Oil’s Collapse : Cost North American Investors $390-billion since June

The bear market has wiped out a total of US$393 billion since June — US$353 billion from the shares of 76 companies in the Bloomberg Intelligence North America Exploration & Production index, and almost US$40 billion from high-yield energy bonds, issued by many shale drillers, according to a Bloomberg index.

The bear market has wiped out a total of US$393 billion since June — US$353 billion from the shares of 76 companies in the Bloomberg Intelligence North America Exploration & Production index, and almost US$40 billion from high-yield energy bonds, issued by many shale drillers, according to a Bloomberg index. The exception : Jack A. Bass Managed Accounts

Investors have a message for suffering U.S. oil drillers: We feel your pain- and our services are open to your potential gains.

Investors pumped more than US$1.4 trillion into the oil and gas industry the past five years as oil prices averaged more than US$91 a barrel. The cash infusion helped push U.S. crude production to the highest in more than 30 years, according to data compiled by Bloomberg.

Now that oil prices have fallen below US$45, any euphoria over cheaper energy will be tempered by losses that are starting to show up in investment funds, retirement accounts and bank balance sheets. The bear market has wiped out a total of US$393 billion since June — US$353 billion from the shares of 76 companies in the Bloomberg Intelligence North America Exploration & Production index, and almost US$40 billion from high-yield energy bonds, issued by many shale drillers, according to a Bloomberg index.

“The only thing people are noticing now is that gas prices are dropping,” said Sean Wheeler, the Houston-based co-chairman of the oil and gas industry team for law firm Latham & Watkins LLP. “People haven’t noticed yet that it’s also hitting their portfolios.”

The money flowing into oil and gas companies around the world in the last five years came from a variety of sources. The industry completed US$286 billion in joint ventures, investments and spinoffs, raised US$353 billion in initial public offerings and follow-on share sales, and borrowed US$786 billion in bonds and loans.

50 Cents

The crash caught investors and lenders by surprise. Eight months ago, Houston-based oil producer Energy XXI Ltd. sold US$650 million in bonds. Demand was so high that the company more than doubled the size of the offering, company records show. The debt is now trading for less than 50 cents on the dollar, and the stock has declined 88%.

Energy XXI, which has more than US$3.8 billion in debt, is one of more than 80 oil and gas companies whose bonds have fallen to distressed levels, meaning their yields are more than 10 percentage points above Treasury debt, as investors bet the obligations won’t be repaid, according to data compiled by Bloomberg.

The stocks and bonds of Energy XXI and other struggling energy firms have been bought up by pension funds, insurance companies and savings plans that are the mainstays of Americans’ retirement accounts. Institutional investors had more than US$963 billion tied up in energy stocks as of the end of September, according to Peter Laurelli, a New York-based vice president of research with eVestment, an analytics firm in Marietta, Georgia, that gathers data on about US$22 trillion of institutional strategies.

Bank Lenders

Energy XXI’s second-largest reported shareholder is a group of funds managed by Vanguard Group Inc., the biggest U.S. mutual-fund firm, according to data compiled by Bloomberg. The top reported owner of the bonds Energy XXI issued in May is Franklin Resources Inc. in San Mateo, California, also known as Franklin Templeton Investments, which manages multiple funds that bought Energy XXI’s debt, according to data compiled by Bloomberg.

Energy XXI didn’t return calls and e-mails seeking comment. The company has “plenty of liquidity,” Greg Smith, a spokesman, said in a December interview.

A reckoning may also be in store for Energy XXI’s bank lenders. The company, which drills in the Gulf of Mexico, has tapped US$974 million of a US$1.5 billion credit line extended by a group of banks including Gulfport, Mississippi-based Hancock Holding Co.’s Whitney Bank; Amegy Bank of Texas, a subsidiary of Salt Lake City-based Zions Bancorporation; and Comerica Inc. in Dallas, according to data compiled by Bloomberg. Energy XXI has also borrowed money from banks in the U.K., Australia, Canada, Spain and Japan.

Struggling Drillers

The three U.S. banks are also among the lenders to other struggling drillers. The loans are backed by oil reserves that are worth less at today’s prices than they were when banks last performed scheduled revaluations of the collateral.

Representatives of Amegy, Comerica and Hancock declined to comment on the performance of specific loans. Shares of Zions have declined 15% this month. Comerica is down 9.8%, and Hancock slid 15%.

“This is a big deal for banks in states like Texas where oil is one of the most prominent businesses,” said Brady Gailey, an Atlanta-based analyst at Stifel Financial Corp.’s KBW unit. “There are going to be loan losses and it’s going to hit multiple banks that have exposure to that credit. It will slow economic growth, it could ding real estate values, banks will lose money and their stock will get slammed.”

Regional Lender

One regional lender with energy exposure is Lafayette, Louisiana-based MidSouth Bancorp Inc., with 21% of its US$1.25 billion of lending tied to oil and gas, according to regulatory filings.

Rusty Cloutier, MidSouth’s chief executive officer, said he’s not worried about the oil decline hurting his business because the bank’s portfolio consists of experienced oil and gas companies.

“There will be some players that get hurt, but the real players in the energy market aren’t going anywhere,” Cloutier said. “Companies who are leveraged very highly and got into the business not long ago, those are the ones that are going to get hurt.”

Hundreds of smaller banks in states such as Texas, Colorado, Oklahoma and North Dakota have also plunged into energy lending during the oil boom.

‘Very Concerned’

Gil Barker, the Office of the U.S. Comptroller of the Currency’s top overseer of community banks in states including Texas and Oklahoma, said he has confidence that the smaller lenders were doing what they should, though circumstances might change.

“We’re very concerned about the banks located in these oil-producing areas,” he said. “A prolonged time of low oil prices is really going to cause banks significant problems.”

More people will be affected than realize it, said Michael Shaoul, who helps oversee about US$9 billion as CEO of Marketfield Asset Management LLC in New York. “So much of this has ended up in 401(k)s and in pension funds and in mutual funds, and that’s where the bulk of the pain is going to be felt.”

 Jack A. Bass Managed Accounts

November 2014 – 40 % cash position

Year End Review and Forecast

 

Oil/ Energy

I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.

On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plu

 

ConocoPhillips (NYSE:COP) $ 66.07 -6.72%
Vanguard Natural Resources, LLC (NASDAQ:VNR) $ 23.22 -6.86%
Seadrill Ltd. (SDRL) $ 14.66 -8.32%
Have you avoided this sector – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email info@jackbassteam.com or

Telephone :  Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

SunEdison Inc. (SUNE) Planning a $4 billion Factory In India

SunEdison Inc. (SUNE), the best-performing solar company last year, is planning a $4 billion factory in India to supply the country’s booming market for clean power.

SunEdison will form a joint venture with the Indian power provider Adani Enterprises Ltd. (ADE) to build India’s largest photovoltaic panel plant, with as much as 7.5 gigawatts of annual production capacity, the Maryland Heights, Missouri-based company said today in a statement. Construction is expected to begin this year.

India set a target in November for as much as 100 gigawatts of solar capacity by 2022, five times its earlier goal. The country is the third-largest source of carbon emissions and is under pressure from China and the U.S., the two largest, to reduce pollution. Last month it pledged to spend at least $100 billion on climate-related projects, and President Barack Obama is scheduled to visit New Delhithis month to meet with Prime Minister Narendra Modi.

“The prime minister has been revising upwards India’s aspirations for solar,” Pashupathy Shankar Gopalan, SunEdison’s managing director for South Asia and Sub-Saharan Africa, said in an interview. The planned factory “very nicely plays into the aspirations for the country to grow solar significantly, as well as wanting to create stronger domestic manufacturing.”

Solar demand in India this year may triple to more than 3.2 gigawatts, according to Bloomberg New Energy Finance. The London-based research company expects as much as 63.6 gigawatts to be installed worldwide.

Rising Emissions

India gets about 60 percent of its power from coal. Under India’s existing energy policies, theInternational Energy Agency estimates that carbon dioxide emissions will jump 34 percent by 2020 and double by 2030.

The new plant in Mundra, Gujarat, will incorporate all stages of solar manufacturing, from polysilicon to cells and panels. Construction will take about three years and it will create about 20,000 jobs.

“Solar will be a very important part of the country’s energy mix,” Gopalan said. “The cost of solar has become so competitive that it’s our belief the facility we’re building will be able to compete head to head with fossil-powered energy in India.”

SunEdison shares climbed almost 50 percent in 2014, the most among the Bloomberg Intelligence Global Large Solar Energy index of 21 companies.

Gas Price Drop Pressures Aging Coal and Nuclear Power

A 37 percent drop in natural gas prices since June has lowered what U.S. nuclear and coal plants can charge for electricity, potentially speeding the demise of generators teetering on the brink of closing.

While power plants that burn gas get a break on the cost side, allowing them to charge less for their product, coal and nuclear operators are seeing thinning profits. The gas squeeze comes as companies are upgrading plants to meet new environmental rules and demand weakens as a result of competition from solar and wind energy.

FirstEnergy Corp. (FE), NRG Energy Inc. (NRG), and the generation unit that will be spun off fromPPL Corp. (PPL), are among companies most at risk from depressed energy prices, according to a Dec. 31 note published by UBS AG energy analysts. Exelon Corp. (EXC), the biggest U.S. owner of nuclear reactors, said it needs to almost double power prices to keep a New York plant running.

“Natural gas prices have been falling and that’s generally not a good thing for coal and nuclear power producers who sell in competitive wholesale markets,” said Paul Patterson, a New York-based analyst for Glenrock Associates LLC.

Public Service Enterprise Group Inc. (PEG) could also face reduced revenues, UBS said. Plant closings threaten the reliability of power supplies in some regions. Mild weather has disappointed hopes for a surge in summer cooling and winter heating demand for gas.

Changing Fuels

“The latest slide in natural gas prices raises the specter of big coal-to-gas switching in 2015,” said Julien Dumoulin-Smith, a New York-based analyst for UBS.

Expectations for a repeat of last year’s polar vortex, when frigid temperatures spurred record demand and soaring prices for gas and electricity, are dwindling due to milder-than-expected winter weather.

“As you get further along in the winter, the risk of extreme weather begins to go down,” Patterson said.

Gas settled yesterday in New York at $2.938 per million British thermal units after hitting a two-year low this week. Gas last month hit historic lows in some parts of the Mid-Atlantic.

Power prices for delivery during the peak hours of the day for winter has fallen 21 percent to $54 a megawatt-hour since mid-December in PJM Interconnection LLC, the nation’s largest U.S. electricity grid. PJM serves more than 61 million people from Washington, D.C. to Chicago.

Stocks Suffer

Shares of some of the nation’s largest power generators have also suffered. NRG, the largest U.S. independent generation owner, has fallen 22 percent since hitting a recent high on Nov. 7. Dynegy Inc., another large independent operator, is down 15 percent over the same period.

Owners of utilities, which are allowed to charge rates that provide a profit, are exiting the competitive power business that leaves them vulnerable to market swings. American Electric Power Co. (AEP), the biggest U.S. coal burner, said yesterday it had hired Goldman Sachs Group Inc. to advise on a potential sale of seven power plants as the utility owner struggles to compete amid falling prices.

Utilities including FirstEnergy, which owns about 10,000 megawatts of coal capacity, and Exelon are lobbying regulators and grid operators to boost what they can charge customers at their financially pinched units. They say closing the plants will risk blackouts and raise customer bills even higher.

After recording losses that exceeded $100 million from 2011 to 2013, Exelon said it needs to charge about 83 percent more than wholesale prices to earn a profit at its Rochester-area Ginna plant. Last month, Entergy Corp. shut Vermont’s only operating reactor citing low power prices.

EPA Rule

The U.S. Environmental Protection Agency said today it will delay the release of carbon-emission rules for all power plants until the middle of the summer. Industry groups and Republican lawmakers said the proposed rules would effectively ban new coal facilities.

The companies say gas shortages last winter showed the value of coal and nuclear plants that were needed to keep the lights on. PJM, the grid operator, is asking federal regulators to allow for increasing payments to plant owners to ensure at least 2,000 megawatts of aging generation is kept in operation through next winter, according to a filing with the Federal Energy Regulatory Commission.

That won’t provide any relief in the short term as milder weather and lower gas prices could reduce FirstEnergy’s earnings per share by 20 cents in 2015, according to UBS. The company is among “the most exposed” to declining use of coal-fired power units, UBS said.

Hedging Help

NRG could see a $30 million reduction in earnings before interest, taxes, depreciation and amortization in 2015, UBS said.

To protect themselves from volatile price swings, power companies are using hedging contracts to lock in future prices for power and gas.

FirstEnergy is taking “aggressive actions” to reduce its exposure to the market and has increased its hedged contracts since November, said Tricia Ingraham a spokeswoman for FirstEnergy. Exelon reduces its exposure to power price movements with a three-year forward hedging strategy, spokesman Paul Adams said. NRG, PPL and Public Service declined to comment on the UBS report. Dynegy didn’t immediately respond to a request for comment.

This year, coal-fired power production in PJM could be close to the lowest level since 2008, according to UBS.

Get Out Of Natural Gas and Oil Stocks – worse to come – Updated Dec.25

In this Dec. 17, 2014 photo, workers tend to oil pump jacks behind a natural gas flare near Watford City, N.D. Natural gas, the nation's most prevalent heating fuel, is getting cheaper just as winter is arriving because of mild temperatures and plentiful supplies. (AP Photo/Eric Gay)

Natural gas, the nation’s most prevalent heating fuel, is getting cheaper just as winter is arriving because of mild temperatures and plentiful supplies.

The price of natural gas has dropped 29 percent in a month, to $3.17 per 1,000 cubic feet on Tuesday from nearly $4.50 in late November. That’s a steep drop even for a fuel notorious for volatile price swings.

The lower prices are expected to linger and could reduce electricity prices and heating bills in the coming months. Natural gas is used by half of the nation’s households for heating and to generate 26 percent of the nation’s electricity.

Natural gas often rises as winter weather approaches, and a frigid November sent the price higher. But December warmed up, and temperatures for the rest of the winter are expected to be close to normal.

.

Oil falls, near $60 on supply glut, strong dollar

A customer waits as an employee of state-owned Pertamina refuels his car at its petrol station in Jakarta

In 2013 and 2014 a theme of my speeches to investors has been the problems facing exploration and production companies in natural gas . Then I projected that companies unprofitable at $4.00 would be in difficulty – today it is a crisis – expect bankruptcies and mergers to be the story in 2015..

Natural gas futures slid in New York  Thursday Dec.24 -to the lowest level since September 2012 after a government report showed U.S. inventories fell last week by less than forecast.

The Energy Information Administration said stockpiles dropped 49 billion cubic feet in the week ended Dec. 19 to 3.246 trillion. Analysts estimated a decline of 63 billion while a survey of Bloomberg users predicted a withdrawal of 59 billion.

“It’s so small because it was warm,” said Aaron Calder, senior market analyst at Gelber & Associates in Houston. “We expected some power generators to switch more to natural gas because of lower prices, but we didn’t see that. Meanwhile, the market continues to be flooded by production.”

Brent oil fell on Wednesday ( Dec .23), trading around $60 per barrel weighed down by strong supply in the United States and a rising dollar.

Brent for February delivery was down $1.50 to $60.19 at 1327 GMT after gaining $1.58 on Tuesday. It hit a low of $59.93 earlier in the session.

U.S. crude was down $1.17 to $55.95 a barrel, after closing $1.86 higher in the previous session.

Trade was thin as many in the European and U.S. market were off for the Christmas break.

Data from the American Petroleum Institute (API), an industry group, showed U.S. crude stocks rose by 5.4 million barrels in the week ended Dec. 19. Analysts had expected a drop of 2.3 million barrels.

In Europe, gasoline stocks reached their highest in five months in the Amsterdam-Rotterdam-Antwerp oil hub, data from PJK International showed.

A supply glut in the United States and elsewhere has helped push oil down some 46 percent since it reached this year’s peak above $115 per barrel in June.

“There was a large build in the API data and there are high stocks for now, although strong U.S. GDP growth should help demand,” said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland.

The dollar index stayed close to its highest since April 2006 after a revised third-quarter U.S. gross domestic product report surprised with the fastest growth in 11 years.

A strong dollar makes commodities priced in the greenback more expensive for holders of other currencies.

Now investors face more volatile markets and securities that no longer move in lock-step. At the same time, investors must cope withslower growth in China, minuscule growth in the euro area and negative growth in Japan.

Such widespread sluggish demand — along with ample supplies of oil and most everything else — is the reason commodity prices are falling. They have been since early 2011, but many people failed to notice until recently, when crude oil prices nosedived.

Normally, less demand and a supply glut would lead the Organization of Petroleum Exporting Countries, beginning with Saudi Arabia, to cut production. As the de facto cartel leader, the Saudis would often reduce output to prevent supply increases from driving down prices.

Of course, this also cost the Saudis market share and encouraged cheating by OPEC members. Saudi leaders must grind their teeth over the last decade’s unchanged demand for OPEC oil, while all the global growth has been among non-OPEC suppliers, principally in North America.

The Fools In Chesapeake ( CHK)

Yesterday Chesapeake announced it would spend a billion dollars on stock buy backs – this is foolishness bordering on gross mismanagement – like the captain of the Titanic rearranging the deck chairs. Companies must husband their funds – the best will survive and cherry pick assets from corpses – to mix as many metaphors as I can.

No Glory for Prophets

My best call in 2014 was to reverse on Quicksilver ( KWK) and sell out at $ 2.50 – it is now down a further 90 % to pennies.Many more companies will follow – don’t hold on for a recovery. That sell call earned me the most email – all negative- for the year and no thanks from investors.

The millions of dollars – per well – now at work -have to complete their drilling and this will bring on additional natural gas supplies in the U.S. that in turn will pressure oil prices well into 2015. LNG exports from the U.S. ( starting in about 12 months by Cheniere at the gulf coast in the U.S. ( and projects in Australia) will pressure international prices and also depress oil.

Planned Australian LNG projects threatened by energy price crash

Woodside's Pluto LNG Loading jetty, Pluto LNG onshore gas plant.

Handout/ WoodsideWoodside’s Pluto LNG Loading jetty, Pluto LNG onshore gas plant.

Planned Australian liquefied natural gas (LNG) export projects, including the costly Scarborough floating vessel, are at risk as sinking energy prices make investments unviable, analysts said.

A nearly 50% slump in Asian LNG prices this year has pressured any project without a Final Investment Decision (FID). Just last week, Woodside Petroleum Ltd  delayed the FID for its US$40-billion Browse floating project with Royal Dutch Shell and BP.

The next cab off that rank could be ExxonMobil and BHP Billiton’s  US$10-billion Scarborough project.

Scarborough will be “commercially challenging” to justify given a raft of competing LNG projects, said Noel Tomnay, global gas and LNG research head at Wood Mackenzie.

“China’s growing pains as well as slugs of LNG coming into the market: that’s a fairly wicked combination. It would take a very brave soul to ignore the prevailing market.”
BHP and ExxonMobil were not available for comment.

The future for other Australian LNG projects without FID is also uncertain.

GDF Suez and Santos are seeking alternatives for their Bonaparte floating project, Woodside has indefinitely delayed its Sunrise project, while Shell has yet to commit to its Arrow project where it has cut hundreds of positions.

Coal Will Continue To Contract

Coal is going to be used for the next 50 years – but high sulphur mines will close and electrical generation will rely on cheap natural gas . Stay away from trying to pick the bottom in the sector.

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
Shipping Sector / Bulk ShippersYou can review our stock market letter athttp://www.amp2012.com to follow our profits in the shipping sector before our retreat as overcapacity has yet to effect continued overbuiding. In 2008-9 rates-  illustrated by the Baltic Dry Index – were at their peak. The BDI hit over 10,000. Today it is roughly 10 % of that benchmark and the sector slide continues. We have an impressive watchlist of former ” darlings” – but we are content to watch and wait.
Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

ARCH Coal – Jim CRAMER says ” boo”

Yes Halloween is past but it’s never to late to scare you off coal .

TheStreet Quant Ratings rates Arch Coal  ( ACI) as a sell. The company’s weaknesses can be seen in multiple areas, such as its disappointing return on equity, poor profit margins, weak operating cash flow, generally disappointing historical performance in the stock itself and generally high debt management risk.

Highlights from the ratings report include:

Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, ARCH COAL INC’s return on equity significantly trails that of both the industry average and the S&P 500.
The gross profit margin for ARCH COAL INC is currently extremely low, coming in at 12.81%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -13.09% is significantly below that of the industry average.
Net operating cash flow has decreased to $80.34 million or 40.29% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm’s growth is significantly lower.
ACI’s stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 44.75%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock’s sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
The debt-to-equity ratio is very high at 2.67 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company’s weak debt-to-equity ratio, ACI has managed to keep a strong quick ratio of 2.36, which demonstrates the ability to cover short-term cash needs.

Cheniere for the coming LNG Market

 

 

August 18

The newsletter Investment U picks Cheniere as a winner in a field yet to be developed .

  • The LNG Shortage

Nearly every gas import terminal in the country (there are nine of them) applied for permits to install natural gas liquefaction plants. The reason? The demand for natural gas is booming just about everywhere else in the world.

Qatar, the world’s largest exporter of natural gas, will soon hit its full annual export capacity of 77 million tons, in the face of global demand that can absorb nearly as much as the world can produce.

In the wake of the multiple disasters in Japan, it’s importing an additional four million tons over the next year from Qatar. It’s in negotiations to purchase even more.

Fatih Birol, the head of the International Energy Agency, commented on the opportunities for LNG producers in an article in The Wall Street Journal: “Post Fukushima, there will be a lot of opportunities. Japan and Korea both have new long-term contracts in the next four years, and China’s demand is booming. As of 2015 they will have to import as much as [all of] Europe today.”

According to Frank Harris, an LNG expert at Wood Mackenzie, Asian demand for LNG is going to skyrocket to 241 million tons in 2020 from 138 million tons in 2010.

With worldwide demand on the rise and no new large-scale LNG projects set to come online in the Asia-Pacific region for at least the next five years, the door is open for the United States to provide some of the slack. Nearly every U.S. company that owns a LNG import terminal has plans to add export capability in the coming decade.

The Best Natural Gas Turn-Around Investment 

But perhaps the best way to invest in the coming rise in LNG exports is via Cheniere Energy, Inc. (AMEX: LNG). It operates the Sabine Pass LNG facility, in Cameron Parish, Louisiana, and it’s going to be the first LNG export facility to come online.

Cheniere recently received DOE export authorization to export LNG. Construction will begin in 2012, and Sabine is scheduled to come online in stages starting in 2015. It’s also negotiating definitive long-term export contracts with numerous customers. It recently inked a big one with India.

It will take a little over a decade for the United States to switch from being a LNG importer to a LNG exporter.

Exporting LNG will also cause the price of U.S. natural gas to gradually rise, and $5 to $6 gas will be the new minimum floor. What a difference a few years – and 2,000 trillion cubic feet of natural gas reserves – makes.

Westport Innovations – Update

English: Revenue stamp (2pi) for financing the...

English: Revenue stamp (2pi) for financing the construction of Hejaz Railway in the Ottoman Empire. Listed as No. 17a in W. McDonald’s Revenues of Ottoman Empire and Republic of Turkey. See also Ottoman Turkish Empire Revenue Stamps of the Hejaz Railway by Steve Jaques, Troy, 2009, pp.22 (Photo credit: Wikipedia)

Westport* (WPT : TSX : $39.13)
Westport* (WPRT : NASDAQ : US$39.04)

August 7

Shares of Westport Innovations jumped after the company reported their Q2/12 results. For the quarter, the
company reported consolidated revenues of $106.1 million compared with $44.9 million for the same period last year, an
increase of 136.3%.

Earnings were reported at a net loss of $6.1 million ($0.11 loss per share) compared with a net loss of $18.1
million ($0.38 loss per share) for the same period last year.

Breaking down its segments, WPT reported Westport Light-Duty (LD) revenue, which where up 182.2% to $30.7 million, Cummins Westport (CWI) revenue jumped 78.5% to $57.0 million with 1972 engines shipped, and Westport Heavy-Duty (HD) revenue was up 111.3% to $4.3 million with 75 systems shipped.

Service and other revenue was reported at $14.1 million.

CEO David Demers commented, “Key segments of the transport market have begun the inevitable shift from petroleum based fuel to engines powered by cleaner burning, low cost methane (natural gas), and Westport has a substantial presence in each market.” Demers also noted, “We are seeing strong growth in all segments and in all of our global markets, and despite challenging macroeconomic conditions, we expect this to accelerate as new infrastructure comes on stream over the next two years and as we launch new products, opening up significant new
addressable markets.”

Natural Gas Headed to $ 8

Texas Barnett Shale gas drilling rig near Alva...

Texas Barnett Shale gas drilling rig near Alvarado, Texas (Photo credit: Wikipedia)

by Richard Finger

 

“There is a glut of natural gas. Everybody knows that. There’s so much of the latest multi stage hydraulic fracturing going on from New York State
to Texas and all places in between, prices will be low forever. But just as a full watering hole can deplete quickly the current gas storage glut can recede.
In fact it already has been and at an alarmingly brisk pace and there may be a confluence of other events which could hasten the process. Consider
this. The weekly EIA natural gas storage numbers reported each Thursday came in with a 28 billion cubic feet (bcf) injection. The inventory
increase last year at this time was 67 bcf while the five year average accretion was 74 bcf. So true that one week does not a trend make. But this
makes eleven straight weeks that have experienced below average storage injections. After Thursday’s numbers were released inventories stood at
3.163 Trillion Cubic Feet or 19.2% above last year but only 17.5% above the five year average. A seemingly decent cushion until you consider as recently as May 10 stockpiles were 48.4% and 49.9% ahead of the previous year and the five year averages respectively. So the question becomes,
why are rates of gas injection dropping so precipitously unless the shale plays are actually unable to produce the necessary incremental volumes.
A Little History And Some Facts
Natural Gas production in the US was declining steadily until 2005 into what many perceived as an irreversible trend with an implication of persistent shortages. Enter the knight in shining armor; horizontal resource drilling. Daily gas production increased from 51 bcfd in 2005 to an average of 66.2 bcfd (billion cubic feet per day) in 2011. Some months have even spiked above 70 bcfd. The natural gas rig count peaked at 1,600 in the summer of 2008.

No coincidence gas prices topped out concurrently the first few days in July at $13.28 per mcf. So in six plus years while gas drillers
were able to increase daily supply by 30% demand has increased only half that amount. The result has been a spot gas price that bottomed on
April 17, 2012 at $1.89 per mcf (thousand cubic feet). But the pendulum is now trending in the other direction as power suppliers and the transportation industry begin to capitalize on the low price of natural gas.

The EIA (US Energy Information Association) has
prognosticated a 2012 daily production average of 68.98 bcfd and consumption of 69.91 bcfd. Methinks those production
numbers extravagantly optimistic and yet the agency continues to publicly adhere to them. Firstly, actual output over the last two months has already slipped to a bit under 64 bcfd.

Next, the natural gas rig count collapsed to 486, a thirteen year low, on June 22 and had made only minimal recovery to 518 rigs as of last week.
Lastly, numerous major gas producers such as COP and CHK have shut in parts of their dry gas production and are switching their drilling programs away from dry gas to natural gas liquids and oil. Conversely, consumption may exceed EIA projections.
Here’s why. Hotter than usual temperatures across much of the country especially in the population heavy
northeast is causing excess energy demand. Another thought provoking data point from the EIA last week reported that for the first time in history natural gas fired power plants generated more electricity than coal fired plants. That’s quite a milestone. Each now comprise 32% of U.S. power generation. Gas is cleaner and at current prices is a cost effective coal alternative. Adding to short term supply pressures, four nuclear power plants are down, all effecting east coast residents. Though still in early stages numerous fortune 500 companies such as Fed Ex and UPS are transitioning to natural gas powered trucks. A national fueling system is near completion with locations along the major interstate arteries.
Drilling Economics
The earliest horizontal resource drilling was done by Mitchell Energy (now part of DVN) in 2005 in the Barnett Shale which is in and around Fort Worth, Texas. Horizontal fracturing into shale has become much more sophisticated since those early days, with enhanced recovery of
gas in place, although at much greater cost per well. An  average 20 stage horizontal dry gas well in the South Texas Eagle Ford Shale or the East Texas/North Louisiana Haynesville play may cost $8.5 to $12 million. It will be drilled to vertical depths of 8,000 to 12,000 feet below surface.

Let’s assume an average well cost of $10 million with an estimated ultimate recovery (EUR) of 6 bcf. At $2.00 per mcf gross expected
revenues are $12 million and at $3.00 mcf revenues are $18 million and so on. Don’t forget about the expense side of the ledger. There is the mineral owner royalty payment which is often ¼ or 25% which comes right off the top.

Clean Energy Tech Stocks Review : Itron EberNOC ESCO Ameresco Echelon Stantec

Image representing EnerNoc as depicted in Crun...

Image via CrunchBase

While Street sentiment on the sector remains arguably “subterranean,” underlying trends (e.g., analog to digital, utility spending, solid balance sheets and healthy M&A activity) remain resilient looking into ’13, despite fx headwinds. That said, we expect continued volatility as near-term prospects should remain variable by company.

Itron (ITRI : NASDAQ : $41.22 | BUY):

While European exposure (EMEA ~35% of mix) and AMI backlog levels are driving bearish expectations for guidance, we find the outlook likely to be more constructive given the platform breadth. On the call, we’ll be looking for final shipments to BC Hydro, updates on the CEO search and restructuring, as well as timetables/probabilities on European smart meter roll-outs (more ‘14/15 in our view). Our target goes to $55 from $58 as we adjust our multiple to account for FX headwinds (full-year outlook factors USD/EUR fx rate of $1.37 – we note given the natural hedge of localized manufacturing, revenues are likely more impacted than EPS).  Street $562.3M/$0.94.

EnerNOC (ENOC : NASDAQ : $6.87 | BUY):

After a very tough TTM for shares, visibility is improving into ’13, as order flow and margins stay healthy and a return to execution is the focus. That said, new accounting for PJM causes Q2 numbers to be a tough compare (i.e. we are comfortable below the Stre t). Recent PJM ‘15/16 auction results are encouraging, while we are monitoring current discussions around the use of back-up diesel generators for DR (as independent power producers try to push-back on the EPA). We maintain our BUY rating.  Street  estimates$33.2M/$(1.08)

 

 

AECOM reports Q3/F2012 (June) results on 7 Aug. 

Wwe expect US$1.4Bn in net revenue and EPS of US$0.60. MSS margin should improve q/q as activity in Afghanistan ramps (the SPA was signed 1 May) and execution issues dissipate. F2012 (Sept.) EPS guidance of US$2.30-US$2.45 looks safe. We’re comfortable owning the stock into the print as valuation is depressed at 4.7x ‘13E EBITDA. The TTM FCF yield is 11%, best in the space.

GENIVAR (GNV:TSX │HOLD, $22.00 Target 

We expect $150M in net revenue, EBITDA of $25.5M, and EPS of $0.40 when GENIVAR reports Q2/2012 results on 9 Aug. We are in line with the consensus. While the top line should grow 14% y/y we expect only 6% EPS growth due to dilution ($160M PP in Dec.). Transaction costs associated with the WSP acquisition represent a downside risk. We’e cautious heading into the print.GENIVAR trades at 6.9x ‘3E EBITDA (9% TTM FCF yield).

Stantec (STN:NYSE/TSX BUY, $35.00 Target

Stantec will release Q2/2012 results on 2 Aug. and we expect net revenue of $358M and EPS (diluted) of C$0.58 (+4% y/y) while the consensus sits at $0.60. Recall, EBITDA margin slipped in Q1/12 (costs to complete revisions in Buildings due to two large P3 projects and an upgrade to its enterprise management system) but we expect this to improve in Q2/12. STN trades at 12x trailing EPS versus (1) an ROE consistently in the 14-17% range; (2) a long track record of excellent execution; and (3) an 8% TTM FCF yield (2.2% Div. yield).

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