Raymond James Daily Update (1/23/07 pre-market)
Energy Market Overview
Crude oil and natural gas are trading higher this morning as cold winter weather creeps back into the market. Although late to the party, cold winter weather has finally showed up and is ready to show its wrath over the next couple of weeks. The apparent persistence of this weather has fueled natural gas prices which have soared ~20% over the last few days.
Helping to support crude prices is the reemergence of geopolitical issues in Nigeria. In the largest African nation, militias have continued their quest to reign in more control of crude revenues by kidnapping 26 expatriate workers. Nigeria is a stark example of a possible disruption to crude supplies predicated on the country's embedded political instability. This continues to be a huge disturbance to the oil market, and is yet another example that the worldwide geopolitical wild cards are not going away.
State of the Union Preview: What to Expect for Alternative Energy This evening, President Bush will deliver his 2007 State of the Union address, and if history is any indication, he will spend considerable time discussing his vision for alternative energy. We believe there is a possibility for one or more of the following concrete policy announcements: (1) support for a significant increase in the Renewable Fuels Standard for ethanol; (2) increased federal funding for research into cellulosic ethanol; and/or (3) a new federal solar initiative, potentially relating to net metering.
Superior (SPN/$28.98/Outperform) Announces International Bolt-on Acquisition SPN has announced their acquisition of Duffy and McGovern Accommodations Services Limited for $47 million cash. Duffy and McGovern is an international operator of accommodation rentals, serving Europe/Africa, the Americas, and Southeast Asia. This acquisition falls in-line with the company's continued pursuit of international expansion and should complement the company's domestic accommodation business (HB Rentals). Overall, this isn't too big of an acquisition, and therefore shouldn't be too much of a stock moving event. But, between this acquisition, the acquisition of WARR in late 2006, and their recently released 2007 cap ex of $362 million, Superior is clearly reinvesting for continued growth.
Rowan (RDC/$31.32/Outperform) Pre-Releases Higher Than Expected 4Q06 Cost Guidance, Taking 4Q06 EPS Estimate Down Last night, Rowan Companies pre-released earnings cost guidance for 4Q06 which came in ~12% higher than what we had modeled. RDC attributed the higher than anticipated operating drilling costs to 1) Preparation for mobilization for overseas drilling assignments. 2) More extensive maintenance due to rigorous use of rigs over the past few years. 3) Increased supply costs. 4) Purchasing parts and supply's ahead of time due to longer lead times to ensure availability. 5) Elevated labor costs due to expatriates and duplicative personnel as a result of training. 6) Expenditures for infrastructure in the Middle East associated with returning to the area after a 25 year absence. Although we expected costs to be elevated this quarter, we did not believe that they would be of this magnitude. After modeling in the high point of the updated cost guidance range, we conservatively are revising our 4Q06 EPS estimate from $0.67 to $0.58. On a positive note, management suggested that costs should begin to normalize in the back half of 2007. Rowan continues to diversify its' fleet out of the Gulf of Mexico and into International waters with one of the best quality jackup fleets in operation. Moreover, Rowan's manufacturing division (approximately 30% of 3Q06 revenue) should experience continued margin expansion throughout the course of 2007 as the company leverages a very visible $578 million in backlog. Two companies that we believe to have costs under control are Global Santa Fe (GSF/$55.99/Strong Buy) and Ensco International (ESV/$48.66/Outperform). Therefore, if these two names are taken down on Rowan's announcement today, we would be buyers.
Martin Midstream Partners (MMLP/$34.50/Market Perform) Announces a Pleasant Surprise Martin Midstream announced that it has increased its distribution by $0.01 from $0.61/unit to $0.62/ unit for the quarter ended December 31. The distribution, which amounts to $2.48 per unit on an annualized basis, will be paid to unitholders on February 14. We did not expect the partnership to increase its distribution for the quarter given recent coverage issues and our projections for fourth quarter results. We hope that the distribution is a reflection of a stronger than anticipated fourth quarter.
PRICES
Oil $53.31, up $0.73 pre-market
Gas $7.580, up $0.261 pre-market |
