Clorox Co. (NYSE: CLX) has been removed from CreditWatch with negative implications at Standard & Poor’s and Ratings Watch Negative at Fitch Ratings. S&P and Fitch also affirmed ‘BBB+’ ratings on the company’s credit and maintained a stable outlook. Clorox recently beat back an unsolicited offer of $80/share from Carl Icahn, which had pushed the agencies to put negative watches on the company’s credit.

Home Depot, Inc. (NYSE: HD) subsidiary HD Supply Inc. received an upgrade on two senior secured term loans by Moody’s from ‘Baa1′ to ‘A3′. The two loans total $933 million, with $73 million due in 2012 and $870 million due in 2014. The upgrade resulted from a recent upgrade by Moody’s of Home Depot’s senior unsecured rating from ‘Baa1′ to ‘A3′. Because Home Depot guarantees HD Supply’s debt, the loans are treated as if they were made to Home Depot.

HCA Inc. (NYSE: HCA) has received a ‘B3′ rating from Moody’s on up to $500 million in senior unsecured debt due in 2018. HCA filed a preliminary prospectus for the notes with the SEC stating that proceeds from the sale may be used to buy Colorado Health Service’s portion of a joint venture in the Denver area. HCA has already agreed to purchase the stake for $1.45 billion. No interest rate or principal amount has been set for the junk-rated bonds.

Gannett Co. Inc. (NYSE: GCI) received a lowered outlook at S&P from ‘positive’ to ‘stable’. All other ratings were affirmed, including the ‘BB’ rating on corporate credit. S&P noted that the outlook downgrade follows from the agency’s determination that any potential outlook upgrade is more than a year in the future. Because Gannett derives 60% of its revenue from the troubled newspaper business, S&P believes that the company’s prospects for growth are dim.

Archer Daniels Midland Co. (NYSE: ADM) received an ‘A’ rating from S&P on its newly extended $528 million senior unsecured debentures due in 2042. The amount represents privately offered exchanges that were accepted by September 23rd. ADM announced pricing last week on its public debt exchange offer, expiring October 5th. The total amount of debt included in the offer is $1.49 billion.

Newfield Exploration Co. (NYSE: NFX) received ratings from both S&P and Fitch on $500 million in senior unsecured notes due 2022. S&P assigned a rating of ‘BBB-’ to the notes, which will be senior to the company’s existing senior subordinated notes but junior to all obligations at Newfield subsidiaries. Currently there is no outstanding debt at any Newfield subsidiary. Fitch assigned a ‘BB+’ rating to the notes. Proceeds from the sale of the notes will be used to repay a portion of the company’s outstanding $845 million on its revolving credit facility. S&P maintained a ‘stable’ outlook, while Fitch maintained a ‘positive’ outlook’.

Southwest Airlines Co. (NYSE: LUV) ratings of ‘BBB’ on senior unsecured debt and the company’s overall issuer default ratings were affirmed by Fitch today. The company’s $800 million revolving credit facility  due 2016 also received a ‘BBB’ rating and secured term loans due 2019 and 2020 received ‘BBB+’ ratings. Southwest has no borrowings outstanding against its revolving credit facility.

AMR Corp. (NYSE: AMR), parent of American Airlines, was assigned a rating of ‘Baa3′ by Moody’s on the company’s pass-through certificates which will be used to purchase equipment notes issued by American Airlines to re-finance 43 airplanes, of which 27 are currently financed under other trust certificates and 12 are used as collateral for other third-party loans. The remaining 4 airplanes are unencumbered. The corporate family rating for American is ‘Caa1′ with a negative outlook.

Paul Ausick

Aetna Inc. (NYSE: AET) Reiterated Neutral with $39 target at BofA/ML.
AMR Corporation (NYSE: AMR) Cut to Neutral at UBS.
Canadian Solar Inc. (NASDAQ: CSIQ) Raised to Buy at Auriga.
FXCM Inc. (NASDAQ: FXCM) Started as Outperform and $17 target at Credit Suisse.
Goldcorp Inc. (NYSE: GG) Reiterated Buy and $62 target at BofA/ML.
Impax Laboratories Inc. (NASDAQ: IPXL) Maintained Underperform at BofA/ML.
Intel Corporation (NASDAQ: INTC) Reiterated Outperform and $28 target at Credit Suisse.
JA Solar Holdings Co., Ltd. (NASDAQ: JASO) Raised to Buy at Auriga.
LDK Solar Co. Ltd. (NYSE: LDK) Reiterated Buy and $17 target at Argus.
Macy’s, Inc. (NYSE: M) Raised to Outperform with $27 target at Credit Suisse.
McDonald’s Corporation (NYSE: MCD) Started as Market Perform at BMO Capital.
Monsanto Co. (NYSE: MON) Raised to Buy with $87 target at Argus.
Newfield Exploration Co. (NYSE: NFX) Reiterated Buy and raised target to $79 at BofA/ML.
RadioShack Corp. (NYSE: RSH) Maintained Underperform but cut target to $16 at BofA/ML.
Salesforce.com Inc. (NYSE: CRM) Maintained Neutral and $100 target at Credit Suisse.
Starbucks Corp. (NASDAQ: SBUX) Started as Market Perform at BMO Capital.
Suntech Power Holdings Co. Ltd. (NYSE: STP) Raised to Overweight at Barclays.
SunPower Corporation (NASDAQ: SPWRA) Cut to Sell at Auriga.
Yum! Brands, Inc. (NYSE: YUM) Reiterated Buy at Argus.

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JON C. OGG

Bloomberg outlines the entire process of his decision to call it quits. We wanted to outline his top holdings in the fund. Akamai Technologies Inc. (NASDAQ: AKAM), Apple Inc. (NASDAQ: AAPL), Cisco Systems, Inc. (NASDAQ: CSCO), Citigroup Inc. (NYSE: C), EOG Resources Inc. (NYSE: EOG), JP Morgan Chase & Co. (NYSEL JPM), McDonald’s Corp. (NYSE: MCD), Mylan Inc. (NASDAQ: MYL), Newfield Exploration Co. (NYSE: NFX), and Wells Fargo & Co. (NYSE: WFC) are his ten top holdings.  While most are not going to add significant pressure due to the vast trading volume, there were a few standouts here.

Most of these will easily be able to absorb the selling, and most may have already been sold.  Stanley is known for wheeling and dealing fast in and fast out when he spots a trend.

Becoming a billionaire and hanging up the hat to start a family office at age 57 isn’t so bad.  It isn’t as though he has to wait for his social security checks later this decade.

JON C. OGG

The amount of spillage caused by offshore platforms in 2007 totaled 109 barrels in a total of 18 different incidents. The Deepwater Horizon, owned by Transocean Ltd. (NYSE:RIG) and under contract to BP plc (NYSE:BP), is estimated to be pumping crude into the Gulf at the rate of 5,000 b/d. Unless the flow is staunched soon, this incident will surpass the blow-out offshore of Santa Barbara, California, in 1969, which pumped more than 100,000 barrels into the water.

The oil industry has gotten better at preventing and stopping leaks, but a disaster of the kind that BP is battling now is unprecedented. Trying to stop the leaks is essentially a trial-and-error process that is based on experience gained at shallower depths plugging far smaller leaks. The 1979 blow-out of the Ixtoc 1 Gulf platform operated by Mexico’s Pemex pumped about 3.3 million barrels of oil into the Gulf at a rate estimated at 10,000-30,000 b/d.

This photo shows the oil slick and the Ixtoc 1 platform.

Every US major oil company owns rights to drill in the Gulf of Mexico and in other major offshore fields around the world. Exxon Mobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX), and ConocoPhillips Corp. (NYSE:COP) all have large investments in the Gulf of Mexico and continue to seek new leases as they become available. And while drilling in the Gulf is safer than it’s ever been, the risk of a disaster like the Deepwater Horizon blowout is always present.

But what about companies that don’t drill offshore? Are they safer for workers and the environment and for investment?

The largest publicly traded US company that holds no exposure to offshore drilling in the Gulf of Mexico is Occidental Petroleum Corp. (NYSE:OXY). Oxy Pete, as it’s called, owns and operates leases in North and South America and the Middle East and North Africa. The company does some offshore development in Qatar and Libya in cooperation with national oil companies, but all work in the Americas is onshore. Oxy’s market cap is about $65.5 billion and its forward PE ratio is 10.97, significantly under its current trailing PE of 18.97.

Another large US company that is actively divesting its Gulf of Mexico assets is Devon Energy Corp. (NYSE:DVN). Devon has sold assets to Apache Corp. (NYSE:APA) and others as it has essentially sold off all its deepwater Gulf and international assets to re-focus on developing its onshore properties. As the company chairman/CEO put it recently, Devon is positioned “to deliver low-risk, profitable, organic production growth on a sustainable basis.” Devon’s market cap is about $30 billion, and its forward PE is 10.40, very close to its current trailing PE of 11.02.

A third company with limited offshore work is Suncor Energy Inc. (NYSE:SU). Suncor is based in Canada and holds more than 23 billion barrels of reserves in the Canadian oil sands of Alberta. The company does hold about 4 billion barrels of reserves of the northeastern coast of Canada, but these are not in deepwater and they have been producing for many years in most cases. Suncor’s market cap is about $50 billion, its forward PE is 11.54, and its current trailing PE is 22.11.

A smaller cap company with no exposure to offshore risk is Forest Oil Corp. (NYSE:FST). In many ways, Forest executed the strategy now being followed by Devon, divesting itself of its Gulf of Mexico and Alaska assets to become solely an onshore producer. Forest Oil has a market cap of about $3 billion, a forward PE ratio of 11.27, and a current trailing PE ratio of 7.98.

Finally, an interesting mid-cap E&P company is Newfield Exploration Co. (NYSE:NFX), which expects to get 11% of its total 2010 from the Gulf of Mexico. About 5% of the company’s total reserves are in the Gulf, and Newfield focuses on deepwater plays. The company expects to drill 3-5 new wells a year for several years and to grow its Gulf production by 60% during 2010, mainly through two new wells that are coming on-line later this year. Newfield, unlike Devon and Forest, is not only staying in the Gulf, but is looking to expand its deepwater development. Newfield’s market cap is $7.35 billion, its forward PE ratio is 11.22, and its trailing PE is 18.19.

Most offshore spills are relatively small and most are the result of some issue with transportation, either by tanker or pipeline. A disaster like the one facing BP now is potentially catastrophic because the leak can continue unabated for months until the flow is stopped. The 1979 Ixtoc 1 blow-out took nearly a year to cap.

According to the American Petroleum Institute, there have been 17 blow-outs in US waters since 1964, all but one (Santa Barbara) in the Gulf of Mexico. About 149,000 barrels spilled into the Gulf as a result of those 16 blow-outs. Since 1969, the total amount of oil spillage into the Gulf from platforms is about 176,000 barrels. The API estimates that between 560,000 and 1.4 million barrels of oil enter the Gulf every year through natural seeps.

Oil production in the deep waters of the Gulf is a high-risk, high-reward business. Only the largest companies can afford to take those risks, and that’s probably a good thing. BP is better positioned than all but a small handful of other companies both to try stopping the flow from the Macondo well and to pay for all the clean-up work that needs to be done.

That’s not to say that Devon and the others are avoiding offshore drilling because they’re scared of the consequences. But it’s possible to make a nice profit with minimum risk, and keep your feet dry at the same time. Many feel that the price of crude will only continue to rise, so working where it’s reasonably safe and dry will turn up good profits over time without having to lose sleep over an offshore disaster. It’s almost like taking a value investing approach to exploration & production.

Paul Ausick

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Newfield has offered about $217 million for about 350,000 net acres of TXCO assets in the Maverick Basin in southwest Texas. Anadarko Petroleum (APC) purchased about 80,000 net acres in the same basin for about $93 million. Current production from the Newfield acres is about 1,500 barrels of oil equivalent/day, about 1,000 barrels of which is oil.

Newfield has had trouble with free cash flow during the past year, and in the third quarter of 2009 was finally able to turn that around to a positive number.

The company announced yesterday that it had achieved record gross production of 323 million cubic feet equivalent/day of natural gas from its Woodford Shale play in the Arkoma Basin of Oklahoma. The increase is the result of well completions extending beyond 5,000 horizontal feet, a technique called super extended lateral completion. The technique boosts well production by increasing estimated ultimate recovery quantities over a longer time period. That substantially improves the economics of drilling and production.

Using the proceeds from new debt to fund capital expenditures is not usually a healthy signal from an exploration and production company. In this case, though, Newfield has tested out its process and verified that well economics can be seriously improved by using the extended lateral process. At a cost of $7-$8 million per well, the company plans to bring another 20 wells into production in the first quarter of 2010. Of that number, six wells are of the extended lateral type.

Newfield expects its Woodford Shale play to produce 20% more natural gas in 2010 than it did in 2009. If natural gas prices remain above $4.50, Newfield earns a tidy profit. Today’s Henry Hub spot price is down slightly, to $5.51. The time could be right for increased investment in natural gas, and Newfield is jumping on it.

Paul Ausick

The questions arise from today’s announcement by Newfield Exploration(NYSE:NFX) that it is increasing the midpoint of its 2008 full-yearproduction guidance by 4 billion cubic feet equivalent. Newfield alsoincreased guidance for 2009 by 8%-13% over the new 2008 volumeprediction. The market is not impressed so far: the stock has fallenmore than 11% in early trading.

About 70% of Newfield’s assets are natural gas, mostly in the WoodfordShale play and in the Rocky Mountain region. Like every other gasproducer, Newfield increased its drilling program when gas pricesstarted to jump. Now, production is strong and demand has leveled off.Even the recent Gulf of Mexico shut-ins have not affected natural gasprices much.

As a result, companies like Newfield that predict increased gasproduction are not going to impress investors. An energy analyst atRaymond James has dropped his price forecast for the fourth quarter of2008 to $7.50/thousand cubic feet and to $6.75/thousand cubic feet for2009. The October contract on NYMEX this morning stands at$7.235/thousand cubic feet; NYMEX crude oil is trading at under$105/barrel. That’s a differential of nearly 15 times.

Newfield’s competitors Apache (NYSE:APA), Anadarko (NYSE:APC),Chesapeake (NYSE:CHK), and Devon (NYSE:DVN), among others, are alltrading lower this morning, down about 6%-7%. With the exception ofChesapeake, these competitors hold gas and oil assets in more nearlyequal proportion.

As long as energy prices keep falling, energy stocks are going alongfor the ride. But natural gas players could fall faster and harder.

Paul Ausick
September 9, 2008

Newfield Exploration (NFX) Crude down $6. Bad day for oil exploration stocks. Falls to $39.98 from 52-week high of $69.77.

McDermott International (MDR) Oil and gas equipment supplier. Drops to $31.14 from 52-week high of $67.14.

Introgen Therapeutics (INGN) FDA turns down treatment application. Falls to $.50 from 52-week high of $4.85.

Hercules Offshore (HERO) Caught by collapsing oil prices. Sells down to $19.80 from 52-week high of $39.47.

Flextronics (FLEX) Concerns about rising short interest? Drops to $8.45 from 52-week high of $13.60.

Douglas A. McIntyre

• Affymetric (AFFX) raised to Buy at UBS.
• Citigroup (C) saw its Debt rating cut from Aa2 to Aa3 and financial strength cut from A to B at Moody’s based on capital ratios.
• Disney (DIS) raised to Buy at UBS.
• Drugstore.com (DSCM) started as Buy at Banc of America.
• GSI Commerce (GSIC) cut to Hold at Jefferies.
• Jetblue Airways (JBLU) raised to Peer Perform at Bear Stearns.
• Panera Bread (PNRA) Cut to Neutral at Sun Trust Robinson Humphreys.
• Unilever (UN) started as Buy at Banc of America.
• United Online (UNTD) raised to Buy at Jefferies.
• Credit Suisse makes downgrades in oil patch: Devon (DVN), EOG Resources (EOG), Frontier (FTO), Newfield Exploration (NFX), Quicksilver (KWK).

Jon C. Ogg
December 14, 2007