Monday Brings Solid Downside Move in Crude Oil

Crude oil closed down $1.70 a barrel at $94.43 today. Prices closed near mid range today and hit a fresh 4 1/2 month low. The bears have the solid overall near term technical advantage. Prices today saw a downside “breakout” from a bearish pennant pattern on the daily bar chart.

Natural gas closed down 8.4 cents at $2.425 today. Prices closed nearer the session low today and saw a corrective pullback from recent gains. The bulls still have some upside near term technical momentum. The bears do still have the overall near term technical advantage, however.

Gold futures closed down $20.10 an ounce at $1,563.90 today. Prices closed nearer the session low today and hit a fresh 4 1/2 month low. The key “outside markets” were in a bearish posture for gold today aided by the U.S. dollar index moving higher. Serious near term chart damage has been inflicted recently. Gold bears have the solid near term technical advantage. A 2 1/2 month old downtrend is in place on the daily bar chart.

Seadrill (SDRL) Releases First Quarter 2012 Results

Consolidated revenues for SeaDrill in the first quarter of 2012 amounted to US $1,050 million as compared to US $1,059 million in the fourth quarter 2011. Operating profit for the quarter was US $456 million compared to US $436 million in the preceding quarter.

Net financial items for the quarter showed a gain of US $24 million compared to a loss of US $501 million in the previous quarter. The previous quarter included a US $463 million impairment charge on our 39.9 percent ownership in Archer. While this quarter includes a gain of US $91 million on derivative financial instruments compared to a gain of US$33 million in the previous quarter.

US $63 million of the gain is related to the sale of our holdings in Ensco plc. The rest is related to unrealized gains on currency forward contracts, total return swap arrangements and interest rate swaps. Income taxes for the first quarter were US $41 million unchanged from the fourth quarter. Net income for the quarter was US $439 million or basic earnings per share of US $0.89.

Read the entire SeaDrill 1st Quarter Earnings Report

Gold & Gold Miners Are Closing in on a Major Bottom

Gold & Gold Miners Are Closing in on a Major Bottom

From this mornings Video Traders Playbook.....

Members of my service as well as long time readers know that I do a lot of analysis based on the past. I am constantly looking at long term historical price charts and data. As a trader, I am always looking for an edge.

Obviously the keys to long term success involve proper position sizing, risk management mechanisms, and ultimately leveraging probability. Professional traders are masters of these tenets. These characteristics are what separate successful traders from average traders over the long haul.

Sometimes through my rigorous analysis I come across price charts and oscillators that help put together a picture that helps shape my view of the marketplace. The past few months have been some of the most difficult market conditions that I have seen in some time.

The “wall of worries” permeates the financial landscape as risk at present seems unprecedented. The list of macroeconomic concerns ranges from the European sovereign debt crisis to escalation of military action in the Middle East.....Read the entire article and watch video!

Who Offers the Highest Dividend Among the Offshore Drillers?

It's SeaDrill! As any of our regular readers know SeaDrill is a COT Fund favorite, today the guys at Power Hedge give us an insight into the SDRL business model.....

SeaDrill Ltd. (SDRL) currently offers the highest dividend yield of any major offshore drilling company. At the time of writing, SeaDrill pays an annualized dividend of $3.20 which gives the stock an 8.74% yield. Here is how that compares to other major offshore drilling companies:

click to enlarge images

Source: International Hedges

As we can see, SeaDrill is by far the highest-yielding dividend stock in the group. One reason for this lies with the company's financial model which is somewhat different than its peers. Most dividend-paying companies set their dividends at a level that management expects to be sustainable over an extended period of time. SeaDrill's philosophy, on the other hand, is summed up quite well by a statement given on page 21 of the company's annual report, "Our primary objective is to profitably grow our business to increase long term distributable cash flow per share to our shareholders." In effect, SeaDrill pays out a significant percentage of its operating cash flows to investors and finances its growth through debt.

This business model has worked out quite well for SeaDrill and its stockholders. SeaDrill's fleet has grown rapidly since 2005. In that year, the company's fleet consisted of five rigs. Since that time, the company's fleet has grown to 62 rigs at the end of March 2012.

Investors in the company have also been amply reward for their investment. SeaDrill began trading on the NYSE on April 15, 2010. However, the company began trading on the Oslo Børs exchange well before then. The company was listed on the exchange in 2005. Since that time, it has delivered a rather impressive run.

SeaDrill has also delivered substantial rewards to its shareholders in the form of dividends over the years. The company began paying dividends in the fourth quarter of 2007 according to SeaDrill's website.

The dividend has had significant volatility from year to year and even from quarter to quarter. This is because of the company's dividend philosophy which I mentioned earlier in this article. Essentially, the dividend tends to rise and fall with the company's operating cash flows.

It is because of this dividend philosophy that I believe that SeaDrill will increase its dividend going forward. SeaDrill generates most of its cash flows through the rigs that it manages. The company contracts out the rigs in its fleet to oil and gas companies to perform drilling operations in offshore locations all over the world. In exchange, the oil and gas companies pay a dayrate to SeaDrill for the use of these rigs.

The fundamentals for the offshore drilling industry are quite strong and getting stronger. In a recent article posted here on Seeking Alpha, I stated that dayrates are currently back up to the highest levels that were reached during the previous cycle. There is evidence that dayrates could climb even higher still. SeaDrill has 25 rigs that will be available to be contracted out between now and the end of 2014, excluding newbuilds, according to the company's most recent fleet status report. Nine of these units are ultra-deepwater floaters, per the company's fourth quarter press release. This is important because ultra-deepwater rigs carry the highest dayrates and the highest profits. As these rigs come off of their current contracts, SeaDrill should be able to obtain new contracts for these rigs at higher dayrates due to the prevailing tight market. This should increase the company's revenues and operating cash flows.

In addition to re-contracting out existing rigs, SeaDrill has a large newbuild program that is likely to increase the company's operating cash flows. SeaDrill has been on something of a building spree lately and has ordered four new rigs from shipyards since the beginning of April. The newly ordered rigs consist of one ultra deepwater drillship, one new tender assist rig, and two ultra deepwater semisubmersible rigs, one of which will belong to SeaDrill's 74%-owned subsidiary, North Atlantic Drilling (NATDF.PK). As SeaDrill stated on May 4, the company now has a total of eighteen rigs under construction. These rigs should significantly increase SeaDrill's operating cash flows upon leaving the shipyard. This is because these rigs will greatly increase the number of rigs that SeaDrill has contracted out and thus is able to generate revenues from.

SeaDrill looks very likely to increase its operating cash flows going forward. The combination of re-contracting out existing rigs at higher dayrates and fleet growth through newbuilds should ensure that SeaDrill will see strong growth in its cash flows through the current industry upcycle. As previously discussed, the company's philosophy is to return as much of its operating cash flows to investors as it reasonably can. Therefore, SeaDrill will likely boost its dividend even further going forward.

Get your free trend analysis for SeaDrill today!

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Weekly Energy Futures Wrap Up

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Energy futures are lower once again today on pessimism concerning the European recession as well as a slowdown in China causing crude oil prices in early trading in New York to be down another $.85 in the June contract trading at $96.22 a barrel also in sympathy with the stock market the rest the commodity markets all lower this morning putting crude oil down nearly $2.00 dollars for the week right at 5 month low after selling off more than $8 dollars last week.

Unleaded gasoline futures are also at a five month low down 250 points at 2.985 in the June contract continuing its bearish momentum on the fact that OPEC came out and said supplies are very excessive at this point and abundant.

Heating oil futures for the June contract are down nearly 200 points also near five month low currently trading at 2.97 a gallon while natural gas futures which have been up four days a row are down slightly trading around 2.47 down around two points for the trading session in real quiet light volume so far this morning.

The U.S dollar is basically unchanged for the trading day not having much impact on energy prices this morning, however with an adequate supply in the market and with the rising dollar and slowing European countries I still think crude oil could break 90 dollars a barrel in the next coming weeks and I’m pessimistic on all of the commodities and as I’ve been stating in many blogs in the last several weeks because demand is slowing down tremendously at this point.

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Natural Gas Weekly Update

• Natural gas prices remained above $2.00 per million British thermal units (MMBtu) over the report week (Wednesday to Wednesday) at most trading locations across the country. The Henry Hub price closed within a 9 cent range, settling at $2.36 per MMBtu yesterday (up 5 cents for the week).
• The natural gas futures market generally trended higher over the week. At the New York Mercantile Exchange (NYMEX), the June 2012 natural gas contract gained 21.2 cents per MMBtu to close at $2.465 per MMBtu yesterday.

• Working natural gas in storage rose slightly last week to 2,606 billion cubic feet (Bcf) as of Friday, May 4, according to EIA’s Weekly Natural Gas Storage Report (WNGSR). An implied storage build of 30 Bcf for the week positioned storage volumes 799 Bcf above year-ago levels.
• The natural gas rotary rig count, as reported by Baker Hughes Incorporated on May 4, declined by 7 to 606 active units, 32 percent lower than the same week last year. Meanwhile, oil-directed rigs increased by 27 to 1,355 units, 45 percent above the same week last year.

Get more natural gas details at the EIA website

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Bearish Pennant Pattern Forms on the Crude Oil Daily Bar Chart

Crude oil closed up $0.15 a barrel at $96.96 today. Prices closed near mid range today and saw tepid short covering in a bear market. The bears still have the overall near term technical advantage. A bearish pennant pattern has formed on the daily bar chart.

Natural gas closed up 1.6 cents at $2.481 today. Prices closed near mid range today and hit another fresh six week high. The bulls have gained some fresh upside near term technical momentum this week. The bears do still have the overall near term technical advantage, however.

Gold futures closed up $1.90 an ounce at $1,596.10 today. Prices closed near mid range and tried to stabilize and consolidate today. Prices Wednesday hit a 17 week low. Serious near term chart damage has been inflicted this week. Gold bears have the solid near term technical advantage. A nine week old downtrend is in place on the daily bar chart.

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Transocean: First Quarter Results Show Company Potential

Transocean (RIG) announced its first quarter 2012 results on May 2, 2012. Here are some of the highlights from this report:

• First quarter revenues totaled $2.331 billion. This is a decrease from the $2.422 billion in revenues in the fourth quarter of 2011.
• First quarter 2012 net income attributable to controlling interest was $42 million. This is a significant improvement from the $6.119 billion loss that was taken during the fourth quarter of 2011. The reason for this huge disparity can be found by looking at the "net unfavorable items" category on the income statement. Transocean had $184 million of such items in the first quarter of 2012. The company had $6.176 billion of such items in the fourth quarter of 2011. If these net unfavorable items are backed out, we can see that Transocean still had a higher net income in the first quarter of 2012 compared to the fourth quarter of 2011: $226 million versus $57 million.
• Revenue efficiency was 90.4% in the first quarter of 2012 compared to 91.9% in the fourth quarter of 2011.
• Fleet utilization was 61% for the quarter.
• First quarter 2012 operating and maintenance expenses were $1.410 billion. This is an improvement from the fourth quarter of 2011 which saw operating and maintenance expenses of $1.565 billion excluding estimated loss contingencies associated with the Deepwater Horizonincident.
• Operating cash flows for the first quarter of 2012 totaled $540 million. This is a decrease from the $563 million that the company had in the fourth quarter of 2011.

Over the last few months, I have written several articles showing the strong fundamentals for the offshore drilling market. Transocean made a point of restating these trends during their earnings conference call. According to Terry Bonno, Transocean's SVP of Marketing, "Utilization and dayrates are continuing to improve and have reached levels not seen since the last cycle."

.........Read the entire article "Transocean: First Quarter Results Show Company Potential"

6 Things Successful Trader Have in Common

Cnooc Deploys Oil Rig as Weapon to Assert China Sea Claims

China’s first deep water drilling rig began operations near an island chain in the South China Sea in a move to assert Beijing’s territorial claims as travel agencies suspended Philippines tours amid safety concerns.

Cnooc Ltd., China’s largest offshore oil producer, said its semi submersible CNOOC 981 began drilling yesterday 320 kilometers (199 miles) southeast of Hong Kong at a depth of 1,500 meters, the official Xinhua News Agency reported. The area is north of the Paracel islands claimed by China, Vietnam and Taiwan.

“Large deep water drilling rigs are our mobile national territory and strategic weapon for promoting the development of the country’s offshore oil industry,” said Wang Yilin, Cnooc’s chairman, according to Xinhua. The rig would help China secure energy resources in the waters, it cited him as saying.

Competition for energy reserves in the sea has increased tensions as countries shun joint development and improve their respective naval capabilities. Chinese vessels have confronted Vietnamese survey ships over the past year and have been locked in a monthlong standoff with Philippine boats over a disputed island in another area of the sea.....Read the entire article.

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The Problem With Greece

Can Greece leave the Euro and the rest of the world keeps moving along? Turmoil in Greece and a call by the leftist Syriza Alexis Tsipras to reverse what he calls ‘barbarous austerity” has put the future of the entire Eurozone in doubt. While it is unlikely that Mr. Tsipras will be able to form the necessary coalition to gain power, the uncertainty about Greece’s future plans could hurt the Euro.

Pressure brought on by voters in Greece to try to roll back plans to cut the budget and pay its bills could destroy the European Central Bank plan to avoid a total default. Now the question is whether a Greek exit would be catastrophic or is it destined to happen regardless.

The fear of a Greek exit has not been just about Greece but fear of contagion. If Greece exits the Eurozone, what will happen to other weak members of the zone. If Greece is allowed to just default and walk away after taking others cash that they lent to Greece in good faith, others will have a precedent for an exit strategy. The question of moral hazard now comes into play. If Greece can take the EU money and then walk away, why then would another EU country move to help another EU member?

Of course this raises the larger question of the problem....Read the entire article.

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