Exclusive Analysis for the Discerning Investor
Traditional free cash flow generation has been strong for the oil majors through the first nine months of the year, but their balance sheets remain bloated with net debt. A few haven’t covered their cash dividends with free cash flow generation through the first nine months of 2017. Oil & Gas – Major: BP, COP, CVX, PTR, RDS, TOT, XOM
Image Shown: The performance of the VanEck Vectors Oil Refiners ETF (CRAK) since its launch in August 2015. We’ve witnessed our fair share of fits and starts from energy resource pricing during the past few years, but could the global crude markets finally be rebalancing? Let’s talk about our thoughts on whether the outlook for energy resource pricing is improving in a sustainable way. By Kris Rosemann and Brian Nelson, CFA It may have taken longer than we initially anticipated, but crude oil prices (USO) appear to be on the verge of making a sustained recovery, though we always caution that sentiment can change on a dime, especially in the speculation-heavy commodity price markets. If you recall, we thought the … Read more
–> Handout 1: Pitfalls of Distribution Yield Analysis (pdf) –> Handout 2: Linking P/DCF to Enterprise Free Cash Flow Valuation (pdf) Let’s talk about a controversial metric that is used in master limited partnership (MLP) reporting. Just how useful is it, and should it be allowed? By Brian Nelson, CFA It’s been a few years since the fallout in the prices of most master limited partnerships (AMLP), but to me, it still feels like yesterday. We continue to have many concerns about the longevity of the business models of MLPs, and we maintain our view that the operating structure will be challenged over the long haul. New equity and debt funding (issuance) continues to, in part, fuel the distributions of most MLPs, … Read more
The Valuentum analyst team digs into recent developments in the oil and gas space and highlights one of the most leveraged ways to play rising crude oil prices. ~12 mins. If you cannot view the podcast below, please select the link here or view the transcript that follows. Tickerized for Valuentum’s oil and gas coverage universe. Chris Araos: Hello, this is Christopher Araos at Valuentum Securities, and today with us is Brian Nelson and Kris Rosemann. Today, we are going to talk about the outlook on oil and gas. Brian Nelson, CFA: Thanks Mr. Araos. I think to kind of set the stage for this conversation, we probably need to bridge the gap between what was truly the depths of … Read more
By Kris Rosemann On September 28, the Organization of the Petroleum Exporting Countries (OPEC) reached an agreement to cut crude oil production levels for the first time since 2008. The cartel reportedly agreed to limit production of member nations to a range of 32.5-33 million barrels per day (bpd) while leaders met at the International Energy Forum in Algiers, Algeria. As would be expected following such news, the price of crude oil has bounced, bringing market sentiment surrounding energy-related stocks higher along with it. The proposed production could be a reduction of up to 750,000 bpd from OPEC production levels in the month of August, but how the group of nations will reach such a production cut has yet to … Read more
By Kris Rosemann On January 22, Moody’s placed 120 oil and gas companies (XLE) from across the globe on review for a credit rating downgrade. The list ranges from massive global producers such as Royal Dutch Shell (RDS.A, RDS.B) and Total (TOT) to nearly 70 US exploration and production and services (“E&P”) companies. It also includes 55 mining companies (XLB) that have been punished by the recent rout in commodity prices. Alcoa (AA), Rio Tinto (RIO) and Vale (VALE) are a few notables that made the list for a potential downgrade. The news is not completely unexpected, however, and may likely be a response to several executive teams pointing to legacy (outdated) counterparty/customer ratings as reasons to not be concerned … Read more
We’ve been cautious on the oil and gas markets (XLE, AMLP) for some time, and that includes our October move closer to market neutral on the sector, but we’re still underweight the group. We’ve been saying that crude oil prices are more likely to hit the $20 per barrel level than move significantly higher, and we maintain our view that they may never again return to the $100 per barrel, a level many have grown accustomed to. After all, why should they? Unfortunately, the fallout continues to punish traditional “buy and hold” investors who have been trained to ignore most “news” and may still be holding on the belief of the fallacy of mean reversion, something that we believe cannot … Read more
We think it’s worth reviewing case studies at times to help members build a greater understanding of and an increased conviction in the products, tools, and proprietary analysis we make available to them. In the case of Chevron (CVX), the efficacy of the Dividend Cushion ratio in helping to predict a company’s future dividend policy was undeniable. The Dividend Cushion ratio is calculated for every non-financial operating company in our coverage universe and can be found in the data strip at the top of each firm’s Dividend Report. A ratio above 1.25 is generally viewed as GOOD. For new members, Chevron had been a holding in the Dividend Growth portfolio since its inception. However, the company was removed from the … Read more
Just how bad are we drowning in crude oil? Yesterday’s inventory report showed the largest weekly supply increase in over 30 years, since 1982. That’s how bad. Yet, knowing that crude oil prices are driven by supply and demand, pundits continue to be optimistic, perhaps overly so, about the timing of the recovery in the price of the black liquid (USO). Let’s first start with OPEC, and the Secretary-General Abdullah al-Badri, who said Tuesday that oil prices have bottomed as he “warned of a risk of a future price spike to $200 a barrel.” With inventories as they are and OPEC not ceding market share to US shale-based plays, we think the Secretary-General is drinking a bit too much Kool-aid. … Read more
West Texas Intermediate crude oil (Dec’14) fell under $75 per barrel today, now almost $30 lower than its 52-week high, reaching the lowest level since September 2010. Brent crude also fell to a four-year low. We view the move in crude as a net-negative for the economy and S&P 500 earnings, even though many from transportation to retail will benefit from lower energy costs. The energy sector accounts for roughly 10% of the S&P 500 (SPY), and ExxonMobil (XOM) and Chevron (CVX) top the index’s top 10 holdings. We think falling crude oil prices are more a reflection of expectations for declining global economic activity, which in itself, signals that trouble is on the horizon. North American shale production continues … Read more