Cramer Rates Chesapeake Energy : SELL SELL SELL

Our favorite AVOID gets a celebrity endorsement:

Chesapeake Energy is an oil and natural gas company based in Oklahoma City with positions in the Eagle Ford, Utica, Granite Wash, Cleveland, Tonkawa, Mississippi Lime, and Niobrara unconventional liquids plays.

TheStreet Ratings team rates CHESAPEAKE ENERGY CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

“We rate CHESAPEAKE ENERGY CORP (CHK) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.”

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 979.8% when compared to the same quarter one year ago, falling from $425.00 million to -$3,739.00 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, CHESAPEAKE ENERGY CORP’s return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $423.00 million or 67.23% 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock’s performance over the last year: it has tumbled by 59.08%, worse than the S&P 500’s performance. Consistent with the plunge in the stock price, the company’s earnings per share are down 1159.25% compared to the year-earlier 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.
  • CHESAPEAKE ENERGY CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CHESAPEAKE ENERGY CORP increased its bottom line by earning $1.83 versus $0.68 in the prior year. For the next year, the market is expecting a contraction of 109.8% in earnings (-$0.18 versus $1.83).
  • You can view the full analysis from the report here: CHK Ratings Report

Offshore your Portfolio http://www.youroffshoremoney.com 

Energy Investors Cling To False Hopes : The Lost Decade

It has been a very challenging time for investors in the energy space, but we find their resiliency impressive, considering they have endured a decade of little to no returns.

Oil companies say there will be a price to pay — a much higher price — for all the cost cutting being done today to cope with the collapse in the crude market.

Investors haven’t made any money over the past decade with the S&P TSX Capped Energy Index gaining a paltry 0.3 per cent annually while the Canadian dollar-adjusted West Texas Intermediate oil price is up only 0.7 per cent per year. This compares to the S&P TSX Index that has gained just over seven per cent per year over the same period.

Even though it remained fairly flat over the past 10 years, the energy index has experienced tremendous volatility with an average standard deviation of 30 per cent, more than double the TSX’s 14 per cent.

It is doubtful that many investors rode out the entire period, instead we think they pulled the ripcord during some of the periods of excess volatility. It’s even worse for those who purchased at its recent peak in mid-2014.

Which is why we find it rather amazing that investors plowed a whopping $5.5 billion into the Canadian exploration and production sector through bought-deal equity financings in the first quarter, and an additional $1.4 billion raised so far this quarter.

Which is why we find it rather amazing that investors plowed a whopping $5.5 billion into the Canadian exploration and production sector through bought-deal equity financings in the first quarter, and an additional $1.4 billion raised so far this quarter.

FP0623_TotalReturns_C_JR

Looking Ahead

With regards to oil prices, we think there could more downside than upside on the horizon especially in this environment of a prolonged global supply-demand imbalance.

On the positive side, global oil demand has been improving and is up 1.2 per cent from last May. However, this may not be enough as global supply has exceeded demand for the past five quarters and could soon see the longest glut since 1985, according to financial news provider Bloomberg.

Not helping matters is OPEC production growth as the group aims to protect its market share against North American producers that have yet to curtail output despite the oil price being halved in the past year. Over the past four weeks the Lower 48 oil production has averaged 229,000 barrels a day higher than the previous four weeks.

With regard to Canadian oil producers, many companies have implied commodity prices at or near the forward curve and some a little bit higher such as Suncor Energy Inc. and Canadian Natural Resources Ltd.

 

We find this to be a useful exercise at times as a large divergence or disconnect either way can be indicative of a sector bottom like in mid-2012 or the peaks of early 2011 and mid-2014.

But today’s signals suggest more uncertainty and are creating a very challenging environment to make an investment decision in.

The bad news is that this may mean we have not yet seen the final capitulation usually needed before the start of a new bull cycle.  This is because high CAD-denominated forward prices, low interest rates and the large capital flow into the sector are providing an artificial sense of hope for marginal producers.

That said, there are still opportunities in the sector, but one has to work extra hard to mitigate the risks of uncertainty.

We continue to stay away from Alberta oil and gas producers as there is still way too much jurisdictional uncertainty. They could under perform like they did during the last royalty review and as a result have a higher cost of capital.

Instead, we look to own those well-funded, non-Alberta producers such as Crescent Point Energy Corp. that are looking to gain market share in this challenged environment.

Read more on protecting your portfolio and capital at hignnetworth.wordpress.com

Going offshore http://www.youroffshoremoney.com

 

Cramer Says : Sell Apache

 

Apache Corp. (APAGet Report)
Market Cap: $22.3 billion
Sector: Energy/Oil & Gas Explorations & Production
TheStreet Ratings: Sell, D
Beta: 1.48
Year-to-date return: -5.8%

Apache Corporation, an independent energy company, explores, develops, and produces natural gas, crude oil, and natural gas liquids.

TheStreet Ratings said: “We rate APACHE CORP (APA) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company’s weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share.”

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income has significantly decreased by 2070.8% when compared to the same quarter one year ago, falling from $236.00 million to -$4,651.00 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, APACHE CORP’s return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to $650.00 million or 71.65% 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.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock’s performance over the last year: it has tumbled by 39.06%, worse than the S&P 500’s performance. Consistent with the plunge in the stock price, the company’s earnings per share are down 749.47% compared to the year-earlier 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.
  • APACHE CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, APACHE CORP swung to a loss, reporting -$13.07 versus $5.95 in the prior year. This year, the market expects an improvement in earnings (-$1.03 versus -$13.07).

Stocks To Avoid : Chesapeake Our Top Avoid In Natural Gas,

occupy wall street cartoon

 

These are this Thursday’s top analyst upgrades, downgrades and initiations.

Check out Seeking Alpha for the unending series of article seeking  to pick the bottom – in natural gas, shipping , drilling and compare that to our consistent  AVOID ratings:

Chesapeake Energy Corp. (NYSE: CHK) was downgraded to Perform from Outperform at Oppenheimer. That means that the firm now has no target to speak of, and the $13.06 closing price compares to a consensus price target of $15.67 and a 52-week range of $12.89 to $29.92. The downgrade was based on growing losses and a cash flow deficit.

Rite Aid Corp. (NYSE: RAD) was started as Outperform with a $10 price target (versus a $8.64 close) at Credit Suisse. The firm believes Rite Aid is one of the more compelling risk-reward profiles in the space and that it has a compelling M&A potential.

Toll Brothers Inc. (NYSE: TOL) was raised to Outperform from Neutral and the target price was raised to $42 from $40 (versus a $36.81 close) at Credit Suisse. The firm believes that investors underappreciate its earnings potential, and the firm raised estimates to reflect the updated City Living pipeline.

Transocean Ltd. (NYSE: RIG) was started as Underweight with a price target of $14 (versus a $19.08 close) at Barclays. Transocean’s consensus price target is $14.17, and the 52-week range is $13.28 to $46.12.

Harley-Davidson Inc. (NYSE: HOG) was downgraded to Neutral from Outperform with a price target cut to $57.00 from $74.00 (versus a $54.69 close) at Wedbush. Harley-Davidson has a consensus price target of $66.00 and a 52-week range of $53.04 to $72.37.

 

Natural Gas Futures Plunge 4% after bearish storage data

© Reuters.  U.S. natural gas prices tumble to 3-week low after supply report

Investing.com – Natural gas futures plunged sharply to hit a three-week low on Thursday, after data showed that U.S. natural gas supplies rose more than expected last week.

On the New York Mercantile Exchange, natural gas for delivery in July tumbled 11.8 cents, or 4.16%, to trade at $2.729 per million British thermal units during U.S. morning hours. Prices were at around $2.790 prior to the release of the supply data.

A day earlier, natural gas prices shed 0.2 cents, or 0.07%, to close at $2.847. Futures were likely to find support at $2.710 per million British thermal units, the low from May 7, and resistance at $2.915, the high from May 27.

The U.S. Energy Information Administration said in its weekly report that natural gas storage in the U.S. in the week ended May 22 rose by 112 billion cubic feet, compared to expectations for an increase of 99 billion and following a build of 92 billion cubic feet in the preceding week.

Supplies rose by 113 billion cubic feet in the same week last year, while the five-year average change is an increase of 95 billion cubic feet.

Total U.S. natural gas storage stood at 2.101 trillion cubic feet as of last week. Stocks were 737 billion cubic feet higher than last year at this time and 18 billion cubic feet below the five-year average of 2.119 trillion cubic feet for this time of year.

Meanwhile, weather forecasting models called for slightly warmer than average temperatures across the U.S. over the next ten days, although not yet enough to significantly boost cooling demand.

Spring usually sees the weakest demand for natural gas in the U.S, as the absence of extreme temperatures curbs demand for heating and air conditioning.

Elsewhere on the Nymex, crude oil for delivery in July fell 79 cents, or 1.37%, to trade at $56.72 a barrel, while heating oil for July delivery dropped 0.41% to trade at $1.852 per gallon.

Alberta Election Result Latest Blow to Oil Industry

(Bloomberg) — Canada’s energy industry, already buffeted by low oil prices and stalled pipeline projects, is bracing for more setbacks after a New Democratic Party that pledges to raise corporate taxes was swept to power in Alberta.

The NDP, led by Rachel Notley, ended a 44-year Progressive Conservative dynasty by winning a majority of districts in elections Tuesday, according to preliminary results. The NDP promises to boost corporate taxes, review the government’s take on energy revenue, scale back advocacy for pipelines and phase out coal power more quickly.

“It’s completely devastating,” for energy companies and investors, Rafi Tahmazian, who helps manage C$1 billion ($831 million) in energy funds at Canoe Financial LP in Calgary, said on Tuesday. “The perception from the market based on their comments is they’re extremely dangerous.”

The NDP victory may spark a sell off in Canadian energy stocks and stall investment in the oil patch, which is counting on more than C$500 billion in spending over the next three decades in the oil sands alone. The Standard & Poor’s/TSX Energy Index of 64 Canadian oil and gas stocks fell 1.4 percent Tuesday before results came out, the biggest drop in a month.

Energy producers in Alberta, the heart of the Canadian industry, are cutting jobs, reducing drilling and shelving billions of dollars of new investment because of the oil price collapse. While U.S. crude’s rise to around $60 a barrel from a six-year low in March has injected fresh optimism into the industry, executives are preparing for a slow recovery to levels that would make new projects profitable in the oil sands, the world’s third-largest reserves.

Clear Negative

“Just when we’re starting to look like we’re recovering here, we get another layer of uncertainty,” said Martin Pelletier, managing director and portfolio manager at TriVest Wealth Counsel Ltd. in Calgary. Pelletier sold some oil and gas shares as polls ahead of Tuesday’s vote forecast an NDP win, he said. “It’s a clear and material negative.”

U.S. investor clients of Calgary-based investment bank AltaCorp Capital Inc. were also pulling positions in Canadian stocks in the run up to the election, anticipating an NDP victory, said analyst Jeremy McCrea. Energy shares, particularly oil-sands operators, are poised to fall over the threat of higher royalty rates, he said.

Suncor Energy Inc., Imperial Oil Ltd., Canadian Natural Resources Ltd. and Cenovus Energy Inc. are among Canada’s largest oil-sands operators.

“Now is not the time for a royalty review,” said Jeff Gaulin, vice president of communications at the Canadian Association of Petroleum Producers. “The uncertainty that that would create for investment would jeopardize jobs in Alberta.”

Good Partner

The energy lobby group is confident it can nonetheless work with Notley’s NDP, Gaulin said.

“Our government will be a good partner” for the energy industry, Notley, 51, said in her victory speech.

There’s a precedent for a stock sell-off based on Alberta energy policy. Canadian oil and gas stocks lost ground to their U.S. peers around October 2007 when the Progressive Conservative government raised royalty rates. The shares traded about 14 percent lower for more than a year, until early indications the government would consider reversing the hikes, according to an AltaCorp analysis. In 2010, the PCs led by Ed Stelmach retreated from most of the royalty boost.

Investor Concern

“If you are invested in energy stocks, you should be concerned,” McCrea said. Drillers already face higher costs to extract oil and gas in Alberta than in many jurisdictions, so an increase in royalties would make the province even less competitive, he said.

The number of oil rigs deployed in Canada’s biggest energy-producing province is at its lowest since 2009 after oil lost half its value last year, according to Baker Hughes Inc. data. Already, Western Canada’s oil growth is poised to slow by 59 percent next year, according to the Canadian Energy Research Institute.

Oil growth in the region will slow to 17,000 barrels a day by next year from 41,000 barrels a day in 2014 as conventional production from drilling declines and stays below last year’s levels through the rest of the decade, according to CERI.

Keystone XL

While not in the party’s official platform, Notley has said she will not advocate for the Keystone XL and Northern Gateway pipelines, oil export projects that have come under fire from environmental opponents of the oil sands and communities fearful of spills along their paths. She has said that Kinder Morgan Inc.’s Trans Mountain line and TransCanada Corp.’s Energy East project are worth discussion.

The Alberta government has been a champion in Washington of Keystone XL, TransCanada’s $8 billion pipeline awaiting a decision by U.S. President Barack Obama. Previous provincial leaders have joined the Canadian government in raising awareness about oil-sands development and regulation to try to win U.S. support for Keystone, a line proposed in 2008 that would transport Canadian crude to the U.S. Gulf Coast.’’

Under the NDP, the corporate tax rate will increase to 12 percent from 10 percent. Notley will form a committee to review royalties and has said she will support more refining of oil in the province, despite a commonly-held view by investors and companies that it isn’t profitable.

Minimum Wage

The new premier will also increase the minimum wage to C$15 an hour and impose stiffer environmental standards and monitoring, according to the party’s election platform. In addition, the NDP leader will ban gas drilling in urban areas. The NDP would phase out coal-fired power plants more quickly than federal regulations that limit them to a 50-year life.

Coal is the biggest contributor to the electricity supply in Alberta, where Westmoreland Coal Co., TransAlta Corp. and Teck Resources Ltd. are among producers.

Alberta and Saskatchewan lead the country in the use of coal for electricity, and both provinces have the highest per capita carbon emissions in Canada, at more than 60 metric tons, compared with 12.5 tons in Ontario, according to Environment Canada figures.

Still, Notley’s platform is a general guideline and the new premier will probably move carefully on economic policies, said Jim Lightbody, chair of the University of Alberta’s political science department in Edmonton. She wouldn’t be able to govern the province and make moves detrimental to the energy industry, he said.

“I would project that she moves carefully, cautiously, sensibly,” Lightbody said.

Half of U.S. Fracking Companies Will Be Sold OR Dead This Year

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford International Plc said.
There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.
There were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Consolidation among bigger players began with Halliburton Co. announcing plans to buy Baker Hughes Inc. in November for $34.6 billion and C&J Energy Services Ltd. buying the pressure-pumping business of Nabors Industries Ltd.
Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.
Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35 percent this year, according to PacWest, a unit of IHS Inc.
While many large private-equity firms are looking at fracking companies to buy, the spread between buyer and seller pricing is still too wide for now, Alex Robart, a principal at PacWest, said in an interview at CERAWeek.
Fulks declined to say whether Weatherford is seeking to acquire other fracking companies or their unused equipment.
“We go by and we see yards are locked up and the doors are closed he  said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”