.5% at $16.95 after posting a new 52-week low of $15.86 earlier today. The natural gas producer reported weak results and more troubles for CEO Aubrey McClendon. More coverage here.

Comcast Corp. (NASDAQ: CMCSA) is down -1% at $30.29. The cable company reported good earnings this morning. More coverage here.

Savient Pharmaceuticals Inc. (NASDAQ: SVNT) is down -18.8% at $1.51. An analyst has said that the company insolvent. More coverage here.

Stay tuned for Thursday. Philadelphia Fed President Charles Plosser, Atlanta Fed President Dennis Lockhart, and San Francisco Fed President John Williams are speaking at a conference. We have noted the following events on the schedule (all times Eastern):

7:30 a.m. – Challenger job cut report
8:30 a.m. – New claims for unemployment benefits
8:30 a.m. – Productivity and costs report
10:00 a.m. – ISM non-manufacturing index
10:30 a.m. – EIA weekly natural gas storage report
4:30 p.m. – Federal Reserve balance sheet and money supply

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: ABX, AGN, AIZ, APA, AUY, CHK, CLX, CMCSA, COCO, COP, DSX, FSLR, IACI, MA, MRO, MSO, OWW, RDC, RRD, RSH, STM, SVNT, TWX, WNR

24/7 Wall St. Closing Bell (WPI, AZN, ANF, SPWR, YGE, COST, MERU, ACI, VECO, PBY, ADM, CPO, AVP, DPZ, PFE, VLO, ABX, JDSU, MRO, FSLR, V, PFCB, DAL, CHK)

Paul Ausick — Tue, 01 May 2012 20:03:50 +0000

The major US stock indexes opened flat this morning but started to move higher following the better-than-expected ISM report on manufacturing (our coverage here). Construction spending in the US was a bit lower, but not enough to quell the enthusiasm over the manufacturing report. The US dollar index rose slightly today, now up 0.056% at 78.820. The GSCI commodity index is up fractionally at 684.88, with commodities mostly lower on the rising dollar. Cocoa put up a big gain today, while orange juice posted another sharp decline. WTI crude oil closed up 1.2% at $106.16/barrel, and Brent crude trades up 0.17% at $119.67/barrel. Gold settled up 0.1% today, at $1,662.40/ounce.

The unofficial closing bells put the DJIA up nearly 67 points to 13,280.31 (0.5%), the NASDAQ rose about 4 points (0.13%) to 3,050.44, and the S&P 500 rose 0.57% or nearly 8 points to 1,405.89.

There were several analyst upgrades and downgrades today, including Watson Pharmaceuticals Inc. (NYSE: WPI) reiterated as ‘buy’ at Canaccord Genuity; AstraZeneca PLC (NYSE: AZN) raised to ‘neutral’ at BofA; Abercrombie & Fitch Co. (NYSE: ANF) raised to ‘buy’ at UBS; SunPower Corp. (NASDAQ: SPWR) raised to ‘buy’ at Citigroup; Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE) raised to ‘buy’ at Citigroup; Costco Wholesale Corp. (NASDAQ: COST) cut to ‘hold’ at Deutsche Bank; and Meru Networks Inc. (NASDAQ: MERU) cut to ‘neutral’ at RW Baird.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Arch Coal Inc. (NYSE: ACI) is down -3.8% at $9.39 (more coverage here); Veeco Instruments Inc. (NASDAQ: VECO) is up 14.8% at $34.67 (more coverage here); Pep Boys – Manny, Moe & Jack (NYSE: PBY) is down -21.8% at $11.67 (more coverage here); Archer Daniels Midland Co. (NYSE: ADM) is up 7.9% at $33.25; Corn Products International Inc. (NYSE: CPO) is down -0.14% at $56.98; Avon Products Inc. (NYSE: AVP) is down -7.6% at $19.95; Domino’s Pizza Inc. (NYSE: DPZ) is down -9.6% at $34.18; Pfizer Inc. (NYSE: PFE) is down -0.14% at $22.87; and Valero Energy Corp. (NYSE: VLO) is up 0.9% at $24.92.

Tomorrow we get earnings from Barrick Gold Corp. (NYSE: ABX), JDS Uniphase Corp. (NASDAQ: JDSU), Marathon Oil Corp. (NYSE: MRO), First Solar Inc. (NASDAQ: FSLR), and Visa Inc. (NYSE: V).

Other standouts from today include the following stocks:

P.F. Chang’s China Bistro Inc. (NASDAQ: PFCB) is up 29.7% at $51.46. The company is being taken private in a deal worth $1.1 billion. More coverage here.

Delta Air Lines Inc. (NYSE: DAL) is up 0.8% at $11.05. The airlines bought an oil refinery from newly-public Phillips 66 (NYSE: PSX). More coverage here.

Chesapeake Energy Corp. (NYSE: CHK) is up 6.3% at $19.60. The company’s chairman will be replaced and the company reports earnings after markets close today. More coverage here.

Stay tuned for Wednesday. Fed Governor Daniel Tarullo and Richmond Fed President Jeffrey Lacker are giving speeches. We have noted the following events on the schedule (all times Eastern):

7:00 a.m. – Mortgage Bankers Association purchase applications
7:30 a.m. – Challenger job cut report
8:15 a.m. – ADP employment report
10:00 a.m. – Factory orders
10:30 a.m. – EIA weekly petroleum status report

Paul Ausick

Filed under: HI/LOW, Market Close Tagged: ABX, ACI, ADM, ANF, AVP, AZN, CHK, COST, CPO, DAL, DPZ, featured, FSLR, JDSU, MERU, MRO, PBY, PFCB, PFE, SPWR, V, VECO, VLO, WPI, YGE

24/7 Wall St. Closing Bell (MRO, PEET, RIMM, URBN, CHK, GILD, GNW, PCCC, NVLS, PKI, BEAM, EL, WY, THLD, TUDO, ZOLT, STRI, MNKD)

Paul Ausick — Fri, 03 Feb 2012 21:09:33 +0000

Major indexes reacted positively to this morning’s non-farm payrolls report and the drop in the US unemployment rate from 8.5% to 8.3%. Expectations for the unemployment rate had been no better than flat, and jobs growth of 243,000 was also a big surprise. The report ISM service jobs was also higher than expected this morning, although data on new factory orders was lower than expected. The Nasdaq composite posted an 11-year high today, and yields on US Treasuries also rose as investors headed into equities. Crude oil rose sharply today on the good economic news. WTI crude is up 1.32% at $97.63/barrel and Brent crude is up 2.10% at $114.42/barrel. Gold, as might be expected, dropped -1.64% today to $1,730.50/ounce.

The unofficial closing bells put the DJIA up nearly 157 points to 12,862.23 (1.23%), the NASDAQ rose nearly 46 points (1.61%) to 2,905.66, and the S&P 500 rose 1.46% or more than 19 points to 1,344.90.

There were several analyst upgrades and downgrades today, including Marathon Oil Corp. (NYSE: MRO) cut to ‘hold’ at Argus; Peet’s Coffee & Tea Inc. (NASDAQ: PEET) raised to ‘outperform’ at Baird; Research in Motion Ltd. (NASDAQ: RIMM) cut to ‘underperform’ at Jefferies; Urban Outfitters Inc. (NASDAQ: URBN) raised to ‘buy’ at Janney Capital; and Chesapeake Energy Corp. (NYSE: CHK) started as ‘neutral’ at Credit Suisse.

Earnings reports since markets closed last night have led to some price changes as of the last half hour of trading today: Gilead Sciences Inc. (NASDAQ: GILD) is up more than 11% at $54.83 after posting a new 52-week high of $54.90 earlier (see our coverage here); Genworth Financial Inc. (NYSE: GNW) is up more than 13% at $9.12; PC Connection Inc. (NASDAQ: PCCC) is down nearly -20% at $10.22; Novellus Systems Inc. (NASDAQ: NVLS) is down -0.73% at $48.98, but posted a new 52-week high of $49.92 earlier in the day; PerkinElmer Inc. (NYSE: PKI) is up more than 6% at $26.21; Beam Inc. (NYSE: BEAM) is up 2.4% at $54.28; Estee Lauder Cos. Inc. (NYSE: EL) is down -3.64% at $56.71 (more coverage here); and Weyerhaeuser Co. (NYSE: WY) is up more than 5% at $21.19.

Other standouts from today include the following stocks:

Threshold Pharmaceuticals Inc. (NASDAQ: THLD) is up nearly 115% at $2.77. The pharmaceuticals firm has announced a global development deal with Germany’s Merck.

Tudou Holdings Ltd. (NASDAQ: TUDO) is up nearly 19% at $16.66. The Chinese online video company has signed a deal with Sina Corp. (NASDAQ: SINA) to provide a video platform for Sina Weibo, a Twitter-like social site.

Zoltek Cos. Inc. (NASDAQ: ZOLT) is up nearly 39% at $13.14. The specialty fibers maker posted good earnings number and forecast continued growth in the market for wind turbines which use its carbon fibers in blade construction.

STR Holdings Inc. (NASDAQ: STRI) is down nearly -20% at $9.08. The company manufactures materials used in solar PV modules, and lowered its fourth-quarter guidance this morning.

Mannkind Corp. (NASDAQ: MNKD) is down nearly -13% at $2.15 after posting a new 52-week low of $2.14 earlier. The biotech company has priced its public offering of units containing one share of stock and warrant to purchase another 0.6 shares. More coverage here.

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

11:30 a.m. – 3- and 6-month Treasury bill auction
3:00 p.m. – Treasury STRIPS

Have a great weekend.

Paul Ausick

Filed under: 24/7 Wall St. Wire Tagged: BEAM, CHK, EL, GILD, GNW, MNKD, MRO, NVLS, PCCC, PEET, PKI, RIMM, STRI, THLD, TUDO, URBN, WY, ZOLT

Top Analyst Upgrades & Downgrades (APA, BBT, CVC, CHK, DRI, EMN, EW, MRO, NBL, PEET, RIMM, RBS, SLM, URBN)

Administrator — Fri, 03 Feb 2012 13:07:02 +0000

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

Apache Corporation (NYSE: APA) Started as Outperform at Credit Suisse.
BB&T Corp. (NYSE: BBT) Raised to Equal-Weight at Barclays.
Cablevision Systems Corporation (NYSE: CVC) Cut to Underweight at JPMorgan.
Chesapeake Energy Corporation (NYSE: CHK) Started as Neutral at Credit Suisse.
Darden Restaurants, Inc. (NYSE: DRI) named Bear of the Day at Zacks.
Eastman Chemical Company (NYSE: EMN) named as Value stock of the day at Zacks.
Edwards Lifesciences Corporation (NYSE: EW) Cut to Market Perform at Wells Fargo.
Marathon Oil Corporation (NYSE: MRO) Cut to Hold at Argus.
Noble Energy Inc. (NYSE: NBL) Started as Outperform at Credit Suisse.
Peet’s Coffee & Tea, Inc. (NASDAQ: PEET) Raised to Outperform at Baird.
Research in Motion Ltd. (NASDAQ: RIMM) Cut to Underperform at Jefferies.
Royal Bank of Scotland (NYSE: RBS) Cut to Hold at Deutsche Bank.
SLM Corp. (NYSE: SLM) named as Bull of the Day at Zacks.
Urban Outfitters, Inc. (NASDAQ: URBN) Raised to Buy from Neutral at Janney Capital.

If you enjoyed the top analyst calls, you can sign up in the box below to join our morning email list to receive news directly in your inbox each morning. We include major analyst upgrades and downgrades, IPO and M&A news, special situation developments, observations on Warren Buffett and key market gurus, as well as special exclusive feature stories.

JON C. OGG

Filed under: 24/7 Wall St. Wire, Analyst Calls Tagged: APA, BBT, CHK, CVC, DRI, EMN, EW, MRO, NBL, PEET, RBS, RIMM, SLM, URBN

New Crude Oil Pipeline System to be Built in Gulf of Mexico (EPD, GEL, APC, APA, XOM, E, PBR, PXP, BP, MRO, RDS-A, CVX, COP)

Paul Ausick — Wed, 04 Jan 2012 14:57:26 +0000

Two pipeline companies have agreed to a 50-50 joint venture to build a new 149-mile offshore gathering system in the Gulf of Mexico. Enterprise Products Partners L.P. (NYSE: EPD) and Genesis Energy LP (NYSE: GEL) will build the system and Enterprise will be the operator.

The new gathering system will serve the Keathley Canyon area and serve producers Anadarko Petroleum Co. (NYSE: APC), Apache Corp. (NYSE: APA), Exxon Mobil Corp. (NYSE: XOM), Eni SpA (NYSE: E), Petroleo Brasileiro (NYSE: PBR), and Plains Exploration & Production Co. (NYSE: PXP). Keathley Canyon was the site of the first major oil discovery in the US Gulf once drilling was reopened following the Macondo well explosion in April 2010 that killed 11 workers on a rig operated by BP plc (NYSE: BP). Exxon, which made the discovery, has estimated the resource at 700 million barrels.

The joint venture, called the Southeast Keathley Canyon Pipeline Co. LLC (SEKCO), plans to build an 18-inch pipeline to transport 115,000 barrels/day of crude to a floating production platform and connect to Enterprise’s Poseidon pipeline system to move the oil onshore. The southeast portion of Keathley Canyon is estimated to hold about 300 million barrels of reserves.

In related transactions, Genesis is acquiring a 28% stake in the Poseidon pipeline system from Marathon Oil Corp. (NYSE: MRO), as well as a 29% stake in the Odyssey pipeline system which is majority owned and operated by Royal Dutch Shell plc (NYSE: RDS-A) and a 23% stake in the Eugene Island pipeline system owned by a group including Exxon, Shell, Chevron Corp. (NYSE: CVX), and ConocoPhillips (NYSE: COP). Genesis is paying about $206 million for these three acquisitions, which includes about $26 million for the value of the crude already in the pipelines. The company used its revolving credit facility to finance the purchases.

The SEKCO pipeline system is expected to be in service by mid-2014.

Paul Ausick

Filed under: Oil & Gas Tagged: APA, APC, BP, COP, CVX, E, EPD, GEL, MRO, PBR, PXP, RDS-A, XOM

Upside Potential at Big Oil Companies (XOM, CVX, COP, BP, OXY, MRO, APA, PBR)

Paul Ausick — Thu, 17 Nov 2011 19:22:49 +0000

As the price differential between WTI and Brent crude oil continues to narrow, with WTI rising and Brent falling, big oil companies should see a gain in their realized prices for crude. This is especially true for companies with significant production in the US. Those gains, however, will be offset by higher input prices at the integrated companies’ refineries, which will no longer be able to take advantage of the price differential that allowed them to sell refined products from WTI as if the refinery inputs were Brent.

We’ve surveyed eight major oil companies, both integrated and E&P only, to try to find out where value in these stocks might be based on analysts’ target prices and implied upside on the stock. The companies we looked at are Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips Corp. (NYSE: COP), BP plc (NYSE: BP), Occidental Petroleum Corp. (NYSE: OXY), Marathon Oil Corp. (NYSE: MRO), Apache Corp. (NYSE: APA), and Petroleo Brasileiro SA (NYSE: PBR), more commonly known as Petrobras.

All data comes from Yahoo! Finance and MarketWatch, with current prices from about noon today.

Exxon Mobil Corp. (NYSE: XOM) has a median target price of $90.00 from 17 brokers. Shares are trading today at $79.31, for an upside potential of $10.69, or 13.5%. Exxon pays a dividend yield of 2.4% and its forward P/E is 9.38. Exxon’s upside is the second-lowest in this group, and is dragged down by the company’s expressed decision to retain its refining operations. Because refining is, at the best of times, cyclical and profitability depends largely on crude oil prices, the current upward movement in WTI pricing will affect the company’s refining margins.

In the third quarter, Exxon’s US refining profits totaled $810 million, up 79% from the third quarter of 2010. Non-US refining profits actually fell by -23% because the WTI/Brent differential did not affect overseas crude pricing.

Chevron Corp. (NYSE: CVX) has a median target price of $122.00 from 19 brokers. Shares are trading today at $101.88, for a potential upside of $20.12, or 19.8%. Chevron pays a dividend yield of 3.1% and its forward P/E is 7.91. Chevron, like Exxon, has rejected the option of hiving off its refinery operations, and also like Exxon, that decision will affect profits as refinery margins fall. In the third quarter, Chevron’s price differential between WTI and Brent crude averaged $17/barrel. As Brent prices fall due to resumed production from Libya and WTI prices rise, the differential will close further and the $2 billion in profit that Chevron made from its downstream operations will also decline. Fortunately for Chevron, the higher realized prices for its crude will offset a fair portion of that downstream drop-off.

ConocoPhillips Corp. (NYSE: COP) has a median target price of $80.00 from 17 brokers. Shares are trading today at $70.80, for an implied upside of $9.20, or 13%. Conoco pays a dividend yield of 3.7% and its foward P/E is 8.39. Conoco announced its intention to spin-off its refining operations into a separate company, but it may have waited too long to be able to set a premium price for its refineries. The company’s potential upside is the lowest of this group, and that is likely due to what investors see as a probable delay in the refinery spin-off or a decision by the company to go ahead with the deal at a less-than-desired price.

BP plc (NYSE: BP) has a median target price of $54.12 from 12 brokers. Shares are trading today at $43.23, for an implied upside of $10.96, or 25.4%. The company pays a dividend yield of 3.8%, the highest of this group, and its forward P/E is 6.58, the second-lowest in this group. While BP has managed to boost its share price by more than 60% from its low in June of 2010 following the Macondo well explosion that killed 11 workers and dumped 5 million barrels of crude into the Gulf of Mexico, investors remain wary of the company’s ability to put the disaster fully behind it. BP is also trying to sell two refineries, not to bolster its reserves, but simply to get rid of them. At the same time, it is upgrading its Indiana refinery to accept more crude from Canada’s oil sands.

Occidental Petroleum Corp. (NYSE: OXY) has a median target price of $115.00 from 19 brokers. Shares are trading today at $97.20, for an upside potential of $17.80, or 18.3%. The company pays a dividend yield of 1.9% and its forward P/E of 11.72. Because Oxy has no refining operations, it is insulated from the decline in refining margins. The company’s stock was upgraded recently from ‘neutral’ to ‘outperform’ with a target price of $135.00 by Credit Suisse. The company owns high-potential shale oil fields in California and other properties in Texas that will benefit from rising crude prices, without suffering any drag from refining.

Marathon Oil Corp. (NYSE: MRO) has a median target price of $33.00 from 18 brokers. Shares are trading today at $27.14, for an implied gain of $5.86, or 21.6%. The company pays a dividend yield of 2.2% and its forward P/E is 7.99. Marathon successfully spun-off 100% of its refining assets into a separate company, Marathon Petroleum Corp. (NYSE: MPC), in June this year. Marathon averaged 46,000 barrels/day of production from its Libyan assets in 2010. The company has not indicated when any part of that production will be back on-line, but a resumption should be just around the corner.

Apache Corp. (NYSE: APA) has a price target of $134.00 from 23 brokers. Shares are trading today at $100.87, for an upside potential of $33.13, or 32.8%. The company pays a dividend yield of 0.6% and its forward P/E is 8.3. Apache’s target price is a few pennies below its 52-week high, which may signal that the company is fully priced. Apache’s strongest point has been that it is able to sell about 75% of its production at Brent prices. As the price gap between WTI and Brent narrows, that won’t have a lot of impact on the company unless Brent should suddenly fall below WTI. Like Oxy and Marathon, Apache has no refining to concern itself with.

Petroleo Brasileiro SA (NYSE: PBR) has a median target price of $38.04 from 20 brokers. Shares are trading today at $27.28, for an upside potential of $10.76, or 39.4 %, the highest upside in this group. The company pays a dividend yield of 0.6% and its forward P/E is 6.42, both the lowest in this group. Petrobras is investing nearly $225 billion over the next few years to begin producing some 5 billion barrels of crude from the basins offshore of Brazil. In the third quarter, the company produced about 2.6 million barrels/day and expects to raise that total to 3 million barrels/day by the end of 2012. It will need to continue that level of production growth in order to keep up with the costs it will incur.

Of the eight companies in this group, the favorite probably has to be Apache, which has no refining operations and is able to sell the vast majority of its crude at the highest price available. Oxy is a strong second choice. The major integrated companies will feel the drag from their refineries, and Marathon needs to get its Libyan oil back online. As for Petrobras, it’s really a crapshoot at this point.

Paul Ausick

Filed under: Analyst Calls, Oil & Gas Tagged: APA, BP, COP, CVX, MRO, OXY, PBR, XOM

Identifying Value In Refining Stocks (MPC, VLO, MUR, HFC, SUN, TSO, WNR, MRO)

Administrator — Thu, 08 Sep 2011 15:29:47 +0000

The refining business has been in the news a lot recently for two things. One, it’s making money again. Two, integrated oil companies are shedding refining assets at a rapid pace. Now’s a good time to see if there could be a value play available in the industry. We’ve looked at seven major refiners: Marathon Petroleum Corp. (NYSE: MPC), Valero Energy Corp. (NYSE: VLO), Murphy Oil Corp. (NYSE: MUR), HollyFrontier Corp. (NYSE: HFC), Sunoco Inc. (NYSE: SUN), Tesoro Corp. (NYSE: TSO), and Western Refining Inc. (NYSE: WNR).

Marathon Petroleum was spun out of Marathon Oil Corp. (NYSE: MRO) in late July. Since then, the stock has been quite volatile, but is now back to about where it was at the time of the spin-off. Shares recently traded at $37.41 and its market cap is $12.94 billion. The stock’s 52-week trading range is $29.32 to $47.17. The current value is trading at a price-to-book ratio of about 1.44 to 1. Its forward price earnings multiple is 4.86. The company currently pays a dividend yield of 2.2% to investors. Thomson Reuters has a consensus price target of $51.92, implying roughly 39% upside to the most recent price.

Valero has gotten a boost from its entry into the ethanol market and could be a buyer for the two refineries that Sunoco plans to shed by next July. Valero’s shares recently traded at $23.55 and its market cap is $12.75 billion. The stock’s 52-week trading range is $16.43-$30.98. The current value is trading at a price-to-book ratio of about 0.80 to 1. Its forward price earnings multiple is 5.39. The company currently pays a dividend yield of 0.90% to investors. Thomson Reuters has a consensus price target of $30.06, implying roughly 28% upside to the most recent price.

Murphy Oil, unlike the other refiners, still owns some exploration and production assets that help keep its value up. Murphy’s stock recently traded at $51.98 and its market cap is $10.18 billion. The stock’s 52-week trading range is $47.24-$77.41. The current value is trading at a price-to-book ratio of about 1.15 to 1. Its forward price earnings multiple is 7.39. The company currently pays a dividend yield of 2.09% to investors. Thomson Reuters has a consensus price target of $75.00, implying roughly 44% upside to the most recent price.

HollyFrontier was formed from a merger of Holly Corp. and Frontier Oil in June of this year. Since then the stock has moved generally upward. HollyFrontier shares recently traded at $37.74 and its market cap is $7.79 billion. The stock’s 52-week trading range is $13.34-$38.90. The current value is trading at a price-to-book ratio of 4.13. Its forward price earnings multiple is 6.12. The company currently pays a dividend of 0.94% to investors. Thomson Reuters has a consensus price target of $41.00, implying roughly 10% to the most recent price.

Sunoco announced yesterday that it would be selling or closing its remaining refining assets. Once that happens, Sunoco will own gas stations and majority positions in two other recent spin-offs in logistics and petroleum coke production. Sunoco’s shares recently traded at $38.79 and its market cap is $4.75 billion. The stock’s 52-week trading range is $27.76-$46.57. The current value is trading at a price-to-book ratio of 1.68. Its forward price earnings multiple is 19.70. The company currently pays a dividend of 1.53% to investors. Thomson Reuters has a consensus price target of $44.20, implying roughly 14% to the most recent price.

Tesoro has announced that it plans to add nearly 300 retail outlets to its existing 1,200. The company expects a 12% boost to its business with these additions. Tesoro shares recently traded at $25.02 and its market cap is $3.46 billion. The stock’s 52-week trading range is $12.03-$28.74. The current value is trading at a price-to-book ratio of about 0.97 to 1. Its forward price earnings multiple is 6.35. The company currently pays no dividend to investors. Thomson Reuters has a consensus price target of $27.79, implying roughly 11% upside to the most recent price.

Western Refining is the smallest of the seven companies we’ve looked at here. Most of its sales are in low population states in the US southwest. Western’s shares recently traded at $17.95 and its market cap is $1.62 billion. The stock’s 52-week trading range is $4.70-$21.75. The current value is trading at a price-to-book ratio of about 2.00 to 1. Its forward price earnings multiple is 5.85. The company currently pays no dividend to investors. Thomson Reuters has a consensus price target of $20.63, implying roughly 15% upside to the most recent price.

The substantial upside for Murphy reflects the company’s E&P asset holdings. Owning at least some of the refining feedstock helps Murphy smooth out the higher prices for crude oil and its access to domestic crude rather than imported, more expensive crude also works in its favor. Marathon Petroleum and Valero also have substantial upside, but in their cases they are vulnerable to a closing of the differential between WTI and Brent crudes. Murphy is an overall better choice.

Paul Ausick

Filed under: Oil & Gas, Value Investing Tagged: HFC, MPC, MRO, MUR, SUN, TSO, VLO, WNR

Can Sunoco Shed its Refineries? (SUN, MRO, MPC, COP, VLO, RDS-A, MUR)

Administrator — Tue, 06 Sep 2011 15:44:31 +0000

Beginning in the early 1990s, integrated oil companies and some independents began stripping away their midstream assets like interstate pipeline and gathering systems to focus more on the money-making parts of the oil and gas business. The recent trend has been to spin-off or sell downstream assets, primarily refineries, which usually react wildly to changes in crude oil prices. And no one needs to be reminded of the volatility in crude prices.

Sunoco, Inc. (NYSE: SUN) has decided that now is the time for it, too, to shed its refining operations. The company wants to sell two refineries on the east coast with a combined capacity of 505,000 barrels/day of throughput. Sunoco will take an impairment charge of up to $2.2 billion in its third quarter and has warned that the costs of closing the plants could rise by another $500 million.

That’s if Sunoco can’t find a buyer for the refiners. If no buyer steps up, Sunoco will close the refineries in July 2012. The company said it could record a pre-tax gain of about $2 billion if it sells or closes the refineries. It’s not an idle exercise to wonder if there are any buyers left.

Here’s a review of recent refining changes. Marathon Oil Corp. (NYSE: MRO) spun off its refining to a new company, Marathon Petroleum Corp. (NYSE: MPC). ConocoPhillips Corp. (NYSE: COP) has announced that it will spin-off its refining operations this year. Valero Corp. (NYSE: VLO) acquired a refinery in the UK from Royal Dutch Shell plc (NYSE: RDS-A) and just last week bought a refinery in Louisiana from Murphy Oil Corp. (NYSE: MUR).

The logical buyer, Valero, has spent about $2.625 billion so far this year on refining acquisitions. The company reported about $4 billion in cash and $6.8 billion in long-term debt in its last quarterly earnings. It could conceivably pony up the money for the Sunoco refineries. Marathon, with a market cap of more than $12 billion, holds about $1.6 billion in cash and long-term debt of about $3.2 billion. No other refiner is a likely prospect.

It looks like Sunoco may have waited too long to put its refineries on the market. The company has another problem as well. According to the company’s most recent 10-K, the east coast refineries get their feedstocks from foreign sources, primarily Nigeria. Just 13% of the company’s feedstocks are domestically sourced.

That means that Sunoco, or a potential buyer, will be paying Brent crude prices, currently about $15/barrel more than US WTI crude. Other US refiners with access to WTI crude are able to turn that $15/barrel differential into profits. The Sunoco refineries can’t do that. That’s not a selling point.

Still, Sunoco’s announcement has boosted the share price by nearly 4% just before noon today, to $37.50, in a 52-week range of $26.93-$46.98.

Paul Ausick

Filed under: Oil & Gas, Shareholder Issues Tagged: COP, MPC, MRO, MUR, RDS-A, SUN, VLO

The Great Energy Spin-Off Pipeline (MRO, MPC, TSO, TLLP, COP, BP, CHK, EP, XOM, CVX)

Administrator — Fri, 02 Sep 2011 16:03:54 +0000

So far this year we’ve noted a couple of major spin-offs in the energy section. Marathon Oil Corp. (NYSE: MRO) spun out its downstream business into Marathon Petroleum Corp. (NYSE: MPC) and Tesoro Corp. (NYSE: TSO) has spun off its logistics and gathering assets into a master limited partnership called Tesoro Logistics LP (NYSE: TLLP).

There are at least four other significant spin-offs being planned or discussed in the sector. The largest perhaps is the planned spin-off of the downstream assets of ConocoPhillips Corp. (NYSE: COP). Chesapeake Energy Corp. (NYSE: CHK) has proposed plans to spin off a royalty trust to be called Chesapeake Granite Wash Trust and El Paso Corp. (NYSE: EP), in something of a reversal, plans to spin off its exploration and production assets while maintaining its midstream business.

Perhaps the most intriguing spin-off has not been announced yet, and may not happen at all. Several analysts have suggested that BP plc (NYSE: BP) should shed its downstream assets in an attempt to put the proper value on all of BP’s assets. BP has neither confirmed nor denied any plans to split up, and a betting man would probably wager that until the fallout is better known from last year’s Gulf of Mexico spill the company will not make any major move.

Exxon Mobil Corp. (NYSE: XOM) recently unloaded an 88,000 barrel/day refinery in Malaysia, along with several hundred retail outlets in the country, but has made no noise about spinning out US refineries. Chevron Corp. (NYSE: CVX) has said that it definitely has no plans to split up its businesses.

Conoco has announced a spin-off of its refining assets. Shareholders liked the news, but the company’s shares have not been able to hold onto the share-price boost that followed the announcement. That doesn’t mean that the split isn’t a good thing, but that other events have overshadowed it.

Chesapeake filed to form the royalty trust in early July and expected at the time to raise about $548 million from the deal. The Chesapeake Granite Wash Trust will own revenue interests in natural gas and liquids production in the Granite Wash shale gas play in Oklahoma’s Anadarko Basin. Chesapeake continues to raise cash in any way it can to work off its $10 billion in long term debt. This spin-off was viewed by investors as just another deal to do that and had a slightly negative short-term impact on the share price.

El Paso plans to spin-off its E&P business, which generated about 40% of the company’s $4.6 billion in 2010 revenues. The announcement boosted the company’s shares to a new 52-week high, but the stock price has pulled back about 10% since then. The new company’s assets include acreage in the Haynesville shale play, the Eagle Ford shale play, and a couple of other basins in Utah and Texas. Most of the production is cheap natural gas, with some liquids included. Realistically, El Paso’s E&P assets are most likely being prepped for sale.

Of the proposed spin-offs, El Paso’s has been the most well-received. But if BP decides to join the party, expect more interest in spin-offs to show up from the other integrated majors. That’s when things will really get interesting.

Paul Ausick

Filed under: IPOs, Mergers and Buy Outs, Oil & Gas Tagged: BP, CHK, COP, CVX, EP, MPC, MRO, TLLP, TSO, XOM