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Wednesday, September 8, 2010

Daily Energy Digest - 9/8/2010

  • LUKOY: Iraq's West Qurna-2 To Produce 92M Tons/Year In 2017.
  • CLNE: Clean Energy has completed its acquisition (originally announced in July) of privately-held IMW Industries, a Canadian-based manufacturer of CNG equipment and other fueling system components. The purchase price comprises $15.6 million in cash and approximately four million shares (valued at ~$61 million). On top of this initial price tag, the deal provides for cash and stock earn-out payments over the next four years at a maximum of $50 million (total).
  • BP plc upgraded by Fitch, releases investigation report. This morning, BP released its in-house investigation report (all 193 pages of it) into the causes of the Macondo well blowout, laying out a sequence of operational mistakes by the various parties involved. Given that BP is not exactly a neutral third party, it comes as no surprise that the report places much of the blame on the oilservice providers. Specifically, BP highlighted a failure of Halliburton's cement job, incorrect pressure testing by BP and Transocean (RIG/$53.05/Outperform), failure of the Transocean crew to recognize or act on the inflowing hydrocarbons, and failure of Cameron International's blowout preventer to seal the well. BP pointedly stated that it is unlikely the well design (one component of which the BP staff was principally in charge of) contributed to the incident. This last statement, in particular, will be widely questioned considering that several of BP's integrated peers publicly criticized the well design. There is a technical briefing today at 9:00 a.m. ET; dial (866) 551-3680, code 3961433. Meanwhile, BP was upgraded from BBB to A by Fitch Ratings this morning. Expect BP shares to outperform today.
  • JASO announces 500 MW of 2011 cell contracts. At the PVSEC industry conference in Valencia this week (always a focal point of contract activity), JA Solar announced the signing of cell supply agreements for 2011 totaling 500 MW. This is a positive demand signal after limited management commentary regarding next year on the company's August earnings call. The enhanced demand visibility should strengthen the shares today, though because ASPs were not disclosed, the pricing picture into 2011 remains hazy.
  • LINE Passes $1 Billion Mark in Acquisitions YTD; Granite Wash Delivers. Accretive Wolfberry Acquisition. Linn Energy announced that it has agreed to acquire 30 MMBoe of proved reserves (23% PDP and 72% oil) in the Wolfberry portion of the Permian Basin for $352.2 million. The acquired properties have current production of 3,300 Boe/d (73% oil), and over 230 Wolfberry proved, undeveloped (PUD) drilling locations. The transaction is expected to close on or before the end of November. Upon closing this transaction, Linn Energy will have passed the $1 billion mark in year-to-date acquisitions.
  • Wells Fargo resumes oil field services coverage: Outperform: NE, SLB, HAWK, ATW, BHI, HAL PDE, RDC, RIG. Market Perform: DO, ESV, HERO, SDR
  • $DRYS Yesterday morning prior to the market open DRYS filed a registration statement for the sale share of $350 million of common stock. The terms of the sale agreement allow the company to offer and sell common shares at any time and from time through open market transactions. The closing price from Friday, September 3rd was $4.42 which would put the total share issuance at 79.2 million shares. However the stock traded down 6% yesterday closing at $4.16 - which would put the share issuance at about 84 million shares. We expect roughly 85-90 million shares to be issued through the share sale. Stock Share about 30% dilutive based on reported filings share count. The company reported a share count of 255.2 million at the end of Q2, but the filing from yesterday indicated a share count of 295 million shares. We believe the 295 million shares outstanding from yesterday's filing includes the dilution from shares outstanding related to the convert that are not included in the Q2 share count. However we believe the 295 million share count reported excludes ~50 million shares related to the purchase of the two drillships from Primelead. Based on the reported share count it appears the share sale is roughly 30% dilutive. New equity to fund newbuilding drillships - but still need contracts. DRYS plans to raise $350 million to fund its newbuilding drillships CAPEX obligations. This equity injection should allow DRYS to take delivery of the first two rigs - but does not address the bigger concern for these rigs which is lack of employment.

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