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Top Oil & Gas Stock Picks for 2012 (XOM, CVX, COP, RRC, TSO, PXD, APC, CHK, APA, OXY)

Paul Ausick — Wed, 28 Dec 2011 19:08:32 +0000

Crude oil prices have risen this year, although they have been tapering off in the past couple of months. Pump prices have been driven by the price differential between Brent crude and WTI crude, and integrated oil companies that could take advantage of the differential made substantial margins on refining WTI crude and selling the products as if higher priced Brent were the refineries’ feedstock. The differential reached more than $25/barrel earlier this year, but has fallen back to about $8-$9/barrel currently.

The fortunes of any oil & gas producer depends on the price of the commodity, and crude prices in the US have been rising, while natural gas prices have been no better than flat for the year. And while crude prices could rise to an average of more than $105/barrel in 2012, natural gas prices are not expected to rise much next year as abundant supplies are likely to increase even more.

We’ve looked at several oil & gas companies, including the three US-based supermajors and a number of independents with market caps above $10 billion: Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), Range Resources Inc. (NYSE: RRC), Tesoro Corp. (NYSE: TSO), Pioneer Natural Resources Co. (NYSE: PXD); Anadarko Petroleum Co. (NYSE: APC), Chesapeake Energy Corp. (NYSE: CHK), Apache Corp. (NYSE: APA), and Occidental Petroleum Corp. (NYSE: OXY). We’ve looked at the past year’s stock price performance and compared that with median target prices as reported by Thomson Reuters in an effort to find the stocks we think will be top performers in 2012.

Exxon Mobil Corp. (NYSE: XOM) has a median price target of $92 and a current price of around $84.62, for a potential upside of 8.7%. That’s the lowest potential gain of any of the stocks in this survey, but combined with a share price gain of about 15% in the past 12 months and a dividend yield of 2.3%, Exxon’s upside is stronger than the simple calculation. The stock’s 52-week trading range is $67.03-$88.23, so the stock is trading within about 5% of its 52-week high. Crude oil price hikes provide substantial benefits to Exxon’s shares, and those price hikes could add $10-$20/barrel to the company’s revenues in the coming year.

Chevron Corp. (NYSE: CVX) has a median price target of $122.50 and a current price of around $106.76, for a potential upside of 14.7%. Of the three supermajors, Chevron’s potential gain is the largest, it’s share price gain of nearly 16.5% in the past year is the largest, and its dividend yield of 3% is second in among the three giants. The stock’s 52-week trading range is $86.68-$110.01. Chevron has been the strongest bet among the three US supermajors this past year, and there’s little reason to expect that to change in 2012. A new 52-week high is close, and current events in the Middle East could push shares to a new high before the new year.

ConocoPhillips (NYSE: COP) has a median price target of $82 and a current price around $72.24, for a potential upside of about 13.5%. Conoco trails the other two supermajors in share price gain for the past 12 months, posting a rise of just 6.35%. The company’s dividend yield is highest of the supers, at 3.7%. The stock’s 52-week trading range is $58.65-$81.80. Conoco just sold assets in the North Sea for $330 million as it continues to try to bring its debt back under control. Of the three supermajors, this is the least likely to achieve its potential upside.

Range Resources Inc. (NYSE: RRC) has a median price target of $77.50 and a current price around $61.55, for a potential upside of 26%. But Range’s share price has jumped more than 36% in the past year, but the company pays a paltry dividend yield of just 0.3%. The stock’s 52-week trading range is $44.20-$77.24. With a market cap of right around $10 billion, Range is often mentioned as a takeover target from one of the supers or another mining company that wants to diversify into energy. Range holds about 800,000 leased acres in the Marcellus shale play, which is located close to the massive northeast US market.

Tesoro Corp. (NYSE: TSO) has a median price target of $28 and a current price around $23, for a potential upside of about 22%. The refiner’s share price has gained more than 25% this year, but the company pays no dividend. The stock’s 52-week trading range is $17.43-$29.61. Unlike the other major US refiner, Valero Energy Corp. (NYSE: VLO), Tesoro has made no major acquisitions recently, apparently satisfied to play the hand it’s got. That’s probably smart, considering Valero shares got whacked in the past 12 months, down more than -9%. But as the Brent/WTI differential closes, no refining stock is a good bet for 2012, regardless of the potential upside calculation.

Pioneer Natural Resources Co. (NYSE: PXD) has a median price target of $115 and a current price around $75.75, for a potential upside of 31.4%. The company’s shares gained a meager 2.2% in the past 12 months and the dividend yield is just 0.1%. The stock’s 52-week trading range is $58.63-$106.07. Like Range Resources, Pioneer carries a market cap of right around $10 billion. Most of the company’s assets are in Texas, and most are oil. Either as a takeover target or as a liquids producer, Pioneer is a solid play.

Anadarko Petroleum Co. (NYSE: APC) has a median target price of $100 and a current price of $75.75, for a potential upside of 32%. The share price gained more than 9% in the past year and the company pays a dividend yield of just 0.5%. The stock’s 52-week trading range is $57.11-$85.50. Until fairly recently, Anadarko’s assets have been exclusively onshore in the US, but its acquisition of Kerr-McGee gave it a position in the Gulf of Mexico and the company has also acquired assets offshore of Africa. The potential upside here, combined with the company’s share price performance last year, make Anadarko a solid prospect for gains in 2012.

Chesapeake Energy Corp. (NYSE: CHK) has a median target price of $35.50 and a current price around $22.87, for a potential upside of 55%. Shares have lost more than -11% in the past 12 months and the company pays a dividend yield of 1.5%. The stock’s 52-week trading range is $22-$35.95. Chesapeake’s shares are near the 52-week low today following a report from Reuters on how the company used shell companies to secure leases to drilling rights in Michigan and potential lawsuits springing from the practice. On the other side, at least one analyst thinks Chesapeake offers a “compelling risk/reward” opportunity. That awe-inspiring upside potential is probably out of reach though. Chesapeake holds a lot of debt, and any hiccup in the financial markets could raise havoc with the company.

Apache Corp. (NYSE: APA) has a median price target of $134 and a current price of $88.63, for a potential upside of 51.2%. The company’s share price has fallen more than -25% in the past year and it pays a dividend yield of 0.7%. The stock’s 52-week trading range is $73.04-$134.13. Several directors and company officers have been buying shares in the past month or so. Just under half of the company’s liquids production comes from its US assets, so the rising prices for WTI are positives for Apache. The large potential upside is probably not going to be closed, but the company’s shares could easily improve by 25% in 2012.

Occidental Petroleum Corp. (NYSE: OXY) has a median price target of $117.50 and a current price around $93.69, for a potential upside of 25.4%. The company’s share price has fallen more than -4% in the past 12 months and it pays a dividend yield of 2%. The stock’s 52-week trading range is $66.36-$117.89. Oxy’s assets include liquids-rich fields in southern California, where pricing for crude and liquids is higher than anywhere else in the country. Other assets in Texas and elsewhere onshore in the US will drive revenue and profit at Oxy this year, and the stock’s potential upside is not an impossible goal.

Overall, among these oil & gas stocks, Chevron would be the pick among the supermajors, and either Range Resources or Pioneer among the independents, primarily on the possibility of a takeover. Refiners face a tough 2012 and Conoco’s decision to split off its refining into a separate company won’t help matters.

Paul Ausick

Filed under: Oil & Gas, Value Investing Tagged: APA, APC, CHK, COP, CVX, OXY, PXD, RRC, TSO, XOM

The Week’s Market Losers (CSC, PXD, HP)

247wallst — Sat, 07 May 2011 14:59:41 +0000

S&P 500 WEEK: BOTTOM 10 (29 APR – 5 MAY)	Ticker	Weekly Price Change (%)	Close Price 5May11	Close Price 29Apr11	Market Cap ($Mil)
Computer Sciences Corp	CSC	-14.7	43.47	50.98	6741.8
Pioneer Natural Resources Co	PXD	-13.2	88.71	102.23	10359.9
Helmerich & Payne Inc.	HP	-11.9	58.43	66.34	6228.4
Murphy Oil Corp	MUR	-11.5	68.57	77.48	13262.3
Joy Global Inc	JOYG	-11.1	89.78	100.95	9407.8
Hess Corp	HES	-11.0	76.52	85.96	25967.7
Quanta Services Inc.	PWR	-10.8	19.33	21.68	4092.9
Tesoro Corp	TSO	-10.5	24.27	27.12	3477.3
National Oilwell Varco Inc	NOV	-10.4	68.70	76.69	29057.2
Harris Corp	HRS	-10.3	47.64	53.13	6094.8
Source: Capital IQ

Filed under: Research Tagged: CSC, HP, JOYG, MUR, PXD

Foreign Investors Buy Into Shale Gas Play

247wallst — Fri, 25 Jun 2010 15:28:35 +0000

Earlier this year Pioneer Natural Resources Co. (NYSE:PXD) said that it was seeking bids from potential partners to develop its holdings in the Eagle Ford shale gas play in south Texas. At the time, a prime suspect to partner with Pioneer was Chesapeake Energy Co. (NYSE:CHK). Chesapeake had been selling off non-core assets to raise cash to pay down its massive debt, but a relatively small investment in Eagle Ford could have paid off nicely for the company. France’s Total SA (NYSE:TOT) had first rights on an investment in Eagle Ford from an earlier deal with Chesapeake, but the French company demurred. So, apparently, did Chesapeake.

India’s Reliance Industries has agreed to invest $1.15 billion in a joint venture with a subsidiary of Pioneer in exchange for a 45% interest in 212,000 net leased acres in the Eagle Ford play. Reliance paid $1.7 billion in April to Atlas Energy, Inc. (NASDAQ:ATLS) for a 40% stake in Atlas’s acreage in the Marcellus shale play.

Chesapeake chose instead to issue preferred stock worth $900 million to sovereign wealth funds from China, Korea, Singapore, Japan, and Abu Dhabi, as well as to private investors. This stock issue follows on a $1.7 billion preferred stock sale in May. Chesapeake has shed or agreed to share more than $12 billion in assets in the past couple of years to pay down long-term debt of more than $12 billion.

Not to be outdone, China’s national oil company, China National Petroleum Company, has signed an agreement with Canada’s Encana Corp. (NYSE:ECA) under which the Chinese company will “invest capital to earn an interest in the assets and gain an advanced understanding of unconventional natural gas development through an ongoing sharing of technical knowledge.” The amount of the investment was not announced, but the proposed joint venture is expected to develop Encana’s properties in northeast British Columbia.

Both the Reliance and CNPC investments indicate that developing countries are as interested in gaining technical knowledge as much as they are in making a profit. The booming US shale gas industry has raised hopes that similar deposits that are thought to exist in many other areas of the globe can be developed using techniques pioneered in the US.

The International Energy Agency estimates that China sits on about 26 trillion cubic meters of shale gas that the country is not capable of extracting because it doesn’t have the knowledge. And rather than selling off its resource, the Chinese government has decided to spend some cash for on-the-job training.

There are calls for the Indian government to begin an official survey to locate shale gas in that country, and shale gas deposits have been found in Eastern and Western Europe. The stuff is everywhere, and the technology for getting it out of the ground belongs to US producers.

The following map provides some estimates of shale gas deposits. For reference, one cubic meter equals about 35.3 cubic feet.

Shale gas may also shift the geopolitical balance. The countries with the largest deposits of conventional natural gas are Russia, Qatar, and Iran. Widespread shale gas discoveries of significant size means that Eastern and Western Europe should be able to reduce their dependence on Russian natural gas, which now provides 25% of the continent’s supply. Qatar has invested heavily in LNG production, with significant funds also coming from big oil.

China has committed significant funding to its naval capabilities because the government believed it needed to protect the sea lanes between the Persian Gulf and China for both crude oil and LNG deliveries. If the country substitute domestic shale gas, the expressed reason for the Chinese naval buildup diminishes.

Finally, if shale gas is as widely spread as believed, natural gas could become a transition fuel to generate electricity, replacing coal. Natural gas emits about half the CO2 of coal. While this is not zero, it’s a substantial improvement.

Investments in US shale gas plays and players are likely to become more common, especially for smaller companies with leases in producing fields. Prices for natural gas, although currently rising, are also likely to remain under long-term pressure due to the huge volumes of gas being produced from the shale plays.

Paul Ausick

Filed under: Oil & Gas Tagged: ATLS, CHK, ECA, PXD, TOT

Top 10 Analyst Upgrades and Downgrades (MCD, NLC, PUK, PXD, RIMM, STP, STM, YUM, X, WEN)

Administrator — Fri, 04 Jun 2010 12:14:49 +0000

These are ten of this Friday morning’s top analyst upgrades, downgrades and initiations seen from Wall Street research calls:

McDonald’s Corp. (NYSE: MCD) Started as Positive at Susquehanna.
Nalco Holding Co. (NYSE: NLC) Cut to Neutral at JPMorgan.
Prudential plc (NYSE: PUK) ADRs were resumed as a Buy rating at Citigroup.
Pioneer Natural Resources Co. (NYSE: PXD) Raised to Buy at Stifel Nicolaus.
Research-in-Motions Ltd. (NASDAQ: RIMM) Target cut to $70 from $75 at UBS.
Suntech Power Holdings (NYSE: STP) Maintained Buy but Cut target to $18 from $23 at Lazard.
STMicroelectronics NV (NYSE: STM) ARDs were Raised to Neutral at UBS.
YUM! Brands (NYSE: YUM) Started as Positive at Susquehanna.
U.S. Steel (NYSE: X) Maintained Buy but removed from Conviction Buy List at Goldman Sachs.
Wendy’s/Arby’s (NYSE: WEN) Started as Neutral at Susquehanna.

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

JON C. OGG

Filed under: Analyst Calls Tagged: MCD, NLC, PUK, PXD, RIMM, STM, STP, WEN, X, YUM

A Flood Of Energy M&A: Schlumberger Buys Smith For $11 Billon

247wallst — Sun, 21 Feb 2010 18:43:02 +0000

The acquisition by Schlumberger Ltd. (SLB) of competitor Smith International Inc. (SII) for $11 billion could be another sign that mergers and acquisitions in the energy sector will pick up in 2010. This is the second big deal in the oilfield services sector, following last August’s announcement by Baker Hughes Inc. (BHI) that it would buy smaller rival BJ Services (BJS) for $5.5 billion.

Under the terms of the agreement, Smith shareholders will receive 0.6966 shares of Schlumberger in exchange for each Smith share. Based upon the closing stock prices for both companies on February 18, 2010, the agreement places a value of $45.84 per Smith share, representing a 37.5% premium. Upon closing, and reflecting the issuance of new Schlumberger shares, Smith stockholders collectively will own about 12.8% of Schlumberger’s outstanding shares of common stock.

Schlumberger expects to realize incremental pretax synergies—after integration costs—of aabout $160 million in 2011 and about $320 million in 2012. Schlumberger expects the combination to be accretive to earnings per share in 2012.

Exxon Mobil Corp.’s (XOM) proposed buyout of XTO Energy (XTO) for about $40 billion provides another example of M&A activity in the energy industry. Are there other deals lurking that will change the shape of the industry in the coming year?

Some rumors have surfaced that could prove out or could just be a waste of ink and pixels. What follows are some of the better possibilities.

Conoco Phillips (COP) might be the best bet among the big oil companies to forge a deal. Possible partners include Anadarko Petroleum (APC), Apache (APA), Devon Energy (DVN), and Marathon Oil (MRO). The three primarily exploration and production companies may be too rich for ConocoPhillips, but Marathon, with its large holdings of refineries, may be a decent fit with the fifth-largest refiner in the world.

Refining in the US is a nasty business right, with non-existent margins and low capacity utilization. US demand for refined fuels was dampened during the price run-up of 2008, and has never really come back. But if ConocoPhillips and Marathon could either spin-off or sell outright their combined refining operations, the more streamlined company could be a solid player in E&P going forward.

The most active areas for exploration and development in the US these days are the unconventional gas plays, particularly the shale deposits such as the Marcellus Shale in the Appalachians, the Bossier Shale in Texas and Louisiana, and the Eagle Ford Shale in south Texas.

Thanks to horizontal drilling techniques, shale gas flows quickly hit peak flows. Conventional gas wells ramp to peak flows much more slowly. St. Mary Land & Exploration (SM) drilled a vertical well in the Haynesville Shale play that produced an initial flow of 1.9 million cubic feet per day. Goodrich Petroleum (GDP) completed a horizontal well in the Haynesville that flowed at an initial rate of 12.2 million cubic feet per day. This kind of production is what makes shale gas plays so attractive.

One company that has made a substantial number of deals with its natural gas deposits is Chesapeake Energy (CHK). The company has raised about $11 billion in the past couple of years either through sales or partner agreements. One good possibility for another Chesapeake partnership is St. Mary, which holds leases and options on 225,000 net acres in Eagle Ford and a joint venture with Anadarko that includes another 66,000 acres.

Another possibility for Chesapeake is Pioneer Natural Resources Inc. (PXD), which recently announced that it is seeking bids for a partner to develop its holdings in the Eagle Ford play. Chesapeake has ceded first rights to a partnership in Eagle Ford to France’s Total SA (TOT) as part of an earlier partnership agreement. Pioneer holds 310,000 gross acres in the Eagle Ford play. The company holds proved reserves of 899 million barrels of oil equivalent, 98% of which is in the US.

Colorado-based Delta Petroleum (DPTR) has had its ups and downs in the past year, and has already announced that it is seeking “strategic alternatives”, including selling the company. The company’s market cap is around $400 million and it holds long-term debt as of September 30, 2009, of about $567 million. Cash flow from operations was negative in the third quarter of 2009, and the company had just $5 million in cash. Though not a shale play, Delta holds leases in Colorado’s gas-rich Piceance Basin.

Goodrich Petroleum with a market cap near $800 million and substantial acreage in the Haynesville and Eagle Ford plays also presents an opportunity for acquisition. The company’s proved reserves at the end of 2009 totaled about 421 billion cubic feet equivalent, 99% of which is natural gas.

A larger company that gets some attention in M&A chatter is Petrohawk Energy Corp. (HK). This is a larger deal, though, because Petrohawk has a market cap near $7 billion. The company is all over the Haynesville Shale and holds leases on some 225,000 acres in Eagle Ford.

Finally, Range Resources Corp. (RRC), with a market cap of about $8.5 billion, is heavily invested in the Marcellus and Barnett shale plays. But with a forward P/E ratio of over 60, the company may just be too rich for a potential buyer. But it’s not impossible to envision a joint venture or two with a company like Devon, which expects to recover 11 billion cubic feet equivalent per well in the core of the Cana Woodford shale play in Oklahoma.

The action in the energy business these days is virtually all in the natural gas shale plays. Exxon’s acquisition of XTO started the charge, and further consolidation is almost certain.

Paul Ausick

Filed under: Mergers and Buy Outs, Oil & Gas Tagged: APC, BHI, BJS, CHK, COP, DPTR, DVN, GDP, HK, MRO, PXD, RRC, SII, SLB, SM, TOT, XOM, XTO

Oil & Gas Top Analyst Calls (CPX, FSYS, KEG, PXD, STO)

247wallst — Tue, 24 Jun 2008 08:15:28 +0000

These are some of the analyst calls impacting oil and gas related shares so far this morning from Wall Street research firms:

Complete Production Services (NYSE: CPX) Raised To Overweight By JP Morgan; shares indicated up 0.5% on thin volume.
Fuel Systems Solutions (NASDAQ: FSYS) Cut to Neutral from Buy at Broadpoint (alternative fuel for transportation and power generation); shares down 3.5% on downgrade.
Key Energy Services (NYSE: KEG) Raised ot Outperform at RBC Capital; shares up over 3% so far.
Pioneer Natural Resources (NYSE: PXD) Raised to Outperform at BMO Capital; shares up 1.8%.
Statoil Hydro (NYSE: STO) Started as Overweight at Morgan Stanley; Cramer just panned this one as "running out of oil" last night on CNBC’s MAD MONEY; shares up 1.3%.

Jon C. Ogg
June 24, 2008

Up & Down the Oil & Energy Patch (CVX, DUK, PTEN, PXD, MUR)

247wallst — Fri, 02 May 2008 08:11:00 +0000

Chevron Corporation (NYSE:CVX) reported earnings of $5.17 billion and $2.48 EPS for the first quarter of 2008. First Call had estimates at $2.41 EPS. This compared with $4.72 billion and $2.18 EPS for the same period a year ago. Revenues jumped to $65.95 billion, up about 38% from $48.23 billion. Analysts were looking for revenues of $75.64 billion and $2.41 EPS. Refining earnings dropped from $1.62 billion to $252 million, due to higher crude oil costs and lower refining margins. It’s a repeat of the same story from all the integrated oil companies. CVX stock is up almost 1% at $95.80 in pre-open trading.

Duke Energy (NYSE: DUK) may be more of an electricity play, but when you look at its break-down you will understand why it’s included in energy stocks this morning. It is trading up over 3% after earnings of $465 million or $0.35 EPS, compared to $0.30 EPS a year ago and compared to First Call estimates of $0.31. Revenues grew 9% to $3.337 billion, and First Call had estimates at $3.25 billion.

Even though Duke’s numbers beat the estimates, it took an accounting change to make it happen. Duke changed the way it accounts for the impact of mark-to-market hedges in its Commercial Power segment. Beginning in the 2008 first quarter, the company will exclude its commodity hedging from earnings. Adjusted earnings, compared with the first quarter of 2007, is exactly $0.05/share. So, EPS is flat compared with last year, and 70% of the earnings boost is attributable to this exclusion. The company reiterated its guidance for $1.27 EPS in 2008.

Elsewhere, analysts have made a few calls regarding the oil and energy stocks this morning with calls in Patterson-UTI (NASDAQ: PTEN), Pioneer Natural Resources Company (NYSE: PXD), and Murphy Oil (NYSE: MUR):

Patterson-UTI (NASDAQ: PTEN) was raised by Credit Suisse, although the prior "Underperform" rating was raised only to a Neutral.
Pioneer Natural Resources Company (NYSE: PXD), in the exploration and production of oil and gas, was also raised to a Buy from a Hold rating over at Deutsche Bank.
Murphy Oil (NYSE: MUR) was downgraded this morning over at Bernstein’s research department. Its prior "Outperform" rating was given a new "Market Perform" rating.

Paul Ausick
May 2, 2008