More From Manas Chowgule, CFA
A useful perspective of Denbury Resources’s costs
A major factor that sets an energy company apart is its cost of doing business. For energy companies, this is mainly their Finding and Development cost.
ExxonMobil’s rising investment cash flow isn’t necessarily good
In this part, we’ll discuss XOM’s cash flow from investing activities (or CFI). We say “from,” but items under this type of cash flow are usually negative.
Why Energy Transfer Partners’ enterprise value is encouraging
Energy Transfer Partners’ enterprise value more than quadrupled between 2007 and 3Q14.
Crude oil supply and demand: Why the OPEC meeting matters
Now, given the supply and demand situation, were OPEC to leave production levels unchanged, crude oil prices would fall further. This would be bearish for energy companies.
Must-know: Insight into ExxonMobil’s earnings
A large portion of ExxonMobil’s earnings come from “non-operating” sources. This reflects the sheer scope of the company’s operations.
Winter expectations drive natural gas prices
Natural gas prices started the week on a strong note following cold weather forecasts in the days to come.
Why perspective on Southwestern Energy’s performance is a plus
SWN’s actually done a great job operationally. It’s grown its production and kept costs down to ensure steady margins. This means that if natural gas prices start rising, the gains would drop straight into the company’s net earnings.
Why independent refiners did better during the energy decline
Refiners’ profits are driven by the difference in the prices of refined products—like gasoline and diesel—and the cost of crude oil. Refining companies didn’t lose as much as their upstream peers.
Primer: Why investors should watch crude oil inventories
Analysts had expected an increase of 1.1 million barrels in crude inventories last week, which would have meant the sixth consecutive week of builds. We’ll discuss the actual changes in inventories in this series.
Southwestern Energy’s earnings shine a light on important segment
Barring the two years of one-off non-cash impairment charges, SWN saw its profits grow steadily along with its revenues. Its earnings are up well over 200% between 2007 and 2013. That means SWN’s net profit margin has also remained steady near the ~20% level over the years.
Why gasoline inventories didn’t have much effect on crude prices
Last week, gasoline inventories increased by 1 MMbbls (million barrels) to 204.6 MMbbls.
The best and worst upstream and integrated performers
Removing companies that outperformed on account of pending acquisitions, the top-performing energy company in the upstream or integrated segment is XOM. This isn’t a surprise.
A snapshot of ExxonMobil’s declining returns
In this part, we’ll look at ExxonMobil’s (XOM) profitability at various levels and its returns in different contexts.
Must-know: Southwestern Energy’s cost advantages
The Energy Information Administration describes Finding and development costs as, “…the costs of exploring for and developing reserves of oil and gas and the costs to purchase properties or acquire leases that might contain oil and gas reserves.”
Wall Street analyst targets for Denbury Resources
The highest target price for Denbury comes from KLR Group, of $13 per share for the company. Denbury currently trades near $9, implying a ~45% return.
A snapshot of Wall Street’s recommendations for Tesoro
Goldman Sachs (GS) gives Tesoro the highest target price of $108, or ~45% return in the next 12 months. Evidently, Wall Street has high expectations for Tesoro.
Face-off: The AMLP ETF versus the MLPI ETN
AMLP has a ~46% total return over the last four years, while MLPI has kept pace with the AMZIX, with total returns of ~76%.
Must-know: US energy sub-sectors during the global energy decline
There’s only one sector that didn’t decrease—master limited partnerships (or MLPs). MLPs are special corporate structures that pay most of their earnings as distributions to unit holders. MLPs usually have steady growth.
Key investment metrics: A financial analysis of LINN Energy
LINE’s EBITDA shows that it has been struggling with its earnings power lately. It has struggled despite a steady rise in its oil and gas production. LINE’s debt exploded from just over $3 billion in 3Q11 to over $9.5 billion in 2Q14.
Must-know: The deal dynamics in Ecana acquiring Athlon
Encana Corp. (ECA) agreed to pay $5.93 billion in cash for Athlon Energy (ATHL). ECA views ATHL as a “top-tier” producer. It’s operations are in one of the most attractive regions in the country—the Permian Basin.
Must-know: An overview of LINN Energy’s asset swap deal with Exxon
On September 18, LINN Energy LLC (LINE) and ExxonMobil Corp. (XOM) announced a “non-monetary” asset swap deal. The deal involved oil and gas assets in California and Texas.
Why National Oilwell Varco’s operating earnings are important
NOV’s revenues have been growing as the energy sector boomed. The company expanded and diversified its operations globally. However, its cost of revenues increased faster.
What are Wall Street’s recommendations for ExxonMobil?
At a higher level, ~37% of analysts rate ExxonMobil as a buy, ~53% rate it as a hold, and ~9% rate it as a sell. ExxonMobil is a solid company to have in your energy portfolio.
Must-know: An overview of Encana Corp.
ECA is based in Calgary, Canada. It’s an energy company. Its operations focus on the development of natural gas, natural gas liquids (or NGLs), and oil assets—mainly in the U.S. and Canada.
Why Athlon Energy’s stock performance is critical
ATHL started out with a ~40% gain on the day it listed in August 2013. It gained another 25% after the announcement of its merger with ECA on September 29.
An introduction to the Alerian MLP Infrastructure Index
AMZI is an index that consists of the top ~25 American energy infrastructure MLPs, which primarily engage in energy commodity transport and processing.
Introducing National Oilwell Varco, a “Warren Buffett stock”
This series studies National Oilwell Varco’s financial performance over the last seven years to help you understand why the company has earned the privilege of becoming a Buffett stock.
Analyzing crude oil prices in a historical context
In the past, we’ve had sudden demand and supply mismatches that caused sharp price movements. Prices started moving in a clear upward trend around the turn of the century.
Denbury Resources’ Revenues Drive Its Profitability
Revenues for Denbury Resources Inc. (DNR) have almost doubled in the six years to 2014. They rose from ~$1.3 billion in 2008 to ~$2.4 billion in 2014.
Deal dynamics: Why the asset swap deals with Exxon are beneficial for LINN Energy
In the four months between May 21 and September 18, LINN Energy (LINE) and ExxonMobil (XOM) entered into two asset swap deals. LINE showcased the deals. They hold many advantages for the company.
Must-know: An overview of Athlon Energy
Athlon is an independent oil and gas exploration and production company. Its activities include the acquisition, exploration, and development of oil and liquids-heavy gas resources in the Permian Basin.
Why the bear won’t let go of crude oil prices
Oil prices saw another bearish week, falling to their lowest since September 2010. A combination of factors pushed WTI crude below, and brought Brent close, to $75 per barrel.
Denbury Resources’ Operating Costs Are Drifting Upward
Over the last 12 quarters, Denbury’s operating costs have been drifting upward. They rose from $21.19 per BOE in 1Q12 to $22.64 per BOE in 4Q14.
An essential analysis of ExxonMobil’s balance sheet
On a combination of several factors such as its earnings, share buybacks, and XTO acquisition, XOM’s balance sheet has grown.
Let’s dive in: An overview of LINN Energy
LINN Energy LLC (LINE) is a U.S. independent oil and natural gas exploration and production company. LINE went public in a 2006 initial public offering (or IPO) that raised ~$261 million.
Tesoro Corporation: The quintessential American independent refiner
Tesoro (TSO) operates six refineries spread mainly across the western United States, with a combined capacity to process ~850,000 barrels of crude per day (or bpd).
Why the Permian Basin is critical to Encana acquiring Athlon
Encana Corp. (ECA) describes its $5.93 billion acquisition of Athlon Energy (ATHL) as its “transformational entry into the Permian Basin.” It bought ATHL because of its strong presence in the Permian Basin.
Why Encana’s recent asset deals are important
ECA sold TPG Capital natural gas properties in the Jonah field in Sublette County, Wyoming. It sold the properties for ~$1.8 billion. The assets consisted of ~1,500 active wells and ~24,000 acres.
Must-know: US energy ETFs after the recent sell-off
The SPDR S&P 500 ETF (SPY) is even broader. It has also done well. SPY gives you exposure to the entire U.S. economy—it tracks the S&P 500 Index.
Energy Transfer Partners’ subsidiary interests are hidden gems
ETP believes “significant value is embedded” within Energy Transfer Partners’ subsidiary interests in these companies.
How has the Alerian MLP Infrastructure Index performed?
In the last couple of months, as crude prices accelerated downwards, while the most exposed XOP lost the most, AMZI seems to have stood its ground.
Midstream Movers: Breitburn Energy Partners and Enbridge
Among the midstream movers, Breitburn Energy Partners (BBEP) was the top gainer in the week to May 1 with a return of 6%. Enbridge (ENB) was the top loser with a 3% drop.
A must-know analysis of EIA’s latest natural gas inventory report
The US added 2,789 bcf of natural gas to storage in the 2014 injection season. This is significantly higher than the 2,131 bcf injection last year.
Southwestern Energy’s growing cash flow from operations
Though the pace of growth has slowed of late, Southwestern Energy Company’s cash flow from operations grew steadily over the last seven years. In 2013, SWN generated more than three times as much CFO as it did in 2007.
Diving into Southwestern Energy’s operating profitability
EBITDA’s widely used in the valuation of companies. And in this regard also, SWN’s EBITDA margin—when scaled by revenues—is strong, holding near ~60% in recent years.
Southwestern Energy’s cash flow from financing activities
SWN has managed its LT debts with regular raises and repayments. Meanwhile, these activities have seen SWN’s long-term debt swell from just over $100 million at the start of 2007, to just under $2 billion at the end of 2013.
What peer analysis says about Southwestern Energy’s valuation
In terms of revenue and earnings growth over various time periods, SWN stands head and shoulders above its closest peers and the broad markets. It’s very likely that the company’s undervalued by the market—the victim of undeserved pessimism.
An introduction to Southwestern Energy
Southwestern Energy—one of the earliest players to enter the Fayetteville Shale play—is one of the largest natural gas producers in the U.S. today. It’s the fourth-largest natural gas producer in the lower 48 states.
Southwestern Energy’s working capital management
A company with receivables pending for longer is in effect lending money to customers for longer. A company with payables pending for longer is borrowing money from vendors for longer. No interest accrues in either scenario.
Last Week’s Biggest Movers in the Upstream and Integrated Subsectors
In the week to May 8, WTI crude oil gained ~0.5%, while Henry Hub natural gas gained almost 4%. This series will look at how American energy companies fared last week.
C&J Energy Services Swings Back Up, Dresser-Rand Trails Last Week
C&J Energy Services (CJES) swung back up with a stellar 18% gain last week. Acquisition target Dresser-Rand Group (DRC) held near its acquisition price with a small 0.5% gain.
C&J Energy Services and RPC: Last Week’s Sectoral Standouts
In our selected set of companies, not one oilfield equipment and services company saw a loss. Within this winning sector, there were two standouts.
HollyFrontier and PBF Energy Top Movers in Refining Last Week
PBF Energy (PBF) gave up ~4% of its value in the week ending April 1, following an 8.5% drop in the previous week. It was among the biggest gainers in March.
C&J Energy Services a Mid-April Standout in the Oilfield
C&J Energy Services (CJES) continued its sharp rise with a ~14% return last week. The previous week, it was up ~20%. The stock has gained ~8% year-to-date.
Mid-April Midstream Movers: BreitBurn Energy and AGL Resources
For our analysis of midstream movers, we’ve selected only midstream companies with market capitalizations of over $1 billion and 30-day average daily volumes over 500,000 shares.
Calumet Specialty and PBF Energy: Top Refining Movers Last Week
The biggest refining gainer in the week ended April 10 was Calumet Specialty Products Partners (CLMT). It gained ~8%.
Matador Resources Gained and Rice Energy Lost Last Week
Matador Resources (MTDR) gained most among its upstream peers last week. Its stock was up by almost 18%.
Midstream Movers: Targa Resources and MarkWest Energy
Midstream movers last week included top gainer Targa Resources Partners (NGLS), with a ~7.4% increase, and top loser, MarkWest Energy Partners (MWE).
Alon USA Up almost a Fifth as HollyFrontier Dropped in March
The biggest refining gainer in March was Alon USA Energy (ALJ). It gained almost a fifth during the month.
March 2015 Midstream Movers: ONEOK and Enbridge Energy Partners
ONEOK (OKE) was the top midstream gainer in March, with a return of ~9%. But it’s lost ~23% in the last six months.
Rice Energy Gained while Chesapeake Energy Lost in March
Rice Energy gained the most among its upstream peers. It gained ~11% in March. Rice Energy was followed by Laredo Petroleum, with a ~9.3% gain in March.
Why Denbury Resources’ Debt Could Explain Its Weak Stock
Denbury’s debt has grown far faster than its earnings, measured by EBITDA. This means that EBITDA’s ability to cover interest payments has also weakened.
Do Denbury Resources’ Price Ratios Mean It’s Cheap?
Looking at Denbury’s price ratios, it currently trades at a trailing 12-month PE of 4x. Similar peers trade at TTM PE multiples of ~5x, ~4.3, and ~4.9x.
What Can We Learn from Denbury Resources’ Enterprise Value?
Denbury’s enterprise value almost doubled over the last six years. Its market capitalization remained almost unchanged near ~$2.8 billion.
Denbury Resources’ Cash Flows: Putting It All Together
Putting Denbury’s cash flows together, we see that operating cash flows and well managed financing cash flows have kept pace with investing cash flows.
Denbury Resources’ Growth Engine: Cash Flow from Investing
Denbury’s (DNR) cash flow from investing rose from just less than $1 billion in 2008 to $1.6 billion in 2011. Then it eased to almost $1.1 billion in 2014.
Denbury Resources’ Operating Cash Flows Are Encouraging
Denbury’s operating cash flows have been on an upward trend for the last few years. OCFs have grown from $775 million in 2008 to $1,223 million in 2014.
What Does Denbury’s Balance Sheet Tell Us about the Company?
Denbury’s (DNR) balance sheet shows that assets have grown 3.5x, from $3.6 billion in 2008 to $12.7 billion at the end of 2014.
Key Insights into Denbury Resources’ Profit Margins
Denbury’s profit margins show a declining trend over the last six years. This is significant since revenues have been rising.
How Denbury Resources performed during the energy rout
Between mid-June 2014 and mid-February 2015, USO lost ~50%. Denbury fell by about the same amount in the same period, as its fortunes are linked to oil’s.
Introducing Denbury Resources
Denbury Resources primarily extracts oil and gas via carbon dioxide–based enhanced oil recovery (or EOR). This is also called tertiary oil recovery.
Denbury Resources’s capital expenditures after the energy rout
Denbury’s estimates that every $10 per barrel drop in crude prices will cause its cash flows to reduce by ~$200 million.
What’s special about Denbury Resources’s oil recovery method?
ConocoPhillips produces oil and gas via primary or secondary recovery methods. Denbury Resources mainly uses a tertiary, EOR method to produce its oil.
Energy Transfer Partners offers attractive yields among its peers
Here, we’ll compare Energy Transfer Partners to its closest peers individually. This should give you a better idea of where it stands.
Energy Transfer Partners (ETP) stands out by trading at a discount
Energy Transfer Partners stands out for trading at a discount to its peers and very close to the broad market.
Energy Transfer Partners’ operating cash flows mean a bright future
In the first three quarters of 2013 alone, Energy Transfer Partners’ operating cash flows reached ~$2 billion.
Energy Transfer Partners’ balance sheet reveals its growth strategy
Continuing our analysis of ETP’s financial statements, we’ll see how Energy Transfer Partners’ balance sheet has evolved over the last seven years.
Energy Transfer Partners’ (ETP) profit margins have collapsed
Energy Transfer Partners’ profits were ~$1.2 billion in 2011. In 2013—the first year after the acquisitions—it reported operating profits of ~$2.2 billion.
A key analysis of ExxonMobil’s enterprise value
Subjective metrics So far, we’ve discussed ExxonMobil’s (XOM) financial statements objectively. Now, let’s start looking at its metrics subjectively. First up, let’s take a look at its enterprise value (or EV), the “complete” value of the company, including the market value of its equity (market capitalization) and its net debt (debt less cash). Think of a […]
Assessing ExxonMobil’s working capital management
Let’s analyze ExxonMobil’s working capital management over the years—a key thing in order to understand a company’s short-term assets and liabilities.
A key analysis of ExxonMobil’s revenues
ExxonMobil’s businesses and revenues depend on crude oil and natural gas’ price levels. In the first three quarters of 2014, ExxonMobil reported revenues of ~$290 billion.
A snapshot of ExxonMobil’s refining operations
ExxonMobil has the largest refining capacity of any one company in the world. Currently, its refining capacity is ~5.3 million barrels per day.
Understanding ExxonMobil’s upstream reserves and production
ExxonMobil’s (XOM) proved reserves have been steadily rising over the last few years. Its proved reserves were just over 25 billion barrels of oil equivalent at the end of 2013.
ExxonMobil is one of the best energy stocks for investors
ExxonMobil is one of the least negatively affected energy companies in the crude price retreat. This is a very strong technical indicator.
How does Tesoro compare to its peers?
In terms of valuation, Tesoro clearly stands out for trading at a premium to its peers across various metrics.
A vital evaluation of Tesoro’s equity ratios
We can clearly see an upturn in Tesoro’s fortunes in the last three quarters. Its stock traded at lower PE multiples even as it went up.
A key analysis of Tesoro’s enterprise value
Tesoro’s EV has grown ~28% to ~$10.5 billion at the end of 3Q14 from the end of 2007. It has been managing its debt levels very well in the context of its capital and overall size.
Tesoro’s cash flow from financing activities
Tesoro’s activities at the cash flow from financing level have been both a source and a destination for Tesoro’s cash over the years.
An overview of Tesoro’s capex and cash flow from investments
Over the last seven years, Tesoro’s capex saw a pattern that reflects the fortunes of the sector. Tesoro also made acquisitions that required it to spend well in excess of its CFO.
Tesoro shows superior working capital management
Tesoro’s AR has increased far less than its AP over the last few years, which is a good sign and actually indicates superior working capital management.
An essential analysis of Tesoro’s assets, liabilities, and equity
Tesoro’s assets increased ~65% from 2007 to 2013, driven by a massive $1.2-billion build in its cash reserves. Current assets doubled, and long-term assets took a ~46% bump.
Tesoro expects earnings levels not seen since bumper years
Trends that lead to net earnings We’ve analyzed Tesoro Corporation’s (TSO) performance over the years. Let’s now move further down its income statement to see how the trends it exhibited earlier flow down to its net earnings. Tesoro’s pretax income To arrive at Tesoro’s pretax income, or taxable income, we need to add and deduct various […]
Tesoro takes sharp upturn in last three quarters
Tesoro’s gross refining margins (or GRMs) turned up sharply in the last three quarters, rising from as low as $8.45 per barrel in the first quarter to ~$15.50 per barrel in the third quarter of 2014.
A critical analysis of Tesoro’s stock market performance
Tesoro’s stock is a clear outlier with a stellar ~30% total return year-to-date. Total returns include all sources of returns to shareholders, including dividends.
Why investors should know the best and worst MLP performers
As expected, the midstream MLP sector presents our first positive showing in our analysis of the energy industry. TCP increased ~43% in the five months under review.
Why the bottom fell out of crude oil
Oil markets had been watching what OPEC would do in its November 27 meeting. Crude oil fell ~30% since June. It decided to stay production levels. Crude oil dropped ~10% after the news.
Why investors should watch OPEC production numbers
The Organization of the Petroleum Exporting Countries (or OPEC) will convene on November 27 for one of its biannual meetings. The meeting is one of the most important events for global crude oil markets.
Why energy investors should watch natural gas production levels
The EIA projects a 4.8% year-over-year increase in total marketed natural gas production to around 73.79 bcf/d in 2014.
Why refineries returning from maintenance affect crude oil prices
US crude oil refinery inputs averaged 15.9 million bpd during the week ending November 14, 161,000 bpd higher than the previous week’s average.
Why crude oil stayed strong despite bearish EIA inventory data
Analysts were expecting a crude inventory draw of ~1 million barrels, but inventories instead increased by 2.6 MMbbls.