Energy, Energy Service, Natural Gas &amp; Oil Sectors

Top 640. Aug 13, 2001 5:45 PM

» lcha - Re: NG & Oil Watch List - & Energy Indices

In response to message posted by JenL_2:

Thanks for the charts Jen. They actually cheered me up a bit.

3/4 of my NG stocks have reported earnings and I am really pleased with the earnings, cash flow and production. I'm happy with the cash flow and production increases going forward. The only thing I am not pleased with are the stock prices.

The charts show I could be doing worse.

BTW, this last weeks rig count shows a DECREASE of 18 rigs looking for gas. The rigs looking for oil held steady. We'll see more rig switching as oil prices are holding up better than gas prices for the time being. If this trend continues, we'll see an accelerated NG production drop off just in time for winter. If that happens, it will show $3 NG might be a little low. Unless demand continues to slide which would show a worsening economy No place to hide.

-- posted by lcha

Top 641. Aug 14, 2001 5:55 AM

» lcha - Devon acquires Mitchell

Mitchell was acquired, at about $60.50 per share, near its all time high of $63

Devon Energy to Acquire Mitchell
In $3.1 Billion Cash-and-Stock
Deal

By ROBIN SIDEL and CHIP CUMMINS
Staff Reporters of THE WALL STREET JOURNAL

Devon Energy Corp., continuing an acquisition spree that
has more than doubled its size in just a few years, agreed
to buy Mitchell Energy & Development Corp. for $3.1
billion in cash and stock.

Boards of both companies approved the deal, which was
announced Tuesday. Devon is also expected to assume
$400 million in Mitchell debt.

The acquisition marks the latest in a rash of deals in the
natural-gas sector, which saw prices rally late last year
only to fall sharply in recent months on concerns of a
supply glut.

Buying Mitchell will make Devon the second-largest
independent producer of natural gas in the U.S. behind
No. 1 Anadarko Petroleum Corp., up from its current No.
4 position. With the deal, Devon will get access to
Mitchell's large gas reserves in Texas, increasing its
North American reserve base by 36%. Nearly all of
Mitchell's production is in Texas, and 70% of that is
natural gas.

The deal unites two oil and natural-gas exploration
companies still led by the original families that began
their businesses decades ago in the heart of the nation's
energy patch. George P. Mitchell, who now owns 46%
of the company in which he first bought a stake in the
mid-1940s, also made a name for himself in Texas real
estate in the 1970s with the construction of a huge
residential and commercial planned community outside
Houston called The Woodlands.

Under terms of the deal, Devon will pay $31 in cash and
0.585 of its shares for each of Mitchell's 51.7 million
shares outstanding. That equates to a price of $60.40 a
share, representing a 32% premium over Mitchell's
trading price of $45.65, up 68 cents, as of 4 p.m.
Monday in composite trading on the New York Stock
Exchange. Mitchell's stock hit a 52-week high of $64 in
late December but has since declined along with gas
prices. Shares of Devon were at $50.26 a share, up 47
cents, as of 4 p.m. in composite trading Monday on the
American Stock Exchange.

The two companies produced a combined 1.4 billion
cubic feet of natural gas in the second quarter. Proven
reserves of the combined company will be 58% natural
gas, 32% oil and 10% natural-gas liquids.

Mr. Mitchell, 82 years old, and his family will hold a
9% stake in the merged company. The transaction doesn't
include any role for Mr. Mitchell, but his son, Todd, will
join the Devon board.

For Devon Chairman and Chief Executive Larry Nichols,
a former Washington, D.C., lawyer who founded the
company with his father in 1971, the deal marks the
latest in a spate of acquisitions that have boosted the
Oklahoma City company's reputation as an aggressive
corporate buyer.

Last year, Devon bought Santa Fe Snyder Corp. for $2.5
billion in a deal that followed on the heels of its
acquisitions of PennzEnergy Co. of Houston in 1999 and
Northstar Energy Corp. of Calgary, Alberta, in 1998.

In May, Devon was one of several companies that made
an offer for Denver producer Barrett Resources Corp.,
which was the target of an unsolicited bid from the huge
Anglo-Dutch concern Royal Dutch/Shell Group.
Williams Cos. edged out Devon and won the auction.

About 75% of Devon's proven reserves are in North
America, including the valuable Rocky Mountain region,
and it also has operations in Azerbaijan, Southeast Asia,
South America and West Africa.

For Mitchell, the transaction marks the conclusion of the
company's recent flirtation with a sale. Mr. Mitchell put
it up for sale at the end of 1999, but took it off the
auction block a few months later and said it planned to
stay independent.

In recent months, Mitchell has boosted its
capital-spending plan to $685 million, nearly double its
2000 spending plan. The added drilling has led to big
gains in proven reserves for Mitchell, especially in the
Barnett Shale, a gas-rich location just a few miles north
of the Dallas-Forth Worth area that Mitchell first started
drilling in the 1950s. Mitchell's proven reserves have
grown about 38% in the first six months of this year to
about 2.1 trillion cubic feet equivalent.

Last month, Mitchell said increased gas production and
higher realized prices resulted in earnings of $201
million for the first six months of the year, more than
double the $87.4 million it earned in the same period
last year. Revenue for the six-month period was $1.14
billion, up from $675.3 million last year.

The company is still based in The Woodlands, although
it sold the property for $543 million in 1997 to Crescent
Real Estate Equities Co. and a Morgan Stanley
real-estate fund. It sold the rest of its real-estate holdings
the following year.

The deal with Devon is expected to close in the fourth
quarter. As part of the deal, Devon plans to issue 30.2
million shares.

UBS Warburg, a unit of UBS AG, advised Devon, while
Mitchell was advised by J.P. Morgan Chase & Co. and
Goldman Sachs Group Inc.

-- posted by lcha

Top 642. Aug 14, 2001 6:29 AM

» JenL_2 - Re: Devon acquires Mitchell

In response to message posted by lcha:

lcha - hope you own Mitchell (MND)...

<img src="http://chart.bigcharts.com/industry/bigc... MND &comp=AAAAA:0&rand=1910" width=527 height=316>
DVN, MND, Oil & Gas index (ONG), S&P500 3 YR Chart

.......Jen

-- posted by JenL_2

Cooling Energy Prices Prompts Insider Buying

Top 643. Aug 14, 2001 10:05 PM

» JenL_2 - Insider Buying

This from 8/15 WSJ:

By CASSELL BRYAN-LOW

Cooling energy-industry stock prices have prompted some insiders to add to their company holdings.

Executives and directors at natural-gas exploration companies, in particular, have been picking up shares, including officials at Apache Corp., Anadarko Petroleum Corp., and Meridian Resource Corp., all of Houston.

Energy insiders have been credited in the past with having good timing by buying their stocks cheap when the sector was out of favor. Conversely, insiders sold heavily when stocks neared their peaks late last year and early this year as energy prices -- especially for natural gas -- remained strong. Energy prices have fallen sharply, sparking a selloff in the sector's stocks.

The recent signal from insiders hasn't been as strong, however, since buying has been light so far and insiders had until recently been selling. Still, Paul Elliott, analyst at Thomson Financial/First Call, said the purchases could indicate that insiders think "the price correction was a little severe."

That is the rationale of William Sullivan, Anadarko's executive vice president of exploration and production, who recently increased his company stake. "The fundamentals for our industry are very strong, and perhaps not fully appreciated by the marketplace," he said. Indeed, the sector already has rebounded slightly from mid-July lows, when many industry insiders were buying.

Still, the outlook for natural gas prices -- which drive the sector's shares -- remains a wild card. They could fall further if the economy continues to weaken or the nation faces unseasonal weather.

Many investors already have factored in a short-term decline in gas prices, but they expect prices to improve this winter. However, Thomas Driscoll, a Lehman Bros. energy analyst, says the market could be disappointed if there is sustained weakness in natural-gas prices, an outcome he considers likely.

Mr. Sullivan was among three Anadarko insiders who took advantage of a recent decline in prices to buy a combined 11,900 shares July 11 through Aug. 2 valued at a total of $664,565, or $50.73 to $56.50 a share. "We are fundamentally still very, very bullish on gas prices," Mr. Sullivan said, noting that the board recently approved a $1 billion stock-repurchase plan. "We are all very excited about the future potential and growth [of the company]," he said, and "at the prices we've seen in the market, it is a great investment opportunity."

At Apache, Chief Executive Raymond Plank and three directors purchased 11,948 shares for $46.50 to $53.53 each, or $597,172 total value, from June 18 through July 31. The stock "is way undervalued," Mr. Plank said, adding that he considered the sector a relatively safe harbor even in an economic downturn. (The purchase made by one of the directors was part of a regular investment program, as he takes part of his director's fees in stock.)

Among smaller companies, the CEO and two executives at Meridian Resource, bought 12,300 shares for $3.38 to $6.35 a share, or $65,825 total value from May 11 through June 25, according to Thomson Financial/First Call. The company didn't return calls for comment.

As of 4 p.m. Tuesday, in New York Stock Exchange composite trading, Apache shares were at $51.38, shares of Anadarko were at $56.64, and Meridian Resource shares were at $5.81.

Subscribe to WSJ Online @ http://www.wsj.com

.....Jen

-- posted by JenL_2

http://finance.yahoo.com/q?s=kcs&d=c

Top 644. Aug 14, 2001 11:46 PM

» JenL_2 - Re: Devon acquires Mitchell

In response to message posted by lcha:

lcha - was listening to Jim Cramer's RealMoneyTalk radio show for a few minutes today - his topic was "how to make money in this market". One recommendation was to buy the takeover candidates. He mentioned the Devon-Mitchell deal....then he said the next likely energy sector takeover target might be KCS Energy (KCS)...

What do you think? Also interested in your take on the insider buying among NG E&P companies located in Houston. Looks like some folks in the know agree with your outlook on NG.....Jen

-- posted by JenL_2

Top 645. Aug 15, 2001 6:04 AM

» lcha - Re: Re: Devon acquires Mitchell

In response to message posted by JenL_2:

While the investment press seems focused on how high NG prices have fallen from their $10 high, the E&P companies are elated at how much above $1.50 NG are now.

The E&P guys NEVER thought NG prices would stay above $5 for ANY length of time. There was no new drilling based on NG prices above $5.

That's why I think these E&P execs are still hot on their future. NG prices are double what they were 2-3 years ago.

As for KCS, I don't know much about them. They have very good returns and an extremely low P/E but also have a high short interest ratio.

In general there are a LOT of good takeover targets right now. You have companies with high cash flow, growing production, low P/E and P/Cash and low stock prices. You can't get a better recipe for buyouts.

-- posted by lcha

Top 646. Aug 15, 2001 1:27 PM

» lcha - NG Storage

The weekly storage injection of NG was only up +3 this week. It had been running 70-110 over the past several months.

NG prices were up +15% to $3.48 last I looked.

Amazing how one little number can move the market like that. And don't blame this one on the oil companies. This is a trader thing.

-- posted by lcha

Top 647. Aug 15, 2001 2:15 PM

» lcha - Re: NG Storage

In response to message posted by lcha:

Here's the NG storage numbers report for this week over the last four years with (injection this week):

8/14/98: 2,544 bcf (+ 76 bcf)

8/13/99: 2,402 bcf (+ 51 bcf)

8/11/00: 2,037 bcf (+ 52 bcf)

8/10/01: 2,288 bcf (+ 3 bcf)

We must keep in mind that NG demand in all areas except "Industrial Demand" is higher than it was back in 1998. Here is the actual demand broken down for 1998 and the projected demand (per the DOE 6/2001) for 2001:

Demand bcfd: 1998 Actual, 2001 Forecast

LPP Fuel__________: 4.9 , 5.6
Residential_________: 12.4 , 13.0 (primarily for space heating)
Commercial________: 8.2 , 8.8
Electric Utility_______: 9.0 , 9.6 (14.3 bcfpd in Q3 2001 so this is ramping up quickly)
Industrial__________: 23.9 , 23.2 (Actual was 25.8 bcfpd in 2000)

Total NG Demand: 58.4 , 60.2 (down 2.3 bcfpd from 2000 actuals)

When (not if) Industrial demand returns to the long-term trend line of 26.0 bcfpd for 2002(and it will eventually), NG demand will exceed North American NG capacity including imports.

THIS IS A FACT: LNG and/or Canadian imports will not arrive in sufficient quantity until mid-2004.

-- posted by lcha

Top 648. Aug 18, 2001 8:18 AM

» JenL_2 - Slip-Slidin' Away

This bearish article on Oil & NG Stocks from 8/20 Barron's:

Slip-Slidin' Away

After months of heady gains, oil stocks are falling amid fears of lower crude prices

By Jack Willoughby

In an otherwise bleak year for corporate earnings, the oil sector has been a gusher of good news. Consider the latest quarter, in which earnings for the companies in the S&P 500 index collectively slid some 17%. Not so the oils, however. Buoyed by lofty prices for crude and natural gas, the S&P's oil components reported a handsome profit gain of 26%.

Yet, despite such glad tidings, energy stocks are wearing the mantle of gloom. Since early June, the S&P index of integrated oil and gas producers has fallen 6%, erasing most of the sector's blistering rally in the year's first half. Moreover, some traders and investors, predicting broadly lower prices for crude oil, now expect the shares to fall even more in the months ahead. Oil stocks, they note, were a redoubt, or fortress, in the market's latest storm, climbing 5% in the past 12 months, while the S&P backtracked 20%. But uncertainties about the price of crude, not to mention worries about the strength of the global economy, make this no place to build a home.

Chet Needelman, of the California money manager Palley-Needelman, already has beaten a path out of energy shares. The firm had whittled down a 637,257-share position in Exxon Mobil to 53,388 shares as of June 30. Similarly, it cut a 974,725-share stake in British Petroleum to 39,988 shares, and pared a 94,996-share holding in Total Fina Elf, the French oil producer, to 24,949 shares. Needelman believes the global economy will remain weak at least through mid-2002.

"It's doubtful oil is going to stay at current levels or move somewhat higher," he says.

Crude recently was trading at $27.50 a barrel, down from last fall's peak of more than $37. But Thomson Financial/First Call reports that analysts have been marking down their estimates, and now expect prices to drop to $23.62 a barrel in 2002, and $22 in 2003.

Bear Stearns analyst Fred Leuffer thinks these subdued forecasts may be still too rosy. Last spring, he laid out a case for $18 oil, based on his assessment of changes in Saudi Arabia's oil policy. Leuffer notes that some refined products, such as gasoline and home heating oil, earlier this summer sold below the cost of the crude from which they were derived -- further tesimony to the market's view that oil prices are not sustainable at current levels.

Another ominous sign of a probable drop in crude is the massive speculative short position in futures contracts that has built up on the New York Mercantile Exchange. Last month, net short positions climbed above 68,000 contracts (each of which equals 1,000 barrels of oil); two years ago, ahead of the sharp rally in crude, the so-called non-commercials, or non-industry traders, had a net long position of 100,000 contracts.

Any downward shift in petro prices is bound to be felt in company earnings and, ultimately, in energy shares. Indeed, Wall Street analysts have been slashing estimates for many companies on the heels of record quarterly profits. Take Chevron, which netted $1.32 billion, or $2.05 per diluted share, for the quarter, and is expected to earn $5 billion, or $7.81 a share, for the year. In late July, Goldman Sachs pared its forecast for Chevron's fiscal 2002 profits to $7.41 a share, from a prior $7.53. ABN Amro cut its outlook to $6.80 from $7, and A.G. Edwards nicked its estimate by a dime, to $6.30. The wide range of estimates attests to the confusion regarding oil prices on the Street.

Oil-sector earnings are likely to become a drag on S&P 500 profits in the current quarter, after many quarters of gains. In the fourth quarter, says First Call's Chuck Hill, analysts are looking for oil-company earnings to fall 26% from year-ago levels, versus a decline of just 0.4% in total S&P earnings.

Even as they slice their earnings forecasts, many Street seers maintain Buy ratings on oil shares and remain determinedly bullish about the sector's long-term prospects. But the stock market is rendering a notably different verdict. The S&P index of oil and gas producers currently sells for a price/earnings multiple of 15 times expected earnings for the next 12 months, or roughly 60% of the market multiple of 25. This suggests that investors also doubt that earnings growth will remain so strong. According to Bear Stearns' Leuffer, the major oils now trade as though the price of crude were $20-$22 a barrel.

Lower earnings are apt to make energy issues less attractive as defensive holdings, particularly if technology stocks perk up again next year. Consequently, Francois Trahan, an economist at Brown Brothers Harriman, has been recommending that investors lighten their exposure to stocks such as Exxon Mobil, Chevron and Phillips Petroleum. But he still likes Sunoco, an oil refiner, which is likely to be a beneficiary of lower crude.

George Gaspar, of Robert W. Baird in Milwaukee, also has grown more skeptical. In June he downgraded Exxon, Chevron and Phillips, in part because of a large buildup in weekly inventories of natural gas. Gas prices, which peaked around $10 per million British thermal units in December, have fallen much more precipitously than oil, but last week climbed about 40 cents, to $3.40 per mmBtu.

Gaspar is optimistic about the prospects for energy stocks over the longer term, because he expects an uptick in oil demand to translate into higher crude prices next year. The Organization of Petroleum Exporting Countries needs a higher price, he says, in order to develop more reserves.

Yet Leuffer argues that OPEC probably lacks the discipline to maintain prices around $25 a barrel, even though the international cartel has slashed its production targets by 3.5 million barrels a day this year. "We are surprised at how quick the market is to believe that OPEC will do what it says, even though the organization's recent record of quota compliance is so poor," he wrote in a recent report.

Notwithstanding his downbeat view, Leuffer has been recommending Royal Dutch, which owns 60% of Royal Dutch/Shell Group. Two years ago, the company centralized its diverse management system, concentrating financial operations in London and The Hague. This coordinated approach to cash management, he says, could bring Royal Dutch's valuation more in line with that of Exxon Mobil, which sells for 10 times enterprise value (market capitalization plus debt and preferred shares, minus cash and equivalents) to EBITDA (earnings before interest, taxes, depreciation and amortization). In addition, the company's earnings are the least sensitive, among the majors, to changes in oil prices, which would be a big plus if Leuffer's $18 forecast is borne out. Royal Dutch is trading for $56-$57 a share, well below Leuffer's target of $70.

Leuffer also has Buy ratings on Marathon Oil and Chevron, though he expects the latter to earn just $4.45 a share next year. But he pared his Buy on Amerada Hess after the company agreed to purchase Triton Energy for $3.2 billion, plus $500 million in assumed debt. "We think Hess is paying too much for Triton, which will erode the company's return on capital, and therefore the value of the stock," Leuffer says. Hess shares slipped as much as 10% since the July 10 announcement of the deal, but have recovered and now trade at 77.

In Leuffer's view, Hess' wrist-slapping represents a warning to other oil-company managers to keep their wallets shut. And that may be another reason why investors like Chet Needelman are exiting the sector. Thanks to last year's spike in oil prices, company coffers are brimming with more than $40 billion in cash. But history shows that the energy industry is prone to squandering fortunes on dubious drilling adventures and fault-ridden acquisitions. So any way you look at them, oil and gas shares are running on empty.

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

.....Jen

-- posted by JenL_2