Chevron Corp., Helmerich & Payne Inc., Tesoro Corp., Valero Energy Corp., and
Marathon Petroleum Corp. highlighted in Zacks Industry Outlook
CHICAGO, Jan. 18, 2013
CHICAGO, Jan. 18, 2013 /PRNewswire/ --Today, Zacks Equity Research discusses
the U.S. Machinery, including Chevron Corp. (CVX), Helmerich & Payne Inc.
(HP), Tesoro Corp. (TSO),Valero Energy Corp (VLO) Marathon (MPC)
Industry: Oil & Gas
Over the last few years, a quiet revolution has been reshaping the energy
business in the U.S. The success of 'shale gas' -- natural gas trapped within
dense sedimentary rock formations or shale formations -- has transformed
domestic energy supply, with a potentially inexpensive and abundant new source
of fuel for the world's largest energy consumer.
With the advent of hydraulic fracturing (or fracking) -- a method used to
extract natural gas by blasting underground rock formations with a mixture of
water, sand and chemicals -- shale gas production is now booming in the U.S.
Coupled with sophisticated horizontal drilling equipment that can drill and
extract gas from shale formations, the new technology is being hailed as a
breakthrough in U.S. energy supplies, playing a key role in boosting domestic
natural gas reserves.
As a result, once faced with a looming deficit, natural gas is now available
in abundance. In fact, natural gas inventories in underground storage have
persistently exceeded the five-year average since late September 2011 and
ended the usual summer stock-building season of April through October at a
record 3.923 trillion cubic feet (as of October 31, 2012).
This prompted natural gas prices to dive approximately 63% from the 2011 peak
of $4.92 per million Btu (MMBtu) to a 10-year low of $1.82 per MMBtu during
late April 2012 (referring to spot prices at the Henry Hub, the benchmark
supply point in Louisiana ).
Looking forward, EIA expects average total production to rise from 69.2
billion cubic feet per day (Bcf/d) in 2012 to 69.8 Bcf/d in 2013, while total
natural gas consumption is anticipated to remain relatively flat this year at
However, with the U.S. winter set to be colder than the unusually warm last
one, we might expect some balancing of the commodity's supply/demand disparity
on the back of its more normalized use for space heating by
But until then, the weak fundamentals are going to continue to weigh on
natural gas prices, translating into limited upside for natural gas-weighted
companies and related support plays.
Considering the turbulent market dynamics of the energy industry, we always
advocate the relatively low-risk conglomerate business structures of the
large-cap integrateds, with their fortress-like balance sheets, ample free
cash flows even in a low oil price environment and growing dividends.
Our preferred name in this group remains Chevron Corp. (CVX). Its current oil
and gas development project pipeline is among the best in the industry,
boasting large, multiyear projects. Additionally, Chevron possesses one of the
healthiest balance sheets among peers, which helps it to capitalize on
investment opportunities with the option to make strategic acquisitions.
Within the contract drilling group, we like Helmerich & Payne Inc. (HP).
Supported by a superior and diversified drilling fleet, together with a
healthy financial profile, we expect the company to sustain its profitability
over the foreseeable future. We believe Helmerich's technologically-advanced
FlexRigs will continue to benefit from an upswing in U.S. land drilling
activity and the shift to complex onshore plays that require highly intensive
Buoyed by the favorable trends in the refining sector, we are more optimistic
on the industry than we were 12 months ago. An uptick in economic activity
overseas (mainly in developing countries) and prospects for lower feedstock
costs are likely to push 2013 industry margins higher than last year's levels.
Against this backdrop, we are particularly bullish onTesoro Corp. (TSO),
Valero Energy Corp. (VLO) and Marathon Petroleum Corp. (MPC).
Zacks Industry Rank
The Zacks Industry Rank, which derives its predictive power from the
time-tested Zacks Rank, helps us identify the industries that are expected
outperform others. The top 1/3rd of the Zacks Industry Rank qualify as
industries with 'Good' prospects, the bottom 1/3rd have 'Bad' prospects, and
middle 1/3rd as 'Neutral.' Most of the constituent 'industries' in the
business services sector fall in the top 1/3rd of the list.
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