Daily Energy Digest - 9/16/2010

• Williams Companies (WMB) declined 3.46% after cutting its 2010 and 2011 EPS forecast to $1.00-$1.20 (from $1.00-$1.45) and $0.85-$1.65 (from $1.15-$2.50), respectively. Additionally, WMB cut 2011 capital expenditures guidance to $2.08-$3.22 billion (from $2.4-$3.27billion). Management gave weaker than expected natural gas prices as the reason.
• 
  
• Eastman Chemical (EMN) gained 3.69% as it raised its 3Q EPS guidance to $2.20-$2.30 (from $1.65-$1.75), citing strong prices and demand. EMN also raised its full year EPS
• outlook to come close to $7 (from $6.20-$6.40).
• 
  
• Valero Energy Corporation (VLO) announced it will raise capex by $300 million to $2.6 billion in 2011. In addition, VLO said it was on pace to cut over $100 million in pre-tax costs this year. Management said refining margins were improving due to growing demand and as refiners closed excess capacity. The trend is expected to continue next year. Shares finished down 0.75%.
• 
  
• Plains Exploration (PXP) in the Mowry, Monterey Shales. Plains announced it has acquired 54,000 net acres in the Mowry Shale, an oil target in northeast Wyoming with shale thickness of 250' to 400'. Plains expects to initiate drilling late this year, as does Resolute (REN/$10.79/Strong Buy) which has ~45,000 net acres in Campbell County, Wyoming. Plains has also announced it has 86,000 net acres in the Monterey shale of California, which we had suspected but which the company had not confirmed until today (given comments from Venoco [VQ/$18.49/Not Rated] as it has marketed its horizontal Monterey plan). Plains currently has Monterey production from vertical wellbores, but is now acquiring 3D seismic in key areas and planning exploratory wells for 2011 (which, if successful, would be followed by horizontal drilling at around ~$3 million per well). In the Granite Wash, Plains announced another successful well at 17.8 MMcfe/d (with 42% condensate and NGLs), which is modestly below its first two wells (~29 MMcfe/d) but has increased its potential well locations to 152 (from 109) and recently added a fifth rig in the play. Despite the punishment the stock has taken over the last few months due to its Gulf of Mexico assets, today's announcements highlight the company's oily, onshore optionality. The Gulf of Mexico asset divestiture process is ongoing and could easily exceed its $1-$2 billion target.
• 
  
• Whiting (WLL) completes oversubscribed convertible preferred exchange. Whiting announced the closing of its offer to exchange cash and shares for its 6.25% convertible perpetual preferred stock, tendering 3.37 million of 3.45 million shares, or 97.6% of outstanding shares - above its original goal of 95% of outstanding shares. The company estimates it will exchange ~7.5 million shares and $47.5 million in cash in exchange for the preferred shares. Roughly 172,500 shares will remain outstanding (5% of current preferred share count) post deal.
• Energy Transfer Equity L.P. (ETE) prices $1.8 billion public offering of senior notes. The 10-year notes (BB-/Ba2) were priced to yield 7.50% and the deal is expected to close on 9/20/2010. Note that the offering was upsized from an initial $1.0 billion due to favorable market conditions. The proceeds from the upsized offering will now be used to pay off all of the partnership's existing debt which includes a $1.45 billion term loan due 11/2012 and a $500 million revolving credit facility due 2/2011 which had ~$135 million in outstanding borrowings as of 6/30/2010. Upon the closing of the offering, the $500 million credit facility will be replaced with a new $200 million credit facility. The offering materialized earlier than our modeled projections for Energy Transfer Equity to refinance all of its existing debt with a 7.5% 10-year senior notes offering on 1/1/2011.