US Energy Giants Beat Wall Street Projections

Schlumberger Ltd. and Halliburton Co., two of the largest oil field services companies, posted higher-than-expected profit thus beating Wall Street profit expectations this week. This kept the hopes up for higher third-quarter earnings for energy companies despite seemingly steadying oil-futures prices.

Late Thursday reports showed Schlumberger’s third quarter profit were higher, thrashing targets and sales only a little bit below estimates The results of Schlumberger’s Q3 came a day after rival Halliburton also surpassed expected profits. Halliburton CEO, David Lesar, cautioned about the fourth quarter experiencing seasonal weakness although a hint of optimism may be seen as he expects the oil prices to finally make a turn after a two-year nosedive.

Energy companies began to tighten and plan expenditures, conduct layoffs and asset selloffs to the face the crisis caused by the sharp dip made by crude prices. Before oil prices hit below $50 they used to soar above $100 per barrel—a level that was last reached in the summer of 2016.

Recently, oil began tacking at around $50 a barrel due to the preliminary announcement of the Organization of the Petroleum Exporting Countries about reaching a possible production cut deal on its next meeting in November.

Major refiners which include oil and gas giants like Exxon Corp. and Chevron Corp. are expected to report next week while smaller energy companies are to report in early November.

Edward Jones analyst Brian Youngberg said that generally, the energy companies’ stance sees a better turn. Increased spending is expected in the fourth quarter, and may well go until 2017, the analyst added. Third-quarter results are never highly detailed by the companies, but they might focus more around their spending plans for 2017.

Also according to Youngberg, crude prices are expected to fall in the event that OPEC decides in its November meeting to dump the deal. Although this is the case, prices are highly unlikely to reach the lowest levels like last year and may hold out around $45 a barrel.

Energy companies with small and medium exploration and production immediately bought assets, and some of them even upped their capital spending plans this year.

Analysts at Tudor Pickering Holt noted as they talked to clients this week that local agreements have come forward as the central topic of discussion for this sector and developments show no sign of cessation in the near term.

At the beginning of the week, SM Energy Co. released a statement about the agreement for a buyout of 35,700 net acres worth $1.6 billion in west Texas from QStar LLC and sellout of Williston Basin assets in North Dakota to Oasis Petroleum Inc.

“We are modeling positive quarters on production beats for (Pioneer Natural Resources Co., Noble Energy Inc., Cimarex Energy Co., Parsley Energy Inc., Laredo Petroleum Inc,  and SM Energy,” added the Tudor analysts. “Longer-term top picks remain (Concho Resources Inc., Cimarex, and Pioneer), given asset quality, balance sheet strength, and line of sight to inventory expansion and incremental resource delineation in the near term.”

According to Youngberg, Q3 production compared to the second quarter and from the same period of the previous year will likely be down. “Focus will be more on cash flow, capital spending into 2017, execution of any recent acquisitions, further new well results, ongoing efficiencies, potential cost inflation as things improve, and hedging,” he added.

The Permian and the Anadarko basin of West Texas in Oklahoma will continue to capture the spotlight, and Texas’ Eagle Ford not as much talk, said Youngberg.

Another thing that the analyst pointed out was the investor focus of the giant integrated companies. Cash flow, comments on future spending and continued weakness in refining will be their focal point. The dividend should also be increased modestly by Chevron.

On October 28, both Chevron and Exxon are scheduled to report before the bell. The adjustments in Chevron’s share earnings from $1.25 a share in the year-ago period to 39 cents a share is expected to be part of its report, as analysts surveyed by FactSet revealed.

On the other hand, Exxon is expected to report adjusted profit of 59 cents a share, from the previous year’s $1.01 a share.

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Maduro calls OPEC and NON-OPEC countries to stabilize market

Venezuelan president Nicolas Maduro called for OPEC (Organization of Petroleum Exporting Countries) and non-OPEC members to make a move to stabilize the global oil market. He confirmed that both OPEC and non-OPEC parties are close to making a deal, and hope that it can be announced this month.

"We had a long bilateral meeting with Rouhani. We're close to a deal between OPEC producer countries and non-OPEC," Maduro said in a news conference. Positive talks were established between fellow OPEC leaders who attended the Summit of the Non-Aligned Movement held in his own country, in the island of Margarita.

Aside from speaking with the Iranian president, Maduro said that he also talked to Rafael Correa, president of Ecuador, with the hopes of coming up with an agreement by the end of the month. Both countries are members of the OPEC.

According to Algeria’s official news agency, OPEC Secretary-General Mohammed Barkindo confirmed during a visit to Algeria that the 14 energy ministers of OPEC member-countries may call a special meeting to discuss oil prices if they reach an agreement at the sidelines of the International Energy Forum to be held in Algiers on September 26 to 28. Russia, a non-OPEC oil producer, confirmed attendance to the said forum.

Iran and Tehran is said to support any move to stabilize global oil market and lift prices. The Venezuelan president thinks that such steps are imminent at these times.

Talks on freezing oil production levels are also likely to be revived in the said meeting. After announcement of possible deal close, oil gains with West Texas intermediate recently up by 1.51 percent at $43.68 a barrel. Brent crude is up 1.7 percent, or 77 cents, at $46.54 per barrel while U.S. crude was up 78 cents, or 1.8 percent, at $43.81 a barrel.

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YEN “SAFE HAVEN” AS SHARE MARKETS WEAKEN

The yen remains strong on Thursday’s Asian trade, with investors prompted to buy the currency’s “safe haven” status as Tokyo’s share market weaken.

The greenback dipped by 0.2% to 101.94 yen in mid-morning Tokyo trade while it was at 102.42 yen in New York trade late Wednesday.

Rival currencies also experienced a slide. Euro went down by 0.2% to 114.65 yen and ended at 115.07 yen in New York. Australian dollar slipped to a two-month low of 75.97 yen and rose back midday to 76.35.

Stocks continue to dip down in the Tokyo Stock Exchange with Nikkei average down to 209.23 points, or 1.26 percent, ending at 16, 405.01.

Indexes went downhill as anxiety over Bank of Japan and U.S. Federal Reserve’s policy setting meetings rise. Both are scheduled on September 20-21.

As Fed attempts to increase its rates, BoJ plans on further lowering negative interest rates to steepen yield curve.

The BoJ’s next step seems to be clearer, but until the central bank’s scheduled meeting it is still uncertain what will happen.

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BAYER-MONSANTO MERGER LIKELY TO TAKE PLACE SOONER

A Bayer-Monsanto merger is expected to take place sooner as Bayer ups its offer—again – from about $128 per share to $129, nearing the $130 per share minimum price that Monsanto expects to get for any possible takeover to push through.

Bayer, the German chemical and pharmaceutical goliath, looks forward to strengthening its hold in the agricultural sector further through this risky but potentially ingenious move. With their stronghold in pesticides and Monsanto’s leading seed brands, these two giants will surely overtake similar companies belonging to the “Big 6” biotech corporations. This includes DuPont, Dow Chemical Co., BASF, and Syngenta.

However, investors are somehow skeptical with the attempts to increase the bid since Monsanto has been trading lower than the previous three offers made by Bayer. The latest offer is 22% higher than the former company’s closing price on Tuesday which fell down by 1.3% at $106.07 while Bayer closed at 95.69 Euros, rising by 1 percent.

The bid that started in mid-May at $122 per share, which was outright rejected by Monsanto for being “too low”, was further raised to $125 a share in July and to $127 in early September—both of which were also rejected.

Aside from the acquisition bid, Bayer also offered a reverse break-up fee amounting to about $3 billion. This was to ensure that in the event of antitrust watchdogs in Europe, America, and Asia upsetting the deal, Monsanto is guaranteed enough protection.

Although the US agrochemical and agrobiotechnology giant has long seen itself as a potential buyer, events might have proven otherwise. Previous attempts to acquire similar companies like Syngenta and parts of BASF never materialized.

Though many think that this acquisition will result to the world’s largest agrochemical business, Bayer’s high net debt—amounting to €17.45 billion ($19.71 billion) — gives analysts enough reason to question if this might hurt Bayer more than help it.

The proposal is assumed to be approved as early as Tuesday.

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