Low cost capital, compelling valuations and building evidence on the ground that a bottom is in, or at least very close: Those are the necessary conditions for a resurgence of mergers and acquisitions activity in the energy sector.
At this point, cost of equity capital is high even for best in class companies. Debt capital, however, is a far different story. Model Portfolio member’s ExxonMobil (NYSE: XOM) bonds of April 2051 yield just 2.9 percent to maturity, while Williams Companies’ (NYSE: WMB) May 2050 bonds yield less than 3.7 percent. And private capital has rarely if ever been this flush.
Despite the worst market conditions for US midstream companies in at least a generation, stability and sustainability were the themes of Kinder’s Q3 results and guidance this week.
What do super major oil company Chevron Corp (NYSE: CVX) and leading US rooftop solar installer Sunrun Inc (NSDQ: RUN) have in common? They’re on the leading edge of a building wave of energy mergers and acquisitions.
After a series of rulings rejecting federal permits for new pipelines, the US District Court for D.C. actually threw out one for an already operating one. The result: An order to immediately shut down the $3.8 billion Dakota Access Pipeline, which transports oil from the Bakken shale of the upper Midwest.
Investors’ craving for simplicity and low costs is second only to desire for generous dividends and capital gains. Unfortunately, those two priorities aren’t always compatible.
The environment is changing but the super major business model is alive and well.
After a long hiatus, energy M&A has heated up this year, first with Chevron Corp’s (NYSE: CVX) takeover offer for Noble Energy (NYSE: NBL) and now the proposed merger of equals between Devon Energy (NYSE: DVN) and WPX Energy (NYSE: WPX). Here are our thoughts for long overdue sector consolidation.
New Hope Corp (ASX: NHC, OTC: NHPEF) is the only Energy and Income Advisor coverage universe company to announce a dividend cut since the previous issue went to post. That brings the total number to 71 since early March.
Calendar Q3 earnings reporting season is coming up fast. Here are confirmed and expected dates for EIA Portfolio and High Yield Energy List companies’ releases and analyst calls.
US natural gas prices enjoyed quite a run this summer, jumping more than 91% from a 25-year low on June 26th of $1.432/MMBtu to a late-August high of $2.743/MMBtu. While that’s impressive, we’d caution about getting bullish on gas this year as we see little chance for sustained upside in US natural gas prices above the $2.75-$3.00/MMBtu range this winter. We continue to see a retest of this summer’s lows in gas, or even worse, as more likely.
Whitehaven Coal (ASX: WHC, OTC: WHITF) is the only Energy and Income Advisor coverage universe company to announce a dividend cut since the previous issue went to post. That brings the total number to 70 since early March.
Elliott and Roger on Oct. 29, 2020
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