Is the Return of $60 Crude Oil Here to Stay?

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Exxon Mobil’s downstream division profits were $1.7 billion, up $854 million year-over-year. Stronger margins boosted earnings by $1 billion — higher volume and improved mix added $70 million, but maintenance and other costs cut profits by $260 million. Liquids production increased by 2.3% to 2.3 million barrels per day, while natural gas production fell by 188 million cubic feet per day. Upstream operations posted a loss of $52 million, down from a profit of $1.3 billion in the same quarter a year ago. Other key issues at Exxon Mobil:

  • Sales of refined petroleum products were basically flat at 5.8 million barrels a day.
  • Chemical division profits were down $65 million to a total of $982 million.
  • Capital spending in the quarter totaled $7.7 billion, down 9% year-over-year.
  • Exxon still repurchased 20 million shares of its common stock at a gross cost of $1.8 billion.
  • The CEO further said that Exxon is remaining focused on business fundamentals and competitive advantages that create long-term shareholder value.

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Bob Dudley, BP’s group CEO, said:

We are resetting and rebalancing BP to meet the challenges of a possible period of sustained lower prices. Our results today reflect both this weaker environment and the actions we are taking in response.

The dividend is the first priority within our financial framework and the board is committed to maintaining it, as we have today. We can sustain this by successfully resetting our capital and cost base and rebalancing our sources and uses of cash in the prevailing oil price environment. We will continue to review progress on this as we move through the year.

Enterprise Products was reiterated as Outperform with a $41 price target at Credit Suisse last Friday. Merrill Lynch was much more positive in its reiterated Buy rating. The firm has a $43 price objective.

Credit Suisse said:

Enterprise’s solid performance this quarter was an apt demonstration of how EPD can use its interconnected asset footprint to prosper despite very difficult market conditions. The solid performance prompts us to raise our EBITDA and DCF estimates in 2015 and 2016 by 2% and 1%, respectively, though we could easily justify a bigger increase if we extended margins from this quarter out in the future. We continue to forecast 1.4 to 1.5 times distribution coverage over the next four years, easily supporting our approximate 5% to 7% distribution growth trajectory.

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Merrill Lynch said:

Enterprise noted that it currently has over $6 billion worth of projects currently under construction and this morning, announced a new joint venture with Occidental Petroleum. … We believe the majority of Enterprise’s growth backlog is committed and do not see risk of a reduction in the $6 billion in projects underway, even in a lower commodity environment. … We continue to believe EPD’s distribution growth trajectory will remain unchanged, bolstered by a robust growth backlog and comfortable distribution coverage.

24/7 Wall St. has routinely identified some of the top oil and gas stocks, including MLP plays, for long-term investors. This past weekend we featured five oil and gas stocks to buy from Wall Street analyst calls, but these are long-term views rather than near-term earnings beat/miss prediction mechanisms.

Again in an effort to show both sides of the coin: 24/7 Wall St. also recently featured Kinder Morgan Inc. (NYSE: KMI) as perhaps now being the perfect energy stock for long-term investors. It has committed to growing its dividend in the post-MLP structure, but its shares have backed off about $2.00 per share or so since peaking at $44.71 in April.

So, what else is going on that would support the notion that oil has bottomed or that things are stabilizing? And what might refute that.

Gasoline has now jumped back above $3.00 per gallon in four states. Still, one survey showed that most Americans think $2.50 a gallon is too expensive.

While short sellers have added to positions, it turns out that the oil rig count fell by another 24 last week. That sounds atrocious, but it is not as bad as some prior weeks. In order to keep oil from dropping off too much, the state of North Dakota has passed a law to lower taxes on oil companies operating in the state.

Stay tuned.

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