Emerge Energy Services
Emerge Energy Services L.P. (NYSE: EMES) had a monstrous gain this week for an oil-related entity. The MLP can thank Merrill Lynch for bringing this one to light. Merrill Lynch has a price objective of $67, much higher than the $42.61 price prior to our coverage of the units this week — and still much higher than the $49.55 closing price of Friday. The $1.2 billion outfit has one of those incredibly high distributions as well, above 10%, if it is maintained at the same rate ahead.
Emerge Energy is a limited partnership that is focused on mining, producing and distributing silica sand as a key input for the hydraulic fracturing of oil and natural gas wells. It also processes transmix, distributes refined motor fuels, operates bulk motor fuel storage terminals and provides complementary fuel services. The company operates its sand segment through its subsidiary Superior Silica Sands and its fuel segment through its subsidiaries Direct Fuels and Allied Energy.
The Merrill Lynch price objective of $67 still leaves an implied upside of 35%, even after the big rally and without considering what the future distributions might be. The consensus analyst price target is actually higher than the Merrill Lynch target at $69.50, and the stock’s 52-week range is $39.90 to $145.72. Needless to say, this is more volatile than many traditional oil and gas related MLPs.
Whiting Petroleum Corp. (NYSE: WLL) was featured in a Stifel grouping this week as one of five oil and gas stocks it thinks may have bottomed. Whiting is North Dakota’s largest independent oil producer, and it has recently put Texas acreage and pipeline assets up for sale. That new strategy may be an effort to appease some investors outraged by the possibility of any outright sale. Wall Street analysts feel as though Whiting could dispose of non-core assets and generate cash. As a reminder, Whiting is saddled by more than $3 billion in debt after December’s buyout of smaller rival Kodiak Oil & Gas.
Also, Sterne Agee made a call on Friday. The firm has a Buy rating, but said specifically not to chase any deal news. Its report said:
A series of opaque merger-related articles on Whiting in recent weeks, followed by a dubious peer upgrade, put a bid in WLL shares in early March, leading shares to outperform other oily E&Ps MTD. While the company’s decision to attend or pass on industry conferences creates good fodder for the rumor mill, we do not take it as definitive news a Whiting sale is imminent. We maintain our Buy rating but believe investors should downshift expectations to expect gas processing asset sales in the near term, not a full company sale, at a time when WTI crude is at a 6+ year low.
Stifel’s price target is $45, less than the consensus target of almost $46, but Sterne Agee actually has a $52 price target. Whiting’s shares were at $40.95 prior to Stifel’s mid-week research call, but Friday’s 2.6% drop took shares back down to $39.03.
YPF S.A. (NYSE: YPF) remains a controversial South American oil stock, which may still be a kicking toy for the Argentine government ahead. Don’t tell that to Bank of America Merrill Lynch. The firm upgraded YPF to a Buy rating this past week, all the way from an Underperform rating. The two-notch upgrade is impressive enough, but the price target was raised to $39 from $26 — a 50% higher target. YPF shares were trading closer to $28 earlier in the week, but they closed the week out at $29.55.
YPF sees more upside potential from full development of Argentina’s shale resources, but in the analyst’s opinion, this would require improvement in oil prices and a reduction in unit costs. What Merrill Lynch is seeing is that the potential changes in Argentina’s economic policy would help to lower the level of Argentine risk embedded in the equity. That would in turn lend a stronger argument to the share price rising ahead. After the call, Merrill Lynch said that YPF is now the firm’s top pick in Latin American oil and gas. If Merrill Lynch is accurate, there is still about 32% upside left in YPF shares.
The Merrill Lynch report further said:
Long-term growth potential remains high, given (1) potential for strong upside for oil and gas output from YPF’s conventional and tight gas projects following below trend investment activity over much of the past 15 years and (2) upside potential from full development of Argentina’s shale resources, although this would require improvement in oil prices and a reduction in unit costs, in our view. Solid upside potential relative to both discounted cash flow and relative multiples. … The stock is also trading at strong discounts to global peers on both P/E and EV/DACF bases. In our view this suggests solid upside if the stock were to re-rate as risk declines.
In an effort to keep these calls from not being forgotten about, for better or worse, we wanted to include past reference from analyst calls in the oil and gas sector as well. Last weekend’s report covered eight oil and gas stocks that analysts want you to buy. These were in shares of Antero Resources, Bonanza Creek Energy, Exxon Mobil, Magnum Hunter, Rice Energy, Statoil, Whiting and Blueknight Energy Partners.