Refiners are no better off: Valero Energy Corp. (NYSE: VLO) is down -7.7% in the past month, Marathon Petroleum Corp. (NYSE: MPC) is down about -9.8%, while Tesoro Corp. (NYSE: TSO) is up a bare 0.4%. Refiners have been surviving off the wide differential between WTI and Brent crudes and as the differential narrows, profits are harder to come by.

For the integrated oil companies, the price of crude has been the determining factor in a company’s profit picture: the higher the price, the bigger the profit. That makes sense. For the services company, higher prices typically mean more work as producers want to get more oil to sell.

Because crude prices are at a seven-month low now, we thought it would be interesting to look for value in some of the big oil stocks. After all, low crude prices mean share sell-offs, so there ought to be some value left on the table.

With the exceptions of Exxon and Chevron, all the companies we looked at have implied gains exceeding 30% if analysts have gotten target prices right. That’s some pretty good value, but we thought we’d try to handicap the race a bit more closely.

Exxon Mobil Corp. (NYSE: XOM) traded at $82.21 and has a market value of $383 billion. The consensus target price from Thomson Reuters is $94.53 and the 52-week range is $67.03 to $87.94. Exxon has a dividend yield of 2.8%. The implied upside to the consensus target is 15%, but we would note that the target is above the 52-week high.

Chevron Corp. (NYSE: CVX) traded at $99.71 and has a market value of $196 billion. The consensus target price from Thomson Reuters is $124.88 and the 52-week range is $86.68 to $112.28. Chevron has a dividend yield of 3.7%. The implied upside to the consensus target is 25%, but we would note again that the target is above the 52-week high.

BP plc (NYSE: BP) traded at $38.26 and has a market value of $121 billion. The consensus target price from Thomson Reuters is $53.25 and the 52-week range is $33.62 to $48.34. BP has a dividend yield of 5.2%. The implied upside to the consensus target is 39%, but we would note again that the target is above the 52-week high.

Schlumberger Ltd. (NYSE: SLB) traded at $67.47 and has a market value of $89 billion. The consensus target price from Thomson Reuters is $89.20 and the 52-week range is $54.79 to $95.53. Schlumberger has a dividend yield of 1.7%. The implied upside to the consensus target is 32%, and the target price is lower than the 52-week high.

Halliburton Co. (NYSE: HAL) traded at $31.40 and has a market value of about $29 billion. The consensus target price from Thomson Reuters is $47.28 and the 52-week range is $27.21 to $57.77. Halliburton has a dividend yield of 1.2%. The implied upside to the consensus target is 51%, and again the target price is lower than the 52-week high.

Baker Hughes Inc. (NYSE: BHI) traded at $42.20 and has a market value of about $18 billion. The consensus target price from Thomson Reuters is $56.33 and the 52-week range is $39.40 to $81.00. Baker Hughes has a dividend yield of 1.5%. The implied upside to the consensus target is 33%, and again the target price is well below the 52-week high.

Valero Energy Co. (NYSE: VLO) traded at $22.17 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $30.15 and the 52-week range is $16.40 to $28.68. Valero has a dividend yield of 2.8%. The implied upside to the consensus target is 36%, and again the target price is above the 52-week high.

Marathon Petroleum Corp. (NYSE: MPC) traded at $36.38 and has a market value of about $12 billion. The consensus target price from Thomson Reuters is $52.50 and the 52-week range is $26.35 to $47.43. Marathon has a dividend yield of 2.9%. The implied upside to the consensus target is 44%, and again the target price is above the 52-week high.

Tesoro Corp. (NYSE: TSO) traded at $23.49 and has a market value of about $3 billion. The consensus target price from Thomson Reuters is $31.36 and the 52-week range is $17.43 to $30.15. Tesoro does not pay a dividend. The implied upside to the consensus target is 34%, and again the target price is above the 52-week high.

For comparison, The SPDR S&P Oil & Gas Exploration and Production ETF (AMEX: XOP) traded at $50.45 in a 52-week range of $37.67 to $65.58. That’s about 30% below the 52-week high. The Market Vectors Oil Services ETF (AMEX: OIH) traded at $37.47 in a 52-week range of $35.32 to $45.14, again about 30% below the 52-week high.

Target prices for the large integrated oil companies are above 52-week highs, as are target prices for the refiners. Unless the price of crude rises sharply, the targets are out of reach for the integrated companies. For refiners, they’re whipsawed if prices for WTI open a bigger gap versus Brent or if WTI rise and Brent falls. No chance at those targets either way.

Targets for the services companies are lower than 52-week highs, which improves the chances of hitting those targets. Schlumberger, the largest of the services companies, and Baker Hughes both look appear to have the best chance to boost their share prices.

Paul Ausick

Natural gas producers like Exxon Mobil Corp. (NYSE: XOM), Chesapeake Energy Corp. (NYSE: CHK), and EOG Resources Inc. (NYSE: EOG) have slowed production in an effort to get gas prices to rise. Coal producers like Consol Energy Inc. (NYSE: CNX), Peabody Energy Corp. (NYSE: BTU), Alpha Natural Resources Inc. (NYSE: ANR), and Arch Coal Inc. (NYSE: ACI) have also cut production, but in their case the effort was to reduce costs.

Natural gas inventories remain high, though off by about 13% from their peak in March. Lower injections into storage have helped, as have warmer temperatures in some parts of the country. But temperatures are expected to moderate and the forecast for summer does not include long periods of high temperatures. That means that natural gas inventories will enter the traditional winter drawdown period beginning in October with above average inventories again. Inventories need to drop by more than 500 billion cubic feet by the end of summer or there won’t be any place to put new production. The early estimate for inventory growth this week calls for 67-88 billion cubic feet to be added to already bulging stocks.

As for the coal producers, they could continue to get squeezed at natural gas price below $3.00 because generation plants that have switched to gas won’t want to switch back until they are sure that gas prices are going to remain elevated. Utility companies will drive a hard bargain on coal pricing until it’s clear that gas prices are going to remain high.

The recent modest increase in natural gas prices is not going have much impact coal production unless the price hike gets above about $3/thousand cubic feet and stays there. That does not appear likely at this point.

Paul Ausick

The market value is still the largest of any public company at $501 billion, but the market value is now down almost $100 billion from the actual peak.  We have reported on two recent occasions how weak iPhone sales projections from analysts seem to be the big concern.  Both reports indicate that the iPad will save the day, and the latest earnings report showed that China really saved the day (with purchases rather than cheap labor).

The consensus analyst target on Apple is now above $708.00 and that implies another 32% upside if the analysts are right.  Some analyst calls even target $1,000 (and higher) for Apple stock.  At that rate, it becomes cheaper to buy Apple’s products than it does to buy 1 share of Apple stock.

Maybe this is the peak valuation concern coming into play as well.  Microsoft Corporation (NASDAQ: MSFT), which ultimately may have saved Apple with a Gates-led investment, reached up close to the $600 billion or so at the peak in 2000.  Cisco Systems Inc. (NASDAQ: CSCO) also reached about $350 billion.

General Electric Co. (NYSE: GE) peaked somewhere around the $475 billion valuation.  Exxon Mobil Corporation (NYSE: XOM) also peaked out above $500 billion during the energy bubble run-up, but that has not been seen since and the current market value is about $385 billion or so.  The common theme is that all of these values have come crashing down.

There is one thing to consider here in the ’mega-cap valuations and that is that Exxon Mobil is the only stock that had a low valuation like Apple still has.  In fact, Apple now trades at only about 10-times the Fiscal 2013 earnings estimates now that it has pulled back over $100.  Its multiple is even less than that if you back out the $100+ billion treasure trove that the company has.

The focus ahead has to be on Apple TV.  iPad and iPhone sales may only be able to go so far, and now it will be up to the new devices.  One concern we have is that the story of the Mac is a lost one.  Honestly, when was the last time you heard anyone focused on Mac sales in the last few months?  It is all about iPads and iPhones, which are actually cannibalizing what would have been Mac sales, and the talk remains around Apple TV.

One issue to consider is that certain funds have had to lighten up in Apple shares.  The large institutional sales orders have not been very evident in recent months, but the reality is that Apple started to become too heavily weighted for many non-index fund managers.  To prove this in the NASDAQ 100, the PowerShares QQQ (NASDAQ: QQQ) has close to an 18% weighting in Apple.  We have seen one estimate that only about one-third of the share selling was tied to large funds and hedge funds, although that no longer be the case since that data is 45 days old (or longer).

What seems to be at work is simply a change of heart.  The stock was weak ahead of May and the stock was still above $600 as recently as April 27.  Still, the psychology of “Sell in May and go away!” has been exaggerated due to the woes of Europe, the slowing growth of the BRIC nations, and weakening U.S. economic data.

Another concern may be that Microsoft Corporation (NASDAQ: MSFT) is being favorably treated going into the Windows 8 launch later this year.  All of the companies in technology are talking this up.  It is even possible that investors are unloading shares just so they can buy up Facebook shares after the IPO on Friday.

Apple is not expensive at all.  The question is whether or not it can be maintained.  When you are paying 10-times for future earnings today, that implies that you are paying for earnings out about ten years on a static basis.  All that is happening after the massive run that has been seen over the last decade is that the growth rate cannot be maintained indefinitely.

This sentiment won’t last forever, but the focus is elsewhere for the time being.  Will Apple hit $500 or even lower?  Maybe.  As long as the market does not really tank and as long as we do not enter a second recession, the consensus is that Apple’s stock still has a lot of room to rise after the dust settles.

JON C. OGG

InterOil’s Gulf project has been scheduled for completion in 2014 or 2015, but the company has had trouble finding another partner to help with the estimated $6 billion construction costs. A plan to use a floating LNG plant was scrapped in March and InterOil’s discussions with the government have become increasingly strained. An energy industry publication, Upstream Online, cites the country’s oil minister:

Minister for Petroleum and Energy William Duma had said that “far from being a world class project of international scale and quality”, InterOil’s new plan was a “small scale, fragmented LNG project using a combination of different production methods.”

The company denies the charge and says it continues to plan a “world class” facility.

A January landslide at a quarry once operated by a subsidiary of Exxon killed at least 25 people, forcing the closure of Exxon’s own $15.7 billion PNG project for two weeks in March following a protest by local landowners. The project is scheduled to begin operation in 2014.

InterOil’s may be able to solve its problems with the PNG government, but delays in contracted deliveries are another problem the company could face. The company signed a long-term deal with trading firm Gunvor late last year for 1 million metric tons of LNG per year beginning in 2015. The deal is non-binding, but InterOil’s ability to fund construction and have a chance of completing the project depend on its ability to convince Gunvor that InterOil will deliver. Any threat to that agreement, or to others that the company has made, jeopardizes InterOil’s very existence.

InterOil’s shares lost about -6.7% yesterday to close at $53.73 in a 52-week range of $31.18-$75.87. Shares lost another -4.1% in after-hours trading, down to $51.56.

Paul Ausick

• 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

Arch Coal Inc. (NYSE: ACI) saw a gain of 18.7% in short interest as of for the two weeks ended April 30th. More than 6.6 million shares were added to short interest and 20% of the company’s float is now short. The coal miner’s poor earnings and forecast are to blame.

Short interest in Exco Resources Inc. (NYSE: XCO) rose nearly 12% to more than 33.5 million shares, or 19.3% of the company’s float. The oil & gas driller missed revenue expectations, although it did post a profit. Revenue is more important now however.

Among the largest overall short positions, SandRidge Energy Co. (NYSE: SD) got short interest on 49.5 million shares, nearly 12% of its float and up 6.7% from the previous reporting period. Shares are down more than -33% in the past 12 months, and the small spikes don’t affect short sellers here. The long-term outlook for natural gas continues to call for weak pricing.

E&P company Forest Oil Co. (NYSE: FST) was another recipient of more short interest in late April. Short sellers added about 3 million shares, a 24.7% increase and enough to put nearly 13% of the company’s float short.

Even Exxon Mobil Corp. (NYSE: XOM) didn’t escape. Short sellers added 7.7 million shares to their positions, a 31.8% change to 32 million shares, but still less than 1% of Exxon’s shorts.

The final energy company we’ll look at here is Duke Energy Corp. (NYSE: DUK), where 5.8 million additional shares were added to short positions, bringing total shorts to just over 79 million shares. That’s an addition of 8% and represents 5.9% of Duke’s float. It’s odd to see a utility on this list.

Advanced Micro Devices Inc. (NYSE: AMD)saw short interest in its share rise by 6.5% to more than 70 million shares or 11.9% of the company’s float. AMD continues to suffer from lower-than-expected earnings and revenues.

Short interest in Sanofi (NYSE: SNY) jumped 265% to more 13.4 million shares. While still only about 0.5% of the company’s float, but generic drug sales are hurting the company as is a weak economy in Europe. Neither condition is expected to improve soon either.

Short interest in Pfizer Inc. (NYSE: PFE) also rose sharply, buy 21.4% to reach a total of 63.6 million shares, about 0.8% of the company’s float. Like Sanofi, competition from generics hurts. The company also said it will reduce marketing expenditures on its Lipitor drug.

Nokia Corp. (NYSE: NOK) gets the honor for being the equity with the largest number of short shares, 195 million, which represents 5.2% of the company’s float. The good news is that short interest fell by more than 32 million shares, also the largest change.

More than 75% of Barnes & Noble Inc.’s (NYSE: BKS) float is short, about 19.8 million shares. Short interest in the company grew by just 700,000 shares since mid-April.

Short interest holds more than 42% of grocer SuperValue Inc.’s (NYSE: SVU) shares with a total of 88.5 million shares short, up slightly from two weeks ago.

Short interest in Pitney Bowes Inc. (NYSE: PBI) actually fell slightly , but the company’s total of 50.5 million shares short represents 25.3% of the float and 22 days to cover.

Short interest in for-profit educator DeVry Inc. (NYSE: DV) jumped 123.2% to 3.7 million shares or 6.3% of the company’s float. Another education company, Bridgepoint Education Inc. (NYSE: BPI) posts short interest of more than 9.7 million shares, or 56% of its float.

Paul Ausick

The United States Oil (AMEX: USO) is now down 4.1% at $37.23 and the Market Vectors Oil Services ETF (AMEX: OIH) is down 3.7% at $38.57.  Even the JPMorgan Alerian MLP Index ETN (AMEX: AMJ), which is supposed to not be so tied to oil and gas prices, is down 0.75% at $39.43 against a 52-week high of $41.68.

Maybe dividend hikes are helping to mitigate some of the losses in the major integrated oil outfits.  Exxon Mobil Corporation (NYSE: XOM) is down only 1.2% at $84.60 and Chevron Corporation (NYSE: CVX) is down about 2.1% at $103.75.

The drop is rather large in Schlumberger Limited (NYSE: SLB) with a loss of 3.7% at $69.95 for a loss of about $3 billion in market value.  Baker Hughes Incorporated (NYSE: BHI) has suffered substantially from its highs by a drop of half from its 52-week high and shares are now down 4.4% at $40.97.

Elsewhere shares of Transocean Ltd. (NYSE: RIG) is down 4.4% at $48.08 (down from a high of over $70), while National Oilwell Varco, Inc. (NYSE: NOV) is down ‘only’ 2.2% at $71.12.

Valero Energy Corporation (NYSE: VLO) is even lower by 3.1% at $22.80 even though certain drops in the price of oil will help its operating margins.  The caveat is that refiners need lower prices and actually they need stable prices so that they can have steadier pricing.

While its move to oil is marred by corporate problems tied to its CEO and governance issues, Chesapeake Energy Corporation (NYSE: CHK) is the only stock up on the major oil and gas stocks we follow.

This drop to $98 in crude is the lowest level since roughly February 10, 2012.  This is setting up to be the worst week for crude since the end of September.

JON C. OGG

But if prices fall that low, the big integrated oil companies like Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), Total SA (NYSE: TOT), and BP plc (NYSE: BP) are going to be pinched. Exxon, for example, has based its 2012 budget on an average Brent crude price of $111/barrel. The company’s average production cost for a barrel of oil in 2011 was just under $101/barrel. Chevron’s average production cost for a barrel of liquids was nearly $103/barrel in 2011.

Bloomberg today cites Byron Wien of The Blackstone Group LP (NYSE: BX) with a forecast that crude prices will drop this year. Production is up in the Russia, Saudi Arabia, and the US, which should lead to lower prices. Bloomberg’s survey of 30 analysts puts a median price of $115.50/barrel on Brent for this quarter, but 6 of the analysts predicted prices at or below $100/barrel.

The fear premium that pushed Brent prices to more than $125/barrel earlier this year is being wrung out of the price now as the possibility recedes of a military confrontation with Iran. Demand in the developed world is falling, and China, the world’s largest consumer of crude after the US, has slowed both its economy and its oil imports.

These two factors are combining to push crude prices down at a pretty good rate. But a price of $100/barrel would mean that Exxon and Chevron would lose money on every barrel they produce. A $100/barrel price would also mean that all the supermajors would very likely have to scale back their plans for capex spending, which would significantly reduce exploration and future supply. That in turn would likely produce a supply shortfall which could easily cause a spike in crude prices if and when demand picks up.

It’s often said that the best cure for high prices is high prices. OPEC may get its target price, but that won’t cure the underlying cause for high crude prices. The stuff is scarce, even when it seems that there’s a lot of it available.

Paul Ausick

Chesapeake posted adjusted EPS of $0.18 compared with a consensus estimate of $0.29. Revenue was up 50% year-over-year to $2.42 billion, but analysts expected revenue of $2.75 billion. The company is the second-largest producer of natural gas in the US, trailing Exxon Mobil Corp. (NYSE: XOM) and ahead of EOG Resources Inc. (NYSE: EOG).

The bright spot in Chesapeake’s results was the boost in oil and liquids production over last year. Crude oil and liquids now account for 19% of Chesapeake’s production and 52% of the company’s realized revenue. A year ago, crude oil and liquids accounted for 13% of production and 23% of realized revenue.

The company’s realized price for natural gas in the quarter was $2.35/thousand cubic feet, down from $5.31 a year ago. The realized price for crude and liquids was $67.92/barrel, up from $63.20 a year ago. Boosting the company’s liquids production saved it from an even worse quarter, and Chesapeake will have to continue to boost liquids production.

Like Exxon, Chesapeake will curtail capital spending for the remainder of the year. The company said it would “further reduce drilling activity in dry natural gas plays and reduce spending on new leasehold.” Chesapeake expects to meet its goal of reducing debt to $9.5 billion by the end of this year by increasing liquids production and selling off assets.

Like every oil and gas company, Chesapeake lives and dies on upstream production and prices. With natural gas prices up about 20% in the last few weeks, there may be some recovery coming as production cuts take hold. But if liquids prices continue to decline, natural gas prices are unlikely to rise far enough and fast enough to make up the difference.

In pre-market activity this morning Chesapeake’s shares are down -8.4% at $17.95, in a 52-week range of $16.78-$35.75.

Paul Ausick

Despite a large increase oil prices which helped the results of other oil giants which include Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), BP’s profit for the first quarter was $5.9 billion down from $7.2 billion in the same period last year.

BP bragged about its new exploration and refinery prospects. The comments continue to be overshadowed by the largest mistake made by any multinational oil company in more than a generation.

Douglas A. McIntyre