As of December 31, 2009, Steel Dynamics’ balance sheet reflected a total debt of $2.6 billion. The company’s debt-equity ratio was comfortable at 1.03 times that of December 31, 2009. The company’s net cash position (cash less total debt, including current portion) as of December 31 was a net deficit of $10.2 per share.

Cautious Guidance

A week earlier, Steel Dynamics had forecasted a feeble earnings outlook for the first quarter of 2010 citing weakness in its structural steel products and Steel Fabrication segment operations. Steel Dynamics expects earnings of 22 cents to 27 cents per share in the first quarter. The average of the earnings range of 24.5 cents is slightly below the Zacks Consensus Estimate of 25 cents and market estimate of 26 cents. However, in contrast, the company had posted a net loss of 48 cents per share for the first quarter of 2009 and had earned 12 cents in the last quarter of 2009.

According to management, Steel Dynamics has continued to benefit from healthy orders and pricing improvement at its sheet and special-bar-quality steel operations. The company also sees scrap prices improving during the quarter. Management anticipates strong demand for the company’s flat-rolled steel products from the automotive end markets. However, Steel Dynamic’s structural steel and downstream fabrication operations are expected to remain weak.

Steel Dynamics has been cutting costs and ramping up production. The company is focusing on cost reduction through higher production and increased shipping volumes in the Flat-Rolled product segment. Management is optimistic about the industry picking up in the near future.
We expect Steel Dynamics to perform better in the long term on stronger industry trends driven by inventory restocking and demand recovery as well as a continued rise in steel prices.

Zacks Recommendation

Our long-term Neutral recommendation on Steel Dynamics reflects margin pressure in the Metals Recycling segment from lower-than-expected volumes. We believe that return of profitability in the company’s Fabrication segment’s should also take longer than expected. We are also wary of a weaker-than-expected recovery of production utilization rates in the company’s long steel products business under its Steel Operation, which is around 40% for Structural & Rail products and mid 50% for most of the other businesses.

However, we are positive on Steel Dynamics’ higher Flat-Rolled products mix, which forms about 67% of shipments. Costs in the segment benefited from high utilization rates in the recent quarter and the company was able to maintain strong levels of profitability. We expect margins to benefit from higher flat-rolled steel product prices in the next couple of months.

We also remain positive on Steel Dynamics’ long-term growth prospects, including the Mesabi Nugget project in Minnesota for the mining of iron ore and the production of pure iron nuggets. These iron resources will be used to lower the cost of steel production in Steel Dynamics’ electric-arc-furnace mini mills.

Peer Comparisons

Steel Dynamics has outperformed its close peers including Nucor Corporation (NUE) and United States Steel Corporation (X). Nucor posted a loss of 94 cents per share for the full year 2009, in sharp contrast to a profit of $5.98 per share for 2008. Moody’s Rating Agency (MCO) recently downgraded Nucor on weak results.

U.S. Steel reported losses of $10.42 per share in 2009, compared with full year 2008 net income of $17.96 per share. The company expects losses for the first quarter of 2010. Fitch Ratings downgraded U.S. Steel Corporation to junk status on account of a lack of visibility about the company’s return to profitability.

Zacks Investment Research

(STLD) Steel Dynamics Raises $350 Million in Debt

DuPont is focused on increasing food production. The company claims to invest about half of its $1.4 billion annual R&D budget to advancing this goal.

DuPont is also planning to construct a commercial and parent soybean seed production facility in Missouri through Pioneer Hi-Bred. Pioneer is building the $55 million project to help farmers meet the strong global demand for grain. Pioneer expects the plant to begin operating by the end of 2011. As the first Pioneer production facility in Missouri, the new plant will primarily serve soybean producers in the US. Pioneer also has a research facility in Missouri as well as corn, soybean, sorghum and wheat seed outlets in the state.

DuPont has been focusing on aggressive cost-cutting and plans to capture $1 billion in fixed cost productivity and $1 billion in working capital productivity gains during 2010?2012. A focus on emerging markets and strong performance in the Agriculture & Nutrition segment will likely generate about 10% growth in the top line during 2010?2012.

DuPont hopes to grow earnings at 20% between 2010 and 2012. However, the US housing market slump has impacted products such as Corian and Tyvek under its Coatings & Pharmaceutical segment. Weak North American automotive and construction markets have hurt its Coatings business. Pharmaceutical royalties are also expected to decline after the expiry of patents in 2010. Hence, we have a Neutral rating on the stock.

Zacks Investment Research

(DD) EI DuPont de Nemours & Company Focuses on Plant Genetics

In its initial phase, the mill will produce up to 250,000 tons per year of bars from locally sourced scrap and require investment of $100 million to $130 million, jointly contributed by ArcelorMittal and Dayen.

Construction is expected to start in the second quarter of fiscal 2010 and production will commence early in the fourth quarter of fiscal 2011. Later, production could eventually increase to 500,000 tons per year.

The company will benefit from the increase in demand for steel products in the local construction industry.

ArcelorMittal expects a surge in steel demand in the coming months largely due to the technical recovery as inventory de-stocking nears completion. Although the steel sector scenario remains unpredictable, we also expect a gradual sales recovery in the next couple of quarters. However, we do not expect demand to return to the levels of 2008 in the medium term.

A reversal of global economic activity triggered by the intensification of the credit crisis last September led steelmakers to stop operations at several plants, lay off staff and refinance debt. The U.S. steelmakers are still operating with almost half their capacity.

Global steel prices have fallen in some regions from their peak in mid-2008, as the recession triggers a reduction in demand from sectors such as construction and automotives. We believe this will continue in the very near term.

Zacks Investment Research

(MT) ArcelorMittal Signed Memorandum of Understanding

In recent times, the company has successfully pursued a strategic shift towards the relatively high-margin deepwater markets (engineering and construction) that have braved commodity pricing and credit market turmoil. Deepwater drilling and subsequent construction activities are expected to get a further boost from the arrival of a large number of newbuild rigs in the coming years.

Acergy is one of only four companies providing a wide range of offshore services globally. As such, it remains well positioned to capitalize on the positive outlook for demand in subsea engineering and construction services over the coming years.

Acergy has been relatively untouched by the economic downturn so far, as more than 60% of the company’s worldwide clients are well capitalized oil majors like ExxonMobil Corp. (XOM), Chevron Corp. (CVX), Royal Dutch Shell PLC (RDSA) or state-owned energy companies like Petroleo Brasileiro S.A. (PBR). While the occasional delay cannot be ruled out, we believe that most of the projects sponsored by them will remain unaffected.

Helped by these factors, the company recently posted better-than-expected fourth quarter 2009 results. Moreover, Acergy’s strong backlog, currently standing at $2.8 billion, offers long-term earnings and cash flow visibility. This enables the company to navigate through the current downturn better than many of its peers.

Acergy also remains in excellent financial health with about $908 million in cash and a total debt-to-capitalization ratio of 27.5%. This provides adequate financial flexibility to increase its capacity through newbuild programs or strategic acquisitions. Additionally, the company does not have any near-term refinancing requirements.

As such, we view Acergy ADRs as an attractive investment and maintain its Outperform rating. Our $21 price objective represents 2010 P/E multiple of 26.9X, still at a discount to the industry average.

Zacks Investment Research

(ACGY) Acergy S.A. Analysts Maintain Outperform Rating

Under the agreement, PVR Midstream will construct 12-inch gathering pipeline and compression facilities with 25 million cubic feet (MMcf) per day of throughput capacity for the firm’s natural gas production in Wyoming County, Pennsylvania.

PVR Midstream’s 2010 capital investment in this system is anticipated to range from $6 to $7 million, with potential future system extensions costing up to $10 million. This system is expected to become operational during the second quarter of 2010.

PVR Midstream expects the project to generate fee-based revenue and to be accretive to distributable cash flow by the third quarter of 2010.

Last week, PBR Midstream entered into a similar agreement to construct and operate gas gathering pipelines and compression facilities for Range Resources Corporation (RRC), primarily in Lycoming County, Pennsylvania.

In the agreement, PVR Midstream and Range agreed to an area of mutual interest (AMI) that covers parts of Lycoming, Tioga and Bradford Counties in north central Pennsylvania, in which Range currently holds a substantial acreage position.

Plans call for the construction of approximately 16 miles of 24- and 30-inch gathering trunklines, smaller-diameter field gathering lines and compression facilities required to gather Range’s production from the AMI, with a throughput capacity of over 700 MMcf per day. The initial phase of the project is expected to be operational in the fourth quarter of 2010.

PVR Midstream’s total capital investment in this system is anticipated to range from $170 to $200 million and will be expended between 2010 and 2015, with $35 to $40 million planned for 2010. The company expects this project to generate fee-based revenue and is expected to be accretive to distributable cash flow by the end of 2010 or early 2011.

With these agreements, PVR Midstream has established itself as an important provider of gathering and related services in the growing Marcellus Shale resource play. Going forward, Penn Virginia will continue to look for opportunities to expand its presence in this emerging and potentially large resource play.

Zacks Investment Research

(PVR) Penn Virginia Resource Partners L.P. Expands Marcellus Footprint

Another concern for NuStar is the weak demand for refined products that translates into lower pipeline throughputs. Furthermore, the addition of the asphalt business has increased the partnership s exposure to volatility in commodity prices.

Given these headwinds, we expect NuStar units to be under pressure in the near future. Our $56 price objective reflects a target yield of 7.85%, with a distribution run rate of $4.43 per unit (a 4% increase from the current level).

Zacks Investment Research

(NS) NuStar Energy L.P. – Bear of the Day

Arch now controls approximately 1.5 billion tons of coal in Montana’s Otter Creek area, including previous reserve additions such as the coal lease secured in November 2009 through Great Northern Properties Limited.

Arch has a significant amount of reserves and is one of the top three producers in the Powder River Basin (PRB). Through this lease, the company is seeking to strengthen its operations in the PRB coal fields. The combined Otter Creek coal reserves are perceived as a strategic platform for growth in the Northern PRB.

Management believe these Northern PRB reserves will help the company competitively serve U.S. power producers, supply additional coal for export to emerging Asian countries or possibly house a future coal-conversion facility.

St. Louis, Missouri-based Arch Coal is one of the largest coal producers in the U.S., operating 20 mines across the major low-sulfur coal basins of the country. The company primarily conducts its business through three operating segments: Powder River Basin, with operations in northeastern Wyoming and southeastern Montana; Western Bituminous (WBIT), with operations in western Colorado, eastern Utah and southern Wyoming; and Central Appalachian (CAPP), with operations in eastern Kentucky, Tennessee, Virginia and southern West Virginia.

Coal mined from the PRB region has very low sulfur content. In our opinion, PRB coal will be in great demand over the coming years. Going forward, the significant coal-fired power plant build-out will increase annual thermal coal demand by more than 43 million tons, most of which will be fueled by PRB coal.

We believe Arch Coal’s well-capitalized, low-cost operations provide a competitive edge over smaller players in the industry. In addition, Arch’s PRB assets reflect visible long-term value, positioning it to capitalize on the resurgence in coal demand once the global economy stabilizes. Moreover, its strong balance sheet will enable it to pursue high-growth investment opportunities, particularly at a time when valuations are depressed. We maintain our Neutral recommendation on ACI.

Zacks Investment Research

(ACI) Arch Coal Increases Powder River Basin Exposure

The company partnered another on one of the high bids and bid alone on the remainder. The blocks cover over 82,500 net acres in water depths up to 7,800 feet. Noble Energy’s total acreage position in the deepwater Gulf of Mexico, focusing mainly on the Green Canyon and Mississippi Canyon areas, will expand to over 472,500 net acres.

The lease sale continues to build upon the company’s attractive exploration inventory in the deepwater Gulf of Mexico.

Noble Energy, based in Houston, Texas, is an independent oil and gas exploration and production (E&P) company. The company controls a well-balanced portfolio of high-quality oil and gas properties across the U.S. and several international locations. In the U.S., the onshore assets provide stable performance and the offshore assets in the deepwater Gulf of Mexico offer significant growth opportunities in the medium to long-term.

Noble’s international operations, with core positions in Equatorial Guinea and Israel, are a source of low-cost, long-term production base; do not require huge maintenance capital; and diversify the overall portfolio.

Noble’s high-grade hydrocarbon portfolio, brilliant execution capability and competitive cost structure reflect a visible upside over the long run. It maintains a disciplined investment approach and a strong balance sheet with sufficient liquidity and financial flexibility. Going forward, the ongoing major development projects in deepwater Gulf of Mexico, Equatorial Guinea and Israel will create substantial value for the shareholders.

Zacks Investment Research

(NBL) Noble Energy Expands Position in Gulf of Mexico

As per the non-binding letter of intent signed between the companies, Delta plans to offload a 37.5% non-operated working interest in its Vega Area assets in western Colorado’s Piceance Basin to Opon. Upon closure of the proposed deal, Delta has agreed to issue 5.7 million shares to Opon at $3.50 each and warrants to purchase another 13.3 million shares at $1.50 each. Delta will still continue to operate the Vega project subject to a joint venture agreement with Opon.

Of the total sale proceeds, Delta has set aside $225 million to develop its Vega Area gas assets over the next three years, while the remaining amount will go towards strengthening the company’s balance sheet and fulfilling general working capital purposes.

The deal comes as a huge boost for Delta, which late last year said that it was considering a possible sale of the company, among other moves. Further, Delta will be able to mobilize funds to revive drilling in the area, which had been severely limited by the tight credit market. Lenders restricted the company’s drilling budget to just $10 million in the current quarter and $5 million in the second quarter as gas prices fell.

Following the stake sale announcement, shares of Delta Petroleum soared 41 cents, or 30.2%, to close at $1.77. Earlier in the day, the shares rallied to $1.95, the highest price since last Sep.

Delta Petroleum is an independent energy firm engaged in the exploration and production of oil and gas properties. The company’s operations are focused on the Rocky Mountain and Gulf Coast regions.

Zacks Investment Research

(DPTR) Delta Petroleum to Sell Piceance Properties

Company Description

Cliffs Natural Resources, Inc. is a mining and natural resources company that produces iron ore pellets, lump and fine iron ore and metallurgical coal. The company was founded in 1847 and has a market cap of $8.7 billion.

Fourth-Quarter Results

Revenue for the quarter, reported on Feb 17, was down 10% from last year to $820.5 million on a weaker pricing environment. The company did not however that it saw strong volumes from its Asia Pacific business. Earnings came in at 76 cents, doubling the Zacks Consensus Estimate of 38 cents.

Cliffs came out of the year in pretty strong financial condition, with $503 million in cash and equivalents, no borrowing under a $600 million revolving line of credit and $525 million in long-term borrowing.

With Cliffs posting solid results and saying it is optimistic on the macro-economic environment for 2010, analysts have raised guidance. The current year is up huge over the last few months, jumping to $5.19 from $2.87. The next-year estimate has advanced from $4.05 to $6.83, a bullish 32% growth projection.

Valuation

With estimates jumping, shares of CLF have some value, trading with a forward P/E multiple of 12X, a discount to the overall market.

The Chart

Shares of CLF have been surging since early February, recently hitting a new 52-week high at $67.53. Take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service.

Zacks Investment Research

(CLF) Cliffs Natural Resources – Earnings Report Doubles Expectations

In BP’s largest deal in seven years, the company bought assets from the U.S. independent oil and gas company Devon Energy (NYSE: DVN). The deal involved BP paying $7 billion, plus a 50% interest in its Kirby oil sands leases in Canada. In return, Devon handed over the rights to sites in the Gulf of Mexico, both in Brazilian and Azerbaijan territory.

Those properties are a perfect fit for BP. They give the oil maven total control over the giant deep-water Kaskida oil field in the Gulf of Mexico. BP already owned 70% of the 2006 discovery, but it welcomes the remaining 30% from Devon.

In Azerbaijan, Devon only has a 5.63% stake in the ACG field. which BP will happily add to its 34%, especially since it operates the field.

But BP is most interested in Brazil, the site of some of the biggest oil discoveries in recent years.

BP’s New Campos Basin Assets

The assets Devon sold BP are located in the Campos Basin. That area accounts for 85% of Brazil’s nearly 2 million barrels of daily oil output. And it has produced heavy-grade product with regularity from shallower depths.

Compared to the Santos Basin further south, Campos has proven less exciting when it comes to finding new fields. But now, with firms like BP and Brazilian oil company Petrobras ADR (NYSE: PBR) turning their attention to Campos, it could get interesting again.

Like the Santos Basin, Campos has subsalt oil fields. And while nobody knows exactly how much it has, Petrobras believes it’s a worthwhile amount. It’s director of exploration, Guilherme Estrella – also known as the father of Brazil’s subsalt – even recently compared it to Saudi Arabia.

So far, the company has already found more than 2 billion barrels of light subsalt oil beneath existing heavy oil fields, so he may just be right about that prediction. But even if Campos falls short, the reduced costs of production in the larger basin should make up for it.

In the Santos Basin, oil companies have to drill over a mile beneath the surface to reach their goal. And creating a single well can cost over $100 million. The Campos Basin, however, is more ideally situated at much shallower depths and much closer to shore. Companies only have to drill 600-700 feet in order to reach their goal.

Petrobras has already started pumping from the Campos subsalt by drilling through existing wells and linking to the deeper subsalt fields. This eliminates the need for new platforms and other infrastructure.

BP-Devon Deal… A Closer Look

A closer look at the BP-Devon deal shows that the company’s balance sheet can easily support it.

Net debt-to-capital employed will rise from 20% to around 24%, still comfortably lower than BP’s 30% limit.

Critics point out that the company’s stock dipped after it announced the deal. And at first glance, it does appear that BP is paying too high a price. The acreage BP purchased currently produces a mere 40,000 barrels of oil per day. And proven reserves come in at only about 150 million more. So taken at face value, this implies that BP paid a pricey $47 per barrel of oil equivalent.

But investors need to look a little deeper than that.

• Devon’s calculations suggest that BP actually acquired 6-7 billion barrels worth, making it cost a mere $1 a barrel!
• Or, even from a more conservative estimate, BP gained $1.6 billion barrels of oil equivalent, working out to about $4.40 a barrel… Still not bad at all.

In addition, BP is the leading international, deep-water oil company. Last year, it produced over 650,000 barrels of oil and gas per day from deep water. And it has a lot of experience with the production side of that business, which will come in handy when developing its new Brazilian assets.

BP has already done very well in finding and extracting deep-water oil and gas in the Gulf of Mexico.

Take the giant Tiber oil field, which it discovered last year. Or the Thunder Horse development site, which it recently brought on-stream. Projects like those have made BP the largest producer in the area, with a total output of 400,000 barrels a day of oil and gas.

The Campos Basin should turn out to be yet another feather in the company’s cap. BP wants to sustain 1-2% production growth per year in the second half of the decade. And this most recent deal is most definitely a step in that direction.

Good investing,

Tony Daltorio

View original at: Investment U

(BP) BP Acquires Devon: Another Feather in This Oil Heavyweight’s Cap

The acquisition makes CONSOL Energy the largest and among the fastest growing and lowest cost producers of natural gas in the Appalachian basin. It will gain a leading position in the strategic Marcellus Shale fairway as its development assets triple to approximately 750,000 acres with the addition of Dominion’s approximately 500,000 Marcellus Shale acres in Pennsylvania and West Virginia.

Since 2005, CONSOL Energy expects to double its annual gas production to 100 Bcf in 2010. This acquisition will further accelerate that trend with the addition of the extremely attractive resource-rich, low-cost Marcellus Shale assets. Two compelling aspects of this transaction are that 98% of Dominion’s Marcellus acres are held by production and the average net revenue interest is 87.5%.

With this acquisition, CONSOL will increase its total proved gas reserves by more than 50% to roughly 3 trillion cubic feet and double its potential gas resource base to 41 trillion cubic feet.

CONSOL Energy will acquire a total of 1.46 million oil and gas acres from Dominion along with over 9,000 producing wells that are expected to produce more than 41 Bcfe in 2010.

Upon completion of the transaction, CONSOL Energy’s natural gas business is expected to account for as much as 35% of its total revenue.

The company expects to raise approximately $4.0 billion and is targeting a balanced mix of equity and debt to fund the acquisition and development of the acquired acreage.  Following the transaction, CONSOL Energy will maintain its strong balance sheet and liquidity position.  The transaction is expected to close by April 30, 2010, subject to regulatory approvals and customary closing conditions.

Impact of Sale on Dominion

Dominion’s decision to sell its E&P business came as a result of its previously-announced plan to monetize the Marcellus acreage. Dominion’s regulated businesses are now expected to contribute about 70% of consolidated operating earnings in 2011, up from less than 45% in 2006.

Exiting the E&P business will enhance the visibility of Dominion’s core natural gas pipeline and storage businesses. The company expects to reduce its on-going capital expenditures by approximately $200 million per year. The company also affirmed its 2010 operating earnings guidance of $3.20 to $3.40 per share.

Zacks Investment Research

(CNX) CONSOL Energy Buys Part of Dominion Resources’ Business

The company said that the coal will be sourced primarily from its Panther and Winchester mines. The sale is arranged through a third party, Xcoal, which has an extensive presence in Asian markets. The company expects coal deliveries to begin in April 2010 through early 2011.

Furthermore, the company now expects 2010 met coal shipments to be more than 7.0 million tons, up 30% from total met shipments in 2009. Of this, nearly 2.0 million of volume is expected to come from the Panther mine. Additionally, the company expects to see additional opportunities for met coal sales to Asia as 2010 unfolds.

Patriot Coal is a leading coal producer in the eastern U.S., having substantial thermal as well metallurgical coal reserves in the Appalachian region. This transaction opens up new markets for Patriot, and also provides it considerable upside in selling additional Panther coal in global metallurgical coal markets.

Coal demand in the Pacific markets is growing rapidly, with supplies increasingly tight. Because of demand in Asia, some metallurgical coal supply from Australia, Canada and the U.S. that normally would have moved into the Atlantic basin is diverted into the Pacific basin. Furthermore, prices for seaborne metallurgical and thermal coals are moving higher as China and India are rapidly increasing imports and traditional Asian-based customers are returning to pre-recession growth levels.

With the improved economics of the Pacific markets, we believe Patriot will benefit from its endeavor into the growing Asian markets.

Zacks Investment Research

(PCX) Patriot Coal Corporation Sells Metallurgical Coal to Asia

Cumberland is one of the largest privately held coal producers in the United States, with 2009 revenue of $550 million generated from the production and sale of 7.8 million tons of high quality Central Appalachian coal.

Approximately half of the 416 million tons of reserves of the company in Virginia and Kentucky can be used as metallurgical coal, a key ingredient in making steel. Massey will acquire Cumberland free of debt.

Massey expects Cumberland to be a good fit for its strategy of capitalizing on growing Asian demand for higher-priced metallurgical coal. The company’s strategy centers on high-value metallurgical coal and demand in Asia, and the resulting supply shortages in South America and Europe.

Massey looks forward to produce approximately 5.0 million tons of metallurgical quality coal annually with the existing Cumberland assets. The company does not expect any additional development capital would be required to reach this production target.

Massey believes it will achieve operating synergies when this transaction and the integration of the Cumberland operations are complete. These synergies are expected to result from an increased global marketing of metallurgical quality coal through Massey’s established sales network, sharing of operational best practices, purchasing synergies and working capital optimization. Massey expects to be able to utilize coal produced from the acquired operations to increase metallurgical coal sales by up to 5 million tons annually over the next couple of years.

On a pro forma basis, after adding the Cumberland reserves, Massey expects to have an estimated total reserve base of 2.9 billion tons. An estimated 1.3 billion tons of Massey’s total coal reserves are of metallurgical quality.

Terms of the deal call for Massey to pay $640 million in cash and $320 million in stock. Massey ended 2009 with $665.8 million in cash and was recently able to withdraw a $72 million bond posted in a West Virginia lawsuit. The acquisition is expected to close in the second quarter of 2010.

Zacks Investment Research

(MEE) Massey Energy Company Acquires Cumberland

If food and energy prices are stripped out to get “core” inflation, then inflation is also very tame, with core inflation up 0.1% in February, reversing a 0.1% decline in January and a 0.1% increase in December. Over the last year, core inflation has just been 1.3%, and most of that inflation happened earlier in 2009.

Actually, food prices have been very well behaved, down 0.2% over the last year, but up slightly (0.1%, 0.2%, and 0.1%) in each of the last three months. Energy prices have been the reason that overall inflation has been higher than the core, and more specifically energy commodity prices. Overall energy prices are up 14.4% over the last year.

Energy service prices, like electricity, are actually down a fairly sharp 4.2%. Energy commodity prices, like gasoline, have soared 34.4% over the last year as oil prices have rebounded. In February, overall energy prices fell 0.5%, but that did not come close to reversing the 2.8% increase in January, which in turn came on top of a 0.8% increase in December.

So far in March, crude prices have rallied, dragging the price of gasoline up, so it is highly likely that headline inflation will be much higher than core inflation when the March numbers are released next month.

Behind the Headline Numbers

The primary reason that core prices are so well controlled is the price of shelter, which was unchanged in February, and has not been in positive territory since August. By far the single largest component of the overall CPI is what is known as Owners Equivalent Rent, or OER. That is what the government figures homeowners are “paying themselves” to stay in the homes they own. Essentially it is what it would cost you to rent a similar house across the street from your current house.

OER makes up 25.2% of the overall CPI. Regular rent that tenants pay to landlords makes up an additional 6.0% of the index (the other very small components to shelter are the cost of hotels and homeowners insurance). Since rent is neither food nor energy, it makes up an even bigger portion of the core CPI (almost 40%). Over the last year, both OER and regular rent are up by just 0.3%, and both were unchanged in February.

With very high vacancy rates, it is unlikely that rents are going to start accelerating any time soon. This means that we are likely to see very tame inflation for some time to come now. That, in turn, gives the Fed the green light to keep short-term interest rates at extraordinarily low levels for an extended period of time.

Aside from energy, the major problem area with respect to prices is health care. The cost of medical commodities (i.e. drugs) is up 3.5% over the last year and were up 0.8% in February, on top of a 0.7% increase in January. The cost of medical services (doctor and hospital visits) is up 3.7% over the last year, and was up 0.4% in February on top of a 0.5% increase in January.

How to Play This

Unless you think that the trend will soon reverse, it is generally a good idea to have your investments favoring those firms that have the ability to raise prices, or at least benefit from rising prices. Thus providers of energy commodities, such as oil and gas exploration and production companies should be over-weighted.

Some large cap names to consider would be Petrobras (PBR) and Apache (APA). A smaller-cap name that is set to significantly increase its production is ATP Oil and Gas (ATPG) which looks interesting.

By the same token, the health care area looks interesting, especially as the sector has the lowest P/E ratio of any in the S&P 500 based on 2010 expected earnings. Two large cap names to consider there would be in the distribution area, Amerisource Bergen (ABC) and Cardinal Health (CAH).

Then again, it is a good idea to avoid firms where they have no pricing flexibility or prices are falling (Tech is an exception to this since prices are always falling due to Moore’s law). For example, while the energy commodity names look good, it might be a good idea to underweight the electric utilities, where prices have generally been falling.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

Zacks Investment Research

(PBR) U.S. Consumer Price Index Remains Tame

Company Description

China Integrated Energy distributes gasoline, petro-diesel and other petroleum products to retail customers throughout China, operates 12 retail gas stations in the Shaanxi Province, and produces alternative energy fuels at a bio-diesel facility with 100,000 ton annual capacity.

In November 2009, the company announced it was building a second structure at its bio-diesel facility which would expand production by 50,000 tons. Production is expected to begin in the third quarter of 2010.

China Integrated Energy is the only non-state-owned integrated bio-diesel producer with a distribution license in the country.

The distribution segment services over 640 million people in a wide geographic region in China.

China Integrated Reports Record Fourth Quarter

On Mar 12, China Integrated announced its fourth quarter results and surprised on the Zacks Consensus Estimate by 7.1%. Earnings per share were 30 cents compared to the Zacks Consensus of 28 cents.

It was the second straight earnings surprise.

Sales jumped 57.9% to $93.3 million from $59.1 million in the year ago quarter. All 3 business segments saw sales increases. Petroleum product sales soared 80.1%, retail gas sales grew by 53.3% and biodiesel sales gained 5.4%.

There was strong market demand for heavy oil and finished oil products. The retail gas stations also performed well.

In January, the company announced the addition of two gas stations bringing the company’s total to 12. These two stations are expected to add $14.2 million in revenues in 2010.

China Integrated is Bullish about 2010

Given the record quarter and the Chinese economic recovery, the company is optimistic about 2010.

It is forecasting 2010 revenue to rise 32.8% to $382 million. This includes the additional 50,000 tons of biodiesel from the new manufacturing facility expected to come online in third quarter and the lease of 3 additional gas stations.

Zacks Consensus Estimates Rise

Analysts followed the company’s lead and raised estimates in the last 30 days. The Zacks Consensus rose 4 cents to $1.10 in that time period as 2 estimates moved higher.

Analysts project 5-year earnings per share growth of 26%.

Value Fundamentals

China Integrated Energy is a Zacks #1 Rank (strong buy) stock. It has a stellar 1-year return on equity (ROE) of 34.4% which blows away the industry average of just 0.71%.

The company also has an attractive price-to-book ratio of 2.42, which places it in value territory as it’s under 3x.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.

Zacks Investment Research

(CBEH) China Integrated Energy – Bullish about 2010

The current economic downturn and the resulting commodity-price weakness, coupled with reduced access to the credit markets, have led to lower spending by consumers and businesses on transportation fuels such as gasoline, aviation fuel and diesel. This translates into less transportation volumes for pipeline operators such as NuStar, eroding its cash flows and distributions.

While the partnership’s liquidity position is sound, we continue to believe that the near- to medium-term outlook for petroleum products expenditure remains weak.

Another concern for NuStar is the weak demand for refined products that translates into lower pipeline throughputs. To cope with the squeeze in refining margins (on the back of narrow crude oil differentials and high inventories from weak demand), refiners have cut back production and/or shut down indefinitely. The shut-in refinery capacity and/or reduced refinery runs result in significantly lower pipeline throughputs, adversely affecting NuStar’s results of operations and ability to make distributions to the unitholders.

Further, the addition of the asphalt business has increased the partnership’s exposure to volatility in commodity prices. Given these headwinds, we expect NuStar units to be under pressure in the near future.

San Antonio, Texas-based NuStar Energy L.P. is a master limited partnership (MLP) that engages in the transportation and storage of crude oil as well as refined products in the U.S. , the Netherlands Antilles, Canada, Mexico, the Netherlands and the U.K. The partnership is one of the largest asphalt refiners and marketers in the U.S. and the second largest independent liquids terminal operator in the nation.

NuStar’s current asset base includes 8,417 miles of pipelines, 82 terminal facilities, 4 crude oil storage tank facilities and 2 asphalt refineries, with a combined throughput capacity of 104,000 barrels per day. The partnership’s combined system has more than 91 million barrels of storage capacity.

Zacks Investment Research

(NS) NuStar Energy L.P. Analyst Downgrades to Underperform

Recently, the company informed that a fire at its largest oil sands project in Alberta would only be fixed by early April. This will cut Suncor’s production rates during February and March below the company’s earlier guidance.

Additionally, post the Petro-Canada acquisition (completed on August 1, 2009), we remain worried about Suncor’s high debt level (approximately C$14 billion) and significant anticipated capital expenditure requirements (C$5.5 billion for 2010). There are also operational and execution risks associated with the integration of Petro-Canada’s predominately conventional assets, which are of a type and in regions where Suncor lacks experience.

The current uncertain commodity price environment, vulnerability of the company’s deep oil sands technology to potential implementation delays, and environmental concerns regarding oil sand crude are some other negatives in the Suncor story.

Last month, the company reported weak fourth quarter results, adversely affected by higher expenses and royalty payments as well as less-than-expected production. Earnings per share, excluding certain items, came in at 9 Canadian cents (8 US cents), well below the Zacks Consensus Estimate of 39 US cents.

It was the company’s third negative earnings surprise in the past four quarters. Suncor has performed poorly during this period, with its average earnings surprise being approximately -35%. This implies that the company has missed the Zacks Consensus Estimate by roughly 35% over the last four quarters.

Calgary, Alberta-based Suncor Energy Inc. is Canada’s premier integrated energy company. Suncor’s operations include oil sands development and upgrading, conventional and offshore crude oil and gas production, petroleum refining, and product marketing under the Petro-Canada brand. Suncor’s business can be divided into five segments: Oil Sands, Natural Gas, East Coast Canada, International, and Refining and Marketing.

Zacks Investment Research

(SU) Suncor Analyst Downgrades to Underperform

Nucor’s guidance is driven by higher expected operating rates at its beam and bar mills. The company is anticipating operating rates of 55% and 63% at its beam and bar mills, respectively, in the first quarter, up from 11% and 10% in the previous quarter. Nucor also foresees 85% and 90% utilization at its sheet and plate mills, up 22% each from prior quarter levels.

With improved utilization rates, Nucor expects production to climb 51% in the first quarter. Shipments are expected to be up 49%. The company’s scrap business under the Raw Material segment also showed significant improvement in the last reported quarter.

However, Nucor continues to see weakness in the residential and non-residential construction markets, with little sign of strength.

Recommendation Upgrade

We are upgrading Nucor from Underperform to Neutral. With operating rates up near peak levels on the beam product side and bar product operating rates also creeping higher, we believe that Nucor is well positioned to benefit from the ongoing recovery in steel fundamentals.

However, we remain wary of the company’s high long products exposure relative to others in the sector, including United States Steel Corporation (X), ArcelorMittal (MT) and Commercial Metals Company (CMC). We think it could be challenging for Nucor and other long products players to push through scrap surcharges on long products as end demand remains weak. The company’s relatively high construction exposure and lower leverage to improving steel prices is also a concern.

Nonetheless, we believe Nucor is well positioned with a good pipeline of organic investments and a very strong liquidity position.

Zacks Investment Research

(NUE) Nucor Provides Guidance – Analyst Raises Estimates

However, Halliburton’s overexposure to domestic natural gas prices remains a cause for concern. Being a global leader in the vital oilfield service, the company remains more vulnerable to the travails of pressure pumping than its large-cap diversified peers like Baker Hughes (BHI) and Schlumberger (SLB). These factors, especially the sharp cyclical downturn in the all-important North American market, weighed heavily on Halliburton’s 2009 results and dragged them much below the year-ago levels.

The company has a strong international oilfield presence, with the oil-rich Eastern Hemisphere becoming its fastest growing segment. Halliburton’s international operations held up reasonably well in the downturn and provided some cushion to the company’s performance last year.

While North American activity levels are showing signs of revival, we note that this market remains highly dependent on natural gas prices. Further, the international markets are expected to continue weakening into 2010. These factors are likely to weigh on the company’s revenue and profitability during the next few quarters. As such, we see the stock performing in line with the broader market and maintain our Neutral recommendation.

Zacks Investment Research

(HAL) Halliburton Analyst Retains Neutral Rating

The report also said that Conoco may announce this plan in its annual analyst meeting, which is scheduled to be held on March 24. Following 2004, the first time when Conoco bought into Lukoil, the stake percentage has been gradually increased to 20%.

During this period, Conoco had invested a significant amount of money into a joint production unit with Lukoil in Russia’s Arctic, Naryanmarneftegaz. The source also said Conoco and Lukoil will likely continue to co-own their Arctic joint venture, which produces around 150,000 barrels per day.

Lukoil Investment is an important operating segment of Conoco. In the last year, this segment generated about 28% of the company’s total adjusted earnings.

Conoco has decided to sell $10 billion of assets over the next two years and can raise $4.6 billion at current prices from this transaction alone. Depending on how the sale progresses, the company may see a downtrend in its reserves at the end of 2010 or in 2011.

Despite being the third largest US oil integrated, Conoco is the most leveraged among its peers and has almost no exposure to the prolific non-conventional plays. All these concerns are reflected in our Neutral recommendation for the stock.

Zacks Investment Research

($COP) ConocoPhillips May Reduce Lukoil Stake

Statoil aims to acquire new acreages in areas where the company already has promising exploration leads. The lease sales are important events for the company to consolidate its assets portfolio.

Production growth from international operations is a key component of the company’s overall annual upstream growth plans over the next few years. The company has a growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwaters of the U.S. GoM.

In the past, Statoil had purchased EnCana’s (ECA) GoM assets, followed by the acquisition of those belonging to Anadarko (APC). These coupled with the bid-winning has made this region a core area for the company with significant long-term growth potential.

However, Statoil’s reserve replacements have been relatively weak. Despite a number of major acquisitions, the company has not been able to meaningfully improve its reserve-replacement performance. We are currently Neutral on Statoil ADRs.

Zacks Investment Research

(STO) Statoil ASA Wades Further into US Gulf of Mexico

Loss per share, excluding one-time items, came in at 20 cents, 8 cents wider than the Zacks Consensus Estimate. In the year-ago period, the Houston-based company earned $2.20 per share on an adjusted basis.

Revenue of $74.3 million was down 8.2% from the fourth quarter 2008 level. However, oil and gas sales rose 52.8% year-over-year and the decline in total revenues was due to the absence of revenue from other sources in this year’s quarter.

Volume Analysis

Total production during the quarter was up approximately 42.9% from the year-ago level to 1,250 thousand barrels of oil equivalent (MBOE). Natural gas volumes increased 8.1% to 3,006 million cubic feet (MMcf), while oil & liquids production during the quarter rose 82.9% to 748 thousand barrels (MBbls).

Realized Prices

During the quarter, the company’s realized commodity prices increased 3.2% over the fourth quarter of 2008 to $53.46 per barrel of oil equivalent (BOE). Average price for natural gas declined 24.0% to $4.70 per thousand cubic feet (MCF), while average oil price for the quarter rose 2.4% to $70.47 per barrel.

Expenses

Operating expenses during the quarter came in at $101.7 million, up 32.9% year-over-year. Lease operating expense rose 35.4% from the fourth quarter of 2008 to $24.5 million, while general and administrative expenses increased 32.6% from the prior year level to $19.1 million.

Balance Sheet

As of December 31, 2009, ATP had cash on hand of $109.0 million and long-term debt of approximately $1.2 billion, representing a debt-to-capitalization ratio of 67.1%.

Deepwater Update

ATP also provided an update on two of its deepwater developments, the Telemark Hub and the Canyon Express Hub. The company informed that Telemark Hub, its major deepwater Gulf of Mexico development, is on track to start production later this month.

ATP’s other deepwater development, Canyon Express Hub, was commissioned for initial production on Mar 11, 2010 at the rate of 30 million cubic feet per day (MMcf/d) gross.

Year-End Proved Reserves

As of year-end 2009, ATP had 135.2 million barrels of oil equivalent (MMBOE) in proved reserves, of which roughly 58% was oil and condensate. The company’s 2009 year-end proved reserves tally was 14% above the year-earlier level, while achieving a reserve replacement ratio of 376%.

Guidance

The company said that it expects first quarter 2010 production to be approximately 1,500 MBOE. For 2010, ATP guided towards a capital investment program of $570 million.

Company Overview

ATP Oil & Gas is engaged in the acquisition, development and production of natural gas and oil properties in the Gulf of Mexico and the North Sea. The company concentrates its efforts on natural gas and oil properties with proved undeveloped reserves that are economically attractive but are not strategic to larger or exploration-oriented independent oil and gas companies.

Zacks Investment Research

(ATPG) ATP Oil & Gas Posts Wider Loss

In its March 12 presentation of 2010–2013 strategic plans, Eni had lowered its production growth target to 2.5% from 3.5%. We believe that this growth target carries a higher degree of delivery risk as the bulk of it comes from risky projects in Iraq, Venezuela and Kazakhstan. In addition, management also hinted about a lower earnings visibility for its gas trading business.

Eni has guided to a dividend growth in line with the OECD inflation from 2011 at a $65 per barrel rate, which implies an absence of growth in 2010.

We believe that one of the key reasons for Eni’s underperformance in 2009 in the European sector was the unexpected cut in the company’s dividend and the lack of a clear dividend policy. We believe that this uncertain dividend policy will further aggravate investors’ confusion.

With an uncompelling valuation, we believe Eni’s investment case has deteriorated substantially, and we fail to spot any catalysts that would drive a near-term rebound.

Zacks Investment Research

(E) Eni SpA Analysts Downgrade The Stock

After the Petro-Canada acquisition, we also remain worried about Suncor’s high debt level and significant anticipated capital expenditure requirements. Further, there are operational and execution risks associated with the integration of Petro-Canada’s predominately conventional assets, of a type and in geographies where Suncor lacks experience.

These factors, coupled with the current uncertainty in commodity prices, make Suncor a bearish case. This is reflected in our downgrade of the company’s shares. Our $29 price objective reflects a 2010 P/E multiple of 15.2x.

Zacks Investment Research

(SU) Suncor Energy Incorporated – Bear of the Day

According to the company, these initiatives are expected to improve the organization’s efficiency and sharply boost cash flow from operations.

The strategic actions became necessary as Shell’s downstream operations have struggled in recent times due to weak demand for fuel, leading to mounting losses in this segment. The company, which has a high exposure to refining, has lagged rivals such as BP Plc (BP) in cutting costs to cope with the new climate.

Shell will now focus on growth in its gas business. The company also pegged its capital expenditure budget at a minimum of $25 billion for the next several years.

Highlights of the meeting are summarized below:

Job Cuts & Asset Sale

The integrated major said that it plans to cut an additional 1,000 jobs by the end of 2011 (on top of 1,000 job cuts planned for 2010). Shell aims to save at least $1 billion in 2010. Last year, the firm slashed 5,000 jobs (or 5% of its worldwide staff of roughly 100,000). Further, the company plans to sell $1 – $3 billion per year in non-core assets.

Downstream Operations to Be Trimmed

To help fund its ambitious growth plans, Shell has decided to do away with some of its less profitable businesses. It will sell 35% of its petrol station operations, while reducing refining capacity by 15%.

Upstream Focus

The Anglo-Dutch supermajor also said that it expects its annual production to increase 11% by 2012 (up from the previous estimate of 6 – 9%), driven by a new wave of project startups. Shell’s targeted output rise, to 3.5 oil-equivalent barrels per day (MMBOE/d), would reverse the declining trend in the last several years. In 2009, the group’s volumes averaged 3.15 MMBOE/d. The Hague-based oil producer is currently assessing more than 35 new projects that should guarantee upstream growth to at least 2020.

In line with other supermajors like ExxonMobil Corp. (XOM) and Chevron Corp. (CVX), Shell sees natural gas playing an important part in its future. The company’s targeted volume growth will be achieved primarily by new natural gas projects coming onstream in Qatar, Australia and North America. Shell said that it expects natural gas to represent 52% of total volumes by 2012.

Cash Flow Boost

As new projects come onstream, Shell expects cash flows to increase significantly by 2012, by around 50% with oil at $60 per barrel, and by over 80% at $80 per barrel.

Capital Expenditure & Funding

To meet these targets, the company expects to spend at least $25 billion annually in capital expenditure in the years to come, quite high by industry standards.

In order to finance this huge capital spending and keep its balance sheet strong while waiting for the production and cash-flow increases to materialize, Shell has decided to maintain its 2010 dividend at the 2009 level. Thereafter, the oil giant would look for a payout hike.

Our Take

In view of the increasingly bearish outlook for the marketing and refining operations, we believe that Shell has taken the right decision by looking to streamline its loss-making downstream portfolio, a plan that has been followed by several other oil majors, including Chevron and ConocoPhillips (COP).

The company plans to boost returns and remain competitive in this difficult environment by embarking on aggressive cost reduction initiatives, exiting unprofitable markets, and streamlining the organization. As of now, Shell has decided to boost focus on the more lucrative and well performing ‘upstream’ exploration and production end of the business mainly natural gas.

Zacks Investment Research

(RDSA) Royal Dutch Shell PLC Gears Up to Raise Volumes

The company also said that the main purpose of this investment is to increase oil production from this field. Management is targeting an oil recovery rate of 50% by 2020 from the current 39%.

Troll is a natural gas and oil field in the Norwegian sector of the North Sea. Though this is primarily a natural gas field, it also possesses significant quantities of oil.

Statoil is the operator of the block and holds a 30.6% interest. Other partners are Norway’s state-owned Petoro (with a 56% interest), Royal Dutch Shell ((RDSA), 8.1%), France’s Total ((TOT), 3.7%) and ConocoPhillips ((COP), 1.6%).

Though Statoil is the second largest supplier of natural gas in Europe, management has taken a conservative approach for gas this year, given the uncertainty regarding European industrial gas demand.

Despite maintaining a positive long-term view on the future competitiveness of gas, Statoil is wary of an uncertain outlook in the short term. Keeping this in mind, the company has focused on the strategy of delivering value through more oil. This investment for oil is a case in point. Price of Statoil ADRs rose nearly 2% to $23.20 at Tuesday’s closing.

Zacks Investment Research

(STO) Statoil ASA Invests for More Oil

The decline in the headline number only partially reversed the big 1.4% increase in January, which came on top of a 0.4% rise in December. Core prices have been much more stable (as is normally the case) with this month’s 0.1% rise coming on top of a 0.3% increase in January and an unchanged reading in December.  Unfortunately, energy prices, especially crude oil, have rallied so far in March, so the headline number for March is likely to be back in the plus column.

If we look farther up the production chain, price pressures also cooled significantly in February. At the intermediate stage of processing (think Bread, Flour, Wheat to keep Finished, Intermediate and Crude goods separate in your mind) prices rose only 0.1% if February, a sharp deceleration from the 1.7% rise in January and the 0.6% increase in December.

A 2nd Look at Intermediates

On the other hand, at the core level for intermediate goods, prices did accelerate to a 0.9% increases after back-to-back rises of 0.5% in the previous two months. Intermediate food prices fell 0.4% on top of a 0.3% decline in January, but those back-to-back declines did not erase the 1.8% increase in December.

Intermediate energy prices fell 2.7% after increases of 6.9% in January and 0.5% in December. Prices at the crude level, which are essentially commodities, can be very volatile.

Volatility in Crude Prices

On a headline basis, crude prices fell by 3.5% after a 9.6% spike in January and a 0.8% rise in December. Even stripping out food and energy, crude level prices can really jump around, with a 0.6% decline in February not even coming close to erasing the 6.6% rise in January and the 4.5% increase in December. Crude energy prices fell by 6.4% after a 16.4% increase in January and a 2.8% decline in December.

Year over year, prices for all finished goods have risen 4.4%, which is a bit on the scary-sounding side. However, that mostly reflects the rebound in the price of energy from extremely depressed levels a year ago. Core prices, which are what the Federal Reserve tends to keep a closer eye on, are up just 1.0%.

While rising energy prices do have the potential to feed into the price of everything else, so far it does not seem to be doing so. Year over year, intermediate stage goods are actually up just 3.0%, which is below the increase at the finished level.

Not only that, but the rate of change is slowing  In January at the intermediate level prices were up 4.6% year over year and in December they were up 5.6%. The same cannot be said at the crude level here the year-over-year price changes are high and accelerating.

Crude goods prices in February were 28.6% higher than a year ago, while in January they were up 25.2% year over year and in December they were up “just” 12.2% year over year.

Results Match Capacity Utilization Report

It is worth noting that this fits with what we saw in the Capacity Utilization report that came out on Monday (see here). In February, crude good production facilities were operating at 86.2% of capacity, which is roughly in line with the long term historic average of 86.5% of capacity.

Plants that produce intermediate goods were running at just 69.6% of capacity, far below the long-term average rates of 81.6%. Factories that produce finished goods were more or less in the same boat as the intermediate facilities, operating at just 70.8% of capacity, which is well below the long-term average rate of 77.5%.

With operating rates so low, the producers of those goods do not have the leverage to be able to pass through the higher crude goods prices. This would seem to indicate that producers of crude goods, like copper miner Freeport McMoRan (FCX) and oil and gas E&P firms, should be better positioned than firms closer to making the final consumer products.

When looking for E&P companies, look for those that are well positioned to increase their production over the next few years. Some of those that look interesting to me include Petrobras (PBR) with its giant offshore fields, EnCana (ECA), which is ramping up natural gas production from the shale plays, and for those of you looking for a smaller cap name that will really be increasing production this year, ATP Oil and Gas (ATPG) is where a new project in the Gulf of Mexico is coming on line and should more than double production this year.

The low year-over-year increase in the core prices confirms that the Fed is doing the right thing in keeping the Fed funds rate at “exceptionally low levels for an extended period of time.” Unemployment and idle capacity are the bigger threat to the economy than inflation right now. We will see if this is true at the consumer level (which is much more important) tomorrow morning.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

Zacks Investment Research

(FCX) Producer Price Index Falls More Than Expected

For the full year 2009, earnings were $588.2 million or $0.80 per share. Goldcorp was able to keep costs down in an inflationary environment. In the fourth quarter, cash costs were just US$289 an ounce.

On a GAAP basis, fourth-quarter profit fell to $66.7 million or 9 cents a share, from $958.1 million, or $1.31 a share. The large drop was due to revaluation of future income tax liabilities, brought about by the sharp year-on-year drop in the U.S. dollar.

Quarterly revenues jumped 28% to $778.3 million, as prices of the gold, copper and silver rose sharply after the price crash of late 2008. The company sold 573,100 ounces of gold in the quarter.

For the full year, revenues increased by 13% over 2008 to $2.7 billion on gold sales of 2.3 million ounces. Earnings from operations were up 21% year over year to $241 million.

Golcorp produced 601,300 ounces of gold at a total cash cost of $289 per ounce for the quarter ended December 31, 2009. For the year, the company produced 2.42 million ounces of gold at a total cash cost of $295 per ounce.

Operating cash flows, before working capital changes, totaled $1.2 billion, or $1.61 per share, a 29% increase over 2008. Long-term debt as of Sep 30, 2009 was $719 million, considerably higher than $5.3 million as of Dec. 31, 2008. Goldcorp embarked upon external sources to finance its capital expenditure. However, with cash and cash equivalents of $874.6 million as of December 31, 2009, higher debt should not be a major concern for Goldcorp.

Project Update

The Vancouver-based gold company also managed to keep its development projects on-time and on-budget. Goldcorp, which recently acquired exploration firm Canplats Resources, as well as 70% of the El Morro copper-gold deposit in Chile, expects to produce 2.6 million ounces of gold this year. Goldcorp completed two projects in 2009: the Camino Rojo project near Peñasquito and the El Morro project.

Goldcorp reported that the new Peñasquito mine in Mexico is expected to start commercial production in the third quarter of 2010. Production at the Éléonore project in Quebec is anticipated at around 330,000 ounces of gold a year over a 16-year mine life, with cash costs below $400 an ounce. The initial capital cost of the project is expected to be about $800 million.

Goldcorp is North America’s lowest-cost gold producer. The company owns and operates the Red Lake, Porcupine and Musselwhite gold mines in Canada. Goldcorp has one of the best production profiles in the industry and competes with major gold producers like Barrick Gold Corporation (ABX), Kinross Gold Corporation (KGC) and Yamana Gold Inc. (AUY).

Goldcorp is developing new mines to be beneficial in times of higher gold prices. However, the company is exposed to foreign exchange risk as it pays most costs in local currencies and sells metal in dollars, hurting profits when currencies such as the Mexican peso and Canadian dollar rise, in spite of the company selling more gold at higher prices. We maintain our Neutral recommendation on the stock.

Zacks Investment Research

(GG) Goldcorp Adjusts Fourth Quarter Profits Up

While the company said that final investment decisions will be taken in 2011, the estimated amount for both the fields is expected to be $12.2 billion, including $4.28 billion ? $5.14 billion on Ekofisk South field and $6 billion ? $7.1 billion on Eldfisk II. Both fields are part of the Greater Ekofisk Area that ConocoPhillips operates in and where it has a 35.1% interest.

With leading positions in both natural gas and heavy crude oil in North America, a legacy position in the North Sea and growing exposure to lucrative international regions, Conoco expects to replace reserves and sustain production growth over the long term.

Conoco has decided to sell $10 billion of assets over the next two years. Depending on how the sale progresses, the company may see a downtrend in its reserves at the end of 2010 or 2011. This new development can partially offset this situation with an expected addition of recoverable reserves in the range of 377?503 million barrels of oil equivalent.

Despite being the third-largest US oil integrated by market value after ExxonMobil Corp. (XOM) and Chevron Corp. (CVX), Conoco is the most leveraged (debt-to-capitalization ratio of 31%) among its peers and has almost no exposure to the prolific non-conventional plays. Our Neutral recommendation for the stock reflects this view.

Zacks Investment Research

(COP) ConocoPhillips to Develop Off Norway

Exxon has made a sales agreement with Osaka Gas Company and Tokyo Electrical Power Company of Japan, Taiwan’s CPC and China’s Sinopec (SNP). Funding for this project will come from the co-venturers and through market-rate loans arranged with export credit agencies and commercial sources.

Investment for the initial phase of the project is estimated at $15 billion and the first LNG deliveries are scheduled to start in 2014. Over its 30-year life, PNG is expected to produce over 9 trillion cubic feet of
gas.

The PNG project is an integrated development that includes gas production and processing facilities, onshore and offshore pipelines and LNG plant facilities with a capacity of 6.6 million tons per annum.

ExxonMobil leads the project through its local affiliate, Esso Highlands, with a 33.2% interest. Other partners are Port Moresby-based independent Oil Search (29% interest), a PNG government vehicle Independent Public Business Corporation (16.6%), Australian gas player Santos (13.5%), Japan’s Nippon Oil Exploration (4.7%), Mineral Resources Development Company (PNG landowners, 2.8%) and Petromin PNG Holdings Limited (0.2%).

Exxon has a diversified list of major projects that it plans to begin over the next few years. Apart from the PNG project, the company will begin the Golden Pass LNG Terminal in the second half of 2010. It will also initiate its second Sakhalin-1 development project in the Odoptu field offshore Sakhalin Island in Russia, Kearl Phase 1 in the Canadian oil sands and several deepwater projects.

ExxonMobil is the best-run integrated oil company in the world thanks to its track record of superior return on capital employed (ROCE) and free cash flow (FCF) relative to its peers. Shares of Exxon fell 0.6% to close at $66.80 Friday.

Zacks Investment Research

(XOM) ExxonMobil Settles Deals for Liquefied Natural Gas

CNOOC has proposed a 50/50 joint venture with Bridas Energy Holdings Ltd in Bridas Corporation for a consideration of approximately $3.1 billion in cash, which will be funded by the internal resources of the company.

This transaction coincides with CNOOC’s strategy of expanding its reach into Latin America and other countries. Apart from an interest in Argentine oil and gas blocks, the joint venture will also pursue upstream activity in Bolivia and Chile. The transaction is expected to be completed in the first half of 2010, subject to regulatory approvals.

Upon completion, CNOOC anticipates an increase of 318 MMBOE (million barrels of oil equivalent) and 46 MBOE (thousand barrels of oil equivalent) in its proved reserves and average daily production, respectively.

In addition to organic upstream growth, CNOOC has been pursuing inorganic growth options, which could further accelerate growth. After delivering a 13% production growth in 2008, the company is now expecting 18% and 21%?28% production growth in 2009 and 2010, respectively.

While we believe that the company has the ability to deliver a double digit production growth in the long run, management believes that this investment will bring value to its shareholders both in short term and the long run. We are currently Neutral on CNOOC, whose ADSs rose 0.21% to $165.54 at Monday’s closing.

Zacks Investment Research

(CEO) CNOOC Plans Joint Venture in Argentina

Our thoughts were directed around the company as a long-term investment and were based on various articles we had read on the web, while their comments were based on their knowledge of the gas industry.

Since they are gas traders, having spent several years on the floor of the NYMEX, we of course yielded to their expertise.

So overnight last night, we received an e-mail from them that was a follow-up to our prior conversation, and knowing less about gas trading than a hog knows about the hereafter, we simply don’t have the faintest idea what most of what was said in the e-mail actually means.

Okay, so we understand the last sentence; but the rest of it? Not a hint.

Here’s what we received.

“It almost reads as fiction, but we dug around yesterday, trying to figure out how CHK hedged 60%+ of their 2010 natty at $8+. The results are nothing short of astounding.

It seems Aubrey and company has sold naked crude calls on the curve, converted the BTU’s and labeled them natty hedges, thus gaining roughly $3.50 on the hedge values. CHK, being 93% gas and only 7% oil, is basically speculating crude futures and calling it a gas hedge.

With crude now pushing higher #’s, CHK is clinging to the rim of a toilet that just flushed, one more push up in crude and they are likely toast.”

Basis
Financial information related to the Chesapeake Energy Corporation, that is contained in this report, is based on the company’s most recent Form 10-K filing for fiscal year ending December 31, 2009 as filed with the Securities and Exchange Commission on March 01, 2010.

What They Do
The company claims to be the second-largest producer of natural gas in the nation and the most active driller of new wells in the United States. According to management, the company’s goal from the outset has been to create value for investors by building one of the largest onshore natural gas resource bases in the United States.

Over the past 12 years, the company’s strategy to accomplish management’s stated goal has been to focus on developing unconventional plays onshore in the United States, where management believes the company can can generate the most attractive risk-adjusted returns.

The company also claims they have an industry-leading natural gas resource base which is integrated with an advanced drilling program coupled to an active property consolidation program, all of which is focused on small to medium-sized corporate and property acquisitions.

During the past three years the company has shifted its strategy from drilling inventory capture to drilling inventory conversion, and in doing so has de-emphasized acquisitions of proved properties while further emphasizing its drilling program and converting its backlog of drilling opportunities into proved developed producing reserves.

Short-Term Investment
The stock price is currently in a downtrend. Normally, since the stock has just started to emerge from an oversold condition, we start to pay close attention to company and industry news, looking for a favorable entry point, especially since the last trading day quote was below the 13 and 50 day moving averages.

But considering the spread of 3% between a recent close of $25.64 and first resistance of $26.51, and then considering the 4% spread between a recent close and first support of $24.60, we think that the most prudent thing to do is leave a short-term trade to those that have grown a bigger pair than we have.

Long-Term (5 Year Hold) Investment
We looked at the company financials, and realized that while we are certainly not the most dynamic group of folks that ever bathed with Irish Spring, we we are simply mystified.

What glazed our eyes over was the $11+ billion listed as special income charges, and, which was a new one on us, that selling and general administrative expenses exceeded the direct cost of sales by more than two to one. And while things like this may be quite normal, we have never seen such a phenomena before.

In addition, the company has 39 subsidiaries, three of which are partnerships. While these sorts of business structures are not uncommon in the oil and gas industry, we simply aren’t going to waste our time investigating all of these subsidiaries in order to determine if the company is investment worthy.

Final Thoughts
Our reasonable value estimate for the company is $25-$26, and should the price of the stock fall below $7, we may entertain the idea of risking a very very few dollars, admittedly more as a considered gamble than intelligent investment.

While we still have no idea what a 2010 natty is, it makes us think that perhaps investors should adjust the angle of their Charmin a bit before they attempt to smell their fingers.

Wax

View original at: Wax Ink

(CHK) Chesapeake Energy Corporation – Natty or Nasty?

The company also announced that Devon and BP will form a heavy oil joint venture (JV) to develop BP’s Kirby oil sands leases in Alberta, Canada.

Devon’s Repositioning Plans

As previously announced, Devon is repositioning itself to concentrate on its North American onshore natural gas and oil portfolio. These sales, combined with the company’s previously announced sale of three development projects in the Gulf of Mexico to Maersk Oil for $1.3 billion, put Devon well on the way to completing its strategic repositioning.

Given any reasonable sales price for Devon’s remaining assets, the company expects the total proceeds for the entire divestiture program to exceed its previously announced range of $4.5 to $7.5 billion.

Devon expects to use the divestiture proceeds for the acceleration of development of its North American onshore properties and debt reduction.  Upon completion of the repositioning, Devon will emerge with even more liquidity and with one of the strongest balance sheets in the peer group.

Devon expects closings on the various assets to occur at different times before year-end, subject to customary closing conditions and regulatory approvals.

Benefit to BP

Under the transaction, BP will acquire interests in ten exploration blocks in Brazil, and a portfolio of rights in the U.S. Gulf of Mexico and in the Caspian Sea. The acquisition is expected to strengthen BP’s dominant position in the Gulf of Mexico and give it access to a promising region offshore Brazil.

Devon-BP Joint Venture

In order to facilitate the oil sands joint venture, Devon will acquire 50% of BP’s interest in the Kirby oil sands leases. Devon will pay BP $500 million at closing and commit to fund an additional $150 million of capital costs on BP’s behalf. Devon will be the operator of the Kirby project, which lies in close proximity to Devon’s highly successful Jackfish steam-assisted gravity drainage (SAGD) project. Like Jackfish, Kirby is expected to be a multi-stage SAGD development. Devon and BP also agreed to negotiate a long-term heavy crude sales agreement for Devon’s share of Kirby production.

Impact on Devon’s Proved Reserves and Production

As of December 31, 2009, Devon’s reported estimated proved reserves included 20 million barrels of liquids and 198 Bcf of natural gas associated with the Gulf of Mexico assets being purchased by BP. Roughly 37% of these reserves were classified as proved developed. The excluded international assets BP is purchasing were reported as discontinued operations as of December 31, 2009 and, as such, were from Devon’s reported reserves and 2010 guidance for production from continuing operations.

Zacks Investment Research

(DVN) Devon Sells $1.7Billion in Assets Prior to BP Joint Venture

The fossil-fuel based Trailblazer plant is expected to be among the world’s cleanest power plants. The plant will act as a strategic source of carbon dioxide for enhanced oil recovery (EOR) applications in West Texas. Moreover, Trailblazer will supply the Texas economy with an additional 600 megawatts of clean, secure, reliable electric generating capacity.

In capturing 85% to 90% of the carbon dioxide emissions from the plant, Trailblazer will emit 70% less carbon dioxide than the cleanest natural gas-based power plants.  Moreover, Trailblazer will ship the captured carbon dioxide to the nearby Permian Basin, where it will be used to boost oil production and extend the life of that critically important domestic energy resource.

Arch will supply the center’s fuel needs for its first 20 years, utilizing its Wyoming-based Power River Basin operations.

A recent Electric Reliability Council of Texas (ERCOT) report projects that Texas will need to add more than 55 gigawatts of new and replacement power-generating capacity over the next two decades to meet projected demand growth.

Today’s announcement is consistent with Arch’s ongoing strategy of making small but strategic investments in technology companies focused on making coal use cleaner.  In addition to Trailblazer, Arch’s technology portfolio includes an equity interest in DKRW Advanced Fuels, which is planning to convert coal into clean-burning transportation fuel on Arch reserves in southern Wyoming, and ADA-ES, a leading-edge emissions control company.

St. Louis, Missouri-based Arch Coal is one of the largest coal producers in the U.S. Arch Coal primarily conducts its business through three operating segments: Powder River Basin (PRB), having operations in northeastern Wyoming and southeastern Montana; Western Bituminous, having operations in western Colorado, eastern Utah and southern Wyoming; and Central Appalachian, having operations in eastern Kentucky, Tennessee, Virginia and southern West Virginia. Coals mined from the PRB region have very low sulfur content and low heat value.

Arch Coal has a significant amount of reserves and is a top-three producer in the PRB. In our opinion, PRB coal will be in great demand over the coming years. Going forward, the significant coal-fired power plant build-out will increase annual thermal coal demand by more than 43 million tons; most of which will be fueled by PRB coal.

Zacks Investment Research

(ACI) Arch Coal Buys Stake in Texas Power Plant

Offshore Brazil assets include interests in ten exploration blocks of Brazil, including seven in the prolific Campos basin. For Azerbaijan assets, BP will acquire Devon’s interest in the Azeri-Chirag-Gunashli (ACG) development in the Caspian Sea. In the US GoM, the company will buy a major portfolio of deepwater exploration acreage.

Along with other bidders, BP was the leading contender for these assets, as stated in the The Wall Street Journal report. Other bidders include China National Offshore Oil Corporation (CNOOC) and major Western oil companies like Chevron (CVX).

On the other hand, BP will sell its 50% interest in the Alberta’s Kirby oil sands for $500 million to Devon. Both the parties have agreed to form a 50/50 joint venture for the development of this property. Devon will be the operator and commits to fund an additional $150 million of capital costs on BP’s behalf.

Due to lack of adequate financial strength to develop all these assets, Devon hinted late last year that it may sell off its international and Gulf of Mexico assets to pull approximately $7.5 billion to support its ongoing endeavor of concentrating on its onshore North American property development. Devon has already sold its interest in three deepwater development projects in the Gulf of Mexico for about $1.3 billion.

BP is already the largest producer in the Gulf of Mexico (GoM) and has been successfully accessing substantial new resource opportunities. The exploration success in the Tiber discovery, a giant field in GoM, coupled with appraisal success on Mad Dog South helps to underpin the potential for continued growth in the deepwater GoM.

While BP has had a strong position in the GoM, so far, it had no exposure to offshore Brazil. And management of the company has been keen to enter Brazil to leverage BP’s expertise, as one of the world’s leading deep-water operators.

This deal will help BP to maintain its target of an average production growth of 1% to 2% per year up to 2015. Continued strong operational performance and a solid project pipeline provide strength to the group’s overall upstream operations.

While a slow and gradual economic recovery is anticipated this year, we like the company’s initiatives to focus on improving upstream exposures and reducing downstream operations. We are currently Neutral on BP plc.

Zacks Investment Research

(BP) BP Acquires Devon Energy Assets

ArcelorMittal (MT) is the world’s largest steel company, with crude steel production of 73.2 million tons in 2009, representing about 6% of the world’s steel output. ArcelorMittal USA is the largest steel producer in North America and the largest integrated steel producer in the U.S.

The largest drivers of steel consumption have historically been the automotive and construction markets, which absorb more than 50% of total steel production. Large automakers such as General Motors, Ford Motor Company (F), Toyota Motor Corporation (TM) and Honda Motor Company (HMC) depend upon the steel industry. Other steel consuming industries include appliances, converters, containers, tin, energy, electrical equipment, agricultural, domestic and commercial equipment and industrial machinery.

The steel industry has recorded fast growth rates in both production and consumption over the past few years, benefiting from soaring steel demand in the automobile and construction sectors. Moreover, the cost effective and highly efficient steel-making technologies uplifted U.S. steel demand in Middle Eastern and Asian countries.

The Asia-Pacific region, especially China and India, is witnessing higher production and consumption of steel. This is due to the per capita consumption reaching U.S./European levels, which could — theoretically at least — double steel demand in the longer term. China has set up some of the largest steel capacities in the world, driven by an increasing demand for rapid urbanization and large infrastructure projects. The country accounted for nearly 50% of the total world production in 2009.

China’s share is larger than the combined production of the U.S., the European Union (EU), Russia and Japan, which have historically been the largest producers of steel. In 2001, China’s annual share of world production stood at 17%, while the EU accounted for the largest share at 18%. In the eight years since then, China’s share of world production has almost tripled while the other producers have seen their shares decrease. Ranked behind China are Japan and the U.S.

According to the World Steel Association (Worldsteel), global steel output had increased to 109 million tons in the month of January 2010, up 25.5% from January 2009. Month-on-month, steel output improved a modest 2.1% from about 107 million tons. World crude steel production has continued to show a steady increase since April 2009 on the back of a moderate rise in demand and the resumption of idled facilities by producers.

All major steel producing countries — China, Japan, Germany, the U.S., Brazil, Turkey, Russia and the Ukraine — have shown peak monthly figures so far this year.

Year-over-year crude steel production peaked globally in January 2010. Steel production increased 48.8% in North America to 6.1 million tons. In the EU, Germany’s crude steel production was 3.4 million tons (an increase of 27.7%), Spain produced 1.4 million tons (up 51.1%), France’s production was 1.1 million tons (a hike of 32.3%), while Turkey produced 2.1 million tons (a 2% increase).

Monthly steel output in Asia increased 1.2% to over 60 million tons. Of this, the Middle East edged up 5% to 1.4 million tons due to booming infrastructure spending. China climbed 18.2% to 48.7 million tons. Japan produced 8.7 million tons (up 36.8%), South Korea contributed 4.5 million tons (up 32.4%), Brazil’s output was 2.7 million tons (66.6% higher), Russia produced 5.2 million tons (an increase of 33%), Ukraine’s output was 2.7 million tons (28.4% higher) and the Australian production was 0.6 million tons (a 38.6% increase).

OPPORTUNITIES

We expect the global steel demand to improve in the long term with the recovery of the user industries. Growing infrastructure-related outlays as a result of government stimulus measures, including in the U.S., has helped rekindle the demand for steel. Along with government support, the recovering industrial sector is expected to further infuse steel demand, particularly in the U.S.

China is expected to remain the largest consumer of steel going forward. Worldsteel is forecasting an 8.6% year-over-year decline in steel production, better than the previous forecast of a 14.1% decline, driven by strong growth in Chinese demand. With signs of a recovery across the world since the beginning of the second half of 2009, the association is anticipating global steel demand in 2010 to grow 9.2% to 1,206 million tons, which is similar to the level in 2008.

Domestic sheet steel prices have continued their upward trajectory. Relative domestic prices for most steel products increased in February, with the notable exception of beams. U.S. rebar prices are up 11% from January and have posted increases relative to China and Europe where prices have slid modestly lower, and versus Japan where prices are up 8% after falling 6% the month before. Domestic plate prices rose another 7% in February and are up relative to China and Europe where prices are flat.

With steel demand and prices picking up in the last couple of months, steel producers are restarting facilities. Recently, U.S. Steel Corp. (X) — the eighth largest steel producer in the world, the largest integrated steel producer headquartered in North America and one of the largest integrated flat-rolled producers in Central Europe — has restarted its blast furnace at its Hamilton, Ontario plant after a nine-month shutdown.

In response to increased customer order rates, U.S. Steel operated all of its North American blast furnaces in 2009 except the one at Gary Works and the other at its Lake Erie Works due to labor issues. U.S. Steel has also restarted its Keetac iron ore operations.

The current surge in steel demand helped profits of Nucor Corporation (NUE), the largest recycler of steel scrap in the U.S. Nucor returned to profitability in the fourth quarter of 2009 with net earnings of $58.9 million or 18 cents per share, ahead of the Zacks Consensus Estimate.

Overall steel mill utilization increased to 58% from 48% in last year’s comparable quarter. Steel mill utilization rates decreased from 80% in 2008 to 54% in 2009. Long-term contracts, cost reduction efforts and a dominant acquisition strategy inspire optimism about the company’s performance in the coming quarters.

Similarly, commercial metals company AK Steel (AKS) reported earnings of $39.8 million or 36 cents per share in the fourth quarter in contrast to a net loss of $430.6 million or $3.87 per share in the fourth quarter of 2008, driven by higher shipments.

The third largest steel maker in the U.S., Steel Dynamics Inc. (STLD), reported a net income of $26.7 million or 12 cents per share in the last quarter of 2009, after reporting losses in the first two quarters of the year. Earnings were driven by fixed cost reduction through higher production and shipping volumes at the Flat-rolled segment and better-than-expected performance in the Metals Recycling segment.

WEAKNESSES

The global steel industry is cyclical, highly competitive and has historically been characterized by overcapacity. Production cuts of up to 35% are occurring to keep operating rates in the low-80s and balance the market.

The U.S. steel industry is currently facing post-recession effects. The complications started in the second half of 2008 when the U.S. saw a complete failure of its financial market amid the subprime mortgage crisis. Crude steel production dropped around 6.7% in 2008 from the previous year and consumption witnessed a steep decline of 10.6%.

The downtrend continued in 2009, but a recovery is expected in late 2010. The U.S. domestic production capacity utilization has been falling dramatically since August 2008.

Overcapacity in the global steel industry could increase the level of steel imports and result in a downward pressure on steel prices. Overcapacity in China has the potential to result in a further increase in imports of low-priced, unfairly traded steel and steel products to the U.S.

In recent years, capacity growth in China has significantly exceeded the growth in Chinese market demand. A continuation of this unbalanced growth trend or a significant decrease in China’s rate of economic expansion could result in China increasing steel exports.

Key steel consuming industries such as autos, shipbuilding and construction had been experiencing weak demand in the last quarters, forcing global steel makers to slacken production levels. U.S. Steel slashed production by almost 62% during the second quarter of 2009, while Korean steel maker POSCO (PKX) cut production by about 15% in December last year. This was the first time in its history that POSCO was forced to take such a measure, proof of the very bad operating environment.

As a whole, the steel industry posted weak results in the fourth quarter of 2009. U.S. Steel recorded its fourth consecutive loss of $267 million or $1.86 per share. By contrast, the company had reported a net income of $2.90 million or $2.50 per share in the corresponding quarter of the previous year.

Allegheny Technologies Incorporated (ATI), one of the largest and most diversified producers of specialty materials in the world, recorded a net income of $37.8 million or 36 cents per share, down significantly from year-over-year net income of $110.9 million or $1.15 per share.

ArcelorMittal expects that the developed world’s demand for steel in 2010 will still fall 23% short of the 2008 level. The company’s tempered outlook is influenced by lingering unemployment and growing government budget deficits.

The still-weak demand from developed nations is the outlook for cost inflation, as the prices for many key inputs (iron ore, metallurgical coal, scrap and natural gas) are either already rising or contracts are expected to be reset at higher levels. In particular, seaborne iron ore benchmark prices seem ripe for an increase.

While demand for steel in China has remained quite strong and that in developed nations has begun to improve, a full global recovery is uncertain and will likely be drawn out.

Zacks Investment Research

(MT) Steel Industry Stock Review – March 2010 – Industry Outlook

Denbury issued approximately 134.4 million of its shares and paid about $829.4 million in cash to Encore shareholders. Denbury and Encore stockholders own 66.1% and 33.9%, respectively, of the combined company.

The combined company will operate under Denbury’s name and trade under the DNR ticker symbol. Trading in Encore’s common stock is now terminated. In November last year, Denbury entered into an agreement with Encore to acquire the company for $4.5 billion.

This merger will position the combined company as one of the largest crude oil-focused independent North American E&P companies. In addition, it will also create one of the largest CO2-enhanced oil recovery platforms across the Gulf Coast and Rocky Mountain regions.

Denbury’s niche business model of extracting crude oil from mature fields using tertiary recovery methods will turned out to be very valuable in this commodity-price outlook. In addition to this merger, the company’s plan for significant investment to develop the Conroe oil field as a tertiary field will benefit the company in the long run. Denbury shares were up 0.92% to $15.43 at Tuesday’s closing.

Zacks Investment Research

(DNR) Denbury Resources Completes Encore Merger

Western’s encouraging results are in contrast to that of larger rivals Tesoro Corp. (TSO) and Sunoco Inc. (SUN), both of which posted bigger-than-expected losses.

In the year-ago period, the Texas-based company earned 49 cents per share. The main factors causing the year-over-year negative comparison reflects lower margins and throughput on the back of weak fuel demand and high inventories caused by the prolonged economic slowdown. However, revenue of $2.0 billion was up 18.3% from the fourth quarter 2008 level.

Negative Surprise Trend

With respect to earnings surprises, the stock has fluctuated substantially over the last four quarters, with two positive and two negative surprises. However, the average remained negative at 14.5%. This implies that Western has missed the Zacks Consensus Estimate by 14.5% over the last four quarters.

Refining Segment Results

Western’s refining segment experienced an operating loss of $84.4 million, much worse than the $9.5 million incurred in the year-earlier quarter. Segment results were adversely impacted by a continued weak economy, reduced demand for transportation fuels, and narrowing of the sweet/sour crude spread, all of which resulted in lower refining margins.

Throughput

Total refining throughput averaged 199,739 barrels per day (Bbl/d), compared with 206,052 Bbl/d in the year-ago quarter. Overall throughput volumes in Western’s Yorktown refinery fell 22.6% year-over-year to 52,489 Bbl/d, while for the Four Corners refineries, it was down approximately 9.4% to 24,713 Bbl/d. However, throughput in the El Paso refinery increased 10.4% year-over-year to 122,537 Bbl/d.

Refining Margins

Gross refining margin decreased 35.2% year-over-year to $5.35 per barrel. In terms of different regions, refining margin was down approximately 30.0% in El Paso to $5.82 per barrel, 45.7% in Yorktown to 94 cents per barrel, and roughly 52.2% in Four Corners to $12.09 per barrel.

Operating Expenses

Direct operating expenses during the quarter averaged $4.74 per barrel, down 14.0% year-over-year. Costs in El Paso, Yorktown and Four Corners were $3.85 per barrel (down 15.6% year-over-year), $4.03 per barrel (down 21.1%), and $9.55 per barrel (up approximately 5.6%), respectively.

Capital Expenditure & Balance Sheet

Western’s total capital spending during the quarter was $22.1 million, bringing the full year total to $115.9 million. As of December 31, 2009, Western had cash on hand of $74.9 million and long-term debt of approximately $1.1 billion, representing a debt-to-capitalization ratio of 61.9%.

Company Initiatives

Given the weak refining margin environment, Western has taken certain strategic actions to improve the company’s performance and competitiveness in a cost-effective manner. As part of this effort, Western consolidated the operations of its Four Corners refineries (Bloomfield and Gallup) into the Gallup, New Mexico refinery. The company hopes to save $25 annually (beginning in the first quarter of 2010) through this streamlining.

Western has identified and implemented another $25 million in cost savings initiatives that include the reduction of contractor services at the company’s refineries, changes in its “Wholesale” operations in response to market conditions, closure of the underperforming retail outlets, and restricting its executive compensation and other employee related costs.

Guidance

For the first quarter of 2010, total refinery throughput is anticipated to be approximately 190,000 – 200,000 Bbl/d. Operating costs are likely to be approximately $4.40 per barrel at El Paso, $8.60 per barrel at the Gallup refinery and $5.55 per barrel at Yorktown. The company further informed that it expects capital spending for 2010 to be approximately $100 million, 80% of which will be for regulatory projects.

Outlook

Given that the overall environment for refining margins is likely to remain poor, we are bearish on oil refiners like Western. The sharply lower refinery utilization (at just 81.9% of capacity) provides enough evidence that refineries are cutting back on production because the economy is still struggling on the demand side.

The recent rally in crude prices has added to refiners’ miseries by increasing the cost of oil they buy to make gas, jet fuel and other refined products. Being a major independent refiner, Western remains particularly exposed to this unfavorable macro backdrop.

Estimates Falling

As a result, estimates for the current quarter (first quarter of 2010) have been trending down. We note that 3 of the 6 analysts covering Western have reduced their earnings estimates for the quarter over the past 7 days, while there have been no positive revisions. Overall, estimates for the first quarter have dipped by 11 cents during this period, with the current Zacks Consensus Estimate standing at a loss of 31 cents (with a downside potential of 5 cents or 16.1%).

The company is expected to return to profitability as the year progresses. For the second quarter of 2010, the Zacks Consensus Estimate is for earnings of 9 cents (with a downside potential of 11 cents or 122.2%). But even in this case, the overall trend in estimate revisions is unfavorable. Over the past 7 days, estimates have been down by a penny with 2 of the 5 analysts covering the stock cutting back on their estimates. There were no positive revisions during this period.

Considering the negative earnings revisions trend and given that the overall environment for refining margins is likely to remain poor, our short-term recommendation on the stock is Sell (Zacks Rank #4), meaning that Western is expected to underperform relative to the overall market during the next 1?3 months. Therefore, the stock should most likely be sold or avoided over this time period.

Company Overview

Western Refining is an independent refiner and marketer of refined petroleum products in the Southwestern and Mid-Atlantic regions of the U.S. The company operates in three segments: Refining, Retail and Wholesale.

Zacks Investment Research

(WNR) Western Refining Loss Narrows but Analysts Maintain Sell Rating

The drillship, Dhirubhai Deepwater KG2, is jointly owned by Transocean and Pacific Drilling Limited. It has advanced drilling capabilities in the offshore drilling space. The drillship, which can operate in water depths up to 12,000 feet and drill wells up to 35,000 feet deep, has a variable deckload of approximately 20,000 metric tons.

Transocean had placed five newbuilds into service last year, while four newbuild ultra-deepwater floaters are in various stages of construction. These are expected to commence operations in 2010 and 2011.

The commencement of the Indian drillship operations and the organically growing asset base support our view that the long-term fundamentals of Transocean remain strong.

We like Transocean for its free cash flow generation profile and plan to return cash to shareholders through the combination of a recently announced dividend and share buyback authorization. Management’s declaration of $3.11 per share dividend or 3.7% yield on the fourth quarter call should be viewed as the company’s significant confidence in the sustainability of cash flow. Shares of Transocean were up 0.83% to $84.99 at yesterday’s closing.

Zacks Investment Research

(RIG) Transocean Limited Begins Five-Year Deal in India

The company confirmed its 2010 capital expenditure budget of $21.6 billion, 2.7% lower than a year ago. In an effort to improve efficiency and simplify the organization, Chevron is aiming to cut refinery capital expenditures by 23% this year.

Highlights of the meeting are summarized below:

Job Cuts

The integrated major said that it plans to cut 2,000 jobs (12% of its downstream staff and 3% of its worldwide staff) this year as part of an effort to realize savings in its refining operations. In recent times, Chevron’s downstream results have been sharply lower, adversely affected by depressed refining margins. The company expects the bearish downstream environment (sluggish demand and surplus capacity) to persist well beyond 2010.

Chevron will incur around $150 – $200 million in after-tax severance charges during the first quarter of 2010, with more to follow, as staff reductions continue through 2011. In 2009, the firm slashed 1,900 jobs worldwide, in the process cutting operating expenses by 15%, or $3.9 billion.

Asset Sale

Chevron further said that it will put some of its downstream operations up for sale, including the 210,000 barrels per day Pembroke refinery in Wales, U.K., and fuels marketing, aviation and lubricants businesses in the Caribbean and some markets in Central America.

The company will also review operations in Hawaii and Africa (outside of South Africa). However, Chevron did not expect to close any refineries, unlike French oil major Total SA (TOT) that announced the shut down of refining operations at its plant in Dunkirk, France, in response to falling demand.

Ultimately, Chevron plans to trim its refining business’ presence to 40 markets, versus 93 last year, and own 1,900 filling stations, down from 3,200 in 2009.

Upstream Focus

Underscoring the dim prospects of the downstream business, Chevron has decided to concentrate on natural gas and Asian assets. The second-largest U.S. oil company by market value after ExxonMobil Corp. (XOM) also said that it expects its annual production to increase 1% through 2014 and by 4 – 5% in the three years after that, driven by two big Australian gas projects (Gorgon and Wheatstone).

Over the next three years, Chevron is looking to approve or start 25 new upstream projects with an investment of at least $1 billion.

Like its rivals, Chevron sees natural gas playing an important part in its future. Already, the company’s liquid reserves have fallen to 62% of its total in 2009, down from 66% a year before. Chevron said that it expects natural gas to represent 41% of total volumes by 2017, up from the current share of 31%.

Our Take

In view of the increasingly bearish outlook for the marketing and refining operations, we believe that Chevron has taken the right decision by looking to streamline its loss-making downstream portfolio, a plan that has been followed by several other oil majors, including Royal Dutch Shell PLC (RDSA) and ConocoPhillips (COP).

The company plans to boost returns and remain competitive in this difficult environment by embarking on aggressive cost reduction initiatives, exiting unprofitable markets, and streamlining the organization. As of now, Chevron has decided to boost focus on the more lucrative and well performing ‘upstream’ exploration and production end of the business (mainly natural gas and Asia), both at home and abroad.

Company Overview

San Ramon, California-based Chevron is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.

Zacks Investment Research

(CVX) Chevron Changes Business Strategy to Trim Downstream Business

FMC Technologies said that the contract includes the manufacture of two subsea trees, one manifold, one template, subsea control modules and associated topside controls and connection equipment. The company expects delivery to begin in the second quarter of 2011. The order is part of FMC Technologies’ strong and longstanding relationship with Statoil and Eni, and will be supported by its facilities at Dunfermline, Scotland and Kongsberg, Norway.

The Marulk field is situated in the Norwegian Sea, approximately 30 kilometers southwest of the Norne floating, production, storage and offloading (FPSO) vessel, at a water depth of 365 meters. The initial development will consist of two wells tied back to the Norne production facility. FMC Technologies has supported a number of projects in the region (Norwegian Continental Shelf), including the Norne and Alve fields.

FMC Technologies recently posted better-than-expected fourth-quarter results, despite pricing pressure and reduced order flow. A healthy backlog of $2.5 billion, along with growing international operations and the still favorable outlook for deepwater offshore markets, should help the company weather the current downturn better than most of its peers.

Incorporated in 2000, Houston, Texas-based FMC Technologies is a leading manufacturer and supplier of technology solutions for the energy industry. The company, which operates 19 manufacturing facilities in 14 countries, is engaged in designing, producing and servicing technologically sophisticated systems and products, such as subsea production and processing systems, surface wellhead production systems, high pressure fluid control equipment, measurement solutions and marine loading systems for the oil and gas industry.

Zacks Investment Research

(FTI) FMC Technologies Wins Oil Drilling Subsea Deal

Production

Total production during the quarter was up 5.0% year-over-year to 574,857 oil-equivalent barrels per day (BOE/d). Oil and natural gas liquids (NGLs) production was up approximately 18.4% to 366,451 barrels per day (Bbl/d), reflecting the contribution of Horizon and the Offshore West Africa division. However, natural gas production fell 12.4% year-over-year to 1,250 million cubic feet per day (MMcf/d), as the company cut drilling to focus on more lucrative oil projects.

Realized Prices

The average realized crude oil price (before hedging) during the fourth quarter was C$68.00 per barrel, representing an increase of 48.4% from the corresponding period of the previous year. The average realized natural gas price (excluding hedging) during the three months ended Dec. 31, 2009 was C$4.75 per thousand cubic feet (Mcf), down 32.4% from the year-ago period.

Capital Expenditure & Balance Sheet

Canadian Natural’s total capital spending during the fourth quarter of 2009 was C$694 million, taking the full-year total to approximately C$3.0 billion. As of Dec. 31, 2009, the company had cash on hand of C$13 million and long-term debt of approximately C$9.7 billion, representing a debt-to-capitalization ratio of 33.2%.

Dividend Hike & Stock Split

Canadian Natural announced a 43% increase in its quarterly dividend to 15 Canadian cents per share (60 Canadian cents per share annualized). The new dividend is payable on Apr. 1 to shareholders of record on Mar. 12, 2010. The company also proposed to split its shares on a 2:1 basis.

Guidance

Management is guiding towards production of 372,000 – 409,000 Bbl/d of liquids and 1,197 – 1,221 MMcf/d of natural gas during the first quarter of 2010. The company is planning to drill 47 net natural gas wells in this period. For 2010, Canadian Natural expects oil and NGLs production to be 400,000 – 445,000 Bbl/d, while natural gas volumes for the year are likely to be 1,117 – 1,185 MMcf/d. It plans to spend approximately C$3.9 billion on capital expenditures in 2010.

Zacks Investment Research

(CNQ) Canadian Natural Resources Hurt by Lower Gas Prices/Volumes

In February 2009, Gazprombank had opened credit lines totaling $1 billion for Mechel Mining’s subsidiaries. The credit facilities provided were used to finance the group’s current operations, which allowed it to repay a part of its short-term debt.

Mechel Steel, a leading mining and steel company in Russia, is focusing on growth and cost-cutting measures. The company has entered into various agreements to supply its rail products to large Russian metal mining companies. It has established itself as one of the largest producers of coking coal in the world by fully acquiring the U.S. entities Bluestone Industries Inc., Dynamic Energy Inc. and JCJ Coal Group LLC in West Virginia. Mechel expects to own coal reserves up to 725 million tons in the U.S.

Mechel has recently fully acquired Yakutugol, a coal company in Russia, and also bought a controlling 68.86% stake in another Russian coal company, Elgaugol. The companies were the largest standalone coal producers in Russia prior to their stake purchases by Mechel. Yakutugol produces 10 million tons of coal per year, most of which is sold to customers in Japan and Korea. The company plans to increase this output to 15 million tons and redirect it to the domestic market.

However, Mechel is witnessing weak prices and fragile demand across all its segments following the slowdown in the global economy. Its large capital-spending program, high debt and substantial interest burden are concerns. We remain uneasy about its already high debt, considering its tight cash position. We maintain our Neutral recommendation on the stock.

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(MTL) Mechel OAO’s $1 Billion Credit Line Extended

Roundup is one of the world’s leading crop protection products. This has been a huge project for Monsanto in scope and in terms of financial investment. This expansion will help boost Roundup production capacity by 20%.

Monsanto is a leading global provider of agricultural products. The company’s pipeline of agricultural biotechnology products stands unmatched in the industry.

However, the intense competitive environment and Monsanto’s huge dependence on a few large customers pose a risk. Nevertheless, a healthy balance sheet, along with a robust pipeline of new products and the continuous growth in the seeds and genomics segment, appears encouraging.

For fiscal 2010, the Zacks Consensus Estimate is $3.26 per share, compared to $3.78 in fiscal 2009. Monsanto expects full-year 2010 EPS in the range of $3.10 to $3.30. Over the past month, the Zacks Consensus Estimate has fallen from $3.29 to $3.26.

Five out of 16 covering analysts have lowered their estimates. The Zacks Consensus Estimate for fiscal 2011 has also gone down from $4.44 to $4.41 in the last 30 days as 2 out of 16 analysts have lowered their estimates, while only 1 has raised his estimate.

Monsanto remains a Zacks #3 Rank (‘hold’), as we believe that its healthy balance sheet, along with a robust pipeline of new products and continuous growth in the seeds and genomics segment, will drive both near term and long-term growth. We also maintain our long-term recommendation of Neutral.

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(MON) Monsanto Announces Expansion

Apache owns a 28.57% interest in the $1.7 billion Pyrenees development. BHP Billiton (BHP) acts as the operator and owns the remaining interest.

Apache expects production from the Crosby, Ravensworth and Stickle wells in the Pyrenees to be brought on in phases, with approximately half the field ramping up from first oil and the other half over the next six months. These three oil fields were discovered in 2003 in water depths ranging from 555 to 820 feet approximately 27 miles (45 kilometers) off the coast of Exmouth, Western Australia. The project has an estimated production life of 25 years.

Additionally, Apache has a 31.501% interest in the part of the Ravensworth field located in production license WA-43-L. BHP Billiton Petroleum holds 39.999% and INPEX owns 28.5%. This part of the Pyrenees project will have its own wells and gathering system with oil production from the WA-43-L part scheduled to begin later in 2010.

Management indicated that the gas produced at the Pyrenees development will be re-injected into the reservoir of the nearby Macedon gas field. The Macedon gas field is in front-end engineering and design stage, with a final investment decision expected later in 2010.

Previously, the company had announced first oil from Apache PVG’s Van Gogh Field in production license WA-35-L in the Exmouth Basin. Apache PVG owns a 52.5% interest in the field with INPEX owning the remaining interest.

Pyrenees and Van Gogh are among a pipeline of projects that will add production from Apache’s exploration program in Western Australia and other regions in coming years. Currently, the company has two oil fields on production in Australia that will make a significant contribution to its projected growth in 2010. Net production from Pyrenees and Van Gogh is projected to quadruple Apache’s oil production in Australia.

Apache plans to invest nearly $1 billion in Australia during 2010, funding exploration as well as a range of development projects which includes the Macedon, Reindeer and Julimar/Brunello discoveries.

Furthermore, Apache’s Devil Creek domestic gas processing plant is scheduled for completion in 2011. Going forward, this plant is expected to process gas from the offshore Reindeer Field and increase Western Australia’s domestic natural gas production capacity by up to 20%.

Houston, Texas-based Apache Corporation is one of the world’s leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids. Given our continued positive view of Apache’s underlying fundamentals, we expect another solid quarter, driven by the growth momentum from its robust project pipeline.

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(APA) Apache Starts Pyrenees Oil Production

The Styron businesses were part of the Basic Plastics and Performance Products segments including products like Styrenics – Polystyrene (PS), acrylonitrile butadiene styrene (ABS), styrene acrylonitrile (SAN) and expandable polystyrene (EPS), Emulsion Polymers (paper and carpet latex), Polycarbonate (PC) and Compounds & Blends.

Polycarbonate is an engineering thermoplastic used in applications such as optical media, electrical and lighting. Styrenic plastics (polystyrene, ABS, and SAN) find applications packaging and food service, portable appliances, consumer electronics, automotive and building and construction. Expandable polystyrene is typically used in rigid foam products such as heat insulation, packaging, impact sound insulation and drainage. SB and SA Latex are used in the paper/paperboard and flooring applications.

The business also includes Synthetic Rubber and Automotive Plastics including PULSE™ engineering resins, MAGNUM™ acrylonitrile butadiene styrene, INSPiRE™ performance polymers, and VELVEX™ reinforced elastomer.

Synthetic rubber is used in a broad portfolio of products from tires to hoses, conveyor belts, and footwear to specialized high performance elastomers. Automotive plastics are used in many different automotive applications, such as instrument panels, mid consoles, door panels, interior trim, seat structures and bumpers.The business includes Dow Chemical’s 50% share in the styrene-PS joint venture formed with Chevron Phillips in 2007.

Styron will become a standalone chemicals and plastics company that serves customers in automotive, appliances and packaging industries. In 2009, this business posted $3.5 billion in revenues and 8% in EBITDA margins. The styrene industry has been showing weak margins over the past few years on tepid demand and an oversupply of styrene monomer.

The sale of the Styron business is part of Dow Chemical’s effort to reduce debt and shed its non-core assets that no longer contribute to growth resources inside the company. We believe the divestiture of this low-margin, slow-growth business and the use of proceeds to reduce Dow’s sizable debt load are positives.

The deal is another major step in Dow’s portfolio transformation strategy to reduce earnings volatility and focus resources on higher-margin, higher-growth specialty & performance assets to drive a powerful earnings recovery in coming years.

Since March of last year, Dow Chemical has announced and closed several divestitures — Morton Salt, TRN refinery and SEA olefins, calcium chloride, powder coatings businesses, carbide emulsion plant, CE acrylic plant and Styron (total value of over $5 billion). Dow Chemical still expects to divest roughly another $2.0 billion of assets that do not fit with its long-term growth profile.

We also believe that Dow Chemical will continue to focus on its Basic Plastics business, which could generate between $4.5 billion and $6.0 billion. We have reaffirmed our Neutral recommendation on Dow Chemical.

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(DOW) Dow Chemical Company Divests Styron Business

More than 1 billion barrels of oil have been discovered in these blocks. U.K.-based Tullow Oil, with a 50% ownership in two of these blocks and 100% in the third, has selected CNOOC and Total as potential partners for their development. Tullow is currently in the process of getting the Ugandan government’s nod to purchase the remaining 50% interest in the first two blocks from U.K.-based Heritage Oil.

While Tullow, CNOOC and Total are now expected to sign sale and purchase agreements as well as a cooperation agreement with each other, the government wants the three players to operate one block each. Apart from these development plans, CNOOC and Total have both expressed interest in building a refinery in Uganda and an export pipeline to the East African coast.

In a separate transaction, CNOOC and its partner, Sinochem International Corporation, have completed talks with the Iraqi Oil Ministry for the development of the three Missan fields in southern Iraq. CNOOC, an Iraqi state company and Sinochem would hold 60%, 25% and 15% stakes, respectively, in the venture.

CNOOC foresees a mid-single to early-double digit long term annual production growth. We believe that the company will be able to deliver this target through organic exploration and developments alone.

However, while the international inventory of development projects help the company to sustain long term growth, we still believe that offshore Bohai Bay and deepwater South China Sea are under-explored and remain core areas for the company in delivering growth. The price of CNOOC ADSs rose 2.8% to $161.93 at Friday’s closing.

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(CEO) CNOOC and Total SA Submit Development Plans

The non-binding, conditional proposal, worth about A$3.3 billion ($3 billion), came from a company jointly owned by Royal Dutch Shell and PetroChina. Per the bid, Arrow shareholders would get A$4.45 per share in cash (28% premium to Friday’s closing price) plus interest in a new entity, which would comprise Arrow’s international business. Following the offer, shares in Arrow Energy surged 47% on the Australian exchange.

However, the company has advised its shareholders not to take any action at the moment adding that it had appointed financial and legal advisers to look at the proposal.

Brisbane-based Arrow Energy is focused on supplying coal seam gas (a form of natural gas extracted from coal beds) to eastern Australia and Asia. The company claims to have the largest coal seam gas reserves in the Australian state of Queensland.

In recent times, Australia’s significant volume of coal bed gas has raised interest with a number of international companies, as its value as an alternative energy source has ballooned. Energy firms have already invested about A$20 billion in Australia’s booming coal seam gas sector as they aim to convert the abundant gas resource into liquefied natural gas (LNG) for export to Asia.

Coal seam gas is largely methane gas trapped in the molecular structure of coal seams as against conventional natural gas, which is stored in the gaps between rock formations. As a result, coal seams are able to contain several times more gas than found in traditional gas reservoirs.

The takeover bid, if successful, will boost Anglo-Dutch supermajor Shell’s position in the natural gas sector two years after it purchased 30% of Arrow’s coal bed gas assets. It will also help Shell’s plans to build a large LNG plant at Gladstone, Queensland, thereby providing the group massive potential gas reserves across the state.

For PetroChina, China’s biggest oil and gas producer, a successful deal would aim at converting the abundant gas resource into higher-value LNG and exporting it to customers in the Chinese market.

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(RDSA) Royal Dutch Shell PLC & PetroChina Target Arrow

Pioneer Hi-Bred, a DuPont business, is the world’s leading source of customized solutions for farmers, livestock producers and grain and oilseed processors. The Des Moines, Iowa-based company provides access to advanced plant genetics in nearly 70 countries.

Pioneer expects initial operations to begin by the end of 2011 after construction is completed. The new plant is expected to employ about 50 people. As the first Pioneer production facility in Missouri, the new plant primarily will serve soybean producers in the US. Pioneer also has a research facility in Miami, Missouri, as well as corn, soybean, sorghum and wheat seed outlets in the state.

According to DuPont, soybean varieties produced by Pioneer show a 1.3 bushel per acre yield advantage against all competitive varieties. Pioneer® brand soybeans, with the original Roundup Ready® gene, have an average a 2.7 bushel per acre yield advantage over competitors.

Pioneer has recently launched the high yielding Y Series soybean. The company is using Accelerated Yield Technology and marker-assisted selection to boost the yield potential and improve the agronomic performance of these varieties.

Last week, DuPont had announced that it is emerging stronger from the global economic crisis after undertaking several measures to better position it for sustainable growth. The company has focused on aggressive cost-cutting and plans to capture $1 billion in fixed cost productivity and $1 billion in working capital productivity gains during 2010?2012. A focus on emerging markets and strong performance in the Agriculture & Nutrition segment will likely generate about 10% growth in the top line during 2009 2012.

DuPont hopes to grow earnings at 20% between 2009 and 2012. However, the U.S. housing market slump has impacted fertilizer products such as Corian and Tyvek. Weak North American automotive and construction markets have hurt its Coatings business. Pharmaceutical royalties are also expected to decline after the expiry of patents in 2010. Hence, we have a Neutral rating on the stock.

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(DD) DuPont to Open New Soybean Seed Production Facility