oil and gas
Though it has slowed with the economy, we still rate CP Rail as a true blue chip stock. We like its ability to unlock hidden value.
ENBRIDGE INC. $56 (Toronto symbol ENB; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 860.1 million; Market cap: $48.2 billion; Price-to-sales ratio: 1.4; Dividend yield: 3.3%; TSINetwork Rating: Above Average; www.enbridge.com) gets 85% of its revenue from pipelines that pump oil and natural gas from Western Canada to Eastern Canada and the U.S. The remaining 15% mainly comes from distributing gas to 2.1 million consumers in Ontario, Quebec, New Brunswick and New York State.The company recently completed the major reorganization it announced in December 2014.
< p>Under the plan, Enbridge transferred some of its assets to 19.9%-owned affiliate Enbridge Income Fund Holdings Inc. (Toronto symbol ENF). This company owns 42% of Enbridge Income Fund (Enbridge Inc. owns the remaining 58%), which holds oil and gas pipelines and solar and wind farms. The transfer included pipelines that pump oil sands crude to the U.S., along with wind farms in Alberta and Quebec. < p>Transactions like this, called drop-downs, free up cash the parent company can use for new projects. The affiliate also benefits, because the new assets’ cash flow helps it maintain or raise its distributions to investors. The reorganization freed up more cash for dividends: Enbridge raised its quarterly payout by 32.9% with the March 2015 payment, to $0.465 a share from $0.35; the new annual rate of $1.86 yields 3.3%. The company now aims to pay out 75% to 85% of its adjusted annual earnings as dividends, up from its old target of 60% to 70%....
< p>Under the plan, Enbridge transferred some of its assets to 19.9%-owned affiliate Enbridge Income Fund Holdings Inc. (Toronto symbol ENF). This company owns 42% of Enbridge Income Fund (Enbridge Inc. owns the remaining 58%), which holds oil and gas pipelines and solar and wind farms. The transfer included pipelines that pump oil sands crude to the U.S., along with wind farms in Alberta and Quebec. < p>Transactions like this, called drop-downs, free up cash the parent company can use for new projects. The affiliate also benefits, because the new assets’ cash flow helps it maintain or raise its distributions to investors. The reorganization freed up more cash for dividends: Enbridge raised its quarterly payout by 32.9% with the March 2015 payment, to $0.465 a share from $0.35; the new annual rate of $1.86 yields 3.3%. The company now aims to pay out 75% to 85% of its adjusted annual earnings as dividends, up from its old target of 60% to 70%....
CHESAPEAKE ENERGY $7.87 (New York symbol CHK; TSINetwork Rating: Extra Risk) (405-848-8000; www.chk.com; Shares outstanding: 665.4 million; Market cap: $5.5 billion; No dividends paid) stopped paying dividends earlier this year to conserve cash in the face of low oil and gas prices. The cut will save Chesapeake $240 million annually.
Now the company has announced that it is laying off 740 employees, or 15% of its workforce. About 560 of these workers are from its headquarters in Oklahoma City. Chesapeake will incur a one-time charge of $55.5 million for the layoffs.
Meanwhile, the company expects its output to rise 1% to 3% in 2015, to an average of 640,000 to 650,000 barrels of oil a day. The stock trades at just 2.1 times Chesapeake’s annual cash flow of $3.68 a share, based on the latest quarter.
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Now the company has announced that it is laying off 740 employees, or 15% of its workforce. About 560 of these workers are from its headquarters in Oklahoma City. Chesapeake will incur a one-time charge of $55.5 million for the layoffs.
Meanwhile, the company expects its output to rise 1% to 3% in 2015, to an average of 640,000 to 650,000 barrels of oil a day. The stock trades at just 2.1 times Chesapeake’s annual cash flow of $3.68 a share, based on the latest quarter.
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CIMAREX ENERGY $114.82 (New York symbol XEC; TSINetwork Rating: Extra Risk) (303-295-3995; www.cimarex.com; Shares outstanding: 94.5 million; Market cap: $10.9 billion; Dividend yield: 0.6%) produces and explores for natural gas and oil. Gas makes up 64% of the company’s output; the remaining 36% is oil.
Cimarex’s properties are mostly in the Wolfcamp shale area of the Permian Basin in Texas and New Mexico, as well as the Cana-Woodford shale region in western Oklahoma.
In the three months ended June 30, 2015, the company’s production averaged 1.03 billion cubic feet of natural gas equivalent a day, up 22.4% from 838.7 million cubic feet a year earlier.
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Cimarex’s properties are mostly in the Wolfcamp shale area of the Permian Basin in Texas and New Mexico, as well as the Cana-Woodford shale region in western Oklahoma.
In the three months ended June 30, 2015, the company’s production averaged 1.03 billion cubic feet of natural gas equivalent a day, up 22.4% from 838.7 million cubic feet a year earlier.
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DEVON ENERGY CORP. $43.90 (New York symbol DVN; TSINetwork Rating: Speculative) (405-235- 3611; www.dvn.com; Shares outstanding: 411.0 million; Market cap: $18.8 billion; Dividend yield: 2.2%) is one of the largest U.S.-based oil and natural gas explorers and producers. Its production mix is 40% gas and 60% oil.
The company narrowed its focus with its July 2014 sale of some of its properties to Linn Energy for $2.3 billion. The deal included holdings in the Rockies, the onshore Gulf Coast and the Mid-Continent region (which includes Oklahoma, Kansas and Texas).
The sale let Devon focus on what it views as low risk/ high-reward properties, especially the oil producing assets it bought in Texas’s Eagle Ford shale formation for $6.0 billion in 2013.
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The company narrowed its focus with its July 2014 sale of some of its properties to Linn Energy for $2.3 billion. The deal included holdings in the Rockies, the onshore Gulf Coast and the Mid-Continent region (which includes Oklahoma, Kansas and Texas).
The sale let Devon focus on what it views as low risk/ high-reward properties, especially the oil producing assets it bought in Texas’s Eagle Ford shale formation for $6.0 billion in 2013.
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SIERRA WIRELESS, $28.66, symbol SW on Toronto, makes modules and software that connect products, including vehicles and smart electricity meters, to the Internet. This is known as machine to machine, or more generally as the Internet of Things (IoT). The company continues to sign up clients for its new IoT Acceleration Platform, which combines cloud computing, hardware and telecommunications networks to monitor machines remotely. For example, Veolia Water Technologies UK, which provides water-treatment plants and systems to companies and municipalities around the world, is now using the IoT Acceleration Platform to help its customers monitor critical data such as flow, pressure and temperature. This cuts its clients’ labour costs and lets them respond to problems as they happen....
General Electric’s willingness to adjust keeps it a top blue chip stock, as it cuts its losses in finance and focuses on its strengths.
GE and ABB (see box) continue to cut costs and sell less important assets, which puts them in a better position to withstand the slowdown in global growth. These moves will also spur their earnings when economic expansion picks up. GENERAL ELECTRIC CO. $25 (New York symbol GE; Conservative Growth and Income Portfolios, Manufacturing & Industry sector; Shares outstanding: 10.1 billion; Market cap: $252.5 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.7%; TSINetwork Rating: Above Average; www.ge.com) has received approval from U.S. and European regulators for its alliance with France’s Alstom SA, a leading maker of parts for power plants and transmission gear. Under the deal, GE will form three 50/50 joint ventures with Alstom: one will combine their electrical grid operations, while a second will focus on products for renewable energy projects. The third will hold Alstom’s nuclear power equipment division....
PRECISION DRILLING CORP. $5.43 (Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding: 292.9 million; Market cap: $1.6 billion; Price-to-sales ratio: 0.8; Dividend yield: 5.2%; TSINetwork Rating: Extra Risk; www.precisiondrilling.com) provides contract drilling services to land-based oil and gas producers, mainly in North America, through 329 rigs.
Even though low oil and gas prices have slowed drilling activity, demand for Precision’s Super Series rigs remains strong. That’s because these rigs can reach deeper pockets of oil than regular rigs.
The company recently received a order for a new Super Series rig. As a result, it now plans to spend $546 million on new rigs and other upgrades in 2015, up 7.9% from its previous estimate of $506 million.
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Even though low oil and gas prices have slowed drilling activity, demand for Precision’s Super Series rigs remains strong. That’s because these rigs can reach deeper pockets of oil than regular rigs.
The company recently received a order for a new Super Series rig. As a result, it now plans to spend $546 million on new rigs and other upgrades in 2015, up 7.9% from its previous estimate of $506 million.
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Union Pacific Corp., $88.25, symbol UNP on New York (Shares outstanding: 867.7 million; Market cap: $76.2 billion; www.up.com), owns Union Pacific Railroad, the largest railroad in the U.S. by track miles and revenue. Union Pacific has 31,974 miles of track serving the western two-thirds of the country.
The company’s revenue mix is as follows: industrial, 20%; intermodal (merchandise in containers hauled by ship, train or truck), 20%; coal, 18%; agricultural, 17%; chemicals, 16%; and automotive, 9%.
In the three months ended June 30, 2015, Union Pacific’s revenue fell 9.7%, to $5.4 billion from $6.0 billion a year earlier. Earnings per share declined 3.5%, to $1.38 from $1.43.
The railway saw 6% fewer shipments in the latest quarter; coal volumes dropped 31%, industrial products fell 14% and agricultural goods slipped 7%. Automotive shipments rose 3%.
The company faces a number of challenges:
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The company’s revenue mix is as follows: industrial, 20%; intermodal (merchandise in containers hauled by ship, train or truck), 20%; coal, 18%; agricultural, 17%; chemicals, 16%; and automotive, 9%.
In the three months ended June 30, 2015, Union Pacific’s revenue fell 9.7%, to $5.4 billion from $6.0 billion a year earlier. Earnings per share declined 3.5%, to $1.38 from $1.43.
The railway saw 6% fewer shipments in the latest quarter; coal volumes dropped 31%, industrial products fell 14% and agricultural goods slipped 7%. Automotive shipments rose 3%.
The company faces a number of challenges:
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