Arris’s international business will be getting a big lift in the years ahead after announcing Sunday night that it has won a deal to build a next-gen hybrid/fiber coax (HFC) for NBN Co., a government-owned entity, that will bring faster broadband speeds to millions of homes and businesses in Australia.
Arris CEO and chairman Bob Stanzione hinted at the news last week, announcing on the company’s fourth quarter earnings call on February 18 that the company would soon announce a “substantial deal” to provide cable infrastructure for what was then still an unnamed service provider in the Asia Pacific. In the fourth quarter of 2014, international sales reached $364 million, representing 29% of total sales.
Arris did not announce the financial terms of the NBN deal, but The Sydney Morning Herald reported that the vendor beat out Cisco Systems for a deal that’s worth about $400 million to Arris, which will provide gear and services to amp up HFC networks operated by Telstra and Singtel Optus. The paper said the HFC networks have the potential to reach 3.4 million premises.
Billed as the primary vendor and strategic partner in NBN’s HFC-facing endeavor, Arris will supply its flagship product, the E6000 Converged Edge Router, a high-density chassis that started out as a DOCSIS 3.0 cable modem termination system (CMTS) but is evolving to become a fully-fledged Converged Cable Access Platform that will also integrate edge QAM functions.
Arris will also supply other access products, including its CORWave forward path (1.2GHz) transmitters and OM4100 optical receivers and service assurance products, which provide visibility into the state of the network down to the device level. Additionally, Arris’s Global Services unit has been tapped for the full deployment and network integration for NBN’s national broadband service.
The roadmap also includes a “possible future migration to DOCSIS 3.1,” an emerging multi-gigabit architecture.
Arris installations will start in late 2015, with HFC existing predominantly in metro areas such as Sydney, Melbourne, Brisbane, Gold Coast and Perth.
Arris’s deal with NBN, a unit that is led former Clearwire CEO Bill Morrow (pictured above), comes after the Australian government agreed last year that the rollout should transition from a primarily fiber-to-the-premises model to an “optimized multi-technology mix” approach. The design of that mix is guided by the objective of providing download speeds of at least 25 Mbps to all premises, and at least 50 Mbps to 90% of fixed-line premises as soon as possible.
NBN Co outlined its multi-tech rollout plans last November, announcing that most households and businesses already served by the Optus or Telstra HFC cable networks will receive fast broadband via network upgrades, and areas where NBN FTTP networks have been deployed or are in the “advanced stages of being built” will remain part of the FTTP rollout. Additionally, NBN said it would continue to use fixed wireless or satellite broadband technologies in the rollouts, and use fiber-to-the-node and fiber-to-the-basement architectures in other communities and multiple-dwelling environments.
According to NBN, its strategic goals include connecting 8 million premises to “fast broadband” and achieve annual revenues of $4 billion by 2020, and to use less than the capped $29.5 billion government equity funding to achieve them.
As Morrow explains in this video, NBN believes there are 10 million homes and businesses that need to be connected, noting that, under NBN Co’s phased approach, hundreds of thousands of homes have already been connected. NBN is urging consumers and businesses to check online to see if services are available in their area.
For the first quarter results for fiscal 2015 (ended Sept. 30, 2014), NBN Co reported revenues of $29 million on earnings before interest and tax of -$377 million. It ended the period with 266,984 cumulative end users, with 202,718 of them served off of fiber, with the balance coming way of satellite and wireless. It ended the quarter with 639,927 premises passed, up from 310,472 in the year-earlier quarter.
“An HFC network represents the fastest and most cost-effective way to deliver it to consumers and businesses in the existing HFC network areas,” NBN Co. CTO Dennis Steiger said in a statement. “Our goal is to achieve high-speed broadband as quickly possible, with an eye on future technologies that will secure our place as a global technology leader.”
The ARRIS portfolio of Products and Services are at the heart of many Broadband networks around the world, and we look forward to expanding our presence in the Asia Pacific region.,” added Bruce McClelland, president of Network & Cloud and Global Services at Arris.
NBN Co will sign a $400 million deal on Monday with US tech company Arris Group to turn Telstra and Singtel-Optus' cable TV network into one of Australia's fastest sources of high-speed internet.
Telstra and Optus run hybrid fibre coaxial (HFC) networks that provide millions of Australians with Foxtel Pay TV and broadband services. These will be upgraded by Arris throughoutthe country, and is likely to take three years to complete..
The HFC networks can potentially reach 3.4 million premises and were signed over to NBN Co as part of deals with both telcos that are expected to be approved by regulators later this year.
Supporters of Labor's national broadband network claimed it was a waste of money that would deliver slow internet speeds once more users were added to the service. Some existing HFC services are capable of download speeds of only 8 megabits a second, similar to what broadband services using copper phone-lines can deliver.
The latest deal to upgrade the cable networks aims to counter those concerns by supplying potential download speeds of up to 100 megabits per second and upload speeds of 40Mbps, which is also what Labor was planning to offer under its NBN.
Sources with an intimate understanding of the deal said the present HFC network was not capable of delivering high upload and download speeds due to much of its equipment being made to a Data Over Cable Service Interface Specification (Docsis) 1.0 standard.
Arris will be brought in to upgrade the entire network to a Docsis 3.0 standard, which overseas providers have used to deliver download speeds of up to 500Mbps. It will also be more easily upgradeable to a Docsis 3.1 standard, which some vendors claim can deliver up to 1 gigabit per second.
This will require about 230 telephone exchanges to be upgraded by skilled engineers who may need to be brought into Australia from overseas. It is understood the migration of customers away from Telstra and Optus onto NBN Co systems is a risky venture that could result in substantial service cuts if improperly handled.
Arris beat fellow US tech supplier Cisco Systems to win the deal, which involves sending field teams out to exchanges to install new cable modem termination systems (CMTS) and to replace retransmission gear.
NBN Co is expected to run commercial pilot trials involving HFC customers by the end of 2015, with full-scale rollouts from March 2016 onwards. A more detailed rollout plan is expected to be released in the next two months.
Using HFC customers will give NBN Co a vital boost in fee-paying subscribers that will eventually help the company become a saleable asset for the federal government. It is expected to eventually be sold for a profit as a stand-alone division.
I've been reinvesting the dividend under 13.00, and I believe it to be safe 2015 -16.
Mrs. Frangou : "We are experiencing the lowest dry bulk rate environment in the 30 years the Baltic dry index has been recorded. In addition, the current charter rates are below the actual vessel operating costs. Typically, a depressed rate environment like this would cause accelerated scrapping and reduced deliveries, and we are seeing both. Year to date, scrapping has accelerated to 4.2 million DWT, more than half of one percent of the global fleet. We are also witnessing deliveries being delayed and a significant reduction in new orders compared to last year. Should the current market environment continue, we may also see layups of vessels. These developments suggest the market is rationalizing and given the continued strong demand for the underlying commodities, we should expect a healthier market in the medium term."
Storage interest wanes
The crash in crude prices ignited a race to fix tankers for floating storage in early 2015 but activity in this corner of the market is starting to subside, according to an analyst at Clarkson Capital Markets.
It is widely believed at least 20 VLCCs have been fixed for floating storage.
It is widely believed at least 20 VLCCs have been fixed for floating storage.
In a recent client briefing Omar Nokta noted interest has waned in recent weeks, which leads him to believe that the crude tanker segment will exhibit “its normal seasonal pressures” during the second and third quarters of this year.
“At the start of 2015 we felt spot rates could remain strong despite the likely softer spring and summer months due to tighter vessel supply brought on by floating storage [but] this is shifting,” the forecaster said.
While crude prices are well below levels seen in 2014 the analyst noted that the most recent rally has compressed contango along the first six months of the futures curve to an average of just $0.75 per barrel per month, versus $1.20 at the peak.
“We estimate the break-even storage cost at roughly $1.00/bbl per month, making the use of VLCCs for storage uneconomical,” Nokta continued.
Nokta pointed out that the future still looks “quite favourable”, however, but believes day rates for tonnage trading in the spot market will experience “higher highs and higher lows” than previously anticipated.
Today, VLCCs trading in the spot market were commanding $54,400 per day, which is slightly higher than Tuesday’s average but represents a decline of nearly 10% week-on-week.
Nokta acknowledged that day rates have slipped quite a bit when compared to highs seen a few weeks back but argued that they are still relatively strong.
Earlier in the day analysts at Pareto Securities and other firms were quick to point out that it’s not uncommon for activity to slow in the week leading up to New Year celebrations in China.
“We remain bullish on the crude tanker markets for 2015 [however] and emphasize that the storage-story could very well come into play again soon driven spring maintenance at refineries and filled-up land-based storage,” they added.
Forecasters at Platou believe the market's appetite for floating storage will continue to fluctuate in the near-term but are still optimistic about the future of the tanker segment.
"Since tanker freight rates are the marginal cost of storage, interest for tankers is likely to continue fluctuating with the oil contango in the near term,” they told clients.
“Strong fundamentals of low fleet growth and high oil trade are key reasons to still be optimistic for tanker freight rates regardless of floating storage, in our view.”
Spot market stand-off
Fearnleys claims the start of the March loading programme has been “very slow”, which will likely come as a surprise to many industry observers.
“We are about to go into the Lunar new year festivities in the East and many had thought a lot of stems should have been covered prior to it but this has not been the case [thus far],” the firm told clients Wednesday.
Fearnleys noted that day rates plunged sharply at the start of the week, which prompted a brief flurry of fixtures, but said the gap between what charterers are willing to pay and what owners are asking for “has widened sharply”.
“We therefore have a ‘stand-off’ situation for the time being, the famous game of ‘who-blinks-first’ is being heavily played, and resilience from both sides being tested,” it added.
Texas and Louisiana ports believe they're still early in what they expect to be an extended boom in exports of chemical products produced in the region with cheap U.S. natural gas.
Texas and Louisiana ports believe they're still early in what they expect to be an extended boom in exports of chemical products produced in the region with cheap U.S. natural gas.
Shale drilling using hydraulic fracturing has lowered the price of gas used for energy or feedstock, and has led companies to invest tens of billions of dollars in petrochemical plants from Corpus Christi, Texas, to the New Orleans area.
Few expected the fracking boom, and even fewer anticipated the sudden, recent drop in crude oil prices. Port officials and industry analysts, however, don't expect the drop in crude prices to derail growth in the region's petrochemical production and exports.
Oil production companies have scaled back drilling in response to falling oil prices, and some construction has been delayed for "downstream" petrochemical manufacturing plants. But these plants, some of which represent multibillion-dollar capital investments, are long-term projects that are largely immune to short-term fluctuations in energy prices.
"The investment is still going on," said Roger Guenther, executive director at the Port of Houston. In recent years, companies have announced some $35 billion in new or expanded petrochemical investments along the Houston Ship Channel.
Several of those projects are set to open in 2016 and 2017. They're being built primarily to supply export markets.
"Most projects should remain economic, built as they are for a 30-year life, and built because of assumed low natural gas prices relative to crude long after the current oil-price decline is over," Robert W. Gilmer, director of the Institute for Regional forecasting at the University of Houston, wrote in a recent paper.
A similar situation exists in New Orleans, where petrochemical exports have surged with expanded production from the dozens of petrochemical plants extending up the Mississippi River to Baton Rouge. The port's chemical exports, mostly containerized, exceeded 2 million tons last year.
The port has capitalized on the industry's expansion by promoting development of facilities for packaging and container stuffing along the city's Industrial Canal, around where the France Road container terminal operated before Hurricane Katrina in 2005.
Sirius XM May Bulk Up Buybacks
The satellite-radio firm could repurchase $2.5 billion in stock in 2015 and another $2.8 billion in 2016.
Updated Feb. 9, 2015 8:14 a.m. ET
Sirius XM Holdings (SIRI: Nasdaq)
By Maxim Group ($3.69, Feb. 6, 2015)
We are maintaining a Buy rating on Sirius XM Holdings and increasing the price target to $5.00 from $4.40.
We estimate that Sirius’ (ticker: SIRI ) float could be reduced to 28% by the end of 2016. We assume that Liberty Media’s ( LMCA ) current 56% share of Sirius automatically increases to 72% without having to pay a premium. Sirius stock has lagged in the last two years as questions over the growth rate in a connected-car environment create limited investor appetite. The continued growth of subscribers combined with cost discipline allows the company to keep buying back even more stock.
We estimate that Sirius could buy back an additional $2.5 billion in stock, assuming a $3.90 average share price in 2015 and taking leverage to four times with gross debt increasing to $6.7 billion; in 2016, another $2.8 billion at $4.40 a share could be bought. Currently, $3.5 billion in buybacks is outstanding.
Sirius coverts 86% of earnings before interest, taxes, depreciation and amortization (Ebitda) into free cash flow in the quarter. With net operating losses (NOLs) not running out until 2019, 80%-plus conversion rates continue for the foreseeable future. Management acknowledged on the call that there was a theoretical possibility of buying Liberty Media stock as a cheaper way of buying Sirius. We continue to recommend Liberty Media as investors are buying Sirius at about $2.80 per share, assuming a full valuation for Liberty Media’s other assets such as Live Nation.
Sirius is well positioned to continue to beat and raise. While 2015 guidance was only reaffirmed, the net subscriber guidance number of 1.2 million in 2015 looks conservative relative to 2014’s initial guidance of 1.25 million (which was an actual of 1.75 million total and 1.44 million self-pay net subscriber additions). Sirius management highlighted that there are now 27.3 million subscribers with about 70 million satellite-enabled cars on the road. This should increase by nearly 50% over the next three years to about 100 million in 2017, suggesting a long runway. About 71% of new cars come with the radio pre-installed now (up from 69% last year). The current trial funnel is 7.4 million, up from 6.5 million last year. About 15,000 pre-owned car dealers are now marketing to pre-owned car owners as the Sirius marketing machine continues to expand its focus.
We forecast that 2016 revenue should grow 6.5% to $4.88 billion, up from our $4.58 billion 2015 estimate (estimated growth of 9.4%). Ebitda is estimated to grow 12.2% to $1.87 billion, up from our $1.67 billion 2015 forecast (estimated growth of 14%). Ebitda margins are anticipated to expand a further 200 basis points to 38.5%, relative to 36.5% in 2015 and 35.1% in 2014. We estimate 2016 free-cash-flow-per-share growth of 19% to 33 cents, up from 28 cents in 2015 (estimated growth of 36%). We are assuming slower growth rates in 2016 than 2015 as Sirius matures.
-- John Tinker
-- Kevin Rippey
Item 7.01. Regulation FD Disclosure
Greg Maffei, President and Chief Executive Officer of Liberty Broadband Corporation (the "Company"), will be appearing on the CNBC television program "Squawk Box" from 7 a.m. to 9 a.m. ET on January 28, 2015. During his appearance, Mr. Maffei may make observations regarding the Company's financial performance and outlook and the impact of current economic trends.
U.S. Oil Exporter Scouting for Buyers Signals OPEC Test
By Serene Cheong and Sharon Cho - Jan 22, 2015
Enterprise Product Partners LP is looking to sell a year’s supply of U.S. ultra-light oil to the global market, signaling another challenge for OPEC as it contends with the U.S. shale boom.
The company in Texas is offering to export 600,000 barrels a month of condensate from March, according to a tender document obtained by Bloomberg News. Enterprise received government approval in 2014 to ship the lightly processed oil from U.S. shale formations. Rick Rainey, a Houston-based spokesman, didn’t respond to calls or an e-mail seeking comment.
The Obama administration last month signaled that companies can legally export stabilized condensate without government approval, a move that Citigroup Inc. said may encourage shale drilling and thwart Saudi Arabia’s strategy to curb U.S. production. With American companies pumping at the fastest rate in more than three decades, members of the Organization of Petroleum Exporting Countries are maintaining output to defend market share.
“The supply situation for U.S. condensate won’t change dramatically,” Ken Hasegawa, an energy trading manager at Newedge Group in Tokyo, said by phone. “They will continue to bring more cargoes into Asia. There’s a comparatively bigger pool of buyers here.”
The U.S. produced 9.19 million barrels a day through Jan. 9, the most in weekly records dating back to January 1983, according to the Energy Information Administration. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked shale formations from Texas to North Dakota.
Condensate can be exported if it is run through a distillation tower, which boils off volatile gases from the oil, U.S. government guidelines published last month on the website of the Commerce Department’s Bureau of Industry and Security showed. That may boost supplies ready to be sold overseas to as much as 1 million barrels a day by the end of 2015, according to Citigroup.
While the guidelines were the first public explanation of steps companies can take to avoid violating export laws, they didn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo. Lawmakers in Washington are trying to end a 40-year-old law that restricts overseas oil shipments to just a few markets.
Enterprise (EPD) began offering U.S. condensate shipments to overseas buyers last year after the company and Pioneer Natural Resources Co. received government approval for the sales. BHP Billiton Ltd. also sold supplies of the ultra-light oil.
Japanese traders Mitsui & Co. and Mitsubishi Corp., as well as South Korean refiner SK Innovation Co., have previously bought some of the cargoes offered from the U.S.
The U.S. exported a record amount of crude in November after a five-year run of production growth that has made the country the most oil-independent in 20 years. Shipments surged 34 percent to average 502,000 barrels a day, the most in records dating back to 1920, according to the U.S. Census Bureau and the Energy Information Administration.
“We’re still going to see growth in production in the U.S. in 2015 compared to last year,” Victor Shum, a Singapore-based vice president at IHS Inc., a consultant, said by phone. “Shale-related activities will not step down altogether. The U.S. will still have rising supplies looking for a market.”
OPEC will probably blink first in its battle with U.S. shale drillers, according to a quarterly survey of Bloomberg subscribers. Forty-nine percent of analysts, traders and investors polled said OPEC producers will have to reduce their production target for 2015 as U.S. shale drillers won’t scale back quickly enough. About 34 percent said shale drillers will cut output in time, while 17 percent were uncertain.
OPEC’s Secretary-General Abdalla El-Badri on Jan. 21 reaffirmed the group’s stance to stick to quotas. Producers outside of OPEC should be first to curtail their output, he said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland. Oil prices will rebound instead of extending declines to as low as $20, he said.
World’s Largest Traders Use Offshore Supertankers to Store Oil
Companies Are Buying Oil Now to Sell Later When Prices Rise
By SARAH KENT And GEORGI KANTCHEV
Updated Jan. 19, 2015 3:07 p.m. ET
The supertanker TI Oceania was built to ferry vast quantities of oil across oceans, but for the next year it is expected to remain anchored off the coast of Singapore, storing millions of barrels of oil for Vitol SA, a giant trading house.
The TI Oceania supertanker which is being used by oil trading house Vitol to store oil until the commodity's price rises. ENLARGE
The TI Oceania supertanker which is being used by oil trading house Vitol to store oil until the commodity's price rises. OVERSEAS SHIPHOLDING GROUP
According to shipbrokers and analysts, the 3-million-barrel megaship—one of the largest in the world—is just one example of efforts by traders to turn a profit in the slumping global oil market. The strategy is simple: buy and store oil at cheap prices now, selling futures contracts to lock in the higher oil prices expected later.
“It is one of the easy ways to make money and that’s one of the interesting things about it from a trading perspective: It’s a counter cyclical source of profit for the Vitols and Glencores and Trafiguras,” said Craig Pirrong, a finance professor at the University of Houston, referring to a handful of the biggest oil traders in the world.
Oil Prices Start Week in Negative Territory
Oil-Price Quirk Sends Crude Out to Sea (Sept. 18, 2014)
Singapore Oil Hub Expands to Neighbors After Outgrowing City-State (Jan. 23, 2014)
According to shipbrokers and analysts, major traders including Vitol SA, Gunvor SA, Trafigura Beheer BV and Koch Supply & Trading Co. Ltd have chartered supertankers capable of storing a combined total of more than 30 million barrels of oil—many of them in the past few weeks. Vitol, Gunvor and Trafigura declined to comment. Koch didn’t respond to requests for comment.
The opportunity to stockpile oil in such large quantities has come from the dramatic shift in the market for the commodity in recent months. Since June, prices have collapsed, tumbling by more than 50% amid soaring production from the U.S. and unwavering output from the Organization of the Petroleum Exporting Countries, at a time when global economic growth—the main determinant of demand—is slowing.
The oversupply has given rise to a so-called contango in the market, when the current price of a commodity is lower than prices for delivery in the future. That makes it attractive for buyers to purchase oil now at the cheaper rates, store it and strike sales agreements at a higher price in the future, locking in profits.
The price difference between the March and August contracts for Brent crude oil, the international benchmark grade, is currently $6 a barrel. That is the steepest premium since an oil-price slump in 2008 and 2009.
For years, oil trading houses have contended with high prices and low volatility, which have squeezed margins. Firms have responded by investing in infrastructure like oil-storage tanks, terminals and refineries to gain flexibility in trading, as well as better information about what is happening in the market.
Combined with the companies’ access to the physical oil market, these investments have made the trading firms uniquely well-positioned to exploit the shift in the market and store oil for a profit.
Glencore PLC, a Swiss commodity-trading giant, and Trafigura Beheer, one of the world’s largest independent oil traders, have both already highlighted to investors that the market’s dramatic change since June is expected to bolster their profits.
Onshore storage tanks are filling up fast. According to Citigroup Inc., China’s coastline storage facilities ran out of space as the country filled up strategic oil reserves last year. Stocks at the U.S. storage hub at Cushing, Okla., have risen more than 20% since December, according to Genscape Inc., a data provider based in Kentucky.
That means more unusual storage options, such as the ships, are becoming increasingly popular.
“Because so much oil doesn’t have a home right now, there is a frenzy of traders and companies looking to hire supertankers,” said Halvor Ellefsen, chief executive officer of Galbraiths, a London-based shipbroker .
The last time there was a similar situation, in spring 2009, more than 70 million barrels of oil were stored in tankers, according to shipbrokers.
The current tanker craze may not quite reach those levels, as the disparity between current and futures prices isn’t as steep at the moment. Bank of America Merril Lynch predicts the volume of oil stored on tankers could rise to 55 million barrels by the end of the second quarter.
However, the potentially lucrative storage trade isn’t open to everyone, nor is it risk free. It requires detailed knowledge of the way oil is moved around the world that few outside a tightknit group of oil traders possess. Making a profit depends on numerous factors, including rates for freight and storage and, ultimately, finding a buyer for the crude.
“If people think the contango is some kind of magical way to make money they are incorrect,” said Benoit Lioud, senior research analyst at Mercuria Energy Group, a Swiss-based trading house. “Storing big quantities of crude oil is not an easy game. It’s not a game at all.”
—Costas Paris in London and Christian Berthelsen and Nicole Friedman in New York contributed to this story.
Oil Drillers’ Despair Gives Ship Owners Hope for Profit: Freight
By Naomi Christie - Jan 9, 2015
The oil glut that wiped $1 trillion off the value of energy producers and roiled currencies is giving tanker owners a reason to be cheerful: Demand for their ships to store that excess is about to surge.
Oil traders could park as much crude offshore in the next few months as Denmark consumes every year, according to estimates from JBC Energy GmbH and BP Plc data. The International Energy Agency projects on-land storage tanks in industrialized countries may be full by June.
Oil collapsed by almost half since the middle of last year as members of the Organization of Petroleum Exporting Countries maintained output amid a global excess estimated by Qatar at 2 million barrels daily. The same surplus has also helped widen a price structure called contango, where future costs are so far above today’s that it rewards traders to buy cargoes now and sell them later.
“There’s bound to be broader inventory builds,” Jonathan Chappell, a shipping analyst in New York for Evercore Partners Inc., said by phone Jan. 6. That “will probably lead to some traders taking advantage of the contango.”
Brent crude oil for August traded at about $6 a barrel more than contracts for February so far this week, according to ICE Futures Europe exchange data. That’s around the level needed to cover hiring a tanker and all the associated costs, according to JBC, an adviser to some oil-producing countries.
Brent for February settlement, the global benchmark grade, fell 42 cents to $50.54 a barrel on the London-based ICE Futures Europe exchange at 10:40 a.m. London time. The August contract fell 22 cents to $57.03 a barrel.
Between 30 million barrels and 60 million barrels will be stored on tankers in the coming months, JBC predicted Jan. 6. Denmark consumed about 58 million barrels in 2013, according to the most recent estimates from BP.
“There’s a strong possibility that we will see floating storage at some point this year,” Svetlana Kourmpeti, a London-based senior market analyst at E.A. Gibson Shipbrokers Ltd., said by phone Jan. 5. “The contango is getting steeper.”
When the market is in contango, a cargo can be bought and placed in storage, with a higher sale price locked in on the futures market. In 2009, 100 million barrels of crude were being held at sea, enough to supply Europe for five days, Frontline Ltd., a ship owner, estimated at the time. BP Plc’s earnings were about $500 million more than expected in the first quarter of that year thanks to the trade.
Brent crude, the international benchmark, has been in contango since July.
Traders and governments are stocking up. As many as 297 million barrels, equivalent to half a year of Angolan supplies, could be added to inventories by June, according to the IEA in Paris. Inventories could reach storage capacity within Organization of Economic Cooperation and Development countries by midyear, the IEA estimated Dec. 12. Record numbers of VLCCs were seen sailing to China in December, amid what the IEA said were signs the country was adding to its stockpile.
Land-based storage outside the U.S. is “getting pretty full” and not all traders have access to these tanks, Richard Mallinson, a geopolitical analyst at Energy Aspects in London, said by phone Jan. 7. Floating facilities may become more attractive in the first half of the year if seasonal weakening of oil demand causes the contango to steepen, he said.
High shipping rates may keep the trade from becoming profitable, according to Petromatrix, a Zug, Switzerland-based researcher. When floating storage peaked in 2009, freight rates had fallen to 82 cents a barrel on the benchmark Persian Gulf-to-Japan route, according to data compiled by Bloomberg. Demand for oil tankers is stronger today, with per-barrel freight costs at $2.22.
“The front contango in Brent is increasing, but VLCC freight is currently very expensive,” Petromatrix wrote in a report on Jan. 7. “We are therefore not convinced that floating storage is today a better option.”
The combined value of global oil and gas stocks fell from $4 trillion in June to about $3 trillion currently as the crude price slumped, according to data compiled by Bloomberg. Russia, the world’s largest energy exporter, saw its currency slump 46 percent against the dollar in 2014 while the dollar had its best year since at least 2005, gaining against all 31 major peers.
Rates for VLCCs, the largest tankers, will average $35,000 a day this year according to the average of six analysts surveyed by Bloomberg. That would be the highest since 2010, data from shipbroker Clarkson Plc show. An increase in seaborne storage might push rates even higher, Erik Stavseth, an analyst at Arctic Securities ASA in Oslo, said by phone on Jan. 6.
“It’s looking increasingly attractive,” he said. “Floating storage is going to happen in the first quarter.”
Why Dry bulk shipping stocks jumped ? – Frontline Ltd (NYSE:FRO), Scorpio Bulkers Inc (SALT), Nordic American Tankers Limited (NYSE:NAT), Tsakos Energy Navigation (TNP)
by Rebekah Denny / January 7, 2015
Frontline Ltd (NYSE:FRO) soared 23.44%, leading gains in shipping industry, after the stock was mentioned on CNBC Fast Money as a leveraged play in the shipping sector. Karen Finerman thinks Frontline will make its next debt payment.
Several other industry players made gains after Global Hunter Securities initiated coverage on bulk shipping. Analyst Charles Rupinski said he sees opportunity despite “choppy waters.” Coverage was initiated on three sub-sectors of the bulk shipping — tankers, dry bulk and LPG.
“In a volatile period for the group, we are on the lookout for opportunities, but we do note that while the companies under coverage have varying risk characteristics, we consider the bulk sector as a whole to be speculative in nature,” said Rupinski.
“For the dry bulk sector, which has seen stock prices retreat dramatically over the last six months, we are initiating coverage of Baltic Trading Ltd (NYSE:BALT), Scorpio Bulkers Inc (NYSE:SALT) and Star Bulk Carriers Corp. (NASDAQ:SBLK) with Speculative Buy ratings. In our view, the dry bulk sector faces continued headwinds in 1H:15, but a combination of low valuation levels and what we believe to be the potential for an increase in capacity removal make it possible for an investor with a tolerance for risk to go long in these names, in our view,” said the analyst.
“In tankers, we believe the crude tanker segment has the best supply/demand fundamentals of the bulk shipping group, and we initiate coverage of DHT Holdings, Inc. (NYSE:DHT), Navios Maritime Acquisition Corporation (NYSE:NNA), Nordic American Tankers Limited (NYSE:NAT) and Tsakos Energy Navigation Ltd. (NYSE:TNP) with Buy ratings. We have a more conservative view on product tankers, but we expect a solid rate environment,” he continued. “We initiate on the pure play product tanker company Scorpio Tankers Inc. (NASDAQ:STNG) with an Accumulate rating.”
Rupinski added, “For the LPG segment, it has somewhat limited visibility due to commodity price expectations over the medium term but has traditionally been less volatile than other bulk markets. That said, we are initiating coverage of Stealthgas Inc. (Nasdaq: GASS) with a Speculative Buy rating and Navigator Holdings Ltd. (Nasdaq: NVGS) with an Accumulate rating.”
Among others, Navios Maritime Partners L.P. (NYSE:NMM), Knightsbridge Shipping Ltd (NASDAQ:VLCCF) and Navios Maritime Holdings Inc. (NYSE:NM) closed higher after the analyst note.
ATLANTA, Jan. 2, 2015 /PRNewswire/ -- RPC, Inc. (NYSE: RES) announced today that during the fourth quarter of 2014 it purchased 2,052,984 shares under its share repurchase program.
RPC provides a broad range of specialized oilfield services and equipment primarily to independent and major oilfield companies engaged in the exploration, production and development of oil and gas properties throughout the United States, including the Gulf of Mexico, mid-continent, southwest, Appalachian and Rocky Mountain regions, and in selected international markets.
The Case for Arris
For those put off by high valuations, there are still cheap stocks worth buying. One of them is Arris Group (ticker: ARRS), a mid-cap equipment maker for cable and telecom companies. Arris has managed to increase profit an average 13% a year over the past eight years, which makes Arris’ current P/E of 10.8—on 2015 earnings—look cheap. This year, earnings per share are set to grow 56%, before moderating next year.
Arris sells to the biggest names in pay-TV and broadband. AT&T (T), Verizon Communications (VZ), Comcast (CMCSA), Time Warner (TWX), and Charter Communications (CHTR) make up roughly 50% of the company’s revenue, which is likely to total $5.3 billion this year, up 47%. Sales are boosted by a well-timed acquisition of Motorola’s home segment, which makes cables boxes. Arris bought the unit from Google (GOOGL) in 2013 for $2.4 billion.
The knock on Arris is that its big customers—in particular, AT&T—are cutting back on capital expenditures. The industry is also going through a well-known consolidation phase, which could reduce Arris’ customer count. Even so, Arris still wins. It makes in-home modems and set-top boxes, as well as enterprise routers, which route traffic around neighborhoods. The products play a crucial role in improving broadband speeds and video service.
The stock is also hampered by the continuing debate about cord-cutting. Skeptics see an inevitable decline in subscriber rolls for pay-TV providers, with so-called over-the-top Internet streams replacing costly cable packages. Comcast, though, continues to post impressive results, even with small declines in video subscribers.
And the competition has actually made Comcast a better operator. Eighteen months ago, the head of Comcast’s cable business told Barron’s, “We’ve disrupted ourselves so we can innovate faster” (see “Don’t Touch That Dial,” Cover Story, Aug. 5, 2013).
The company’s latest television service, called X1, takes the best of Netflix ’s interface and combines it with Comcast’s far broader offerings. Comcast says its X1 customers are now less likely to cancel service, and they watch 20% more video on demand. In the fight against Netflix and the Internet, X1 has been cable’s greatest success.
Arris makes the sophisticated set-top boxes that run X1 in consumers’ homes. “They are the prime arms merchant in the battle against disintermediation,” says Todd Mitchell, an analyst at Brean Capital. “Comcast is the first out of the gate, but everybody is putting these infrastructures in place. Nobody is going to be a dumb pipe.”
Mitchell, who covers digital media, recently named Arris a top pick for 2015. He has a price target of $36 on the stock, 18% above Friday’s close of $30.46.
He argues that investors haven’t given the company credit for its role in helping the pay-TV industry finally catch up with technology.
“If you think about all the things we hated as consumers about set-top boxes, it had to do with the fact that the software was native on the box. It couldn’t be changed,” Mitchell says. Now Arris-powered boxes are running the Internet, which means TV guides can be updated on the fly, while pushing slick apps to your TV.
The cable industry is already paying up for Arris’ technology. Eventually, investors will, too.
I called E*trade; they said everything has yet to be finalized, that it should be 'soon'. It will be necessary to call broker in order to accept offering.