Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 

4-Traders Homepage  >  Equities  >  Nyse  >  Devon Energy Corp    DVN

Delayed Quote. Delayed  - 09/30 10:01:04 pm
44.11 USD   +2.49%
09/16 DEVON ENERGY : announces third successful STACK spacing test and hig..
09/14 DEVON ENERGY : Announces Fourth-Quarter Cash Dividend for Common Sto..
09/14 National oil companies to retain investment dominance - IEA's Bir..
SummaryQuotesChartsNewsAnalysisCalendarCompanyFinancialsConsensusRevisions 
News SummaryMost relevantAll newsSector news 

For energy companies 2012 likely to be fraught with pricing peril

share with twitter share with LinkedIn share with facebook
share via e-mail
0
05/15/2012 | 09:46pm CEST

Just six months ago energy companies were the kings of the hill, delivering stronger results than any other market sector, but 2012 is looking very different, if first-quarter results are signs of future fortune.

Part of the reason was the drop in natural gas prices to lows not seen in a decade. Half the companies in the sector missed Wall Street's estimates for the first quarter, a blow analysts did not see coming.

Balance-sheet weakness could be in store in coming quarters if prices remain under pressure.

Furthermore, energy companies have been spending heavily on capital projects, and their return on investment could be hurt by slowed global growth.

"The bias is still down. Earnings expectations for most of the energy sector are still too high," said Laton Spahr, who manages Columbia Management's Dividend Opportunity Fund in Minneapolis, with $18 billion in assets.

"The overhang we have in excess natural gas most likely gets worse as the summer goes on. That is going to keep natural gas prices relatively low. It's going to force some capacity to be reduced," Spahr said.

Weak demand looks set to hurt the energy sector. Second-quarter earnings are expected to fall 11.3 percent from one year ago, more than the 6.6 percent fall forecast by Thomson Reuters on April 1. Third-quarter earnings are seen down 9.1 percent, more than the 6.1 percent decline estimated previously by Thomson Reuters.

The question is whether the weakness in fuel prices has been sufficiently factored into share prices. Natural gas futures are down 43 percent in the last year, but the NYSE Arca Natural Gas Index of stocks has fallen 8.4 percent in that time.

Oil prices are down just 5.3 percent in that time, and the overall S&P 500 energy sector is down nearly 12 percent.

Nearly half of energy-sector names missed quarterly earnings forecasts in the almost-finished reporting period, compared with the 24 percent that missed for all Standard & Poor's 500 companies, Thomson Reuters data showed.

Most companies in the sector do not offer guidance. Just two S&P 500 energy names did so, and those were negative.

TOUGHER RETURN ON INVESTMENT

The energy sector has been spending heavily and raising fears that return on investment might shrink, particularly if oil prices are driven lower by sluggish global growth.

U.S. front-month crude futures peaked at $106 a barrel at the beginning of May but have since fallen to $94 a barrel.

As a sector, energy's ratio of capital expenditures to asset depreciation is high compared with the rest of the market, said Omar Aguilar, chief investment officer for equities at Charles Schwab Corp, in San Francisco.

"The spending and using capital in the business is not being rewarded by return on equity" and that is apparent in margins and earnings, said Aguilar, who ranks energy among the less attractive sectors this year.

According to Thomson Reuters data, the S&P 500 energy sector's ratio of capital expenditures to depreciation is higher than that of any other sector, aside from utilities, and both are the only S&P 500 sectors with ratios above two, with energy at 2.18 and utilities at 2.34.

The ratio of capital expenditures to depreciation among large-cap energy stocks has historically been around 1.6, Aguilar said. With capital depreciation eroding the value of investments and demand likely to fall, it is another reason to be wary of the sector, he said.

The International Energy Agency last month forecast growth in oil demand this year of 800,000 to 860,000 barrels per day, broadly unchanged from last year.

"Clearly people are more skeptical on how much return on equity they can get when the rest of the world is slowing down," Aguilar said.

TO HEDGE OR NOT TO HEDGE

Energy companies, like many other businesses, often try to hedge the risk associated with fluctuations in commodity prices, but after natural gas prices fell dramatically, some companies engaged in fewer hedges, expecting prices to rebound.

The less hedged a company, the more exposed it is to commodity-market volatility.

Natural gas producer Chesapeake Energy, which has come under fire because of the personal financial dealings of its chief executive, reported a quarterly loss that was bigger than expected by Wall Street.

As prices fell, Chesapeake removed its hedges with the intent to restore them as natural gas prices rebounded, which didn't happen.

"Obviously we are not happy with that decision. If we had to do it all over again, with the hindsight of winter, we would have obviously done something different," said Chesapeake CEO Aubrey McClendon, on a May 2 conference call.

Prices have not bounced back. Natural gas futures prices on the New York Mercantile Exchange slid to a 10-year low of $1.90 per million British thermal units in mid-April. On Tuesday, the June contract for natural gas traded at $2.50 on the NYMEX.

They have been on a steep decline since the second quarter of last year, with high production from shale keeping the market oversupplied. It is causing some companies to shutter production and cancel drilling plans. U.S. natural gas rig counts have fallen to 613 from 890 at this time a year ago.

"Investors are not expecting the sun to rise again for this industry any time soon," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York.

(Additional reporting by Joe Silha; Editing by Steve Orlofsky)

By Caroline Valetkevitch

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on DEVON ENERGY CORP
09/16 DEVON ENERGY : announces third successful STACK spacing test and high-rate exten..
09/15 DEVON ENERGY : Announces Third Successful STACK Spacing Test and High-Rate Exten..
09/15 DEVON ENERGY : to Present at Johnson Rice & Company Energy Conference
09/14 DEVON ENERGY : Announces Fourth-Quarter Cash Dividend for Common Stockholders
09/14 National oil companies to retain investment dominance - IEA's Birol
09/13 DEVON ENERGY CORP : ex-dividend day
09/11 DEVON ENERGY : to boost rig count in Delaware basin, STACK play
09/09 DEVON ENERGY : to Present at Johnson Rice and Company Energy Conference
09/07 DEVON ENERGY : to Present at Johnson Rice & Company Energy Conference
09/06 DEVON ENERGY : Announces Third Successful STACK Spacing Test and High-Rate Exten..
More news
Sector news : Oil & Gas Exploration and Production - NEC
09/29DJUnited Airlines Mechanics to Vote on New Labor Agreement
09/28DJCanada Gives Conditional Approval to Petronas's LNG Terminal
09/27DJAGL Energy Adds Oil Search's CEO to its Board
09/27 When deals go bad - China state firm managers spooked by new liability rules
09/26DJRICE ENERGY : to Buy Vantage for $2.7 Billion Including Debt
More sector news : Oil & Gas Exploration and Production - NEC
News from SeekingAlpha
09/29 Devon Energy Is Set To Profit After OPEC Agreement
09/28 Energy stocks rally with OPEC deal
09/28 SCOOP/STACK Changing Oklahoma Dynamics
09/26 Farmer's Almanac Cold Winter Forecast Could Impact Natural Gas Prices
09/26 Should Anadarko Break Itself Up To Achieve Full Value Recognition?
Advertisement
Financials ($)
Sales 2016 9 915 M
EBIT 2016 -61,2 M
Net income 2016 -4 623 M
Debt 2016 8 445 M
Yield 2016 0,89%
P/E ratio 2016 -
P/E ratio 2017 40,40
EV / Sales 2016 3,18x
EV / Sales 2017 2,70x
Capitalization 23 096 M
More Financials
Chart DEVON ENERGY CORP
Duration : Period :
Devon Energy Corp Technical Analysis Chart | DVN | US25179M1036 | 4-Traders
Full-screen chart
Technical analysis trends DEVON ENERGY CORP
Short TermMid-TermLong Term
TrendsNeutralBullishNeutral
Technical analysis
Income Statement Evolution
More Financials
Consensus
Sell
Buy
Mean consensus OUTPERFORM
Number of Analysts 37
Average target price 46,3 $
Spread / Average Target 4,9%
Consensus details
EPS Revisions
More Estimates Revisions
Managers
NameTitle
David A. Hager President & Chief Executive Officer
J. Larry Nichols Executive Chairman
Tony D. Vaughn Chief Operating Officer
Thomas L. Mitchell Chief Financial Officer & Executive Vice President
Ben Williams Chief Information Officer & Vice President
More about the company
Sector and Competitors
1st jan.Capitalization (M$)
DEVON ENERGY CORP37.84%23 096
OCCIDENTAL PETROLEUM C..7.85%55 706
CNOOC LTD17.73%55 351
CONOCOPHILLIPS-6.90%53 838
EOG RESOURCES INC36.62%53 253
CANADIAN NATURAL RESOU..42.17%35 242
More Results