RDS.B

MLP Speak: A Critique of Distributable Cash Flow

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–> 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

Is OPEC For Real This Time?

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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

Moody’s Puts Oil & Gas and Mining Sectors on Review

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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news is not completely unexpected, however, and may likely be a response to several executive teams pointing to legacy (outdated) counterparty/customer ratings as reasons to not be concerned … Read more

Dividends Not Safe as Energy Markets Swoon

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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

Chevron: Cash Flow and Dividends Are Inextricably Linked

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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

Pain in Oil Not Likely To Subside Soon; Alibaba Disappoints

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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

Look Out Below: Crude Oil Prices Continue to Tumble

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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

Big Oil Round Up: Earnings Portal

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Our take on the major oil and gas space remains little changed as a result of second-quarter results from the majors. We continue to expect rising energy prices over the long haul, and we highly encourage new readers to take a look at our comprehensive outlook for oil and gas prices. Please access it at the following link: ‘Our Comprehensive Outlook for Crude Oil and Natural Gas Prices.’ We have a very unique thesis on the group, and for holders of exploration and production entities, we expect a long-term tailwind in investors’ favor. Generally,it’s difficult not to like many entities in the large oil and gas space. ConocoPhillips continues to execute nicely, while Exxon remains a consistently strong economic-value generator … Read more

Surveying 3Q Results at the Energy Majors

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Performance was far from rosy across the majors during the calendar third quarter. BP’s (BP) performance showed a 26% fall in underlying replacement cost profit, Exxon Mobil’s (XOM) third-quarter results revealed an 18% decline in earnings, Chevron’s (CVX) quarterly earnings dropped nearly 6% during the period, and Shell’s (RDS.A; RDS.B) third-quarter profit (on a current cost of supplies basis) slid 31% from the same period a year ago. Only ConocoPhillips’ third-quarter results (COP) showed adjusted earnings expansion during the quarter (about 7%). Source: Valuentum The investment landscape in the ‘Major – Oil & Gas’ space remains mixed, in our view. We liked ConocoPhillips third-quarter results, but its hefty capital investment plan and net debt position certainly don’t speak of equity … Read more

Why Natural Gas Prices are So Low and Will Likely Remain So for Some Time

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