Posts
Sorry, I could not read the content fromt this page.Sorry, I could not read the content fromt this page.
Sunday, May 26, 2013
Anadarko’s Huge Find Could Mean Hefty Profits
Sorry, I could not read the content fromt this page.Sorry, I could not read the content fromt this page.
Hess the Latest Target of Increasingly Energy-Focused Activist Investors
It seems that integrated energy firm Hess (NYSE:HES) is about to get a little less integrated. The refining business has been difficult to gauge over the last few years because — as the fastest growing sector in the U.S. and Canada — the general upswing of the oil and gas industry has helped hide variable management performances.
But with energy prices falling, many former integrated giants have begun spinning off or splitting up their exploration and downstream assets.
Hess, for one, came under pressure from activist hedge fund Elliott Management — one of the its largest shareholders — to reshape the company. Elliott accused the board of “poor oversight,” and said that the company’s management was responsible for more than a “decade of failures.”
As such, it produced a set of proposals to fix the energy producer. Hess ultimately decided to move ahead with its own set of plans to unlock shareholder value, but the recent battle still highlights the growing amount of shareholder activism going on the energy space.
Following the lead of Murphy Oil (NYSE:MUR), ConocoPhillips (NYSE:COP) and others, Hess has officially decided to exit several energy businesses, making it a “pure play” exploration and production company. The firm had already announced plans to sell its oil storage terminal network and ditch the refining sector completely. Now, it will shed its 1,350 iconic green- and-white Hess-branded retail gasoline stations in 16 eastern U.S. states.
Additionally, the once-integrated energy producer plans to divest its stake in Hetco — its energy trading company. Hess holds a 50% stake in the venture, while two top Goldman Sachs (NYSE:GS) traders hold the rest. Hetco was formed in 1997 and trades oil, refined products and natural gas.
Hess will also exit its energy marketing business, which sells electricity, gas and fuel oil to 21,000 customers, including Yankee Stadium. And last but not least, it will unload stakes in its Asian portfolio by divesting operations in Indonesia and Thailand. The company plans to focus its E&P efforts on the North Malay basin and a joint development area in Malaysia and Thailand.
Along with these operational changes, Hess has also announced a slate of five independent director nominees for election at this year’s annual meeting, which will bring the number of independent directors on Hess’s 14-member board up to 13 from 11. For the icing on the cake, Hess plans on returning capital directly to shareholders through an increase in the annual dividend and a share buyback of up to $4 billion.
While Hess said that Elliott’s proposals demonstrated “no meaningful operational insight into our business,” and “would orphan our most promising assets and foreclose the potential for future real value creation,” the company certainly must have felt the pressure to unlock some value for its shareholders.
Once again, Hess is just the latest example of this emerging trend in the energy business. As one of the hotbeds of the U.S. economy, shareholder activism is growing, with activists stalking generally profitable businesses that haven’t necessarily been treating their shareholders right.
We’ve already seen billionaire Carl Icahn shove Chesapeake Energy (NYSE:CHK) CEO and founder Aubrey McClendon out the door as well as push CVR Energy (NYSE:CVI) to unlock value via refining spin-off CVR Refining (NASDAQ:CVRR). Likewise, hedge funds TPG-Axon and Mount Kellett Capital are hoping to emulate Icahn’s success by ousting Tom Ward from the top position at SandRidge Energy (NYSE:SD).
Other recent examples include activism at drillers Nabors (NYSE:NBR) and Transocean (NYSE:RIG) … and even the beleaguered coal sector is under attack. British hedge fund Audley Capital Advisors recently announced that it was seeking to nominate five candidates to the board of Walter Energy (NYSE:WLT).
Many of these moves have — at least in the short run — resulted in big gains for their shareholders. Hess is up nicely since Elliott made its intentions known and has increased about 32% since the start of 2013. Likewise, CHK has rebounded sharply since McClendon’s ouster.
For investors, the growing the focus on cost-control, execution and tax-efficient spin-offs of non-core assets could spell plenty of future returns — especially for a select group of companies. Activist investors are looking for “bloated” energy firms that still remain profitable, but could use a slight push in the right direction.
One such option: Occidental Petroleum (NYSE:OXY). Shares of the company shed nearly 30% from a May 2011 peak of $115 a share to the end of 2012, despite the recent oil boom. As such, many analysts are calling for it to be the next target for activist shareholders, especially since its 23-year tenured CEO just retired.
Several estimate that a big shareholder could push OXY to shed its international assets and focus on Texas and California. The company has the most acreage in California’s Monterey shale and is the top producer in Texas. A sale or spin-off the international business could fetch about $35 billion in proceeds, according to analyst estimates.
Additionally, OXY has all sorts of midstream and chemical refining assets that would fit perfectly in a tax-advantaged master limited partnership. Basically, investors can think of Occidental as bigger version of Hess — one thank can hit $120 to $135 a share based on various break-up value appraisals. OXY can currently be had for about $82 bucks a share, even after a 7% climb alongside the broader market so far this year.
All in all, Hess is a prime example of however shareholder activism can be profitable … and OXY could be just the way to cash in.
As of this writing, Aaron Levitt did not own a position in any of the aforementioned securities.
Article printed from InvestorPlace Media, http://investorplace.com/2013/03/hess-the-latest-target-of-increasingly-energy-focused-activist-investors/.
©2013 InvestorPlace Media, LLC
Big Energy Showdown: Chevron vs. Exxon
Sorry, I could not read the content fromt this page.Sorry, I could not read the content fromt this page.
3 Water Utilities That Could Make a Big Splash
Sorry, I could not read the content fromt this page.Sorry, I could not read the content fromt this page.
Dr. Copper Catches the Flu
One of the most important metals has gotten a bad case of the sniffles … and no, we’re not talking about gold.
While the precious yellow metal seems to struggling as well, it’s copper — one of the world’s biggest economic indicators — that is under the weather.
Copper prices have been under pressure recently amid concerns about the global economic outlook and its impact on future demand for the red metal. Prices for copper have fallen to nearly 18-month lows as global growth fears have taken hold. Recent data out of China — the world’s largest consumer of the metal — aren’t helping matters.
Given that copper is one of best leading economic indicators — hence its “Dr. Copper” moniker — we could in for a rough ride this summer.
Used in a variety of infrastructure, power-generation and manufacturing products, copper is sensitive to the whims of the global economy. That sensitivity is becoming a big problem for investors and producers of the metal as the global economic picture clouds up.
Earlier this week, the International Monetary Fund cut its 2013 forecast for global GDP growth to 3.3% — down from its earlier projection of 3.5%. At the same time, it also trimmed its 2014 forecast down to 4.0%.
The growth cuts came as a result of the subdued U.S. and eurozone outlooks. The IMF estimates that various budget cuts and tax increases in the U.S. will reduce overall growth. In fact, the forecast seems to be coming true already, as retail sales contracted in March for the second time in three months and consumer confidence has slipped.
Meanwhile, the eurozone’s austerity measures, along with other debt “issues,” actually are expected to cause the region’s economy to shrink 0.3% in 2013. That’s a big problem for copper as Europe is the third-largest consumer of the industrial metal (the U.S. is No. 2).
However, the biggest concern for the red metal stems from China.
The Asian Dragon is the largest consumer of the metal, driving roughly 40% of copper demand. As China enacted various stimulus policies to modernize and develop its infrastructure, consumption of the red metal skyrocketed. (Its power-generation sector alone accounts for almost half of consumption.) And at one time, China had drained the world’s copper inventories to just eight days’ worth of supply.
However, the building binge seems to be waning. China announced ahead of the IMF’s estimates that its economy grew less than expected. The Chinese economy has struggled in the past few years as measures to cool inflation and red-hot property markets worked better than expected. Beijing recently began the process of jump-starting growth again, but these policies haven’t worked as quickly as analysts had hoped.
All in all, slowing factory output and investment spending in China has led analysts to start slashing full-year growth forecasts for the world’s second-largest economy. The IMF predicts that China will grow at 8% this year, down from January’s predictions of 8.2%.
With these global growth factors now pointing in the negative direction, copper prices have plunged.
Copper prices have sunk 20% since its February 2012 high of $3.98. On the New York Mercantile Exchange, copper set for May delivery — which is currently the most actively traded futures contract — fell to $3.17 per pound, and at one point, the contract dipped as low as $3.06. The current front-month contract for copper also plunged 1.1% to reach $3.15 per pound.
And in London, copper prices fell below $7,000 per metric ton for the first time since October 2011.
All of these drops mean the metal has officially reached bear market status.
Overall, copper prices suggest that the global economy is rapidly slowing, and the risk of a recession has increased.
With copper’s recent fall from grace, investors might want to prepare for rougher seas ahead by raising cash, betting on strong dividend stocks and reducing their risk profiles. While I don’t think we are in for the Great Recession: Round Two, the recent troubles in China are … well, troubling.
The same can be said for the slowing growth in the U.S. and the estimated return to recession in Europe. That’s not necessarily a great environment for higher copper or commodity prices.
In due course, we’ll get some big bargains in the market — including the copper producers like Southern Copper (NYSE:SCCO) and Freeport-McMoRan (NYSE:FCX).
But there’s no need to rush. Given how Dr. Copper has acted recently, we could be in for more downside. So for now, the best offense might just be a good defense.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
Article printed from InvestorPlace Media, http://investorplace.com/2013/04/dr-copper-catches-the-flu/.
©2013 InvestorPlace Media, LLC
Subscribe to:
Posts (Atom)