How Vulnerable Are Comstock Resources and Ultra Petroleum to Lower Energy Prices?

Given what might be peak pricing, it’s hard to fathom why certain natural gas companies have chosen not to lock in more contracted natural gas hedges. With the EIA forecasting an average price of $3.41 and $3.63 per million British thermal units (MMBtu) in 2013 and 2014, respectively, is the financial health of exploration companies with weak hedge books, such as Comstock Resources (CRK-$15.55) and Ultra Petroleum Corp. (UPL-$21.04) vulnerable to a reversal in energy prices? 

Continue Reading at YCharts: Who’s Toast if Natural Gas Prices Plunge Again? 

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Favorable Drilling Costs: Natural Gas Plays EQT Corp and Range Resources

Energy exploration companies are shifting drilling toward resources with greater potential for oil and natural-gas liquids. Nonetheless, investors willing to stick with more junior, natural gas plays could be handsomely rewarded in coming years, as drilling efficiency improvements are dramatically lowering breakeven prices – leading to improvements in operating margins.

The cost of capital required to break-even on drilling varies from one project to another, depending on shale geology, subsurface pressures, and infrastructure status (access to pipeline and gathering services). For example, prices currently average about $215 per drilled foot in the San Juan Basin of New Mexico, compared with $287 per drilled foot in the nearby Permian Basin section of West Texas. Against this backdrop, some U.S. natural gas companies, such as EQT Corp. (EQT-$68.58) and Range Resources (RRC-$75.19), are favorably positioned to outperform their peers and show improvements in Return on Invested Capital due to prudent investments in promising onshore assets and drill-bit technologies.

Continue Reading at YCharts: Drillers: Productivity Boom Transcends Gas Prices

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Credit Concerns With DISH - Sprint Nextel Deal

A DISH Network (DISH-$39.26) – Sprint Nextel (S-$7.09) deal offers multiple venues for revenue growth. DISH could offer subscribers triple-play services (high-speed internet, phone, and video) by merging its own satellite network with Sprint’s wireless network. In terms of cross-selling – excluding overlap – there is the equivalent of 17 million Sprint households that could be targeted for DISH Pay-TV services and approximately 14 million current DISH households that could potentially add about 35 million new mobile users to Sprint’s subscriber base.

Management opines that potential revenue and cost synergies could reach $37 billion, of which $11 billion would come from the spend side (alignment of sales & distribution channels and reduction of similar operations, such as call centers or billing and collections services).

Fitch Credit believes, however, that the deal is fraught with substantial execution and integration risks.

Continue Reading at YCharts: Dish Rally onSprint Deal: We Dish the Dirt

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Exxon Mobil Looks to Favorable Future With Natural Gas

With the $41 billion acquisition of XTO Energy back in 2010, Exxon Mobil (XOM-$89.43) overnight became the largest producer of natural gas in North America, catapulting beyond erstwhile leader Chesapeake Energy (CHK-$19.29) and other big players, like ConocoPhillips (COP-$58.26), Southwestern Energy (SWN-$34.97) and Anadarko (APC-$83.32). In 2012, proved reserves and production totaled 14.47 trillion cubic feet equivalent (Tcfe) and 3.82 billion cubic feet daily, respectively, up from 7.47 Tcfe and 1.27 billion cubic feet daily in 2009.

In hindsight – at least on paper – the all-stock transaction still looks terrible. Though most deals are liquid rich these days, metrics for natural gas assets purchased in the past year show that the $2.89 per thousand cubic feet equivalent (Mcfe) of proven reserves paid by Exxon for XTO assets is more than double that of current deals.

Continue Reading at YCharts: A $41 Billion Mistake That Doesn’t Really Matter

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Apple's Growing Dependence on iPhones

In 2012, Samsung (SSNLF) and Apple (APPL-$463.58) remained the dominant OEMs in the smartphone market, with the two companies accounting for 29% and 20%, respectively, of global shipments, up from 20% and 19% in 2011, according to IHS iSupply.

Looking ahead, some analysts have expressed concerns that Samsung, the world’s largest maker of mobile phones, televisions and computer memory chips, could become too dependent on mobile sales. In 2012, handsets and tablets accounted for 66.9% of the $26.7 billion in operating profitability, up from 51.9% (of $14.39 billion) in 2011.

“The high-end smartphone market has largely become saturated, while the fast Chinese growth in the lower segment will make it difficult for anyone to see strong profit growth there,” noted Kim Hyung Sik, a Seoul-based analyst with Taurus Investment Securities.

Like Samsung, Apple is becoming increasingly dependent on its mobile segment to drive top-line sales. In the first fiscal quarter of 2013 (ended December 29, 2012), net sales of iPhones and iPads totaled $30.7 billion and $10.7 billion, respectively, and accounted for 56% and 20% of aggregate sales (up from 52% and 19% in the prior year).

Continue Reading at YCharts: That Empty Feeling: For Samsung and Apple, Ruling the Mobile World Isn’t Enough

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Will Duke Energy's Dividend Get Nuked?

Year-to-date, the share price of Duke Energy (DUK-$70.28) has outperformed the S&P 500 Index by 180 basis points, posting a total return of 8.31%. However, at current prices the stock looks fairly valued, based on PE ratio, trading at a premium to other large-cap, regulated utilities, such as The Southern Company (SO), American Electric Power (AEP), and Consolidated Edison (ED).

What, therefore, could trigger an earnings miss and pressure Duke Energy’s stock price and targeted dividend payout ratio?

The unrecovered investment on the Crystal River Unit 3 asset is approximately $1.64 billion, which is equal to 70% of prevailing and agreed-upon ROE (calculated on the prevailing cost of equity), according to terms of a settlement with the Florida Public Service Commission (FPSC). In written correspondence, company spokesman David Scanzoni confirmed that the company cannot begin to recoup its embedded costs through future customer rate hikes until the billing cycle starting in January 2017 (with collection accreting over a 20 year span). Additionally, $20 million listed as an offset (liability) in removal costs could prove too conservative, as the approved SAFSTOR decommissioning strategy will take between 40 – 60 years to complete!

While the foregoing reflects current estimates with respect to the retirement of the Florida facility, there is significant risk and uncertainty, too, with respect to the cost and recoverability of replacement power.

Continue Reading at YCharts: The Myriad Risks Underlying Duke Energy's Dividend Yield 

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Peak Sales of Merck's Januvia Will Hit $10 Billion

“Bait the hook well; this fish will bite,” quipped Shakespeare’s Claudio in the playwright’s Much Ado About Nothing. To the contrary, investor shouldn’t bite – fears that the recent U.S. regulatory approval of Takeda’s Nesina (alogliptin) will mute the growth of Merck's (MRK-$43.10) Januvia franchise are unfounded. The Japanese drug maker’s DPP-4 inhibitor is attempting to launch on a crowded beachhead – facing established rivals, none of which have scored any notable inroads against Januvia. For example, Tradjenta (linagliptin), launched by Eli Lilly (LLY-$54.89) in June 2011, posted anemic sales in first-half 2012 of just $59.2 million (despite a niche marketing message focusing on alleged benefits for those type-2 diabetics with renal impairment). 

Continue Reading at YCharts: Why New Diabetes Drugs Won't Dethrone Merck's $5.7 Billion Januvia 

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

SunTech Power: Too Much Capacity, Too Much Debt

In terms of megawatt shipment volumes, Suntech Power Holdings (STP-$1.50) is the number three supplier of PV modules, according to analytics firm NPD Solarbuzz. Unlike Arizona-based, thin-film PV module maker First Solar (FSLR-$32.45) and Chinese competitors, such as vertically-integrated crystalline silicon (c-Si) manufacturers Jinko Solar (JKS-$8.93) and JA Solar (JASO-$5.66) –NPD Solarbuzz ranking of 2, 7 and 8, respectively – Suntech assumed too much debt in building capacity.

Continue Reading at YCharts: Debt Bombs Among Solar Stock: Who Has Liquidity to Last?

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

Energy Majors Vulnerable to Terror Attacks in Africa

Concentration of production and reserve assets in such unstable markets as North Africa and the sub-Sahara means operating profitability of certain energy companies could be adversely impacted in the event of another jihadist attack. Drillers with significant hydrocarbon reserves vulnerable to disruptions in Libya, Egypt, and Nigeria include energy majors Eni SpA (E-$48.30) and Total SA (TOT-$53.11) and U.S.-based producers Apache Corp. (APA-$83.57) and Marathon Oil (MRO-$34.17).

Continue Reading at YCharts: Which Oil Companies Are Vulnerable in the Wake of Algerian Terrorist Attack?


Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.

EOG Resources Benefits from Early-Mover Purchases

Like other U.S. natural gas producers, EOG Resources (EOG-$125.03) responded in recent years to slumping natural gas prices by spending heavily to lease unconventional oil plays. Although EOG invested more than $16 billion in just the last three years to acquire and develop shale assets, such as Eagle Ford and Permian Basin in Texas and Bakken acreage in North Dakota, evidence suggests the company hasn’t blown-up its balance sheet to transition its portfolio of natural gas to liquids production.

At September 30, EOG had $1.1 billion of cash on hand, giving the company non-GAAP net debt of $5.2 billion – and a net debt-to-total capitalization ratio of 27%.

Continue Reading at YCharts: Same Strategy, Better Result: EOG Resources Laps the Natural Gas Field

Editor David J Phillips does not hold a financial interest in any stocks mentioned in this article. The 10Q Detective has a Full Disclosure Policy.