oil and gas

FMC Technologies, $40.91, symbol FTI on New York (Shares outstanding: 233.8 million; Market cap: $9.6 billion; www.fmctechnologies.com), is an oil-field services company that makes high-pressure fluid-control and measurement systems and equipment for undersea and surface production and processing. The company’s Subsea Technologies division accounts for about 66% of its revenue. Surface Technologies provides 25%, and Energy Infrastructure contributes 9%. FMC’s systems are used in offshore oil and natural gas production. Subsea systems are placed on the seafloor and control the flow from the reservoir to a processing facility, which may be onshore or aboard a ship or fixed platform....

ATLANTIC TELE-NETWORK, $64.56, symbol ATNI on Nasdaq, is entering the solar energy market by acquiring 28 solar projects in Massachusetts, California and New Jersey. The company paid $103 million for these assets ($64 million in cash and the assumption of $39 million of debt). Atlantic will now operate these projects, which have a total of 45.7 megawatts of capacity, through its newly created Ahana Renewable subsidiary. Customers include corporations, utilities, schools and municipalities. The projects’ power-purchase agreements range from 10 to 25 years, with a weighted average remaining life of 14.4 years. All of these facilities are generating revenue and have been operating for at least a year....

ISHARES CHINA LARGE-CAP ETF $42.10 (New York symbol FXI; buy or sell through brokers) is an exchange traded fund that aims to track the FTSE China 50 Index, which is made up of the 50 largest, most liquid Chinese stocks. All of the companies in the index trade on the Hong Kong exchange. Some also trade as American depositary receipts (ADRs) on New York. The fund’s top holdings are Tencent Holdings, 8.4%; China Construction Bank, 7.9%; China Mobile, 7.7%; Industrial & Commercial Bank, 7.2%; Bank of China, 6.1%; China Life, 4.8%; Ping An Insurance, 4.5%; PetroChina, 4.1%; CNOOC Ltd., 3.9%; China Petroleum and Chemical, 3.7%; Agricultural Bank of China, 2.5%; and China Pacific Insurance, 2.5%. The fund’s holdings give it the following industry breakdown: Financials, 50.3%; Oil and Gas, 13.8%; Telecommunications, 11.1%; Technology, 9.9%; Consumer Goods, 6.3%; Industrials, 4.2%; and Basic Materials, 2.4%. Its expense ratio is 0.74%....

The near-term direction of oil and gas prices remains uncertain, so we think the best way to cut risk is to look for companies with rising production that are trading at reasonable multiples to cash flow. Here are two with sound long-term prospects. PEYTO EXPLORATION & DEVELOPMENT CORP. $30.32 (Toronto symbol PEY; Shares outstanding: 153.7 million; Market cap: $4.8 billion; TSINetwork Rating: Extra Risk; Dividend yield: 4.4%; www.peyto.com) produces and explores for oil and natural gas in Alberta. Its average daily production of 77,592 barrels of oil equivalent is 90% gas and 10% oil. In the quarter ended September 30, 2014, Peyto’s cash flow rose 62.7%, to $1.09 a share from $0.67 a year ago. That’s because it raised its production by 37.7% and realized higher oil and gas prices....

ENBRIDGE INC. $55.52 (Toronto symbol ENB; Shares outstanding: 848.8 million; Market cap: $47.5 billion; TSINetwork Rating: Above Average ; Dividend yield : 3.4 % ; www.enbridge.com) has announced a major reorganization and hiked its dividend by a third. The company plans to transfer its pipelines 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 a variety of businesses, including oil and gas pipelines and solar and wind farms. Under the plan, Enbridge will transfer pipelines that pump oil sands crude to the U.S., along with wind farms in Alberta and Quebec, to Enbridge Income Fund. In all, these assets have a book value of $17 billion. To put that in context, Enbridge’s market cap (or the value of all of its outstanding shares) is $47.5 billion....

Black Hills Corporation, $51.44, symbol BKH on New York (Shares outstanding: 44.7 million; Market cap: $2.3 billion; www.blackhillscorp.com), serves 777,000 natural gas and electric utility customers in Colorado, Iowa, Kansas, Montana, Nebraska, South Dakota and Wyoming. It also produces natural gas, oil and coal. The shares haven’t risen along with those of many U.S. electricity producers over the last year (such as Ameren Corp., symbol AEE on New York, up 27%; or Alliant Energy, symbol LNT on New York, up 31%—both recommendations of Wall Street Stock Forecaster). In contrast, Black Hills is up just slightly. That’s because of its exposure to falling oil prices through its oil and gas production interests....

Trican Well Service, $5.33, symbol TCW on Toronto (Shares outstanding: 149.7 million; Market cap: $827.3 million; www.trican.ca), sells products, equipment and services for exploring and developing oil and gas reserves. Its offerings include hydraulic fracturing and cementing, as well as tools for working in a well or borehole. The Calgary-based company operates in Canada, the U.S., Russia, Kazakhstan, Algeria, Australia, Saudi Arabia, Colombia and Norway. In the three months ended September 30, 2014, Trican’s revenue rose 40.5%, to $770.6 million from $548.3 million a year earlier. Earnings per share jumped to $0.29 from $0.07. Higher fracturing demand in Canada was a major reason for the gains....

Every Monday we feature “A Stock to Sell” as our daily post. With every stock or investment we recommend as a sell, we give you a full explanation of why we advise against investing in it at this time.

Cardiff Energy (symbol CRS on Toronto; www.cardiffenergy.com), is a junior oil and gas exploration firm. It first sold shares to the public and began trading in April 2012.

Cardiff holds interests in 15 producing oil wells, one producing gas well and three shut-in oil wells in the Lincoln County area of central Oklahoma. It also has holdings in other parts of the state, including seven producing oil and gas wells in the Garvin County area and interests in the Buzzard Sand oil property in Osage County.

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Pat McKeough responds to many requests from Members of his Inner Circle for specific stock advice as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle Members. And each week we offer you a report on one of the stocks profiled in these Q&A sessions. We give you Pat’s buy-hold-sell recommendation as well as his analysis of the stock. This is part of the specific buy, hold and sell advice we offer you in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday, and “U.S. Stock Picks” on Thursday.

Recently we had a question from an Inner Circle member about one of America’s best-known venture capital firms, KKR &Co. Previously known as Kohlberg Kravis Roberts & Co., the company earned notoriety when its leveraged buyout of Nabisco in the 1980s became the subject of a best-selling book and TV movie, Barbarians at the Gate. Pat looks at the company’s varied activities in the public, private and capital markets. He also assesses the strategies it is pursuing as it makes a flurry of deals aided by low borrowing rates.

Q: Pat: I was wondering if you could give me any information about KKR & Co. Your thoughts on it would be appreciated.

A: KKR & Co. LP (formerly Kohlberg Kravis Roberts & Co. LP; symbol KKR on New York; www.kkr.com) is an asset manager with 14 offices across North America, Europe, the Middle East, Asia and Australia.

The company serves three main markets: private (investment funds); public (leveraged loans, high-yield bonds, special situation assets, distressed assets and rescue, debtor-in-possession and exit financings); and capital (debt/equity financing).

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Approach Resources, $7.13, symbol AREX on Nasdaq (Shares outstanding: 39.6 million; Market cap: $267.0 million; www.approachresources.com), develops, produces, acquires and explores for shale oil and gas reserves in the Midland Basin, part of West Texas’s Permian Basin. In the three months ended September 30, 2014, the company’s production rose 61.4%, to an average of 14.2 million barrels of oil equivalent a day from 8.8 million a year earlier. Its production is 69% oil and 31% gas. Cash flow per share rose 70.6%, to $1.16 from $0.68. Approach’s $339.5 million of debt is a high 127% of its $267.0-million market cap, but that’s mostly because its market cap has dropped lately, along with those of most oil and gas stocks....