MarkWest Liberty is a partnership between natural gas pipeline operator MarkWest Energy Partners and energy infrastructure private equity fund NGP Midstream & Resources L.P. MarkWest has a 60% operated interest in the venture (remaining 40% owned by NGP) that has been formed to construct and operate natural gas midstream services to support producers in the emerging Marcellus Shale play in western Pennsylvania and West Virginia.

The new processing deals are in addition to a previously announced agreement with independent oil and gas company Range Resources Corp. (RRC) that was executed earlier this year. All three contracts include significant acreage dedications and further commitments. MarkWest expects to complete the new 120 million cubic feet per day (MMcf/d) Majorsville processing plant by mid 2010.

As per the deal terms, the hydrocarbon-rich gas produced by Chesapeake and Statoil will be gathered by Columbia Gas Transmission Corp., a unit of natural gas distributor NiSource Inc. (NI), using its infrastructure in Marshall and Wetzel counties in West Virginia. Pursuant to the arrangements MarkWest and Columbia announced in August 2008, the later will supply the gas to MarkWest Liberty’s Majorsville processing plant that is slated to come up adjacent to Columbia’s existing Majorsville compressor station. The hydrocarbon liquids produced at the Majorsville plant will then be linked through a pipeline to MarkWest Liberty’s Houston, Pennsylvania processing complex.

MarkWest Liberty hopes to sell the processed liquids into high-value markets in the northeastern U.S. To facilitate this, the company is looking to set up an approximately 37,000 barrel per day fractionation facility at the Houston complex, in addition to transportation, storage, and marketing infrastructure.

We believe that the agreements with Chesapeake and Statoil will establish Majorsville as MarkWest Liberty’s second major gas processing hub in the highly prospective Marcellus Shale play. MarkWest Liberty is the largest provider of midstream services in the region and is investing a significant amount of capital to provide infrastructure that will be required for the development of the Marcellus Shale leaseholds.

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(MWE) MarkWest Energy Partners’ Unit Signs Gas Deals

Crude oil’s gains have been even more impressive, given its heavy leverage to the health of the global economy. Our view is that oil should be able to hold onto its recent gains and consolidate around current levels, provided this favorable economic view remains in place.

While we have greater confidence in the staying power of the current oil rally, this does not mean that we will not see any short-term pullbacks. On the whole, we expect oil prices in 2010 to be higher than the 2009 levels, but remain significantly below the 2008 peak levels.

Crude oil’s near-term fundamentals remain dismal, to say the least. Inventories in the U.S. are at multi-year highs and remain bloated worldwide. At current projections, global 2009 demand will be below last year’s level, which itself was below the 2007 level — the first time since the early 1980’s of two back-to-back negative growth years.

The only positive in this otherwise bleak supply-demand picture is OPEC’s success at taking a fair amount of oil off the market. OPEC’s successful stewardship provided the commodity with a floor in Dec’08 in the low $30’s a barrel range.

While the market has been heavily discounting the commodity’s near-term problems, we would expect the day-to-day price movement to largely track the news flow about the health of the global economy.

The oil price outlook has historically been the key determinant of the sector’s performance. And given our favorable oil price view, we would strongly advocate for taking an over-weight position in the sector.

OPPORTUNITIES

This outlook has major implications for sub-sector choices within the energy space, though the risk-reward trade off for most of these sub-sectors remains compelling despite recent gains.

The strengthening oil price environment should benefit producers, particularly those international players having attractive growth opportunities in their home markets. Two such standout names are Brazil’s Petrobras (PBR) and China’s Cnooc Ltd. (CEO). Both of these emerging market energy plays offer lucrative growth opportunities going forward. Italy’s Eni (E) also remains attractive at current levels.

Petrobras is perhaps the only major oil company worldwide that has discovered substantial oil reserves in recent years. The company’s discovery of oil offshore Brazil in the massive Tupi field, expected to be developed in the coming years, has made Brazil a major oil player.

Cnooc Ltd. remains well placed to benefit from China’s growing energy appetite. The company enjoys a monopoly on exploration activities in China’s very prospective offshore region. Cnooc Ltd. also has a growing presence in China’s natural gas and LNG infrastructure.

WEAKNESSES

Despite their strong recent gains, we continue to feel strongly that industry players in the servicing and drilling ends of the business with substantial natural gas-focused and North America-centric operations should be avoided. We also remain wary of refiners, given weak gasoline demand and strengthening oil prices.

A major sub-sector that fits that description is the onshore drillers. We believe that pricing and margins for operators in these two sub-sectors will remain under pressure through 2010, even as the outlook for natural gas price improves. As such, we would avoid Nabors (NBR) and Patterson-UTI (PTEN), two major North American land drillers.

We continue to have a negative view of refiners as well, particularly independent refiners such as Valero (VLO) and Tesoro (TSO), who have no other line of business to support them in the current soft environment. The massive economy-wide job losses are not expected to reverse anytime soon even though the outlook for the overall economy has steadily improved. This, coupled with an unfavorable regulatory landscape, is expected to keep demand under pressure for the foreseeable future. Margins are expected to remain under pressure given the strengthening oil prices (oil is a refiner’s primary feedstock).

Zacks Investment Research
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(PBR) Oil & Gas Industry – Zacks Analyst Interviews

Investors can find such funds by checking out the entire list of the Zacks #1 Rank Non-US Equity Funds.

3 Great Examples

RS Emerging Markets A (GBEMX) seeks long-term capital appreciation by investing in a diversified portfolio of companies located in developing economies.

The fund expects long-term capital appreciation to be accompanied by dividend income, which may vary depending on factors such as the location of the investments. It focuses on companies that trade at reasonable prices and can sustain above-average growth rates.

Petroleo Brasileiro S.A. (PBR), Reliance Capital Ltd. and Dragon Oil Plc are among the fund’s key holdings.

BNY Mellon Emerging Markets (MIEGX) seeks long-term capital growth. It may invest in companies of any size.

The fund primarily invests in a broadly diversified portfolio of equity and equity-related securities of companies located in emerging markets. It also invests in debt securities of corporate and sovereign issuers deriving a preponderant part of their income from these economies.

Shareholders need to make a minimum initial investment of $10,000 to enter this Zacks#1 Rank (“Strong Buy”) fund. It distributes dividends and capital gains annually.

AIM Developing Markets A (GTDDX) was incepted in January 1994. The investment seeks long-term capital growth; income is a secondary consideration.

The fund invests in issuers in at least four countries, but invests no more than a quarter of assets in issuers in any one country. As of June 30, its portfolio turnover was 54%.

Borge Endresen has manged the fund since May 2003. It has outstripped total returns of its benchmark in the last 3- and 5-year periods.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our new mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

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(PBR) Top Non-US Equity Funds – Mutual Fund Commentary

Crude oil’s gains have been even more impressive, given its heavy leverage to the health of the global economy. Our view is that oil should be able to hold onto its recent gains and consolidate around current levels, provided this favorable economic view remains in place.

While we have greater confidence in the staying power of the current oil rally, this does not mean that we will not see any short-term pullbacks. On the whole, we expect oil prices in 2010 to be higher than the 2009 levels, but remain significantly below the 2008 peak levels.

Crude oil’s near-term fundamentals remain dismal, to say the least. Inventories in the U.S. are at multi-year highs and remain bloated worldwide. At current projections, global 2009 demand will be below last year’s level, which itself was below the 2007 level — the first time since the early 1980’s of two back-to-back negative growth years.

The only positive in this otherwise bleak supply-demand picture is OPEC’s success at taking a fair amount of oil off the market. OPEC’s successful stewardship provided the commodity with a floor in Dec’08 in the low $30’s a barrel range.

While the market has been heavily discounting the commodity’s near-term problems, we would expect the day-to-day price movement to largely track the news flow about the health of the global economy.

The oil price outlook has historically been the key determinant of the sector’s performance. And given our favorable oil price view, we would strongly advocate for taking an over-weight position in the sector.

OPPORTUNITIES

This outlook has major implications for sub-sector choices within the energy space, though the risk-reward trade off for most of these sub-sectors remains compelling despite recent gains.

The strengthening oil price environment should benefit producers, particularly those international players having attractive growth opportunities in their home markets. Two such standout names are Brazil’s Petrobras (PBR) and China’s Cnooc Ltd. (CEO). Both of these emerging market energy plays offer lucrative growth opportunities going forward. Italy’s Eni (E) also remains attractive at current levels.

Petrobras is perhaps the only major oil company worldwide that has discovered substantial oil reserves in recent years. The company’s discovery of oil offshore Brazil in the massive Tupi field, expected to be developed in the coming years, has made Brazil a major oil player.

Cnooc Ltd. remains well placed to benefit from China’s growing energy appetite. The company enjoys a monopoly on exploration activities in China’s very prospective offshore region. Cnooc Ltd. also has a growing presence in China’s natural gas and LNG infrastructure.

WEAKNESSES

Despite their strong recent gains, we continue to feel strongly that industry players in the servicing and drilling ends of the business with substantial natural gas-focused and North America-centric operations should be avoided. We also remain wary of refiners, given weak gasoline demand and strengthening oil prices.

A major sub-sector that fits that description is the onshore drillers. We believe that pricing and margins for operators in these two sub-sectors will remain under pressure through 2010, even as the outlook for natural gas price improves. As such, we would avoid Nabors (NBR) and Patterson-UTI (PTEN), two major North American land drillers.

We continue to have a negative view of refiners as well, particularly independent refiners such as Valero (VLO) and Tesoro (TSO), who have no other line of business to support them in the current soft environment. The massive economy-wide job losses are not expected to reverse anytime soon even though the outlook for the overall economy has steadily improved. This, coupled with an unfavorable regulatory landscape, is expected to keep demand under pressure for the foreseeable future. Margins are expected to remain under pressure given the strengthening oil prices (oil is a refiner’s primary feedstock).

Zacks Investment Research
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(PBR) Oil & Gas Industry – Favorable View on Stabilizing Economy

However, results were significantly below year-earlier levels, reflecting a sustained slowdown in North American activity levels.

We remain concerned about the North American land drilling scene and its impact on Nabors, the largest onshore driller. This, coupled with the company s relatively weak balance sheet in
an environment of continued credit market turmoil, accounts for our Underperform recommendation.

Zacks Investment Research
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(NBR) Nabors Industries- Bear of the Day

Company Description

Arena Resources acquires, explores, develops, and produces oil and natural gas in the south-central states of the U.S. The company’s current reserve is estimated to be nearly 66 million barrels of oil equivalents.

Hit By Energy Prices

Arena released second-quarter results on Aug 7 that included revenues of nearly $28 million, down sharply from last year. While production was down just 2%, net income was well below last year’s levels of $24.8 million, 67 cents. Earnings for this quarter came in at $14.4 million, or 20 cents per share, for the company’s sixth consecutive earnings surprise as the consensuses was 19 cents.

This is not quite a shock considering the average price per barrel received was just over $55, relative to last year’s more than $119.

But Still Strong

Following the report, 7 of 9 analysts polled by Zacks have raised full-year estimates. The average for next year is now $1.02, up from 76 cents. Next year’s estimates average $1.55, up from $1.09 in the same time frame.

While over all this is a decrease of more than 50% the growth here is in the earnings momentum, rather than typical year-over-year growth rates. Earnings are expected to grow more than 50% in 2010, but still fall short of 2008 figures.

Industry Comparison

Arena is currently carrying no debt, while the average debt to equity ratio for the industry is nearly 35 times. The company also has a 41% profit margin while its peers are typically that much in the red. Arena’s ROE is a solid 10.7% compared to the industry norm of 5.5%.

The Chart

Share continue to consolidate as energy prices remain relatively stable. We could see a strong upward movement after the pattern continues further. Take a look at the chart below.

Zacks Investment Research
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(ARD) Arena Resources, Inc – ROE Twice Industry Average

The well 6407/2-5S was drilled to a depth of 3,289 meters below sea level. Based on preliminary calculations, the size of the find is between 13 and 31 million barrels of oil and 1–2 billion standard cubic meters of gas. Management is optimistic about the discovery and affirms the possibility of other new finds in this area.

Despite maturity of the Norwegian Continental Shelf region, the Norway-based company is well positioned to sustain its production from this area at current levels for the next few years. Internationally, Statoil plans to continue a high level of exploration activity to develop the company’s resource base.

Our Outperform rating on StatoilHydro reflects its growing upstream presence in the emerging basins of the Caspian Sea, West Africa and the deepwaters of the US Gulf of Mexico. Production growth from international operations is a key component of the company’s overall annual upstream growth plan over the next few years.

Zacks Investment Research
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(STO) StatoilHydro ASA Finds New Reserves

Patterson’s activity levels in the U.S. peaked in early October 2008, with a rig count of 275. Since then, the company has witnessed a steep and quick 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 making a new 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 Btu (MMBtu) in July 2008 before trending down. Prices have since dropped sharply to the current level of around $2.2 (we are referring to Henry Hub spot prices here).

Recessionary demand and strong supplies continue to weigh on prices. This unfavorable commodity-price backdrop together with the credit crisis has led to capex reductions by exploration and production players (natural gas producers), both public as well as private.

The resultant drop-off in onshore drilling activities has weighed on the fortunes of all oilfield service players in general and land drillers such as Patterson-UTI, in particular through a reduction in rig utilization and drilling margins. 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 bite the industry as demand has dropped.

With the current U.S. land rig count down roughly 51% from its all-time peak (achieved in August 2008), we believe this idled drilling capacity will continue to weigh on dayrates and margins into 2010, even as natural gas’ outlook 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.

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(NBR) Patterson-UTI Energy Rig Count Edges Up

The result is encouraging, and development in association with the Asgard B platform will be considered. The company said that production may start in three to four years. The proven resources are estimated to be between 15 and 25 million barrels of recoverable oil equivalent.

The Asgard field development includes 58 production and injection wells divided on 16 subsea templates. Two vessels and one platform are located on the field. Discovered in 1984, the Smorbukk field has been on stream since 1999.

As of year-end 2008, StatoilHydro had approximately 5.58 billion oil-equivalent barrels in proved reserves. It is the operator of 39 producing oil and gas fields, and accounts for 60% of all Norwegian petroleum production. Due to its strong offshore exposure, Statoil has been a leader in subsea production.

We continue to believe that the positives in the Statoil story – strong finances and a relatively improved asset base following the Norsk Hydro acquisition – are more than offset by its substantial exposure to the mature and high-cost Norwegian Continental Shelf (NCS) basin.

Despite the maturity of the NCS region, StatoilHydro is well positioned to sustain its production from this area at current levels for the next few years. Internationally, Statoil plans to continue pursuing a high level of exploration activity to develop the company’s resource base.

The company has a growing upstream presence in the emerging basins of the Caspian Sea , West Africa and the deepwaters of the U.S. Gulf of Mexico. Production growth from international operations is a key component of the company’s overall annual upstream growth plan over the next few years. Consequently, we recommend an Outperform rating for the stock.

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(STO) Statoil’s Positive Production Outlook

Company Description

EV Energy Partners is a Master LP that acquires and operates oil and gas properties. Fields are located in Ohio, West Virginia, and Louisiana.

Another Surprise

On Aug 10 the master partnership announced earnings per share of 70 cents, 11 cents higher than the Zacks Consensus Estimate. Production rose 23% on a year-over-year basis to 5.9Bcfe.

This was the second consecutive surprise and the third in the past 4 quarters.

Analysts Like What They See

Following the report, the Zacks Consensus Estimate for full-year 2009 jumped 20 cents to $2.36. This represents a growth rate of over 500%. Next year’s estimates are averaging $2.21, a 7% decline.

Out in Front

EVEP is the top rated domestic exploration and production company. The partnership boasts an excellent debt to equity ratio of just 0.7 compared the industry average of 37. EVEP also operates with a net profit margin of 229%. Its ROE, 26%, is about 5 times higher than its peers’ average of 5.5%.

The Chart

Shares of EVEP formed a double-top which could have spelled bad news, however units maintained the trend line and should pressure that level once again.

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(EVEP) EV Energy Partners Earnings Estimates are Rising

The company plans to drill “wildcat” wells (those drilled in an area where no current oil or gas production exists) on the license using semi-submersible facility Ocean Vanguard. StatoilHydro has a 40% operated interest in production license 442, which was awarded in June 2007. Well 25/2-17 is located about 20 kilometers east of the company’s Frigg field in the central part of the North Sea and is the first well to be drilled on the production license.

We believe that the 25/2-17 well, if successful and rendered economically feasible, will further consolidate StatoilHydro’s leading position in the Norwegian Continental Shelf. The company’s current production from Norwegian Continental Shelf is expected to decrease somewhat in the short run due to delayed ramp-up of new fields and other project delays. We, however, expect volumes to start building up from this year onwards.

StatoilHydro is a major international integrated oil and gas company that emerged in its present shape following the acquisition of Norsk Hydro’s (NHY) oil and gas business in 2007. Though the company has operations in all major hydrocarbon-producing regions of the world, it has an upstream focus on the Norwegian Continental Shelf.

As of year-end 2008, StatoilHydro had approximately 5.58 billion oil-equivalent barrels in proved reserves. It is the operator of 39 producing oil and gas fields and accounts for 60% of all Norwegian petroleum production. Due to its strong offshore exposure, Statoil is a leader in subsea production.

We currently rate ADRs of StatoilHydro as Outperform.

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(STO) Statoil Wins New Drilling Permit

After it’s recent run-up, oil has pulled back to just over $70. It’s moved the stock prices of a number of producers and distributors as the markets have churned recently. But even though it’s price has leveled off and supplies are relatively up and steady, oil is going to go back up.

As sure as we are that the sun will come up tomorrow, the taxman and death; oil is going back up. Quite simply, even with all of the action on alternative energy solutions, the world still runs on petroleum. And nothing seems to be changing that so far.

It’s a disturbing thought that some of the best alternatives to oil power are still years from mass production. Even worse is the number of products that we use every day that are made from petroleum byproducts.

It’s why smaller companies like Arena Resources (NYSE: ARD) and SandRidge Energy (NYSE: SD) will continue to be attractive as long as they can maximize the production of small oil deposits within the continental United States – right where the oil is needed.

These companies can pick and choose based on what the majors discard. It means their costs are lower and that they can withstand lower prices, longer, profitably. But they should have to wait too long…

As the prospects for an economic resurgence increase, oil and energy companies will rise on the expected need for their addictive products. It’s not the case now, but it will be.

View original at: Investment Advice and Investment Research with a Contrarian Point of View

(ARD) Rising Oil Means Invest Small and Local

A couple of weeks ago, Transocean’s ultra-deepwater drillship Discoverer Clear Leader started its operations in the U.S. Gulf of Mexico under a five-year contract with Chevron Corp. (CVX). Clear Leader features Transocean’s patented dual-activity drilling technology designed to enable parallel drilling operations from a single derrick that saves time as well as money in deepwater well construction in comparison to conventional rigs.

We believe that the long-term fundamentals of the deepwater market continue to remain strong. 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. As such, our recommendation for Transocean is Outperform.

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(RIG) Transocean Scores a New Deepwater Contract

The mat-supported jackup market in the GoM has been hit hard by the sharp drop in overall activity levels due to weak natural gas prices and tight credit market conditions. Since experiencing very strong demand in the 2004–2007 period, utilization levels and dayrates have fallen steadily and currently remain at depressed levels.

With this spin-off, Pride has completed its multi-year restructuring and asset repositioning program that has transformed it from a diversified oilfield service and equipment operator to a focused deepwater driller.

The deepwater drilling market is typically oil-centric and enjoys long lead times. Given the high capital intensity and complexity of deepwater projects, they are typically sponsored only by the major oil companies or national oil companies. The deepwater drilling market, as a result, has largely been an island of stability in the overall turbulent oilfield scene lately.

With the turnaround in oil prices and the overall broad market recovery, the fortunes of the offshore drillers have also turned. While all drillers have benefited from the rally, the deepwater drillers have justifiably been the outperformers. Pride shares have been the second best in the group, having gained 51% year to date (slightly below Transocean’s (RIG) gain).

In addition, Pride’s solid backlog provides it with plenty of business, reflecting sound earnings and cash flow visibility. In the long run, we see significant upside in Pride shares and recommend an Outperform rating.

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(PDE) Pride International Completes Seahawk Drilling Spin-off

Company Description

Concho Resources is an oil and natural gas exploration company. Most of the company’s properties are located in New Mexico and Texas. Concho also is involved in several emerging plays.

Huge Surprise

On Aug 3 the company reported second-quarter results that included production of 2.7 million barrels of oil equivalents, up 88%. Proven reserves are up 13% to 154.5.

Earnings per share came in at 34 cents on just under $30 million in net income. This compares to the Zacks Consensus Estimate of 19 cents, breaking its streak of missing forecasts.

Words from the Top

Timothy A. Leach, Chairman, CEO and President said, “The Company’s significant production and reserve growth through the first six months of 2009 continues to validate our efforts in both of our core areas.” He also continued that the company planned increase activity levels.

Estimates Spiking

Following the announcement 16 upward revisions were submitted from 18 analysts polled by Zacks. The consensus estimate is now $1.17, up from 88 cents. Forecasts for next year are averaging $1.44, up from $1.03.

Zacks Investment Research
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(CXO) Concho Resources Inc. – Earned 34 Cents vs. 19 Cents Estimated

The company did manage to post better-than-expected second-quarter earnings (topping the Zacks Consensus Estimate by 4 cents) on the back of stronger margins associated with new rig deployments in its international operations and solid performance from the Alaska sub-segment. However, results were significantly below year-earlier levels, reflecting a sustained slowdown in North American activity levels.

We remain concerned about the North American land-drilling scene and its impact on Nabors, the largest onshore driller. This, coupled with the company’s relatively weak balance sheet (net debt-to-capitalization ratio of around 46%) in an environment of continued credit market turmoil, accounts for our grim outlook.

While the current U.S. land rig count is already down more than 52% from its all-time peak in August 2008, we see significant room for further decline in the coming months before the market stabilizes. This idled drilling capacity will continue to weigh on dayrates and margins into 2010, even as natural gas’ outlook improves towards the end of 2009, in our view.

In order to offset the relatively soft U.S. drilling scene, the company is looking more and more towards international growth opportunities. After spending around $1.5 billion in 2008, management is guiding towards capital investment of approximately $1.1 billion in 2009. This may be significantly burdensome for the company’s future cash flows and stretch its balance sheet.

Given these headwinds, we expect Nabors shares to be under pressure in the medium- to long-term until fundamentals in the land-drilling market improve meaningfully.

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(NBR) Nabors Hurt by North American Drilling Business

Preliminary analysis indicates that the Campos Basin has recoverable volumes of 280 million barrels of light oil. Geologically similar reservoirs had already been identified in the Santos Basin by drilling two wells in the Marlin Sul field. These discoveries are a result of the efforts and the modern technology that the company has been using in other production areas.

Petrobras’ expertise in deepwater oil and gas exploration and production (E&P) is reflected in its outstanding production growth track record in the past as well as the production and reserves growth prospects in the future after significant discoveries in recent years.

Over the past several years, a strong pricing environment has allowed Petrobras to implement various strategic initiatives aimed at ensuring its long-term growth in production and reserves.

Additionally, significant discoveries further strengthen Petrobras’ position in the global oil and gas industry. We have an Outperform rating for Petrobras, supported by its leadership position in the Brazilian domestic energy market and recognized expertise in offshore E&P.

Zacks Investment Research
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(PBR) Petrobras found light crude in reserves

For the second quarter of 2009, Diamond declared a regular dividend of $0.125 and the 8th consecutive quarter of a special dividend of $1.875. The total dividend offered in the period was $2.00 per share.

Diamond Offshore is a major contract driller, providing comprehensive offshore drilling services to the global energy industry. The company is leveraged to the global deepwater markets through its fleet of high-specification and mid-water depth equipment. The company’s solid contract backlog and deepwater orientation offer a very high level of earnings and cash flow visibility.

While Diamond’s healthy backlog position offers a high level of earnings and cash flow visibility, a further slowing in the pace of new contracting activity, declines in dayrates for new contracts, declines in utilization and the stacking of idle equipment remain our concerns. We expect Diamond shares to perform in line with the broader market and hence reiterate our Neutral recommendation.

Zacks Investment Research
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(DO) Diamond Offshore Drilling: Another Special Dividend

Net profit declined 20% to R$7.73 billion ($4.16 billion), down from R$9.72 billion in the second quarter of 2008. The company posted an EBITDA of R$17.51 billion compared to R$18.63 billion the year-ago period. However, oil and gas production in Brazil was up 6% year over year and 1% sequentially. This was due to new oil projects, including the Frade field, which is being developed with Chevron Corp. (CVX).

Total debt reached $35 billion, up 16% from the previous quarter, as Petrobras increased leverage to develop the massive offshore sub-salt fields. Debt is expected to rise further as the company plans to invest $174 billion in the underexplored Santos Basin, including the massive Tupi field, through 2013.

The fall in oil prices creates an extremely tough environment for the oil industry as a whole and for Petrobras in particular. Lower crude oil prices significantly reduced the company’s profitability and ability to fund expenses from its own resources in the near future. With drastic changes in the international economic environment, commodity producers like Petrobras were among the worst affected as their business is cyclical in nature.

Despite the current economic environment, we believe that the continuous increase in demand in Brazil coupled with the company’s new investments and acquisitions will fuel its earnings in the medium term.

Zacks Investment Research
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(PBR) Petrobras Fights Back – continuous increase in demand in Brazil

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(SD) Sandridge Moves Into Oversold Territory – Zacks Tale of the Tape

Industry Trend

Energy stocks have traded lower over the last 2 months in reaction to oil prices dropping from $147 a barrel to current prices around $110 a barrel. This has provided some much desired relief to consumers, but on a historical basis, oil prices are still incredibly high, and that continues to produce big-time earnings for oil companies. This dynamic was evident when Whiting reported record-setting second-quarter results on July 31.

Second-Quarter Results

Revenue was up 84% from the same period last year to $354.8 million. Net income totaled $80.4 million, an amazing increase of more than 200% from last year. This produced earnings of $1.90 per share, slightly below analyst estimates but still very impressive none-the-less.

In spite of the recent small miss, Whiting does have a strong history of surprising and beating analyst estimates. Over the last four quarters, Whiting has beaten by an average of 6 cents, or 7%.

Whiting noted that its impressive results were driven by increased production and higher selling prices.

Analyst Estimates

In response to a bullish energy environment, analysts have continued to raise their earnings projections for Whiting. The current-year estimate has advanced to $8.25 per share from $7.93 per share 30 days ago. The next-year estimate is bullish as well, pegged at $9.33 per share, a 13% earnings growth projection.

Based upon the current-year estimate, this stock looks seriously undervalued, carrying a forward P/E multiple of just 10X, a steep discount to the overall market.

The Chart

In spite of its recent pullback, this stock is still deep in the green on the year. A long-term trend line is currently being pressured and looks well positioned to provide support.

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(WLL) – Whiting Petroleum – next-year estimate is bullish as well, pegged at $9.33 per share, a 13% earnings growth

Helmerich & Payne, Inc. is primarily a contract drilling company, engaging in the contract drilling of oil and gas wells in the United States and internationally. The company provides drilling rigs, equipment, personnel, and camps on a contract basis to explore for and develop oil and gas from onshore areas and from fixed platforms, tension-leg platforms, and spars in offshore areas.

Quarterly Results Reflect Growth

The company released its fiscal third-quarter report in late July. The results included record net income of $125.4 million, compared to the previous year’s $115.2 million. The oil & gas driller missed Wall Street earnings expectations only once over the past five consecutive quarters and, on average, was 5.6% ahead of the estimates during those quarters.

Helmerich & Payne said, since its last announcement in late May, it signed 18 long-term contracts with eight exploration and production companies to operate 18 new FlexRigs(R)*. Since the beginning of this fiscal year, HP announced 50 new contracts for the construction and operation of 50 new FlexRigs under long-term contracts with firm term durations of three years or greater. This makes 127 long-term commitments for new FlexRigs that have been announced by HP since March, 2005. To date, 95 of the 127 new builds have been completed, with the remaining 32 scheduled for completion by the end of fiscal 2009.

C.E.O. Hans Helmerich stated that quarterly results in U.S. land rig operations and the announcement of 18 more new build orders further validate the company’s leadership in implementing new technology in the field. “We believe that as FlexRigs continue to meet and exceed expectations in the field and bring meaningful value to our customers with safer and lower cost wells, demand for both the FlexRig and the organizational competence H&P delivers, will provide more opportunities for growth in both our U.S. and international operations,” Helmerich added.

Consensus Estimate are Higher

All 7 covering analysts boosted earnings projections for the year ending September 2008. Forecasts of $4.22 per share are above last month’s $4.07. For the following year, 8 of 9 covering analysts have estimates pegged at $5.30 per share, versus last months’ $5.13. One of those analysts further bumped the projection up to $5.31.

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(HP) – Helmerich & Payne – 8 of 9 covering analysts have estimates pegged at $5.30 per share

In spite of the fact that oil has recently traded lower from its high of $147 a barrel, prices are still very high compared to historical norms. This dynamic continues to translate into big profits for energy company, and that was apparent when unit reported impressive second-quarter results on Aug 5.

Second-Quarter Results

Revenue increased 29% from last year to $370.1 million. Net income jumped to $94.1 million, up from $65.6 million last year, a 43% gain. This produced earnings of $2.00, ahead of analyst expectations by one penny.

Unit has surprised and beaten analyst estimates in each of the last four quarters, having done so by an average of four cents, or 2.79%.

Unit said that it was able to achieve a 21% increase in its total oil and natural gas production, and has 115 of its 131 drilling rigs currently under contract, an 88% utilization rate.

Analyst Estimates

With oil prices remaining high, analysts have upgraded the earnings projections of many energy companies, including unit. The current-year estimate now stands at $7.80 per share, up from $7.34 per share 90 days ago. The next-year estimate is pegged at $8.57 per share, a 10% earnings growth projection.

Valuations

Not only is Unit operating in a growth sector, it has carries extremely attractive valuations. Based upon the current-year projection, the company’s forward P/E multiple is 8.7X, a huge discount to the overall market.

The Chart

Shares of Unit have traded lower over the last 6 weeks, but more recently have rebounded from a key support level and once again turned higher. The big picture with this stock is that it has the earnings to support much higher prices, and if oil accelerates, it will have even more strength behind it.

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(UNT) – Unit Corporation – able to achieve a 21% increase in its total oil and natural gas production