At The Close / Comprehensive Market Review - Oil & Gas
Most U.S. oil-service shares closed higher Thursday as prospects for an economic recovery in the second-half of the year partially offset current concerns over weakness in the North American market and uncertainty over near-term oil and gas prices.
"The oil service group received good news on four fronts," said Justin McNichols, a portfolio manager at Osborne Partners Capital Management in San Francisco. "Venezuela has worked itself out for now, earnings and guidance have been fine so far, a few analysts have upgraded the group, and the API numbers were bullish," he said
Crude futures could test the $27 to $28 area, while "the oil service group attempts to pierce the previous high via hopefully good reports from Schlumberger (SLB) this week and companies like Weatherford (WFT), Baker Hughes (BHI) and BJ Services (BJS) next week," said McNichols, who noted that many portfolio managers are "caught with a low or no weighting in oil service, and don't want to miss the move as fundamentals bottom."
Shares of Nabors Industries (NBR) climbed Thursday after the world's largest drilling contractor reported a first-quarter profit that topped analysts' consensus estimate and looked toward a recovery in North American activity during the second half of the year.
The company reported first quarter net income of $41.9 million, or 28 cents a share, down from income of $83.1 million, or 51 cents a share in the same period a year ago. Analysts surveyed by Thomson Financial/First Call had been expecting EPS of 26 cents.
Nabor’s attributed the decline in results to the contraction of activity and pricing in North American natural gas markets.
Nabors said it expects further erosion in its North American gas business in the near term, but added that it was "confident" that business will improve "significantly" in the second half of the year.
"Our overall outlook both internationally and domestically continues to be quite bullish over the longer-term although the exact pace and timing of the pending recovery in North America still lacks total clarity," Chief Executive Gene Isenberg said in a statement.
Operating revenue for the quarter ending March fell 30 percent from last year to $360.8 million from $513.8 million a year earlier. The stock closed up $1.19 at $44.40.
Deepwater driller Diamond Offshore's (DO) first-quarter earnings per share came in a penny ahead of Wall Street's consensus estimate Thursday despite weakness in the Gulf of Mexico.
The Houston-based company posted a profit of $22.6 million, or 17 cents a share for the first quarter on revenue of $193.7 million. A year earlier, Diamond Offshore reported a profit of $36.8 million, or 27 cents a share on revenue of $205.2 million.
Thomson Financial/First Call pegged analysts' consensus estimate at a profit of 16 cents for the quarter.
The company reported "earnings with no negative surprises," COO Lawrence R. Dickerson said during a conference call, noting that the results reflect a "tough" market, particularly in the Gulf of Mexico where Diamond Offshore currently has only four rigs in operation.
Internationally, however, the market "continues to be fairly solid," he said. Shares rose 7 cents to $31.62.
Late Wednesday, Schlumberger (SLB), one of the world's largest oilfield services companies, reported a first-quarter profit a penny short of market expectations as revenue remained essentially flat for the quarter.
The company posted first-quarter net income of $201 million, or 35 cents a share. Analysts polled by Thomson Financial/First Call had expected a gain of 36 cents a share.
Including a charge of $29 million related to losses in the wake of Argentina's financial crisis, the oil giant notched a gain of 30 cents a share for the first quarter.
A year earlier, the company reported a profit of $236 million, or 46 cents a share, but excluding a 4-cent charge, the company reported adjusted earnings of 50 cents a share.
CEO Euan Baird noted that the "unraveling political situation in the Middle East, recent turmoil in Venezuela and conflicting signals from the U.S. economy have all contributed to increase uncertainty about economic growth this year and consequent demand for oil and gas."
As a result, Schlumberger is being "prudent about new investments in people and equipment until the position becomes clearer," he said.
Revenue came in at $3.3 billion, up from $3 billion a year ago.
Looking ahead, Lehman analyst James Crandell said oilfield service earnings in the second quarter "should approximate those of the first quarter as weaker North American results are offset by improvement internationally."
Shares of Schlumberger shed 4 cents to close at $56.
Following the latest earnings results, the Philadelphia Oil Service Index closed at 104.13, up 1.3 percent.
Index component Halliburton slipped 38 cents to stand at $17.62 but Rowan Cos. added 42 cents to $24.93.
marketwatch.com
Meanwhile, the CBOE Oil Indexa key gauge of integrated oil stocks, rose by 0.3 percent to 325.84.
Among index components, ExxonMobil stood at $42.46, up 24 cents, while ChevronTexaco gained 54 cents to $87.50.
marketwatch.com
Among the independents, Burlington Resources Inc. (NYSE:BR) reported estimated net income of $48 million for the first quarter of 2002, or $0.24 per diluted share, compared to net income of $336 million or $1.56 per diluted share during the same quarter of 2001. Sharply reduced first-quarter earnings were due to a steep drop in natural gas prices from record levels in the same period of 2001.
Wall Street analysts had expected results per share ranging from a loss of 8 cents to a profit of 37 cents, with a mean estimate of a profit of 9 cents, according to research firm Thomson Financial/First Call.
Burlington Resources, whose production and reserves are dominated by natural gas, was hard hit by the drop in energy prices early in the quarter as demand slowed due to the mild weather and economic downturn. The company said the average price it received for its gas in the first quarter fell to $2.88 per thousand cubic feet (Mcf) from $5.71 per Mcf during the period a year ago.
The average price it received for its oil fell 16 percent to $21.68 per barrel.
But as energy prices began to rise later in the quarter, the company's stock followed suit, climbing 11.6 percent and outperforming the 6.9 percent rise in the Standard & Poor's oil and gas exploration and production index.
Shares were up 1.48 percent, or 62 cents, at $42.51 in early New York Stock Exchange trade on Thursday.
Discretionary cash flow (cash from operations before changes in working capital) during the first quarter was $341 million or $1.69 per diluted share, compared to $673 million or $3.13 per diluted share during the same quarter last year.
Total production during the quarter increased by 13 percent over the prior year's first-quarter production to a record of 2,716 million cubic feet of natural gas equivalent per day (MMcfed), or by 21 percent per diluted share.
The record includes a full quarter of volumes from recently acquired properties. Approximately 91 percent of Burlington's quarterly production came from North America, with Canada contributing 42 percent of the North American portion.
``Burlington performed strongly during the quarter as we withstood a commodity price downturn early in the year, and then benefited from our improved production profile as prices rebounded,'' said Bobby S. Shackouls, Burlington Resources chairman, president and chief executive officer. ``In the meantime, we continued moving forward with our major development programs and profitable growth initiatives, as well as our non-core property divestiture efforts. These factors, in combination with the generally favorable outlook for natural gas, give us considerable reason for optimism.''
During the first quarter, Burlington's natural gas production averaged 2,019 million cubic feet per day (MMcfd), up 15 percent from 1,756 MMcfd during the prior year's first quarter. Production of natural gas liquids (NGLs) increased 36 percent to 56.3 thousand barrels per day (Mbd) from 41.4 Mbd during the prior year's first quarter, attributable to the recent property acquisitions in Canada. Oil production averaged 59.9 Mbd compared to 66.0 Mbd during the prior year's first quarter, with the decline occurring primarily in the Gulf of Mexico and the North Sea.
Natural gas price realizations averaged $2.88 per thousand cubic feet (Mcf) during the quarter, down from the $5.71 per Mcf realized during the prior year's first quarter. This year's first-quarter realizations included gains of $0.38 per Mcf attributable to the company's gas hedging program. Oil price realizations of $21.68 per barrel were down from $25.81 per barrel realized during the prior year's first quarter, with hedging contributing $0.58 per barrel. NGLs price realizations of $12.45 per barrel were down from $22.05 per barrel during the prior year's first quarter.
Cash costs, excluding taxes other than income taxes, averaged $0.99 per Mcfe, representing approximately a 9 percent improvement compared to last year's first quarter. Depreciation, depletion and amortization (DD&A) averaged $0.90 per Mcfe for the first quarter of 2002. DD&A was $0.79 per Mcfe for the first quarter of 2001. Exploration expenses of $57 million were down from $70 million during the prior year's first quarter due to reduced dry hole expenses.
During the quarter Burlington completed the acquisition of the ATCO producing properties in the Viking-Kinsella area of Alberta, Canada, for approximately $344 million. Burlington completed a $2.1 billion cash acquisition of Canadian Hunter Exploration Ltd.in 2001 and a year earlier had acquired Poco Petroleums, another large Canadian producer.
The company also received better-than-expected response to its planned divestiture program, encouraging it to raise its estimate of sales proceeds to a range of $750 million-to-$1.2 billion, from the previous target of $500 million. Burlington expects to utilize the proceeds to reduce debt.
For the remainder of 2002, Burlington expects overall production to decline from the first-quarter totals as a result of planned property divestitures as well as annual plant and pipeline maintenance usually scheduled during the second and third quarters. The company expects second-quarter 2002 production of natural gas to range from 1,750-to-1,950 MMcfd; with NGLs production to range from 50-to-60 Mbd and crude oil production estimated to range from 42-to-56 Mbd. Total equivalent production is expected to range from 2,300-to-2,640 MMcfed.
The company has hedged 40-to-45 percent of its second-quarter North American natural gas production, with a floor price of roughly $3.10 per Mcf, as well as approximately 50 percent of third-quarter production with a floor price of roughly $2.95 per Mcf and approximately 25 percent of fourth-quarter production with a floor price of roughly $2.85 per Mcf. Hedge prices are given on a Henry Hub equivalent basis.
Cash costs, excluding taxes other than income taxes, are anticipated to average between $1.01 and $1.07 per Mcfe for the second quarter of 2002 and between $1.00 and $1.06 per Mcfe for the full year. DD&A expense is expected to average $0.86 to $0.89 per thousand cubic feet equivalent for both the second quarter and the full year. Timing of property sales will impact actual performance.
Preliminary estimates for exploration expense are $70-to-$85 million for the second quarter of 2002 and $250-to-$280 million for the entire year, including estimated dry hole expense. Actual dry hole expense could differ based on timing and results of wells.
Pre-tax interest expense is estimated to range from $70-to-$75 million for the second quarter and $270-to-$295 million for full-year 2002. The actual amount of interest expense for the year is dependent upon timing and amount of asset sales and the use of sale proceeds in reducing debt.
Headquartered in Houston, Texas, Burlington Resources is one of the world's largest independent oil and gas companies, with natural gas comprising the vast majority of its reserves. The company has properties in the U.S., Canada, the United Kingdom, South America, Africa and China.
On April 17, 2002, he board of directors of Burlington Resources Inc. declared a quarterly dividend of 13 3/4 cents per share on the company's common stock. Dividends will be paid on July 2, 2002, to shareholders of record on June 7, 2002.
An Earnings Conference Call took place at 11 AM 04/18/02 and you can access it at br-inc.com
A presentation was made at the 2002 Howard Weil Energy Conference - April 8, 2002 and you can find the presentation in PDF format here; br-inc.com
North of the border, major Canadian indexes closed lower Thursday, retracing some of the strong gains posted over the past few sessions as investors awaited an after-the-bell earnings report showing a loss at tech bellwether Nortel Networks.
The Toronto Stock Exchange 300 Composite Index fell 50 points, or 0.65 percent, to end at 7,818.10. The Nasdaq Canada Index of Canadian stocks trading in the U.S. also slipped, closing down 1.1 percent, and the S&P/TSE 60 Index of blue chips finished lower by 0.7 percent. But the S&P/CDNX Composite Index of small cap issues eked out a 0.2 percent gain.
Just three of the TSE's 14 subindexes closed to the upside, led by a 1 percent rise in consumer products. Industrial products led the downside movers, falling 2 percent, while the gold and precious metals tumbled though gold for June delivery rose as high as $307 an ounce, its highest level since April 2. The contract closed at $305.20, up $2.40 on the New York Mercantile Exchange.
Canada's benchmark index fell on weakness from tech and gold issues.
Gold bugs looking to invest in the rising value of bullion buoyed shares of some of the mid-cap gold mining stocks, such as Kinross Gold (K), which closed 2.3 percent at C$2.19, and TVX Gold (TVX) which ended the day with a 2.8 percent gain at C$1.10. But they took money out of big-cap players such as Placer Dome (PDG), which ended lower by 2.1 percent at C$18.80, and Barrick Gold, (ABX), whose shares finished lower by 2.1 percent at C$28.35.
But Nortel Networks' (NT) topped TSE's most-actives list ahead of the telecom equipment maker's first-quarter earnings release, due out after Thursday's closing bell. Analysts polled by Thomson Financial/First Call are expecting a loss of 14 cents a share and revenue of $2.92 billion.
Nortel shares closed down by 27 Canadian cents, or 4.1 percent, at C$6.33.
Shares of cable giant Rogers Communications (RCI.B) also closed lower after the firm posted a narrower first-quarter net loss over the same period the year before. Rogers reported a net loss of C$97.6 million, or 53 Canadian cents per share, compared with a loss of C$147 million, or 80 cents per share, in the same period the year before.
Revenue in the quarter rose to C$994.8 million from C$912.9 million, with a 9.4 percent rise in the company's cable division, an 8.5 percent increase in the wireless division and an 11.6 percent gain in its media unit.
"We achieved reasonable financial growth in each of the operating divisions during the first quarter in line with our plans, despite continued economic softness and competitive activity," said CEO Ted Rogers.
Rogers' stock was finished lower by 62 Canadian cents, or 2.9 percent, at C$20.87.
Contract electronics maker Celestica Inc. slipped $2.84 or 5.4 per cent to $49.71.
"People don't want to buy," said Noah Blackstein, portfolio manager with Dynamic Power Funds in Toronto.
Mr. Blackstein said he's not looking for a catalyst to kickstart the markets but instead says gains will come toward the back half of the year as data show North America's economies improving. "Right now, the path of least resistance seems to be down," he said.
For market activity in the oil and gas sector, use the following links.
TSE Oil & Gas Composite Index (Winners & Losers)
investdb.theglobeandmail.com
TSE Integrated Oils Group (Winners & Losers)
investdb.theglobeandmail.com
TSE Producers Group (Winners & Losers)
investdb.theglobeandmail.com
TSE Servfices Group (Winners & Losers)
investdb.theglobeandmail.com
The Canadian Venture Exchange's S&P/CDNX composite index added 2.22 points to 1,159.89. Trading was heavy on a volume of 40.4 million shares worth 18.5 million dollars, with 230 advances, 197 declines and 568 issues unchanged.
Trading activity (winners & Losers) for most CDNX oil and gas stocks can be found here
investdb.theglobeandmail.com
The Canadian dollar closed at 63.48 (U.S.) cents, a slight dip from the previous close of 63.50 cents.
Over on the futures market, Crude oil closed above $26.00 a barrel Thursday as the market continued to find support from the lack of a cease-fire agreement in the Middle East as well as a surprisingly large decline in last week's U.S. crude-oil inventories.
U.S. Secretary of State Colin Powell has failed to achieve any "concrete results on his peace mission," said Victor Yu, an analyst at MV Energy.
Still, he may return to the region in two weeks and a U.S. assistant secretary of state remained behind to continue talks at a lower level, he said.
The latest reports on petroleum inventories also contributed to Thursday's price strength. After the market closed Tuesday, the American Petroleum Institute said crude inventories as of the week ended April 12 dropped by 7.3 million barrels. On average, the market expected a decline of only about half that amount.
Early Wednesday, the Energy Department said supplies fell by 5.6 million barrels.
May crude rose as high as $26.65 a barrel on the New York Mercantile Exchange before easing back a bit to close at $26.18, up 24 cents.
"The supply data heightens concern over any possible disruption in oil supplies," said Michael Armbruster, an analyst at Altavest Worldwide Trading. Looking ahead to the next few weeks, however, "crude may hit a bumpy road," he said as futures prices test the "$24.50 to $24.00 zone on the downside before making another run at the $30."
In other energy dealings, May unleaded gasoline rose by 0.36 cent to 81.13 cents a gallon and May heating oil tacked on 0.18 cent to 65.58 cents a gallon.
Over on the International Petroleum Exchange in London, Brent crude for June delivery closed at $25.77 a barrel, up 39 cents on the session.
Also on the Nymex, May natural gas rose by 0.8 cent to $3.485 per million British thermal units after rising nearly 6 percent a day earlier.
The American Gas Association posted a 10 billion cubic foot rise in last week's inventories -- on the low end of many analysts' expectations. A year ago, supplies stood at 705 billion cubic feet.
On the downside, the latest forecasts suggest that the heat wave in much of the U.S. will be short-lived, Ronald Barone of UBS Warburg said in a note to clients Thursday, noting that the National Weather Service's 6-10 day forecast calls for normal to below normal temperatures throughout much of the country. |
