The Zacks Analyst Blog Highlights: Marathon Oil, Enbridge, Devon Energy, QEP Resources and Newfield Exploration
Zacks Equity Research
Updated
For Immediate Release
Chicago, IL – March 03, 2016 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Marathon Oil Corp. (MRO), Enbridge Inc. (ENB), Devon Energy Corp. (DVN), QEP Resources Inc. (QEP) and Newfield Exploration Co. (NFX).
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Here are highlights from Wednesday’s Analyst Blog:
Share Offerings: The Latest Move to Counter Commodity Slump
A prolonged spell of low commodity prices has bashed energy companies, especially the ones with weaker balance sheets. With oil and gas becoming too cheap to drill profitably, a number of debt-laden entities have run into cash flow problems. Apart from the now customary job layoffs, most of the companies have resorted to asset sales and capital spending cuts in an effort to re-organize operations and lighten the debt burden.
Preferred Option: Asset Sales & Capital Spending
A steep drop in energy realizations has made distressed asset sales the dominant form of dealmaking in the U.S. energy industry over the past year. For example, just last month, Chesapeake Energy announced an agreement to sell assets worth $385 million. Battling bankruptcy rumors, the beleaguered natural gas producer will let go almost 3,500 oil and gas wells in western Oklahoma and the Texas Panhandle to Denver-based FourPoint Energy. The transaction might ease some of its half-billion dollar debt obligation due in March.
On the other hand, some companies primarily depend on capital expenditure cuts to ride out the slump. Among latest announcements, Whiting Petroleum and Continental Resources have significantly slashed their capital spending. While North Dakota oil producer Whiting Petroleum has suspended all fracking and decided to trim 2016 capital budget by 80%, Oklahoma-based Continental Resources estimated capital expenditures of $920 million for 2016, down 66% from 2015.
Still others like Anadarko Petroleum and ConocoPhillips have lowered/suspended dividends to boost cash holdings.
Latest Move: Issue More Equity
But it seems energy companies have moved beyond asset sales and spending cuts. Scrambling to strengthen their balance sheets, the latest weapon for the battered entities is to issue new shares. The companies claim this is a prudent move to protect them from the possibility of ‘lower for longer’ prices.
Also, with commodity prices remaining close to their multi-year lows, investors have been receptive to these follow-on offerings, thinking that oil and gas prices can’t go much lower and the beaten-down stocks are coming at a discount.
In fact, as per data compiled by Bloomberg, the total amount of equity issued in the energy sector year-to-date is around $11 billion, up approximately 3.5% year-over-year.
Let’s look at five energy companies that announced public share offering in 2016:
1. Marathon Oil Corp. (MRO): Houston-based Marathon Oil announced an underwritten, upsized public offering of 145 million common shares priced at $7.65 a piece, with an over-allotment option for an additional 21.75 million shares. The Zacks Rank #3 (Hold) energy explorer’s net proceeds from this offering will be used to finance its capital programs, strengthen its balance sheet and for various other corporate purposes.
2. Enbridge Inc. (ENB): Lower commodity prices also forced Enbridge to strike a deal with a group of Canadian and U.S. underwriters. Per the agreement, the energy transportation and distribution company – sporting a Zacks Rank #5 (Strong Sell) –issued 49.14 million shares at C$40.70 each to mop up around C$2 billion. The receipt will help in financing planned capital projects to the end of 2017.
3. Devon Energy Corp. (DVN): Another independent energy explorer to successfully tap the equity offering window in the wake of collapsing energy prices is Oklahoma City-based Devon Energy. The Zacks Rank #4 (Sell) company said that it was issuing just over $1 billion in equity by selling 55 million shares in stock. Proceeds from the offering will be used to pay down debt and fund spending.
4. QEP Resources Inc. (QEP): Trying to shore up its balance sheet in the face of a prolonged commodity downturn, QEP Resources said it would offer 33 million shares of its common stock to the public at $10.00 a piece. Underwriters have been given a 30-day option by the Zacks Rank #5 company to purchase up to 4.95 million additional shares of the common stock. QEP Resources will utilize the net proceeds for reducing debt, financing part of its upstream operations and to purchase assets.
5. Newfield Exploration Co. (NFX): Based in Woodlands, TX, Newfield was another energy company that unveiled a public share offering to pay down debt and invest in capital projects. The oil and gas finder – with a Zacks Rank #2 (Buy) – raised gross proceeds of $700 million by issuing of 30 million shares.
Bottom Line
Equity offerings might actually be a smart move in making the company stronger, financially healthier, and possibly a better investment for the future.
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