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.”

Oilpatch Casualties : Price War Enters The ‘Market Death’ Phase

The battle for market share has reached the stage where the weak will start dropping out, warns energy economist, a global cull that could go on for another year.

The “market death” phase of the oil downcycle is about to commence as margins of many producers are starting to dry up, according to an energy analyst.

Claudia Cattaneo: With the Canadian dollar depressed and share prices of some companies at bargain levels, the odds are high that well-known Canadian names will disappear.

“We are in the midst of a price war and one of the key elements of a price war is that producers start to raise production to elbow out the competition,” Peter Tertzakian, chief energy economist and managing director of ARC Financial Resources told a business audience at a conference in Toronto Thursday.

Last November, Saudi Arabia and OPEC allies decided to maintain output despite falling oil prices, triggering a global oil war that has seen prices cut in half.

“First thing you do [in a price war], is you crank up capacity. You have to pay the bills, employees and banks. You crank it up, till you can’t crank it up anymore.
Until you hit Phase 2, ‘Market Death’, which sounds very ominous. Market death is when some of the participants can no longer produce and start dropping out. It’s starting to happen, not enough yet.”

We are still in the first phase, with market death about to occur.

“And at some point there is capitulation. I would argue that it is coming in the third and fourth quarter, but it could drag on for a year,” Tertzakian said.

The OPEC meeting in June is unlikely to see the Saudis retreat from their determined position of raising production and gaining greater market share at the expense of their competitors.

“I don’t think they [the Saudis] would have felt that enough market death has happened yet. The objective in price wars is to put the weak out of business.”

The silver lining for Canadian and U.S. producers is that tight oil is more responsive and nimble compared to the inelastic conventional global supplies. This is evident from the financings of Canadian oil producers, which have been almost at the same pace as the first quarter of 2014.

“Light oil is going to be winner in the global price wars and the investor sentiment shows that. But the money is going to be very selective and backing winners – perceived winners.”

“The longer [low oil prices] persist, the more you will see companies’ financial situation become more precarious, and potentially looking at being acquired as the best outcome,” said Scott Sharabura, associate principal at McKinsey & Co.’s Calgary office.

At the same time, their businesses remain attractive, he said. “Everything about the logic of investing in Canada — lots of reserves, a safe environment from a geopolitical perspective, low risk, lots of long-term investment potential — still holds.”

Among the larger companies, oil sands producer Cenovus Energy Inc. and oil and gas producer Encana Corp. saw the steepest stock price declines since the beginning of the year. Cenovus issued $1.5 billion and Encana $1.4 billion in equity to soothe the bite of low oil prices. But Cenovus still has a $1.3 billion “funding gap” and Encana is digesting acquisitions it made at high prices as part of its transformation to become a balanced oil and gas producer before oil collapsed.

Penn West Exploration Ltd. is among those struggling with high debt and has been in discussions to ease terms.

“Companies will doubtless feel the squeeze as time goes by and Q2 2015 will inevitably be a time when we see an increase in distressed sales as debt-laden companies have their hands forced by the need to furnish debt,” Eoin Coyne, of research firm Evaluate Energy, said in a report Wednesday.

The most talked about potential acquirers are Canadian Natural Resources Ltd. and Suncor Energy Inc., which saw the largest stock price increases over the same period.

Canadian Natural has been acquisitive throughout its history, particularly when industry conditions are weak. Suncor became acquisitive in the last oil price crash, when it purchased PetroCanada.

Husky Energy Inc., whose stock has been relatively stable, has signalled it has appetite for a “transformational” deal.

But global companies are also likely on the hunt, and in some cases have the benefit of stronger currencies and deeper pockets. In addition to Shell, Petronas, ExxonMobil Corp., Chevron Corp., BP PLC, PetroChina, ENI, Total S.A, Lukoil and Statoil ASA have the financial capacity to make acquisitions, according to Evaluate Energy. With the exception of Lukoil, all have operations in Canada. The Shell-BG merger could push others to do their own deal to keep up, or because by eliminating competition they can reduce costs.

The 1998 oil crash pushed Exxon to purchase Mobil, and BP to acquire Amoco. Chevron later scooped up Texaco Inc. and Conoco took out Phillips.

Big Oil’s Push to Replace Coal : Coal Mining and Shipping Sectors At Risk

BP Plc coined the slogan “Beyond Petroleum.” The new industry mantra might be “Beyond Oil and Into Gas.” Oh, and while we’re at it, “Down With Coal.”

Consider Royal Dutch Shell Plc’s recent $70 billion acquisition of BG Group Plc — clearly a huge bet that natural gas will prove to be its cash cow of the future.

The petroleum industry’s move toward gas is hardly new — the hydraulic fracturing shale revolution is in its second decade, after all. Still, Shell’s move is an emphatic confirmation that some among the Big Oil family firmly believe gas will play a growing role in meeting the energy demand of emerging countries such as China and India that are trying to move away from dirtier coal.

“Gas will likely overtake coal as the world’s second fuel by the late 2020s,” said Jonathan Stern, head of the natural gas program at the Oxford Institute for Energy Studies.

Gas is emerging as a preferred fuel around the world because it’s cleaner to burn than coal and oil, prompting the International Energy Agency to say in 2011 that the world was entering into the “golden age of gas.” In a highly symbolic move, China announced last month it would convert the last of four major coal-fired power plants around Beijing to gas next year.

Last September, in a petroleum industry meeting timed to a United Nations session on global warming, some of the world’s leading producers got up to argue that gas gave them a huge advantage over coal in the climate-change battle, according to the website Responding to Climate Change.

“One of our most important contributions is producing natural gas and replacing coal in electricity production,” said Helge Lund, then chief executive officer of Statoil ASA, citing figures that switching from coal to gas could halve global emissions.

Fast Growing

Until recently, coal was the world’s fastest-growing major energy source, averaging a 5 percent annual rate. The Paris-based IEA forecast the rate would slow down to 1 percent from 2012 to 2020, and decelerate further to 0.3 percent in the 2020s as China and other emerging countries battle pollution.

Shell CEO Ben van Beurden said in February that “a shift from coal to natural gas” was needed to battle climate change. “When burnt for power, gas produces half the CO2 coal does,” he told an industry audience.

For Shell, this is the second gas-focused deal in so many years. In early 2014, it bought the liquefied natural gas business of Spain’s Repsol SA for $4.1 billion. The Anglo-Dutch group is not alone betting on gas: Chevron Corp., BP, Total SA and Exxon Mobil Corp. are spending heavily on the fuel.

Gas Focused

Trevor Sikorski, head of natural gas, coal and carbon for consultant Energy Aspects Ltd., said companies were “starting to recognize” a trend in emerging markets in favor of gas and against coal. “This deal potentially kicks off acquisitions of other gas-focused companies the size of BG or maybe smaller,” he said. Among the potential candidates, analysts are looking at Woodside Petroleum Ltd. and Santos Ltd. of Australia, U.S.-based Devon Energy Corp. and Noble Energy Inc., among others.

The bet on gas has been extremely profitable so far for Shell. The company reported underlying earnings of $10.4 billion in 2014 from gas, up 470 percent in five years.

But it has its risk, nonetheless. First, LNG prices have dropped about a quarter from the torrid levels reached after Japan bought large quantities of the fuel following the 2011 nuclear crisis of Fukushima. The price drop will hurt profits.

Coal Prices

At the same time, coal prices have fallen to levels not seen since the global financial crisis, providing cost-sensitive countries, including India, a strong reason to keep buying. BP CEO Bob Dudley last June warned that with coal prices falling, the commodity was “extending its competitive edge in power generation” over gas.

Second, the shift from coal into gas depends in a great part on climate change negotiations of uncertain outcome.

And third, analysts worry that energy companies would struggle to keep construction costs under control, jeopardizing the future of the LNG sector.

If Big Oil is successful in its push toward gas at the expense of coal, those most at risk will likely be global mining groups including Glencore Plc, Anglo American Plc and Rio Tinto Group with billions of dollars in coal deposits in South Africa, Australia and Colombia.