Energy Sector Roundup: The oil slide continues
Associated Press 04.30.08, 3:30 PM ET
Oil Futures Pushed Down by Higher Inventories
Oil prices fell after the Federal Reserve cut interest rates and a government report said fuel supplies unexpectedly fell last week.
Light, sweet crude for June delivery fell $2.17 to settle at $113.46 a barrel on the New York Mercantile Exchange.
The Fed, as expected, said it will cut the federal funds rate by a quarter percentage point to 2 percent. Interest rate cuts tend to weaken the dollar, and investors buy commodities such as oil as a hedge against inflation when the greenback falls.
Oil prices fell sharply earlier in the session after the Energy Department reported a jump in crude oil and distillate fuel inventories last week.
In its weekly report, the Energy Information Administration (EIA) said crude inventories rose by 3.8 million barrels, more than double the increase analysts surveyed by Platts expected.
Inventories of distillates, which include heating oil and diesel fuel, rose by 1.1 million barrels, more than seven times the analysts’ forecast.
In Nymex trading, May gasoline futures fell 0.8 cent to settle at $2.9312 a gallon, and May heating oil futures lost 6.95 cents to settle at $3.1770 a gallon. June natural gas futures rose 0.1 cent to settle at $10.843 per 1,000 cubic feet.
Inventories Status Sends Refiners’ Shares Reeling
The EIA report did not encourage investors to scoop up refiners’ shares. Lower oil prices notwithstanding, the rise in inventories was bearish for refiners, according to Lehman Brothers analyst Paul Cheng, who has a negative outlook for the sector.
“We expect gasoline margin may have already peaked and will likely resume their downward spiral by early May,” Cheng wrote in a note to investors. “With the heating oil season now behind us, and signs of weakness emerging in the on-road diesel market, we think the distillate margin could begin to lose some luster in the coming weeks.”
In afternoon trading, Valero Energy Corp. fell $2.46, or 4.8 percent, to $49.03. Tesoro Corp. lost 78 cents, or 3 percent, at $25.37. Earlier, Tesoro shares hit a new low of $24.93. Sunoco Inc. gave up 97 cents at $46.88, and Frontier oil fell 26 cents to $24.92. Frontier hit a new low of $24.61 during the session.
Stone Energy to Purchase Bois d’Arc in $1.8B Deal
Oil and natural gas producer Stone Energy Corp. plans to buy Bois d’Arc Energy in a cash and stock deal valued at about $1.8 billion, including debt.
Bois d’Arc stockholders will get $13.65 in cash and 0.165 shares of Stone stock for each share of Bois d’Arc they own. The offer price values the company at about $24.85 per share, a 4 percent discount to Bois d’Arc’s Tuesday close of $25.98.
The deal is expected to close in the third quarter. After that, Stone expects to produce about 300 million cubic feet of equivalent per day with over 700 billion cubic feet of equivalent in estimated proved reserves.
Comstock Resources Inc. holds a 49 percent stake in Bois d’Arc and has a shareholder agreement to vote in favor of the deal.
KeyBanc Capital Markets analyst Jack Aydin thinks Comstock could be the big winner in the deal – getting $440 million in cash, 5.3 million shares of Stone for its Bois d’Arc stake and effectively owning 13 percent of Stone after the transaction closes.
“We believe that Comstock will be more of an onshore E&P (exploration and production) company with a strong organic production growth profile, considering its underlying onshore asset base (especially in East Texas/North Louisiana),” Aydin wrote in a note to investors. “For 2008, we are projecting Comstock’s onshore-only production to increase by 22.3 percent.”
Rockefellers Say Exxon Mobil Fighting the Wrong War
Members of the Rockefeller family, descended from the founder of what is now Exxon Mobil Corp., want the oil giant to split the roles of chairman and CEO and to put more focus on renewable energy.
The family members, who describe themselves as the company’s longest continuous shareholders, say they are concerned that the Irving, Texas-based company is too focused on short-term gains from soaring oil prices and should do more to invest in cleaner technology for the future.
“They are fighting the last war and they’re not seeing they’re facing a new war,” said Peter O’Neill, who heads the Rockefeller Family committee dealing with Exxon Mobil and is the great-great-grandson of John D. Rockefeller.
He says he has the support of more than 80 percent of family members over the age of 21. Family representatives say the Rockefellers have a significant holding in Exxon Mobil, but they are not sure how much of the company they actually own collectively.
Exxon Mobil Corp. was formed in 1999 by the combination of offspring of John D. Rockefeller’s Standard Oil Trust. It is now the world’s largest publicly traded oil company.
UBS Boosts Natural Gas and Coal Price Forecasts
UBS Investment Research raised its forecast for the price of natural gas to $9 per 1,000 cubic feet from $7.25 per 1,000 cubic feet.
“We believe improved domestic natural gas demand trends, soaring coal prices and likely increases in the cost of electricity generation, and increased competition for LNG (liquefied natural gas) from the Asian Pacific region is driving natural gas prices upwards,” said analyst William A. Featherston.
“Given the increasing number of factors impacting U.S. natural gas prices, we expect increased volatility going forward. In fact, we believe the new range for natural gas prices could be as wide as $7 to $14 (per 1,000 cubic feet.)”
UBS also raised its outlook for coal prices because of a number of factors, including higher production costs, impediments to Appalachian production growth, higher natural gas prices, increased exports and declining imports.
UBS boosted its long-term price for metallurgical coal – used in making steel – to $150 per ton from $125 per ton. Central and Northern Appalachian coal was pegged at $75 per ton, up from $63 per ton. Midwest coal rose to $43 per ton from $37 per ton, and UBS pushed Powder River Basin coal to $18 per ton from $17 per ton.
Petrobras Explains Carioca Remarks
The energy world sat up and took notice earlier this month when the head of Brazil’s National Petroleum Agency said a new offshore find could hold an incredible 33 billion barrels of oil equivalent.
Haroldo Lima caught a lot of criticism for that from state-run Petrobras, which said it had not yet quantified reserves in that area. Now Petrobras Chief Executive Sergio Gabrielli tells the Financial Times that Lima’s statement referred to a wide offshore region, not just the Carioca block. Petrobras said last September it found oil in that particular block but didn’t say how much.
Petrobras is drilling another well in Carioca, and Gabrielli says the company should have a better idea of what’s down there in two or three months.
Kuwait to Spend $55 Billion on Petro Projects
A senior Kuwaiti oil official says his country plans to spend $55 billion on oil projects in the next five years.
Jamal al-Nouri, managing director for planning at state-owned Kuwait Petroleum Corp., says the money will be used for production, refineries, and building new tankers. He says some will also be spent on oil investments in China and Vietnam, and on petrochemical projects.
Al-Nouri spoke to reporters on the sidelines of the fourth Islamic Economic Forum. Kuwait produces about 2.7 million barrels of oil a day and exports around 185,000 barrels a day to the U.S., according to the Energy Information Administration.
–Compiled by AP Business Writer Greg Stec. Questions or comments can be directed to [email protected].
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