ITC Holdings Corp. (ITC) CFO Cameron Bready says the company is on track to achieve the five-year growth plan that it rolled out in late 2011 to early 2012. The plan calls for a $4.2 billion investment in new transmission infrastructure over the course of five years. He says that if the plan is successful it will “drive compound annual growth in earnings per share in the 15% to 17% range over that time frame.”
“That’s very attractive growth for a regulated utility like us and when you look at our investor base, we certainly view the investor base as largely attracted to the growth potential in the business,” Bready says.
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Additionally, Bready says ITC will continue to increase its dividend. He says the dividend was increased by 13% in 2013, and that it is forecasted to grow 10% to 15% over the next few years.
“So as we obviously communicate with our investors, we’re emphasizing the opportunity to realize earnings growth in the business that is very attractive relative to typically what you would see with a utility as well as the opportunity to realize meaningful growth in our dividend over that same time frame,” Bready says. “We believe that the combination of those two as well as our continued opportunity to grow the business longer term presents a very compelling investment thesis for investors and one that we believe they’re well focused on.”
Halbert Washburn, CEO of BreitBurn Energy Partners L.P. (BBEP), says his company will focus its efforts on oil rather than gas for the time being. He says current gas prices are too low to justify allocating capital to gas projects.
“We’re not bearish, but we don’t see the catalyst that’s going to increase prices to that $6, $7, $8 range at the current time,” Washburn says. “We think it will happen eventually, and when it does happen we’re very well-positioned. We have well over 1,000 and probably many, many more than that, gas locations that are all held by production. That requires something north of where gas prices are today for us to really want to drill in.”
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The company’s oil projects, Washburn says, are delivering much stronger performances.
“So we don’t see a catalyst that’s going to move gas up in the near term, therefore we believe that we need to continue to acquire oil projects and acquire oil infill drilling and other development opportunities,” Washburn says. “But we are positioned in the longer term when gas prices strengthen to be able to drill significant amount of infill locations. So we do have a lot of gas drilling potential that’s sitting on the sidelines right now not embedded in our reserves, but really in our 2P and 3P reserves.”
William Gibbs, CEO of American Sands Energy Corp. (AMSE), says he expects the state of Utah to grant quick approval for his company to begin mining at the Sunnyside Property Project.
“We currently have under lease at Sunnyside approximately 150 million barrels of bitumen according to an independent resource evaluation. One of the things that’s required for us to open a mine and extract this resource is to have a mine permit in place,” Gibbs says. “We are going to be using underground mining techniques, and one of the things that we needed to do in connection with that is to establish some of the mine characteristics. That includes rock strength, whether there is ground water present in the area and whether there is any sort of hazardous gas like methane. The drilling program was to identify what those characteristics were.”
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Gibbs says American Sands’ permit request is currently under review in Utah. He says management may be called upon to answer some questions, but he does not expect significant delays in the approval process.
“Could there be some environmental groups that object to the permit? We anticipate that there could be, because the environmental groups don’t like oil sands in particular; they try to fight those things on all fronts,” Gibbs says. “But we expect that the permit will be approved. Is it a slam dunk? In mining there is no such thing. But there is a solid track record of approval of these things in Utah.”
Ivor Ruste, Executive Vice President and CFO of Cenovus Energy, Inc., says the company will reduce its capital spending this year. The current budget calls for a 10% reduction in capital spending, compared to 2013.
“We’re spending less money on building reserves and simply reinvesting into our oil sands projects,” Ruste says.
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Cenovus Energy is decreasing its planned capital expenditures in part because management expects an inflationary business environment, according to Ruste.
“We haven’t felt very much of that at this stage, but we built 3% to 5% in our cost estimates for the year. An internal priority for us is to make sure we’re keeping our cost structure down as we look for additional new technologies to help drive our cost and efficiencies and productivities in the right way,” Ruste says. “So it’s something that is important to us internally in addition to finding additional pipeline capacity, takeaway capacity and new markets.”
Credit Suisse Analyst Gregory Lewis says he envisions Noble Corporation (NE) as a likely acquirer of offshore drillers. But, he says he doesn’t expect much M&A activity in the sector this year.
“I think there is the opportunity for consolidation in the offshore drilling space and in the offshore supply boat sector, but I think it’s more of a longer-term event. I don’t think it is a 2014 event,” Lewis says. “But I think it makes sense given the synergies and economies of scale in both industries. The driver of consolidation could be unlocked as some companies pursue strategic corporate initiatives that could increase their valuation.”
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Lewis says Noble Corporation will be in a better position to acquire offshore drillers after the company completes the process of spinning off what he calls “lower-quality assets.”
“Spinning off the lower-end assets is something other companies are doing as well. There is a company called Shelf Drilling, which bought lower-end assets from Transocean (RIG) in late 2012,” Lewis says. “So yes, there is an appetite by some players for lower-tier or standard equipment. In a good market all equipment works; it’s in a more challenged market where the lower-generation equipment goes idle.”
Credit Suisse Analyst Gregory Lewis says he expects the jackup market to perform better than the floating rig market in 2014, as it did in 2013, a fact he says bodes well for Rowan Companies (RDC).
“Rowan has a best-in-class jackup fleet with a dominant market share on the high end of the market; this is where you want to be,” Lewis says. “We like the jackup market in 2014 relative to the offshore floater market overall. The supply/demand balance looks tighter based on — for the jackup market than the floating rig market. We are seeing strong demand for jackups in places such as the Middle East, the North Sea, West Africa. Bottom line, we see strength in the jackup market generally.”
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Lewis says another driver for potential growth for Rowan is its more recent efforts in the deepwater market.
“Rowan’s deepwater fleet are next-generation rigs that we expect to work in any market; lucky for Rowan three of their four deepwater floaters are already on multiyear contracts,” he says.
Barclays Capital Analyst James West says Pemex is likely to devote more resources to exploration and production over the next several years as a result of energy reform in Mexico.
“After the reforms go through, Pemex will increase overall spending, because it will no longer have the same pull on its capital from the government as they had before,” West says. “Currently it is the primary supplier of capital to the government due to taxes, and once that situation is changed, Pemex will have more money to allocate to exploration and production.”
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West says Pemex has been spending roughly $20 billion annually on exploration and production. He says the company’s CEO recently commented that he’d like to increase that spending to $30 or $35 billion a year.
“What I think we will see moving forward is Pemex focusing on shallow-water activity where they have good expertise, the conventional oil and gas plays in Mexico, and then taking equity stakes and more or less leaving the new entrants from outside Mexico or even new Mexican startups alone to tackle shale activity. Mexico could have significant shale reserves,” West says. “There are five shales in Mexico, including the Eagle Ford which doesn’t stop at the Texas border. They also have some potential deepwater fields, and I think they will leave development of those fields to the major oil companies.”
Investors don’t fully appreciate the market opportunity Gazprom (MCX:GAZP) has in Europe, according to Sanford C. Bernstein & Co., LLC Analyst Oswald Clint. He says Gazprom grew volumes 16% last year, in part as a result of European sales, and he expects an even greater increase this year.
“Even though North America might have a lot of gas and low gas prices, that’s not the case anywhere else and certainly not in Europe, where our gas price is three times higher than U.S. gas prices, and we don’t have any shale gas, we don’t have any LNG coming here because Asia is bidding us out of the market, and our domestic gas supply is falling at 6% every single year,” Clint says. “The only company or entity that can solve that problem right now is Gazprom.”
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In addition to opportunities in Europe, Clint says he expects Gazprom to make headway in China in 2014. He says the Russian gas company could sign a significant new gas deal in China by the end of the first quarter.
“So it maybe inefficient and may be an arm of the state, but they have 100 billion barrels oil equivalent of conventional natural gas, and they can pump it through pipelines into Europe any single minute of the day, and that’s what they did last year,” Clint says. “It is probably the cheapest energy stock in the world at the moment.”
John R. Scannell, Chairman and CEO of Moog (MOG.A, MOG.B) spoke Wednesday morning at the Cowen & Co. 35th Annual Aerospace/Defense & Transportation Conference at the InterContinental New York Barclay in New York City. The presentation also included CFO Don Fishback and can be heard here.
Scannell says Moog is the world leader in customized, high-performance control systems and components. Moog has a long-term, consistent growth record and continues to move to increase shareholder value.
CFO Fishback noted Moog has averaged 6% annually growth over the last decade and a half, with total growth including acquisition of about 12%. This year, however, the company will experience about 1% growth, much of which is acquisition-driven.
Acquisitions by Moog have been soft over the last year as part of an effort to make sure the acquisitions deliver. The company is being more selective in making strategic acquisitions to complement organic growth.
Moog’s capital deployment currently is geared toward a share buyback program of up to 4 million shares over a 12-month period. The company is not currently considering paying a dividend.
Scannell said the China market has been challenging for Moog for the last three to four years. Moog’s other emerging market, Brazil, is doing well.
Moog is continuing its strategic review of the medical portion of the business and considering all options, including a potential sale. The company hopes to announce the results of that review in the next quarter.
Over next 18 months the biggest risk is military spending, particularly the military aftermarket, however opportunity is there if the industrial business improves. Scannell does not see adequate momentum in the global economies for it to pick up, but noted there is real upside in terms of margins and contributions if it does.
To view the presentation on the company website, click here.
