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

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

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 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

Fourth Quarter Recap

Earnings per share from continuing operations came in at $1.24 in the fourth quarter of 2009, topping the Zacks Consensus Estimate of $1.22. However, on a year-over-year basis, ENSCO’s earnings per share declined 42%, while revenues were down 17.4% to $499.6 million.

Key Facts

•    With the redomestication to the UK, the company currently expects its 2010 effective tax rate will be approximately 16% to 17% versus 19% in the last year. As the restructuring activities are expected to wrap up by mid-year, ENSCO will not get the full benefit of these changes in 2010. However, it expects to achieve an effective tax rate below 15% in 2011.

•    ENSCO’s 2010 deepwater revenue is estimated to be about $525 million, down from the previous guidance of $600 million. Total costs for 2010 were guided up 6% and total capital expenditures were guided down 14% to $740 million in 2010.

•    The company foresees a mixed bag in jackup utilization this year. As a result of this, 2010 jackup utilization rate will average around 72%, essentially flat with the fourth quarter of 2009.

Estimate Revisions Trend

Based on the company’s performance and 2010 guidance, several analysts following the stock have revised their estimates. Over the past 30 days, 8 of the 28 analysts following the stock have lowered their earnings estimates for fiscal 2010, with 7 analysts moving in the opposite direction.

While management indicated that tendering activity remains positive, near-term utilization will be under pressure as many contracts do not begin until the second half of this year or early 2011. This is one of the main reasons behind the downtrend in 2010 earnings revisions, in our view.

However, earnings are on the rise for fiscal 2011, with 7 of the analysts following the stock raising their estimates over the last 30 days. Only 4 analysts moved in the opposite direction during this time-period.

We believe that the tax savings on the back of the company’s redomestication to the UK and new contract commencements are reasons for the upward estimate revisions for 2011.

Meanwhile, we note that 11 of the 25 analysts covering the stock have reduced their earnings estimates for the first quarter of fiscal 2010 over the past 30 days. The downward revision is not surprising as the company said that first quarter revenue is expected to decrease by approximately 13%.

The situation is even worse for the second quarter as 13 of the 24 analysts covering the stock have reduced their earnings estimates over the past 30 days. Many North Sea rigs remain uncommitted for the second quarter, which we think has forced analysts to lower their estimates.

In terms of earnings surprises, earnings exceeded the Zacks Consensus Estimate in each of the last four quarters, with a four-quarter average of 3.8%. This means that on average, earnings beat the Zacks Consensus Estimate by 3.8%.

Outlook

We currently have a Neutral recommendation on ENSCO shares as we believe that the jackup market remains oversupplied in the long run.

Though ENSCO is facing immense competition from the peers such as Transocean Ltd (RIG), Diamond Offshore (DO) and Noble Corporation (NE), we believe that the company is well positioned with an organically growing asset base (five ultra deepwater rigs under construction) and a solid balance sheet ($1.1 billion in cash and debt-to-capitalization ration of 4.8% at the end of fourth quarter).

Zacks Investment Research

(ESV) ENSCO International plc Shows A Mixed Bag of Earnings Revisions

The offshore block, known as BM-C-33 block, is located in the Campos Basin off the Brazilian coast. Repsol and Statoil each hold a 50% interest in the block. The companies have each agreed to sell a 15% stake to Petrobras. Additionally, Petrobras also agreed to purchase a 20% stake in the BM-S-51 block from Repsol.

We continue to have a positive medium- to long-term outlook on Petrobras for its encouraging portfolio of investments, particularly in Brazil’s so-called “pre-salt reservoirs” that lie below the Espírito Santo, Santos and Campos basins in deep and ultra-deep water.

Petrobras is the operator in most of these exploration areas, with stakes ranging from 20% to 100%. Considering Brazil’s huge pre-salt oil reserves (estimated at 9.5 to 14 billion barrels of oil equivalent), widely thought to be the most important oil find in recent years, we believe Petrobras is poised to maintain an impressive production growth profile for years to come.

Petrobras has also been stepping into various international regions with significant investment for upstream projects. The company is successfully utilizing its Brazilian deepwater expertise into exploring upstream opportunities abroad, particularly in areas where many other international companies find it difficult to compete.

Our Outperform rating for Petrobras ADRs reflects its solid investments, strong pipeline of development projects, impressive recent exploration successes and compelling long-term outlook. In the last four weeks, the price of Petrobras ADRs has jumped nearly 13% to close at $43.86 yesterday.

Zacks Investment Research

(PBR) Petroleo Brasileiro S.A. Buys Brazil Block Stake From Repsol YPF and Statoil ASA

In the year-ago period, the Colorado-based natural gas pipeline operator lost $2.03 per unit on an adjusted basis. Revenue rose approximately 45.6% to $282.3 million.

The year-over-year positive comparisons reflect the performance of MarkWest’s core assets and the growing contribution from its Marcellus expansion projects.

Distribution Maintained

MarkWest’s quarterly distribution of 64 cents per unit ($2.56 per unit annualized), remains unchanged from the year-earlier quarter and the previous quarter distribution.

Distributable Cash Flow

During the quarter, the partnership generated record distributable cash flow (DCF) of $63.2 million, up from $41.3 million in the prior-year quarter, providing 1.48x distribution coverage.

Business Units

With regard to business units, the Southwest segment’s operating income increased 86.1% from the year-ago level to $62.3 million, mainly reflecting rising natural gas liquids (NGL) product sales from the Arapaho gas processing plant and contributions from the recently acquired Arkoma Connector Pipeline. These were partially offset by lower gathering systems throughput volumes from Foss Lake and Appleby facilities.

The partnership continues to increase its gathering presence in southeast Oklahoma (in the Woodford Shale gathering system), where volumes were up approximately 20.2% to 456,100 thousand cubic feet per day (Mcf/d).

MarkWest’s Northeast segment’s operating profit of $31.4 million improved significantly from last year’s loss of $12.9 million. The quarterly results were buoyed by a 12.2% increase in total NGL product sales on the back of processing capacity expansions and upgrades, partially offset by a 9.3% drop in natural gas processed in the Appalachian area and a 5.6% decline in fee-based crude oil transportation.

Operating income from the Gulf Coast segment was up 44.6% year over year to $12.9 million, mainly due to more gas processed at the partnership’s Javelina facility.

Finally, MarkWest’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $3.8 million.

Capital Expenditure & Balance Sheet

During the quarter, MarkWest spent approximately $89.9 million on growth capital projects (including equity investments), a decrease of $168.1 million, compared to the year-ago period. As of December 31, 2009, the partnership had a long-term debt of approximately $1.2 billion, representing a debt-to-capitalization ratio of about 45.9%.

Guidance

Looking forward, management guided towards a DCF of approximately $180 – $220 million for 2010. MarkWest’s capital plan for the year includes approximately $300 – $350 million of capital expenditures for growth projects, plus $10 million to $15 million for maintenance capital.

Zacks Investment Research

(MWE) MarkWest Energy Partners L.P. Tops The Street View

The contracts are for three floating drilling rigs: ultra-deepwater semisubmersible Ocean Valor, deepwater semisubmersible Ocean Baroness and deepwater drillship Ocean Clipper.

Ocean Valor and Ocean Baroness each received a three-year commitment that could generate approximately $493 million and $307 million of revenue, respectively. However, Ocean Clipper received a five-year commitment with a $557 million revenue generation capacity.

While Diamond has been suffering from a severe contraction in utilization rate for jackups and high specification floaters, the new contracts will surely boost the company’s struggling bottom line.

The company’s contract backlog has also been experiencing a downtrend for quite some time. As of Feb 1, 2010, contract drilling backlog stood at $8.5 billion, down more than 22% from the position on Feb 5, 2009. The long-term contracts will also help the company to reverse this diminishing backlog trend.

In the contract drilling industry, Diamond is a prominent name. Moreover, the company has returned excess cash to shareholders through regular and special dividends since the beginning of 2007.

Though the company reported significantly weaker-than-expected fourth quarter 2009 results, it kept its dividends unchanged. With an improving global economy, more offshore discoveries, increased E&P spending and the Petrobras contracts, we believe that Diamond’s dividend is safe.

Zacks Investment Research

(DO) Diamond Offshore Drilling Wins Major Contracts

Though the earnings came in above expectations on the back of an increase in the U.S. land rig and worldwide jackup activity as well as lower operating costs, the year-over-year negative comparison was due to several factors, including significantly lower rig utilization rate and lower dayrates in some regions.

Estimate Revisions Trend

We see an uptrend in estimate revisions. In the last 30 days, 7 of the 26 analysts covering the stock have raised their estimates for full fiscal 2010, while only one analyst moved in the opposite direction. One analyst raised his or her estimate in the last 7 days, but no one has moved in the opposite direction over that time.

The company’s earnings surprise for the preceding four quarters varies between 3.9% and 23.9%, with the average being 13.0%.

Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $2.11 per share, which is well below the full fiscal 2009 earnings of $2.98.

Operational Performance

The company’s drilling operations generated revenues of $255.3 million, down 34% year over year, due primarily to lower rig utilization. The gross drilling margin was 52%, compared to 62% in the year-earlier quarter and 53% in the previous quarter. Net income for the quarter was $76 million, down 66% from the fourth quarter of 2008.

Rowan’s manufacturing operations generated external revenues of $144.5 million, down 36% year over year. Gross manufacturing margin was 17%, compared to 25% in the year-earlier quarter and 13% in the previous quarter. Net income for the quarter was $9.1 million, down 78% year over year.

The company’s North Sea rigs experienced an average dayrate of $195,900 (vs. $272,100 in the year-ago quarter) while the overall dayrate of all offshore rigs was $167,700 (vs. $170,100). Average utilization of the company’s offshore rigs and land rigs were 63% and 59% versus 99% and 90%, respectively, in the year-earlier quarter.

At the end of the quarter, cash balance was $639.7 million and long-term debt stood at $852.4 million (debt-to-capitalization ratio was 21.5%).

Outlook

While the industry has been currently witnessing increased activity and tendering in the global jackup market, the Middle East, North Sea and Gulf of Mexico regions have been the most significant for Rowan’s fleet. In addition, management stated that the company has obtained commitments for several land rigs in the reported quarter, with a strong recovery in the U.S. land rig market.

Although deepwater fundamentals are the most compelling in the long term, we believe that land drillers and jackup leveraged companies such as Rowan will likely outperform in the near term as their recovery continues. We are currently Neutral on the Rowan shares.

Zacks Investment Research

(RDC) Rowan Companies Beats Consensus Estimates

Revenue

Total quarterly revenues of $2.7 billion missed the Zacks Consensus Estimate by 3.6%. It was down 16.4% year-over-year and 3.2% sequentially, mainly attributable to stacking of rigs and reduced revenue efficiency, only partially offset by the commencement of operations of three new drillships and improvements in floater dayrates.

Transocean’s high-spec floaters contributed approximately 54.7% to total revenue, while mid-water floaters and jack-up rigs accounted for 19.7% and 18.6% of the total, respectively. The remaining revenue came from other rig activities, integrated services, and others.

Operating Statistics

During the quarter, the company’s operating income totaled $1.0 billion, up 4.8% sequentially. Operating and maintenance expenses were $1.3 billion, down 7.2% sequentially, primarily reflecting the favorable impact of litigation settlement expenses and cost benefits resulting from the stacking of rigs, somewhat offset by the increased shipyard project costs, increases in maintenance projects, and commencement of newbuild operations.

Dayrates & Utilization

Average dayrates increased 4.2% sequentially to $295,700, as high-spec floater dayrates gained 4.1% and high-spec jackup dayrates were up 8.8%.

Compared to the fourth quarter of 2008, dayrates rose 17.6% (from $251,500 to $295,700). All types of rigs apart from mid-water floaters and standard jackups experienced increased dayrates. High-spec floater dayrates were up 15.0%, while high-spec jackups increased 3.6%.

Overall fleet utilization was 69% during the quarter, compared to 75% in the prior quarter and 90% in the year-ago quarter.

Backlog

As of Dec. 31, 2009, Transocean’s contracted backlog was $31.2 billion, down from $32.7 billion at the end of the preceding quarter. The decrease is a result of depressed demand for the jackups, mid-water and moored deepwater units on the back of uncertain commodity prices. As per more recent figures of Feb 2, 2010, the backlog further fell to $30.4 billion.

Capital Expenditure & Balance Sheet

Capital expenditures during the quarter totaled $857 million versus $540 million in the previous quarter, with the change primarily related to the timing of shipyard payments for newbuilds. As of Dec 31, 2009, Transocean had cash in hand of $1.1 billion, debt of approximately $11.7 billion, and total debt-to-capitalization ratio at approximately 36.3%.

2010 Guidance

For 2010, Transocean is guiding towards capital expenditures of approximately $1.3 billion, of which $850 million will go towards the construction of newbuild rigs. The remaining $450 million has been allocated to contractually required upgrades and sustaining capital expenses. The company expects its operating and maintenance costs between $5 billion and $5.4 billion, while G&A expenses are likely to be in the $230 – $240 million range.

Zacks Investment Research

($RIG) Transocean’s Earnings Results Disappoint The Street

Estimate Revisions Trend

With improving oil prices and increasing drilling activity, we see a positive trend in estimate revisions. For the last 30 days, 5 of the 25 analysts covering the stock raised estimates for the full fiscal 2010 while no one moved in the opposite direction. No up and downside movements were noticed in the last 7 days. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $1.09 per share, which is well below the full fiscal 2009 earnings of $1.29.

The company’s earnings surprise for the preceding four quarters varies between a negative 6.3% and a positive 14.3%, with the average being a positive 6.1%.

Revenue & Profitability

Compared to the fourth-quarter of 2008, Nabors’ adjusted earnings per share declined 75.3% (from 73 cents to 18 cents) due to persistent weakness in its North American gas-centric businesses combined with poor international results. Revenues were down more than 45% to $679 million as sales declined in all of the company’s segments.

Nabors’ main operating segment is ‘Contract Drilling’, which accounts for the bulk of its revenues and operating earnings. Its operations are spread across 6 sub-segments: U.S. Lower 48 Land Drilling, U.S. Well Land Servicing, U.S. Offshore, Alaska, Canada, and International.

Contract Drilling Segment: Analysis

During the quarter, contract drilling revenues were down 42.8% year over year to $760 million, while the segment’s operating income declined approximately 60% to $154.3 million. The negative comparison reflects lower activity levels during the quarter, which was down 41.7% to 262.8 rig years.

While there were sequential signs of improvement in terms of revenue and profitability, U.S. Lower 48 Land Drilling and the U.S. Land Well Servicing sub-segments suffered year-over-year due to significant contraction in rig activity.

In Canada, revenues were down nearly 38% to $81.2 million and the company saw a thin profit on the back of seasonally-high fourth quarter.

Regarding international operations, revenues and operating income were down year over year. Revenue and operating income for Nabors’ U.S. offshore operations were significantly lower than the year-ago quarter due to a continued slump in drilling activity that led to a 52% dip in activity levels.

Though revenue was down on a year-over-year basis, Alaska was the only sub-segment which posted an increase in operating income driven by seasonal ramp-up in activity levels.

Balance Sheet

At the end of the quarter, the company had approximately $1.1 billion in cash and short-term investments and $4.1 billion in long-term debt, with a net debt-to-capitalization ratio of approximately 44.2%.

Outlook

While the company’s international operations have been suffering since the past few quarters, management said the situation can change from second quarter onwards on the back of increasing trend in rig count and oil prices. With more than one-third of the company’s total 2009 revenue coming from international operations, we believe that the recent uptick in operational momentum and contract awards will surely help Nabors to add numbers to the bottom line.

Nabors competes with sector leaders like Transocean Ltd. (RIG), Diamond Offshore Drilling Inc. (DO) and Noble Corp. (NE). While we like Nabors’ initiatives to fund growth opportunities with its cash balance and internal cash flows, its fairly debt-heavy balance sheet remains our concern. At a time when peers are returning cash to shareholders via lucrative dividends, Nabors is lagging.  As such, we are currently Neutral on Nabors shares.

Zacks Investment Research

(NBR) Nabors Industries Ltd. Beats Expectations – Foresees Growth

Estimate Revisions Trend

Patterson’s outperformance didn’t come as a major surprise as estimates for the quarter have been trending up over the last month. During this period, the Zacks Consensus Estimate for quarterly loss per share narrowed from 10 cents to 8 cents. Nearly a third of the analysts covering the stock (6 out of 21) reduced their loss projections, while there were no revisions in the opposite direction.

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 positive at 5%. This implies that Patterson has gone past the Zacks Consensus Estimate by 5% over the last four quarters, helped by the recovery in activity levels (primarily in Canada).

Looking ahead, the current Zacks Consensus Estimates for the first quarter and full-year 2010 are losses of 6 cents and 11 cents, respectively. But the overall trend in estimate revisions is favorable. Though there were no estimate revisions in either direction over the last 7 days, 2 (out of 14) analysts have increased their first quarter projections, while 7 (out of 20) analysts increased their full-year 2010 projections during the past month, with no downward revisions.

We feel that near-term visibility for improvement in rig count and utilization rates represents the key impetus for upward estimate revisions moving forward.

Year over Year Comparisons Down

In the year-ago period, Patterson earned 64 cents per share (excluding items). Revenue was down 59.8% year over year to $213.6 million. The negative comparisons compared to the year-ago period can be attributed to the still depressed drilling activity. The number of rigs operating during the quarter averaged 103 (95 rigs located in the U.S. and 8 in Canada), compared to 252 average rigs operating in the fourth quarter of 2008. However, it was up from 73 rigs operating in the September quarter.

Segmental Performance

Contract Drilling: Contract Drilling revenue totaled $159.6 million (75% of total revenue), down approximately 65.9% year-over-year. Average revenue per operating day was $16,770, down 17.0%, while average direct costs per operating day decreased 3.0% to $10,870. As a result, the segment reported an operating loss of $17.4 million as against an operating income of $138.2 million in the year-ago quarter. The weak results of this segment also reflect the significant decrease in the average number of rigs operating, compared to the year-ago period (103 as against 252).

Pressure Pumping: The company’s Pressure Pumping business recorded a revenue of $48.0 million, a decrease of 15.6% year-over-year. In anticipation of increased activity associated with Marcellus Shale, the company has added both equipment and workforce during recent years. However, delays in development of the shale have caused a slower ramp-up of customer activity, which in turn affected the profitability of this segment.

Additionally, the company’s customers have increased their focus on the development of unconventional reservoirs in the Appalachian Basin and the larger jobs related to it. As a result of this and declining commodity prices, Patterson-UTI experienced a decrease in the number of smaller traditional pressure pumping jobs, which led to an overall decrease in the number of total jobs. Consequently, the Pressure Pumping business’ operating profit was down significantly (by 84.9%) to $1.6 million.

Oil & Natural Gas: Revenue generated from the Oil & Natural Gas business was $6.0 million, down slightly (by 2.1%) from the year-ago quarter. This segment posted an operating income of $2.1 million, as against an operating loss of $2.3 million in the fourth quarter of 2008, as it benefited from lower costs and expenses.

Capital Expenditure & Balance Sheet

During the quarter, Patterson-UTI spent approximately $102.2 million on capital programs (bringing the 2009 full-year total to $452.6 million), of which approximately 85% went to the Contract Drilling segment. As of December 31, 2009, the company had $49.9 million in cash and no long-term debt.

Outlook

Management indicated that drilling activity is picking up, reflected by the sequential improvement in rig count. Clients are looking to up their spending plans in 2010 in the drilling and pressure pumping industries. At the same time, the company remains concerned about the large excess capacity in the sector that will weigh on dayrates and margins well into the year.

Zacks Investment Research

(PTEN) Patterson-UTI Earnings Beat Loss Estimates

Switzerland-based Noble Corporation is a provider of diversified services for the oil and gas industry. The company performs contract drilling services with a fleet of 63 mobile offshore drilling units, including 13 semisubmersible rigs, 4 drillships, 43 jackups and 3 submersibles. It also provides labor contract drilling, engineering and consulting, and project management services.

Noble recently reported significantly better-than-expected fourth quarter 2009 results, driven by the contribution from the Contract Drilling Services segment and the cost-control measures undertaken by the company.

With stabilizing oil prices and better bidding activity, offshore drillers are experiencing an improvement in market conditions, which was reflected in Noble’s fourth quarter results. The company’s deepwater operations will gain further traction with the expected commencement of operations of three new ultra-deepwater units this year. Along with Noble’s $8.1 billion backlog (as on December 31, 2009), this provides significant earnings and cash flow visibility for the coming years.

We believe that Noble’s diversified exposure to both deepwater and shallow water conditions, a fleet that continues to deliver top margins and a solid balance sheet will add value for shareholders. However, the company’s mid-water floating fleet that suffers from lower utilization and a lack of tenders from the E&P operators whets our concern and is likely to continue to weigh on the stock.

Zacks Investment Research

(NE) Noble Corporation Analyst Coverage Initiated at Neutral

Quarterly earnings were of $1.98 per share, well below the Zacks Consensus Estimate of $2.32 and the year-earlier earnings of $2.28.

Diamond’s quarterly earnings missed the Zacks Consensus Estimate by 14.7%. The company’s experience of an earnings surprise for the preceding four quarters varies between negative 3.4% and positive 14.9%, with the average being positive 7.6%.

There was no change in estimates over the last 7 days. However, over the last 30 days, 6 of the 25 analysts covering the stock have raised their estimates for 2010 while an equal number of analysts moved in the opposite direction. Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is $9.70 per share, which is lower than the full fiscal 2009 earnings of $9.89 per share.

Total revenue of $890.8 million for the quarter decreased more than 1% year over year, mainly due to poor contribution from jackups. However, Diamond maintained its special cash dividend of $1.875 per share in this quarter. This is in addition to its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized).

Revenue by Segment

Despite slightly higher dayrates for high specification floaters, contract drilling revenue decreased 2% year over year to $872.1 million. The high specification floaters accounted for nearly 44% of the total quarterly contract drilling revenue, while intermediate semi-submersibles and jackups accounted for 45% and 11% of the total, respectively.

Diamond’s Gulf of Mexico (GoM) high specification floaters recorded an average dayrate of $388,000 during the quarter, up marginally year over year. Intermediate semi-submersible rigs realized an average dayrate of $280,000, down 1.4% year over year, while jackup rigs’ dayrates averaged $112,000, down more than 7% year over year.

High specification rig utilization was 81% during the quarter, down from 89% in the year-ago quarter. Intermediate category rig utilization was 78%, flat year over year. Meanwhile, jackup rig utilization was 63%, down significantly from 92% in the prior-year quarter.

At the end of the quarter, Diamond had approximately $376.4 million in cash on hand and $1.5 billion in long-term debt. Debt-to-capitalization ratio at the end of the quarter stood at about 29.2%.

Diamond has been maintaining its track record of returning excess cash to shareholders through special dividends. Though this is supported by the company’s sound contract backlog position, we are concerned about Diamond’s increasing leverage trend and drastic erosion in dayrate and utilization for jackups. We are currently Neutral on Diamond shares.

Zacks Investment Research

(DO) Diamond Offshore Drilling Misses Earnings Consensus Badly

The E&R business includes 2,300 service stations in eight countries, besides units that supply lubricants, aviation and marine fuels. Statoil said it will initially be the major owner of the new company and afterwards, the ownership position will be gradually evaluated as per the company’s development needs.

While Statoil holds nearly one-fourth market share in the Scandinavian service station sector, net income from this segment in the first three quarters of the last year had been negligible.

Since investing in a business segment with low returns is not a healthy choice, Statoil’s decision to split the company with independent access to the capital markets is a wise move, in our view.

This apart, Statoil is focused on its upstream activities. Though the company is quite active in the Norwegian Continental Shelf region, it is also looking for the development of various international assets. The recent stake increase in the Iraqi super giant West Qurna Phase 2 oil field and intention to start production at the Peregrino heavy oil field in Brazil are a few cases in point. We are currently Neutral on Statoil ADRs.

Zacks Investment Research

(STO) Statoil ASA to Spin off Retail Arm

It was the company’s third positive earnings surprise in the past 4 quarters. Keeping in mind Helmerich & Payne’s history of outperformance, estimates for the current quarter (second quarter of 2010) have been trending slightly up over the past month, with the quarterly Zacks Consensus Estimate rising by a penny. Overall, 4 out of the 16 analysts covering the stock have increased their second quarter projections during that time, while there have been no downward revisions.

However, earnings and revenue comparisons (for the reported quarter) with the year-earlier period were quite ugly, severely hampered by lower rig utilization (especially in the U.S. land drilling market) amid weak demand for drilling services. Helmerich & Payne’s adjusted earnings per share slumped approximately 57.0% (from $1.35 to 58 cents), while revenues declined 35.9% to $399.8 million.

U.S. Land Operations

During the quarter, operating revenues totaled $285.1 million (71% of total revenue), down 40.0% year-over-year. Average rig revenue per operating day was $24,113, down 10.9%, while average rig margin per day decreased 12.1% to $13,030. Additionally utilization levels were substantially down to 62% (from 95% in the first quarter of 2009). As a result, segment operating income fell 52.8% from the year-earlier quarter to $91.5 million.

Offshore Operations

Helmerich & Payne’s offshore revenues were up 3.6% year-over-year to $52.3 million. Daily average rig revenue fell marginally (by 0.2%) to $52,960 but average rig margin per day improved 5.7% to $24,936. Segment operating income, at $15.1 million, increased 2.7%. Rig utilization, which was 89% in the same period of 2009, came down to 85%.

International Land Operations

International land operations recorded revenues of $59.4 million, as against $95.2 million in the previous-year quarter. Average daily rig revenue was $33,714, down 8.2%, while rig margin per day declined 14.8% year-over-year to $10,576. The segment incurred a profit of $8.4 million during the quarter, compared to $22.6 million in the first quarter of 2009. Activity levels declined significantly, falling to 44% from 98% a year ago. The company’s decision to reduce activity levels in Venezuela also contributed to the dismal international results.

Capital Expenditure & Balance Sheet

During the quarter, Helmerich & Payne spent approximately $64.8 million on capital programs. As of December 31, 2009, the company had approximately $153.1 million in cash and long-term debt of $380.0 million (debt-to-capitalization ratio of 12.1%).

Outlook

Management indicated that drilling activity is picking up, reflected by the sequential improvements in operating income and rig utilization in each of Helmerich & Payne’s markets. Clients are looking to up their spending plans in 2010 and the company, with its newest and most technologically advanced land rig fleet, is well positioned to take advantage of the rebounding market. At the same time, the company remains concerned about the large excess capacity in the sector that will weigh on dayrates and margins well into the year.

Zacks Investment Research

(HP) Helmerich & Payne Beats Consensus Estimates

The company, with its young, efficient drilling fleet, has been able to snag market share and maintain a relatively higher utilization due to stronger drilling demand and longer duration of term contracts for their technologically sophisticated FlexRigs. A relatively conservative financial policy and the quality of its client base, which mostly includes well-capitalized oil majors or large independents, are other positives in the Helmerich & Payne story.

The recent turnaround in domestic drilling activity also bodes well for the company. As such, we recommend an Outperform rating for Helmerich & Payne shares.

Zacks Investment Research

(HP) Helmerich & Payne – Bull of the Day

Patterson-UTI’s activity levels in the U.S. peaked in early October 2008 with a rig count of 275. Since then, the company has been witnessing a steep and rapid decline on the back of decreased demand largely caused by lower commodity prices for natural gas.

However, during the last few months, there have been signs that companies were beginning to bring rigs back on line amid signs of economic stabilization that could drive up energy demand. This is being reflected in Patterson-UTI’s monthly rig count numbers, which has recovered from a low of 60 in May 2009 to the current level of 118.

Patterson-UTI Energy is one of the largest onshore contract drillers in the U.S., with approximately 350 land-based rigs that operate primarily in the oil and natural gas producing regions of North America. The company primarily operates in Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Colorado, Utah, Wyoming, Montana, North Dakota, South Dakota, Pennsylvania and western Canada.

Patterson-UTI is also engaged in the businesses of pressure pumping, drilling and completion fluid services. Additionally, it has an exploration and production business.

Zacks Investment Research

(PTEN) Patterson-UTI Energy Drilling Rig Count Picks Up

Located in the Basra Governorate, Iraq, the huge West Qurna Phase 2 oil field holds approximately 12.8 billion barrels of proven crude oil reserves. Statoil and its Russian partner Lukoil owns 25% and 75%, respectively, in this oil field.

While Lukoil intends investments worth billions of dollars, Statoil would invest $1.4 billion over the first four to five years to increase its production quickly. During the second week of December 2009, the two companies won the bid for this field and agreed on a production plateau of 1.8 million barrels per day and a remuneration fee of $1.15 per barrel.

While Statoil is increasingly shifting its focus to the still unexplored areas of the Norwegian Sea and the Barents Sea, production growth from international operations is a key component for its overall annual upstream growth over the next few years.

In a separate transaction, Statoil and the Norwegian state-owned utility Statkraft ASA were awarded a contract to build Europe’s largest wind turbine park at Dogger Bank, off the UK coast. The construction includes 2,000 wind turbines at an estimated cost of NOK1.0 trillion ($0.176 trillion). Statoil’s extensive interests in infrastructure assets and growing investment strategy enable it to play a leading role in the European Energy market.

Zacks Investment Research

(STO) Statoil ASA Invests in Iraqi West Qurna Phase 2 Oil Field

The acquired Alliance assets consist of gathering systems and compression facilities with a total capacity of 115 million cubic feet per day (MMcfd) and a plant with amine treating capacity of 180 MMcfd and dehydration treating capacity of 200 MMcfd to the gathered gas. The acquired assets complement the partnership’s existing operations in the Fort Worth Basin and provide opportunities for even stronger organic growth in the future.

Quicksilver Gas expects gather and process greater volumes of natural gas in 2010, from expected 2009 levels, due to the Alliance acquisition. It expects to double gas gathering volumes in 2010 to 500 MMcfd, while processing volumes are expected to increase more than 10% producing in excess of 170 MMcfd.

Separately, the underwriters of the company’s recent 4 million units offering exercised their option to purchase an additional 549,200 units representing limited partner interests. The company plans to use the net proceeds from the sale to repay outstanding borrowings under the company’s credit facility. Following the sale of additional units, the company has approximately $210 million drawn on its credit facility, down from $320 million previously.

Quicksilver Gas Services L.P. is a midstream master limited partnership engaged in the business of gathering and processing natural gas produced from the Barnett Shale formation in the Fort Worth Basin in north Texas. Headquartered in Fort Worth, the company’s predecessors began operations in 2004 to provide midstream services primarily to Quicksilver Resources Inc. Quicksilver Resources owns approximately 73% of Quicksilver Gas Services.

Zacks Investment Research

(KGS) Quicksilver Gas Services L.P. Buys Alliance Assets

MarkWest bought the stake in 2005 from an affiliate of Enterprise Products Partners LP (EPD) for $42.1 million. Following the announcement of the sale, MarkWest units hit a 52-week high of $30.25.

The Starfish asset divestiture, effective Dec 31, 2009, is part of MarkWest’s ongoing strategy to continue developing its position in the onshore resource plays. The partnership is currently the largest gatherer in the Woodford Shale in southeast Oklahoma, the largest gatherer and processor in the Marcellus Shale play in western Pennsylvania and West Virginia, and has a growing presence in the Granite Wash formation in Oklahoma and Texas Panhandle areas and Haynesville Shale in Northwest Louisiana and East Texas. MarkWest intends to use the sale proceeds to further develop infrastructure to serve its producer customers in these rapidly expanding areas.

Denver, Colorado-based MarkWest Energy Partners LP, a master limited partnership (MLP), is engaged in the gathering, processing and transmission of natural gas, transportation, fractionation and storage of natural gas liquids (NGLs), and the gathering and transportation of crude oil.

The partnership is one of the largest processors of natural gas in the Appalachian region and has a significant presence in the other prolific natural gas producing basins of the U.S. MarkWest’s customers include major oil and gas companies, large and small independent energy companies, and oil refineries.

Zacks Investment Research

(MWE) MarkWest Energy Partners LP Sells Starfish Stake

Located in the Basra Governorate, nearly 65 kilometers northwest of the city of Basra in southern Iraq, the huge West Qurna Phase 2 oil field holds approximately 12.8 billion barrels of proven crude oil reserves.

During the second week of this month, both the companies secured the winning bid for this field and agreed with a production plateau of 1.8 million barrels per day and a remuneration fee of $1.15 per barrel. However, this adjustment in ownership will not entail any compensation.

While Statoil is quite active in the Norwegian Continental Shelf region, the company is looking for the development of various international assets. The stake increase in Iraqi field and intention to start production at the Peregrino heavy oil field in Brazil are a few cases in point.

Production growth from international operations is a key component of the company’s overall annual upstream growth plans over the next few years. A sharp rise in production and the company’s improving of normalized returns on capital employed (ROCE) by maintaining disciplined capital outlays and reducing operating costs remain the chief reasons behind our long term bullish view for the stock.

Zacks Investment Research

(STO) Statoil ASA Enters Agreement Raising Stake in Iraqi Oil Field

The company plans to spend around NOK 5.0 billion ($0.86 billion) on exploration initiatives on the Snorre field in the North Sea. Snorre has the largest remaining reserves of Statoil’s fields on the NCS.

Statoil believes 2010 will be another year with a high level of activity on Snorre. A number of extensive modifications have been carried out in the recent years to make the installations more robust for increased production and an extended lifetime until the year 2040.

Despite the maturity of the NCS region, Statoil is well-positioned to sustain its production from this area at current levels for the next few years. The growing share of natural gas in the company’s NCS volume mix is expected to offset the flat-to-declining trend in liquids production from the region.

Statoil is increasingly shifting its focus to the still unexplored areas of the Norwegian Sea and Barents Sea. Its growing NCS gas volumes and its extensive interests in infrastructure assets enable it to play a leading role in the European natural gas market.

Zacks Investment Research

(STO) Statoil ASA Gaining Impetus at Snorre

The acquisition consists of a 40.4% stake in the Total Agroindustria Canavieira-owned ethanol mill located in the municipality of Bambui (in the state of Minas Gerais), with a production capacity of 100 million liters of hydrated ethanol a year. The deal was struck by Petrobras’ fuel division, Petrobras Biocombustivel.

Following Petrobras’ entry, the plant’s capacity (to produce ethanol biofuel from sugar cane) will increase more than 100% to 203 million liters annually. The state-run firm is also looking to generate a surplus of 38.5 megawatts (MW) of electric power to market by using the sugar cane bagasse.

The transaction is part of Petrobras’ initiative to invest $2.4 billion in biofuels by 2013, with a target of churning out 3.9 billion liters of ethanol by that time. It intends to buy two or three more ethanol mills in 2010.

With minority interest in the Total Agroindustria Canavieira ethanol mill, Petrobras has firmly established its presence in the Brazilian ethanol market. Cane-derived ethanol biofuel has become big business in the Latin American country since the arrival of flex-fuel cars in 2003 that can run only on ethanol or gasoline or a mixture of both. Most of the new cars sold in Brazil have the flex technology.

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include: the exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and in the refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.

Zacks Investment Research

(PBR) Petroleo Brasileiro S.A. Buys Ethanol Plant Stake

As part of the restructuring plan, Royal Bank intends to sell its 51% stake in commodities trading firm RBS-Sempra, which it jointly owns with Sempra Energy (SRE). The deal is expected to fetch about £2.5 billion. Macquarie has been named along with JPMorgan Chase & Co. (JPM) and Deutsche Bank (DB) as bidders for the RBS Sempra Commodities business.

Royal Bank of Scotland is also selling its retail and commercial units in the Asia-Pacific region, while remaining focused on the wholesale and investment banking sector. Its presence shrank from 15 countries to 11 In the Asia-Pacific regions. HSBC Holdings Plc (HBC) is the likely contender for the purchase.

The bank is also planning to spin out its wealth management unit. Aberdeen Asset Management has shown interest to acquire the unit, which is expected to fetch £100 million.

Royal Bank of Scotland, one of the largest victims of the global financial crisis, is at present 83% owned by British taxpayers. The bank’s woes stem from a massive number of risky investments in areas such as commercial-property loans, leveraged finance, and derivatives. Its problems also arise from the bad assets it inherited with its 2007 acquisition of a part of the Dutch bank ABN Amro Holding NV.

The government ownership of Royal Bank of Scotland isn’t without its headache for management. The bank was told last month by EC that it must sell its insurance businesses Direct Line, Churchill and Green Flag. Most recently, the bank’s directors and executives clashed with the U.K. government over bonuses for senior employees.

The authorities of EC are of the opinion that the commitment to exit all non-core and riskier business lines will contribute to strengthening the bank’s capital and liquidity position. The government is demanding the bank to scale back its operations as its multiple businesses have made the bank operationally complex. Royal Bank of Scotland is the largest bank that has direct government ownership and it is expected that the government will retain a stake in the bank for years to come.

Zacks Investment Research

(RBS) Royal Bank of Scotland Selling Non-Core Assets

The FERC has also authorized the Jordan Cove Energy Project LP, a limited partnership between Fort Chicago LNG II U.S. LP and Energy Projects Development LLC, to site, construct and operate the Jordan Cove Energy LNG terminal.  The Jordan Cove is a state-of-the-art LNG import terminal to be located in the International Port of Coos Bay in Oregon.

Together, the Jordan Cove – Pacific Connector project is expected to import and transport up to 1 billion cubic feet of natural gas per day from the liquefied natural gas (LNG) terminal in Coos Bay to Malin, Oregon. The project will provide an additional source of natural gas supply to markets in the Pacific Northwest, northern California and northern Nevada.

The applications for the Pacific Connector and Jordan Cove project were filed with the FERC on Sep 4, 2007 and the project received a Final Environmental Impact Statement (FEIS) on May 1, 2009.

When built, the Jordan Cove Energy facility will be capable of receiving LNG supplies from specially designed marine vessels and delivering natural gas through interconnecting pipelines to the Pacific Northwest and adjacent markets.

The Pacific Connector project includes interconnects to Williams’ majority-owned Northwest Pipeline near Myrtle Creek, Oregon, Avista Corporation’s distribution system near Shady Cove, Oregon, as well as Pacific Gas and Electric Company’s gas transmission system, Tuscarora Gas Transmission’s system, and Gas Transmission Northwest’s system, all located near Malin, Oregon.

Williams Companies Inc. (WMB), through its subsidiaries, finds, produces, gathers, processes and transports natural gas. Williams’ operations are concentrated in the Pacific Northwest, Rocky Mountains, Gulf Coast, and the Eastern Seaboard.

PG&E Strategic Capital, Inc. is a wholly owned subsidiary of PG&E Corp. (PCG), an energy-based holding company. PG&E is also the parent company of Pacific Gas and Electric Company, one of the largest investor-owned gas and electric utilities in the country. Pacific Gas and Electric Company serves approximately 15 million customers in northern and central California.

Based in Calgary, Alberta, Fort Chicago is engaged in three principal businesses: pipeline transportation, NGL extraction and power.

Zacks Investment Research

(WMB) Williams Companies and PG&E Corp Get FERC OK For LNG Terminal and Pipeline

Quicksilver Gas expects gas gathering volumes in 2010 to average 500 million cubic feet per day (MMcfd), while processing volumes are expected to average more than 170 MMcfd. This represents gathering volumes doubling and processing volumes rising more than 10% from expected 2009 levels.

The acquired Alliance assets consist of gathering systems and compression facilities with a total current capacity of 115 MMcfd and a plant with amine treating capacity of 180 MMcfd and dehydration treating capacity of 200 MMcfd to the gathered gas. The acquired assets complement the partnership’s existing operations in the Fort Worth Basin and provide opportunities for even stronger organic growth in the future.

Quicksilver Gas Services LP is a midstream master limited partnership engaged in the business of gathering and processing natural gas produced from the Barnett Shale formation in the Fort Worth Basin in north Texas. Headquartered in Fort Worth, the company’s predecessors began operations in 2004 to provide midstream services primarily to Quicksilver Resources Inc. Quicksilver Resources owns approximately 73% of Quicksilver Gas Services.

Zacks Investment Research

(KGS) Quicksilver Gas Services LP Sees Volume Growth in 2010

The vessel, which can operate in water depths up to 5,750 feet and drill wells up to 25,000 feet deep, is due to commence the contract in the second quarter of 2011. Worth approximately $350 million, the agreement calls for Transocean to deploy the rig in Angola.

We believe that the recent contract award further supports our view that the long-term fundamentals of the deepwater market continue to remain strong. Last month, the company bagged a seven-year contract for its newbuild ultra-deepwater semisubmersible rig Development Driller III from a subsidiary of oil major BP Plc. (BP). Before that, Transocean’s another newbuild ultra-deepwater drillship, Discoverer Americas, started its operations in the U.S. Gulf of Mexico under a four-year contract with a subsidiary of Norway’s StatoilHydro ASA (STO).

With a number of speculative newbuild projects (projects sponsored by speculators and not drilling contractors) expected to be cancelled due to the current credit market issues, the long-term supply picture has become even more attractive. Transocean’s successful execution of long-term deepwater contract draws our attention towards the continued resilience of the deepwater drilling market.

Transocean is an international provider of offshore contract drilling services for oil and gas wells. The company offers deepwater and harsh environment drilling, oil and gas drilling management, and drilling engineering and project management services, as well as explores, develops, and produces oil and gas resources

We currently rate Transocean shares as Neutral.

Zacks Investment Research

(RIG) Transocean Ltd. Earns Three Year Deal

A sharp rise in production is offsetting the fall in oil and gas prices, which helped the company to experience smaller profit declines in the third quarter than other large European oil companies.

With our bullish long term view on natural gas and the company’s extensive interests in infrastructure assets, we recommend an Outperform rating for Statoil ADRs.

Zacks Investment Research

(STO) Statoil ASA – Bull of the Day

Company Description

Ecopetrol is a Colombian petroleum company. The company extracts, collects, treats, stores and pumps oil and gas.

$7 Billion Investment

On Dec 11 Ecopetrol said it will increase its investment plan by 11%, to $6.93 billion in 2010. The vast majority of the money will go into Columbia. About 65% will go toward exploration and production.

Production Up 14%
Ecopetrol reported third-quarter results on Oct 21 that included a 13% rise in total production. During the month of September the company started 12 new exploratory wells.

Sales volume rose almost 18% on higher production and purchases of hydrocarbons. Earnings per share were 2 cents, however there are no quarterly estimates for the company.

Jump in Estimates

The full-year Zacks Consensus Estimate for 2009 is now $1.30, up 19 cents after the report. Forecasts for next year are averaging $1.70, up 40 cents. These represent expected growth rates of 347% and 31%.

The Chart

Shares of EC have been declining recently, which is bringing valuations back in line. The lower price could make a good entry point.

Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader service

Zacks Investment Research

(EC) Ecopetrol S.A. – Exploratory Oil and Gas Production Up 14%

Following its scheduled delivery, mobilizing and outfitting, ENSCO 8502 will start operations in the U.S. Gulf of Mexico (GoM) under a two-year contract with Nexen Inc. (NXY) during the second quarter of 2010. The contract may be extended up to 3 to 4 years.

Following the delivery of the first 8500 Series rig ENSCO 8500 in September 2008, the company received the second in this series, ENSCO 8501, in October 2009.

ENSCO 8503 is scheduled for delivery in the fourth quarter of 2010, with two-year contracts in the GoM. ENSCO 8504 is scheduled for delivery in 2011. ENSCO 8505 and ENSCO 8506 are scheduled for delivery in 2012.

Following the delivery of ENSCO 8502, the company will have 4 ultra-deepwater semisubmersible rigs in its active fleet. ENSCO has already invested more than half of the $3 billion committed to the ENSCO 8500 Series newbuild program. The company is well on its way toward having the world’s largest fleet of ultra-deepwater semisubmersibles capable of drilling in water depths of 7,500 feet or more.

We believe that ENSCO has a competitive advantage in the design of its newbuild deepwater rigs. The fundamentals surrounding the deepwater segment remain solid and there is significant visibility for continued day rate improvement despite lower commodity prices.

Zacks Investment Research

(ESV) Another Newbuild for ENSCO International

Near- to medium-term concerns include the uncertain commodity-price scenario, significant capital investment requirements, and Brazil’s proposed new oil and gas regulatory framework. However, given its strong pipeline of development projects and impressive recent exploration successes, the company’s long-term outlook looks compelling.

As such, we recommend an Outperform rating for Petrobras ADRs. Our six-month target price is $55 per share.

Zacks Investment Research

(PBR) Petrobras Brasileiro SA – Bull of the Day

Company Description

Arena Resources, Inc. engages in the exploration and production of oil and natural gas properties in the united States. The company was founded in 2000 and has a market cap of $1.58 billion.

With crude trading at elevated prices, exploration companies have fallen back into favor. This dynamic and strong third-quarter results, reported on Nov 5, has helped push shares of ARD back to the 52-week high.

Third-Quarter Results

Earnings for the quarter came in at 31 cents per share, 5 cents ahead of the Zacks Consensus Estimate. The company has beat in each of the last four quarters by an average of 2 cents, or 10%.

In a bid to expand its enhance and expand its operations, the Board of Directors approved a $27 million increase in its capital budget for 2009 to $107 million.

Estimates Rising

Estimates have generally been on the rise for the last few months. The current-year estimate has added 13 cents to $1.12. The next-year estimate is bullish, pegged at $1.75, a 57% growth projection.

Valuation

After the recent run up, shares do look a bit pricey, trading at 36X projected current-year earnings. The bullish next-year estimate helps temper the valuation a bit though.

The Chart

Shares of ARD have posted big gains over the last 8 months after bottoming out around $20 in early March. The 52-weke high is close at hand at $44.40, take a look below.

Zacks Investment Research

(ARD) Arena Resources Incorporated – Exploration Companies Are Back In Favor

However, as has been the case with the other contract drillers that have already reported – Patterson-UTI Inc. (PTEN) and Nabors Industries (NBR) – earnings and revenue comparisons with the year-earlier period were quite ugly, severely hampered by lower rig utilization (especially in the U.S. land drilling market) amid weak demand for drilling services. Helmerich & Payne’s adjusted earnings per share slumped approximately 58.4%, while revenues declined 38.0% to $362.2 million.

U.S. Land Operations
During the quarter, operating revenues totaled $269.1 million (74% of total revenue), down 38.5% year-over-year. Average rig revenue per operating day was $25,895, up 3.4%, while average rig margin per day increased 10.5% to $14,551. However, segment operating income fell 43.2% from the year-earlier quarter to $90.1 million, mainly reflecting lower utilization levels, which were down to 55% (from 98% in the fourth quarter of 2008).

Offshore Operations
Helmerich & Payne’s offshore revenues declined 5.6% year-over-year to $47.3 million. Daily average rig revenue fell 9.4% to $47,547, while average rig margin per day was down 7.7% to $20,679. Segment operating income, at $12.0 million, decreased 12.0%. Rig utilization, which was 89% in the same period of 2008, came down to 78%.

International Land Operations
International land operations recorded revenues of $43.1 million, as against $93.3 million in the previous-year quarter. Average daily rig revenue was $29,406, down 22.0%, while rig margin per day nosedived 71.2% year-over-year to $3,244. The segment incurred a loss of $6.3 million during the quarter, compared to a profit of $18.6 million in the fourth quarter of 2008. Activity levels declined significantly, falling to 41% from 97% a year ago. The company’s decision earlier this year to delay booking revenue in Venezuela also contributed to the dismal international results.

Capital Expenditure & Balance Sheet
During the quarter, Helmerich & Payne spent approximately $142.3 million on capital programs. As of September 30, 2009, the company had more than $141.5 million in cash and long-term debt of $420 million (debt-to-capitalization ratio of 15.7%).

Outlook
Management indicated that drilling activity is picking up and hoped that the reported quarter represented the eventual bottoming of the North American natural gas driven land drilling operations. At the same time, it remained concerned about the current supply overhang in the natural gas market and noted an industry backlog of up to 1,500 uncompleted or deferred wells domestically.

Zacks Investment Research

(HP) Helmerich & Payne’s Profit Declines

Upstream

Total oil and gas production during the third quarter of 2009 reached 2,534 million oil-equivalent barrels per day, from 2,524 million in the previous quarter and 2,437 million in the same period of 2008. Compared to the third quarter of 2008, Brazilian oil and natural gas liquids production increased 4.8%, while international production was up 24.6%. However, Brazilian natural gas volumes were down 3.3% from the year-ago period, while international output during the quarter was down 6.0% year over year.

During the third quarter of 2009, the average sales price of oil in Brazil decreased 36.4% from the year-earlier period to $64 per barrel. Average sales price of international oil was down 16.9% year-over-year, reaching $57.16 per barrel. Regarding natural gas, average international sales price decreased 21.5% from the third quarter of 2008, while domestic price was down 61.5%.

Downstream

Refining costs per barrel in Brazil was down 2.6% to $3.37 and internationally, it fell 45.2% to $3.51. Lifting cost per barrel moved down 24.5% in Brazil to $22.86, while overseas costs rose 9.4% to $5.6. Petrobras exported an average of 724,000 barrels of oil per day, 10.2% higher compared to the same period last year.

Capital Spending & Balance Sheet

Year to date, Petrobras’ capital investments have reached R$50.7 billion. At the end of the September quarter, the company had cash and cash equivalents of R$30.1 billion and long-term debt of R$79.6 billion.

Segment Performance (Year to date)

E&P

The E&P segment earned R$13.1 billion during the first nine months of 2009, down 59.4% year over year, reflecting lower oil prices and the increase in exploration costs due to higher geological and geophysical expenses. These were somewhat negated by the 6% increase in average daily oil and NGL production and the lower government takes.

Supply

Segment earnings came in at R$12.1 billion as against a loss of R$2 billion in the first three quarters of 2008. The improvement over the previous-year period can be attributed to lower oil acquisition/transfer costs and reduced imported oil product costs, partly offset by lower export prices and, in Brazil, to the reduced price of those oil products pegged to international prices.

Gas & Energy

During the first nine months of 2009, Gas & Energy segment’s income reached R$718 million, compared to a loss of R$291 million in the year-earlier period. The positive comparison was due to reduced energy purchase costs, the greater availability of energy for trading, increased fixed revenue from auctions, and a reduction in the natural gas import/transfer cost. Partly offsetting these factors were reduced thermal power output due to higher hydroelectric reservoir levels and lower gas sales volume.

Distribution

Earnings in the Jan – Sep 2009 period reached R$949 million, up slightly (by 1.7%) from the same period previous year. The upturn in the operational results reflect an 11% increase in sales volume, mainly on the back of the inclusion of the commercial activities of Alvo Distribuidora. This was partly cancelled by narrowing of sales margins due to lower average sales price.

International

Petrobras’ International segment lost R$41 million during the first three quarters of this year, as against a profit of R$354 million in the same period of 2008. The year-over-year reduction came because of lower international oil prices and lower equity income due to losses on investments in the U.S.

Zacks Investment Research

(PBR) Petroleo Brasileiro S.A.’s Profit Exceeds Estimates

Distribution Maintained
MarkWest’s quarterly distribution of 64 cents per unit ($2.56 per unit annualized), remains unchanged from the year-earlier quarter and the previous quarter distribution. The distribution was paid on November 13 to unit-holders of record on November 2, 2009.

Distributable Cash Flow
During the quarter, the partnership generated distributable cash flow (DCF) of $40.3 million, down from $45.4 million in the prior-year quarter, providing 0.95x distribution coverage. The negative comparison reflects the significant decrease in commodity prices since August 2008.

Business Units
With regard to business units, the Southwest segment’s operating income decreased 7.7% from the year-ago level to $51.5 million, reflecting lower gathering systems throughput volumes from Foss Lake and Appleby facilities, partially offset by increased volumes processed at the East Texas facilities, rising natural gas liquids (NGL) product sales from the Arapaho gas processing plant, and contributions from the recently acquired Arkoma Connector Pipeline. The partnership continues to increase its gathering presence in southeast Oklahoma (in the Woodford Shale gathering system), where volumes were up approximately 37.7% to 389,100 thousand cubic feet per day (Mcf/d).

MarkWest’s Northeast segment’s operating profit slumped to $16.2 million, as against $24.9 million in the year-earlier quarter. The third quarter results suffered from a 2.8% drop in natural gas processed in the Appalachia area and a 6.9% decline in fee-based crude oil transportation. Additionally, lower commodity prices realized on NGL sales from the Appalachia region adversely affected the segment profitability.

Operating income from the Gulf Coast segment was down 49.0% year over year to $11.9 million, mainly due to steep decline in NGL prices.

Finally, MarkWest’s newest segment, Liberty (the partnership’s Marcellus Shale joint venture), reported a profit of $3.7 million.

Capital Expenditure & Balance Sheet
During the quarter, MarkWest spent approximately $66.9 million on growth capital projects (including equity investments), a decrease of $120.4 million, compared to the year-ago period. As of September 30, 2009, the partnership had long-term debt of approximately $1.2 billion, representing a debt-to-capitalization ratio of about 45.4%.

Guidance
Looking forward, management guided towards DCF of approximately $170 – $180 million for 2009. MarkWest’s capital plan for the year includes approximately $155 million of capital expenditures for growth projects, plus $5 million to $10 million for maintenance capital. For 2010, the partnership is expected to generate DCF in the $170 – $210 million. Growth capital expenditure is likely to be $300 million, while maintenance capital for 2010 is currently forecasted in a range of $10 – $15 million.

Zacks Investment Research

(MWE) MarkWest Energy Partners L.P. Profit Report Lags Estimates

Natural gas prices have recovered from their summer lows and now are in the range of US$4.00 to US$5.00 per Mcf. As a result, management is restoring a substantial portion of its productive capacity.

In the fourth quarter, with gas sales rebounding, the company’s results should improve substantially. We reaffirm our Neutral rating and 12-month price target of US$1.01, based on expected improvements in gas sales volumes and winter drilling for crude oil resources scheduled by the company in British Columbia.

Zacks Investment Research

(DEJ) Dejour Enterprises’ Outlook Improves After Earnings Miss

A GDP growth rate of 9% would be an impressive performance over the course of a year.

But it’s nothing short of outstanding over just one quarter.

Yet that’s the projected fourth quarter performance for Brazil – a country far removed from the United States both geographically and economically.

Leading the charge is a surge in domestic consumption, as optimistic Brazilians (no doubt also buoyed by the decision to award Rio the 2016 Olympic Games) pump money into the economy.

If that fourth quarter projection holds, it would provide a major shift in fortunes and a solid springboard for 2010. You see, even with that impressive 9% estimate, Brazil’s full-year GDP growth is only expected to fall between 1% and 1.5%, as the country’s struggling export market has dragged the economy down.

However, this area is also showing signs of revival. Despite a projected 22% drop this year, due to the 30% spike of the Brazilian real currency, export sales to the U.S. spiked by 20% in October.

Brazil’s Surging Popularity as a BRIC Nation

Brazil is one of the well-known BRIC nations (Brazil, Russia, India, China) and has surged in investor popularity over the past few years.

The resource-rich country (agriculture and commodities are crucial economic drivers) owes its more recent success to the fact that domestic consumers largely drive its economy, so it’s remained relatively sheltered from the worst of the global downturn. And with unemployment down and wages increasing since March, consumers are fueling the economic resurgence. So despite the struggles for Brazil’s export market this year, consider that it accounts for less than 25% of its annual GDP.

Investors are happy, too, sending the Brazilian Bovespa stock index up 71% year-to-date (as of November 12). With that performance, you might expect the market to be overvalued now. Not so. Compared to the S&P 500 and its fellow BRIC nations, it’s cheap. The Bovespa trades at 13 times 2010 earnings, significantly less than 18 for the S&P, 18.4 for India and 19 for China.

On top of that, Moody’s kicked up Brazil’s credit rating to investment grade in September.

Global investors are latching onto Brazil’s newfound strength, too. Deputy Trade Minister Welber Barral says foreign direct investment is expected to grow by 33% in 2010 – from $30 billion to $40 billion.

Here’s how to cash in on that strength yourself…

How to Benefit From Oil Market Muscle and Brazilian Strength Through One Company

Both Investment U’s commodities specialist, Lee Lowell, and energy expert, Dave Fessler, have written about the likelihood of oil prices rising to $90 and then $100 over the next 2-3 months.

Given their bullish oil price projections and Brazil’s end-of-year strength (and continuing into 2010), one of the best ways this double rising trend is through heavyweight Brazilian oil firm, Petroleo Brasileiro – better known as Petrobras (NYSE: PBR).

As of November 12, the company’s shares had blasted past their five-year average annual return of 42%, surging to a 101% year-to-date gain. Responsible for a good chunk of that gain was the major oil discovery off the coast earlier in 2009. What’s more, it’s still trading for just 14 times earnings.

For a broader, more diversified play on Brazil, take a look at the country’s ETF – the iShares MSCI Brazil Index (NYSE: EWZ). It tracks the price and yield performance of Brazilian stocks on the Bovespa.

Best regards,

Martin Denholm

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(PBR) Brazil is Set for An End-of-Year Economic Samba – Join The Dance

While the earnings came in above expectations, they were significantly lower from the year-earlier level mainly due to lower utilization. The company’s deepwater and midwater fleets were experiencing lower utilization rates due to out-of-service time.

Revenue from Pride’s eight-rig Deepwater fleet was $191.8 million, down approximately 32% sequentially. Deepwater operating earnings also decreased nearly 43% sequentially to $71.8 million. The sequential decrease in revenue was primarily due to lower utilization level. Average dayrate for the Deepwater fleet was $343,200 during the quarter, compared to $338,500 in the last quarter. Utilization of the Deepwater fleet was 76%, compared to 95% in the last quarter and 98% in the year-earlier quarter. As of Sep 30, 2009, the company had 100% of the available rig days in its Deepwater segment under contract in 2009, 98% in 2010, 82% in 2011 and 67% in 2012.

Pride’s Midwater fleet, comprising 6 semi-submersible rigs, reported quarterly revenue of $98.2 million, down nearly 14% sequentially. The decrease was mainly due to out-of-service time. Operating earnings were $25.7 million, down nearly 30% sequentially. Average dayrate in this segment was $264,100, up from $253,800 in the preceding quarter. Utilization in the quarter reduced to 67% from 82% in the last quarter. Currently, the company has 65% of the available rig days contracted in the last quarter of 2009, 67% in 2010, 64% in 2011 and 35% in 2012.

Revenue from Pride’s 7 Independent Leg Jackup rigs – operating in India, the Middle East, West Africa, and Mexico – came in at $72.8 million during the quarter, up nearly 4% sequentially. Operating earnings were $32.6 million, up nearly 8% sequentially. Average dayrate in this segment was $123,100, up from $119,400 in the previous quarter. Utilization in the quarter was 92%, flat sequentially.

Cash balance at the end of the quarter stood at $957.5 million. Pride spent $224 million on capital programs in the quarter. The company expects to incur total capital expenditures in 2009 of approximately $1.2 billion, with an estimated $702 million relating to the construction of four ultra-deepwater drillships. At Sep 30, 2009, the completion of the four-rig program amounted to approximately $1.6 billion in capital expenditures. Debt-to-capitalization ratio at the end of the quarter stood at 22%.

The recently completed spin-off of the shallow-water GoM-focused business fully transforms Pride into a deepwater-centric offshore driller. And this is evidenced by the fact that 77% of the company’s 2009 year-to-date revenue is from its floating rig fleets. While the company’s healthy backlog position offers a high level of earnings and cash flow visibility, a further slowing in the pace of new contracting activity and lower utilization are likely to continue to weigh on the stock.

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(PDE) Pride International Tops Estimates Despite Low Utilizations

Though the company’s results were hurt by lower commodity prices, Statoil continues to maintain a high activity level both in Norway and internationally. Equity and entitlement productions were up 8% and 10% year over year, respectively, with the start-up of operations on several new oil and gas fields such as Tyrihans in the Norwegian Sea, Tune Sor in the North Sea and Thunder Hawk in the Gulf of Mexico.

Total oil and gas entitlement production during the quarter averaged 1.71 million barrels of oil equivalent per day (MMBOE/d), 62% of which was oil and 38% natural gas, compared to 1.55 MMBOE/d in the year-earlier period. Total oil and gas liftings in the quarter were 1.66 MMBOE/d, compared to 1.50 MMBOE/d in the year-earlier period. During the quarter, the company’s realized oil prices averaged NOK 400 ($65.5) per barrel, down approximately 39% year over year, while realized natural gas prices averaged NOK 1.61 (26 cents) per standard cubic meter, down approximately 32% from the year-ago level.

Net adjusted operating income during the quarter was NOK 31.2 billion ($5.1 billion), down by 41% from the year-earlier quarter. The decrease was primarily caused by the reduction in prices for both liquids and gas, partly compensated by increased sales volumes of liquids and gas.

During the quarter, total capital investment was NOK 25 billion ($4.1 billion) and operating cash flows were NOK 22.5 billion ($3.7 billion). Net debt-to-capitalization ratio stood at 27.1%.

Statoil expects its 2009 equity production to be 1.95 MMBOE/d. Capital expenditures for 2009 are expected to be around US$13.5 billion. Excluding purchases of fuel and gas for injection, unit production cost for equity volumes in 2009 to 2012 is expected to be in the range of NOK 33 to 36 per barrel. The company expects to complete around 70 exploration and appraisal wells in 2009.

Statoil is gaining momentum with the start-up of operations on several new oil and gas fields. A sharp rise in production is offsetting the fall in oil and gas prices, which helps the company to experience smaller profit declines than other large European oil companies such as Royal Dutch Shell (RDSA) and BP plc (BP).

Zacks Investment Research
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(STO) Statoil ASA Slips, but Volumes up

In the year-ago period, the company earned 69 cents per share. Revenue was down 71.1% year over year to $176.2 million. The negative comparisons compared to the year-ago period reflect lower drilling activity. The number of rigs operating during the quarter averaged 73 (70 located in the U.S. and 3 in Canada), compared to 276 average rigs operating in the third quarter of 2008. However, it was up from 63 rigs operating in the June quarter.

Contract Drilling

Contract Drilling revenue totaled $112.3 million (64% of total revenue), down approximately 77.5% year-over-year. Average revenue per operating day was $16,800, down 5.5% sequentially, while average direct costs per operating day increased 6.7% to reach $10,630. The segment reported an operating loss of $19.9 million as against operating income of $157.2 million in the year-ago quarter. The weak results of this segment primarily reflect the significant decrease in the average number of rigs operating, compared to the year-ago period (73 as against 276) on the back of decreased demand largely caused by lower commodity prices for natural gas and oil.

Pressure Pumping

The company’s Pressure Pumping business recorded revenue of $41.7 million, a decrease of 31.2% year-over-year. In anticipation of increased activity associated with Marcellus Shale, the company has added equipment and workforce during recent years. However, delays in development of the shale have caused a slower ramp-up of customer activity, which in turn affected the profitability of this segment.

Additionally, the company’s customers have increased their focus on the development of unconventional reservoirs in the Appalachian Basin and the larger jobs related to it. As a result of this and declining commodity prices, Patterson-UTI experienced a decrease in the number of smaller traditional pressure pumping jobs, which led to an overall decrease in the number of total jobs. Consequently, the Pressure Pumping business’ operating profit was down significantly (by 90.6%) to $1.2 million.

Drilling & Completion Fluids

Revenue from Drilling & Completion Fluids fell 53.9% year over year to $16.5 million. The segment reported an operating loss of $2.3 million, $1.4 million more than that recorded during the third quarter of 2008. The weak results can be attributed to decreased sales volumes, both on land and offshore in the Gulf of Mexico.

Oil & Natural Gas

Revenue generated from the Oil & Natural Gas business was $5.7 million, down 58.4% from the year-ago quarter. This segment posted an operating income of $1.9 million, down significantly from the year-ago period, as it suffered from lower average sales prices of oil and natural gas.

Capital Expenditure & Balance Sheet

During the quarter, Patterson-UTI spent approximately $104.1 million on capital programs, of which approximately 90% went to the Contract Drilling segment. As of September 30, 2009, the company had $119.2 million in cash and no long-term debt.

Outlook

We remain concerned about the North American land drilling scene and its impact on Patterson-UTI, one of the largest onshore drillers. We believe that the current supply overhang in the natural gas market will continue to weigh on the company’s dayrates and margins during the next few quarters.

On the positive side, Patterson-UTI’s premium newbuild fleet and stellar financial health (free cash flow positive and a debt-free balance sheet) should help it weather the downturn better than its peers, such as Nabors Industries (NBR). Considering these factors, we believe that Patterson-UTI shares are fairly valued at current levels. As such, we see the stock performing in line with the broader market and rate it as Neutral.

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(PTEN) Patterson-UTI Net Falls – But Report Beats Views

Total revenue for the quarter was $905.6 million, up 5% year over year. Contract Drilling Services revenue was $875 million, up 4.8% year over year. Total operating income for the quarter was $504.4 million, up nearly 8% from the year-earlier level. Operating income for the Contract Drilling segment was $624 million, up more than 7% year over year.

Average dayrate for the semisubmersible (6,000 feet or greater) rigs were $434,435, compared to $329,586 in the year-earlier quarter. Average capacity utilization was 98% versus 95% in the year-ago period. Semisubmersible rigs that are capable to work up to 6,000 feet experienced an average dayrate of $261,167 versus $237,674 in the year-ago quarter while average capacity utilization was the same for the comparable periods at 100%.

Average dayrate for the company’s jackups was $143,388, compared to $150,350 in the year-ago period. Average capacity utilization fell significantly to 80% from the year-ago level of 91%.

At the end of the quarter, the company had cash balance of $756 million and long-term debt of $751 million, representing debt-to-capitalization ratio of 10.5%. During the quarter, the company repurchased 2 million shares, bringing year-to-date total repurchases to 3.7 million shares at an average price per share of $30.35 and a total cost of $113 million.

Noble’s solid backlog position provides the company with significant earnings and cash flow visibility for the coming years. It has also been benefiting from its strategy to transit from the U.S. markets to international markets.

We believe that Noble offers investors a quality, diversified play on the international offshore drilling markets, with exposure to both deepwater and shallow water. However, we are concerned about the continued weakness in global jackup market with dayrates still drifting down. Consequently, we rate the stock as Neutral.

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(NE) Noble Corporation’s 3Q Profit Rises

Total revenue for the quarter was $905.6 million, up 5% year over year. Contract Drilling Services revenue was $875 million, up 4.8% year over year. Total operating income for the quarter was $504.4 million, up nearly 8% from the year-earlier level. Operating income for the Contract Drilling segment was $624 million, up more than 7% year over year.

Average dayrate for the semisubmersible (6,000 feet or greater) rigs were $434,435, compared to $329,586 in the year-earlier quarter. Average capacity utilization was 98% versus 95% in the year-ago period. Semisubmersible rigs that are capable to work up to 6,000 feet experienced an average dayrate of $261,167 versus $237,674 in the year-ago quarter while average capacity utilization was the same for the comparable periods at 100%.

Average dayrate for the company’s jackups was $143,388, compared to $150,350 in the year-ago period. Average capacity utilization fell significantly to 80% from the year-ago level of 91%.

At the end of the quarter, the company had cash balance of $756 million and long-term debt of $751 million, representing debt-to-capitalization ratio of 10.5%. During the quarter, the company repurchased 2 million shares, bringing year-to-date total repurchases to 3.7 million shares at an average price per share of $30.35 and a total cost of $113 million.

Noble’s solid backlog position provides the company with significant earnings and cash flow visibility for the coming years. It has also been benefiting from its strategy to transit from the U.S. markets to international markets.

We believe that Noble offers investors a quality, diversified play on the international offshore drilling markets, with exposure to both deepwater and shallow water. However, we are concerned about the continued weakness in global jackup market with dayrates still drifting down.

Consequently, we rate the stock as Neutral.

Zacks Investment Research
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(NE) Noble Corporation’s Third Quarter Profit Rises

Importantly, Diamond maintained its special cash dividend of $1.875 per share in this quarter. This is in addition to its regular quarterly dividend of 12.5 cents per share (50 cents per share annualized). Both dividends are payable on Dec 1 to shareholders of record on Nov 2, 2009.

Despite slightly lower dayrates for high specification floaters, contract drilling revenue got marginally increased year-over-year to $885.3 million. The high specification floaters accounted for nearly 40% of the total quarterly contract drilling revenue, while intermediate semi-submersibles and jackups accounted for 48% and 12% of the total, respectively.

Diamond’s Gulf of Mexico (GoM) high specification floaters recorded an average dayrate of $389,000 during the quarter, down nearly 1% year over year. Intermediate semi-submersible rigs realized an average dayrate of $278,000, down more than 3% year over year, while jackup rigs’ dayrates averaged $117,000, up more than 4% year over year.

High specification rig utilization was 75% during the quarter, down from 86% in the year-ago quarter. Intermediate category rig utilization was 84%, up from 79% in the year-ago quarter. Meanwhile, jackup rig utilization was 65%, down significantly from 89% in the prior-year quarter.

While contract drilling expenses decreased more than 3% to $304.1 million, contract drilling operating income increased by more than 2% to $581 million. At the end of the quarter, Diamond had approximately $251 million in cash on hand and $999 million in long-term debt. Debt-to-capitalization ratio at the end of the quarter stood at about 21.6%.

Diamond has established quite a track record in returning excess cash to shareholders through special dividends. Though its healthy backlog position offers a high level of earnings and cash flow visibility, we are concerned about the declining drilling activity, which is expected to be further exacerbated by the arrival of new-build rigs over the coming years. We recommend a Neutral rating for Diamond shares.

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(DO) Diamond Offshore Drilling Keeps Special Dividend

However, on a year-over-year basis, ENSCO’s earnings per share declined more than 49%, while revenues were down 31.3% to $425.4 million. The year-over-year negative comparison was due to lower rig utilization, a decline in average day rates for the premium jackup fleet, and unplanned downtimes.

Jackup

The average day rate in the Asia-Pacific region decreased 9.6% year over year to $141,945. The Asia-Pacific jackup rig utilization was 62%, down from 96% in the year-ago quarter.

Average day rates for the company’s Europe/Africa fleet was down more than 22% from the prior-year quarter to $175,861, while rig utilization in the region fell to 63%, as against 96% in the year-ago period.

Day rates in the company’s North and South America jackup market averaged $132,962, up 29.4% year over year. However, jackup utilization in the region reduced to 57% during the quarter, as compared to 98% in the year-ago period.

Deepwater

The star performer during the quarter was the deepwater segment whose sales were up significantly year-over-year (nearly 131%) to $62.5 million. This can be attributed to the mobilization of the company’s ENSCO 8500 rig in the U.S. Gulf of Mexico in early June 2009. Though rig utilization dropped from 87% to 64%, average day rates rose 7% to $387,407.

Balance Sheet

At the end of the quarter, the company had more than $1 billion in cash and long-term debt of $283 million (debt-to-capitalization ratio of 5.1%).

Outlook

Management indicated a bullish outlook for the deepwater segment with revenues expected to grow significantly in 2010 and 2011. ENSCO further informed that it has recently added the ultra-deepwater semi-submersible rig ENSCO 8501 rig to its active drilling fleet. The company projected a rise in jackup utilization, thereby partially offsetting the impact of declining day rates.

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($ESV) ENSCO International Beats on Deepwater Strength

Revenue & Profitability

Compared to the third quarter of 2008, Nabors’ adjusted earnings per share declined 77.6% (from 67 cents to 15 cents) due to persistent weakness in its North American gas-centric businesses combined with less robust international results. Revenues were down 44.2% to $804 million as sales declined in all of the company’s segments.

Nabors’ main operating segment is ‘Contract Drilling’, which accounts for bulk of the company’s revenues and operating earnings. Its operations are spread across 6 sub-segments: U.S. Lower 48 Land Drilling, U.S. Well Land Servicing, U.S. Offshore, Alaska, Canada, and International.

Contract Drilling Segment: Analysis

During the quarter, contract drilling revenues were down 43.7% year over year to $738.3 million, while the segment’s operating income declined approximately 64% to $134.1 million. The negative comparison reflects lower activity levels during the quarter, which was down 44.6% to 249.8 rig years.

Both the U.S. Lower 48 Land Drilling and the U.S. Land Well Servicing sub-segments suffered year-over-year declines in their sales and profitability, affected by lower operating hours in the company’s area of operations.

In Canada, revenues were down more than 50% and the company incurred a loss, as business did not improve coming out of the seasonally slow second quarter.

Regarding international operations, revenues and operating income were lower than expected and declined year over year. This primarily reflects the suspension of a large number of maturing contracts, resulting in lower utilization.

Nabors’ U.S. offshore operations recorded quarterly revenue below the year-ago level and posted its first ever loss on the back of a continued slump in drilling activity that led to a 59.4% dip in activity levels.

Alaska posted solid quarterly results as revenues and operating income both went up from the previous-year period, benefiting from lump sum payments in settlement of two contracts that would have expired at the end of the year. This more than offset an 18.2% decrease in rig years.

Balance Sheet

At the end of the quarter, the company had $1.1 billion in cash and short-term investments and $4.1 billion in long-term debt, with a net debt-to-capitalization ratio of approximately 44.1%.

Outlook

Management indicated that drilling activity is picking up and hoped that the third quarter represented the eventual bottoming of the North American natural gas driven land drilling operations, though the company’s international operations may take a further quarter or two to rebound. Nabors anticipates activity levels to pick up next year, buoyed by a demand recovery.

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(NBR) Nabors Just Misses, Eyes Recovery

In September 2008, ENSCO received the first of the seven new ultra-deepwater semisubmersibles in the ENSCO 8500 Series®. ENSCO 8502 and ENSCO 8503 are scheduled for delivery in the first and fourth quarters of 2010, respectively, each with two-year contracts in the GoM. ENSCO 8504 is scheduled for delivery in 2011. ENSCO 8505 and ENSCO 8506 are scheduled for delivery in 2012.

The company is on the track toward having the world’s largest fleet of ultra-deepwater semisubmersibles capable of drilling in water depths of 7,500 feet or more, given its investment of more than half of the $3 billion committed to the ENSCO 8500 Series® new build program.

We believe that the company’s competitive advantage lies in the design of its new build deepwater rigs. The fundamentals surrounding the deep water segment remain solid and there is significant visibility for continued day rate improvement despite the lower price for oil and gas. The company has excellent cash flow visibility, given its solid contract backlog position. Hence, there is sufficient liquidity to address any operational and corporate needs.

While we find some upside potential in ENSCO’s shares in the short to medium term, we are concerned about the company’s emphasis on the shallow water market, which makes it difficult for the stock to keep up with its peer group.

Our Neutral recommendation is unchanged.

Zacks Investment Research
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(ESV) ENSCO International Launches Deepwater Rig

We believe that MarkWest’s recent successful completion of a notes offering and formation of joint ventures have buttressed the partnership’s financial profile and provided it with sufficient liquidity to meet its near- to medium-term needs.

These favorable developments, in conjunction with the partnership’s hedge program, have improved our confidence in MarkWest’s ability to maintain current distribution levels (64 cents per unit, or $2.56 per unit annualized) over the next few quarters.

However, we believe that these positives are already reflected in its current valuation and do not foresee much upside from current levels. As such, we rate MarkWest units as Neutral.

In particular, gathering and processing partnerships such as MarkWest are more sensitive to commodity prices compared to other partnership subgroups. As a result, collapsing energy prices over the last few quarters have adversely affected MarkWest’s cash flow stability.

Considering the current uncertain economic environment, we believe the partnership’s revenue and profitability to be under pressure in the near-to-medium term.

Our $26 target price reflects an unchanged distribution run rate of $2.56 per unit and a target yield of 10%. Our target yield assumes a 625 bps spread over our 10-year Treasury bond yield expectation of 3.75% over the next 12 months.

Zacks Investment Research
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(MWE) MarkWest Energy Partners Earns Neutral Rating

Patterson’s activity levels in the U.S. peaked in early Oct 2008, with a rig count of 275. Since then, the company has been witnessing a steep and rapid decline on the back of decreased demand largely caused by lower commodity prices for natural gas.

Favorable prices over the last few years led to increased natural gas drilling, with the total onshore rig count scoring an all-time high in 2008. As a result, after remaining essentially flat for almost 9 years (1998?2006), natural gas production went up by around 5.5% in 2007 and in excess of 9% in 2008.

Natural gas prices rallied earlier last year, reaching over $13 per million British thermal units (MMBtu) in July 2008, before trending down to a seven-year low level of sub-$2 per MMBtu (we are referring to Henry Hub spot prices here). Continued strong domestic production (from a number of unconventional natural gas fields) and recessionary consumption (due to the economic downturn), particularly in the industrial sector, are at the core of the commodity’s current woes.

Prices have rebounded somewhat over the past few weeks, currently settling at well over $3 per MMBtu, helped by some bullish storage data from the EIA as well as indications of an uptick in industrial production levels. But with the U.S. natural gas storage levels still remaining 16% above their five-year average, we do not see any sustained price gains on the commodity front.

Producers scaled back drilling operations over the past several months in the midst of falling commodity prices and tighter access to credit. However, the recent numbers suggest that companies are beginning to bring oil and gas rigs back on line amid signs of economic stabilization that could drive up energy demand.

The overall picture, though, remains weak, particularly for natural gas, whose inventories are threatening to surpass the all-time high level. The supply picture is expected to reverse in the coming months as the lagging effect of the sharp drop in domestic drilling activity takes hold.

Until then, we prefer to stay on the sidelines with land drillers such as Patterson-UTI, as reduction in rig utilization and drilling margins continue to weigh on the company. Heavy investments in rig construction during the last few years has helped increase the size of the overall drilling fleet, which is now coming back to gnaw at the industry as demand drops.

With the current U.S. land rig count down roughly 50% from its all-time peak (achieved in Aug 2008), we believe this idled drilling capacity will continue to weigh on dayrates and margins into 2010, even as the outlook for natural gas improves towards the end of 2009, in our view. Patterson-UTI remains particularly exposed to this weak outlook for land drilling given its commodity rig fleet and lack of contract coverage.

On the positive side, the company’s premium newbuild fleet and stellar financial health (free cash flow positive and a debt-free balance sheet) should help it weather the downturn better than its peers such as Nabors Industries (NBR). Additionally, in the context of the current economic conditions, we view Patterson’s decision to reduce its quarterly cash dividend to 5 cents per share as a step in the right direction.

We currently rate Patterson shares as Neutral.

Zacks Investment Research
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(PTEN) Patterson-UTI Energy Inc’s Rig Count Continues Climbing

Dejour is a development-stage oil and gas exploration company active in the British Columbia Peace River Arch play, the Colorado Piceance Basin and other North American locations. The company now has a prime opportunity in the Piceance Basin, where its 2,200-acre (72% working interest) position at Gibson Gulch, though undeveloped, is surrounded by a parcel of 8,000 net acres including developed and undeveloped properties that, in information made public in August 2009, will change hands for approximately $258 million.

Mr. Wolfe adds, “Our price target is derived from discounted cash-flow estimates of the intrinsic value of the company’s properties. On the basis of only the company’s present net asset value and without consideration of future cash flow from the development of its oil and gas leasehold inventory, the shares are undervalued by approximately 25%.”

Zacks Investment Research
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(DEJ) Dejour Enterprises Coverage Initiated at Neutral