In its investor day meeting, integrated oil major Marathon Oil Corporation (MRO) offered a glimpse of its 2010 production and capital spending plans. Capital Spending Trimmed Marathon said that it will prune its capital expenditures by about $1 billion in 2010, as the company allocates a larger percentage of funds towards the Exploration & Production (E&P) segment [...]

(MRO) Marathon Oil Corporation to Slash Spending

In its investor day meeting, integrated oil major Marathon Oil Corporation (MRO) offered a glimpse of its 2010 production and capital spending plans.
 
Capital Spending Trimmed
 
Marathon said that it will prune its capital expenditures by about $1 billion in 2010, as the company allocates a larger percentage of funds towards the Exploration & Production (E&P) segment as against the under-pressure refining business. The Houston-based firm has pegged its 2010 capital budget at about $5 billion, down nearly 7% from the $6 billion it expects to invest by the end of 2009. As per the plan, expenditure on the downstream business (refining, marketing and transportation), which constituted approximately 40% of this year’s budget, will fall to 23%, while the remaining portion will go to exploration and production projects.
 
Upstream Production Outlook
 
Marathon’s change in focus to the upstream business can be attributed to plummeting refining profits on the back of weak demand for gasoline, diesel and jet fuel. The company’s new area of emphasis will be deepwater exploration, unconventional resource plays in North America and development in Angola.
 
Marathon also guided towards 2009 E&P production growth of around 6% from the 2008 level. During the four-year period 2008–2011, the company expects upstream volumes to increase at a compound annual growth rate of approximately 4% (with contributions from new projects in the Gulf of Mexico, Canada's oil sands, Libya and Angola).
 
In 2010, Marathon plans to drill 3–4 significant wells in the Gulf of Mexico, 2 high-risk, high-potential wells in Indonesia, as well as commence activity in Norway, Libya, Angola and the domestic onshore resource plays.
 
Outlook
 
Marathon’s move to chop capital spending follows a similar decision by rival ConocoPhillips (COP), which earlier announced a 12% reduction in its 2010 budget. In contrast, super majors such as ExxonMobil (XOM) and Chevron (CVX) have maintained their capital spending even during the current downturn in an effort to lift production. 
 
We like Marathon’s large and geographically diverse reserve base, competitive downstream operation, and solid project pipeline. However, the uncertain commodity-price environment and the company’s heavy downstream exposure will continue to weigh on Marathon’s revenue and profitability, at least in the near term. As such, we see the stock performing in line with the broader market and rate it as Neutral.
Read the full analyst report on "MRO"
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Read the full analyst report on "CVX"
Zacks Investment Research

U.S. stocks tumbled Thursday as concerns about a subdued economic recovery played in the minds of investors.  Safer bets like dollar strengthened and oil prices slumped.  As investors turned to safe havens, Treasury prices rose, sending corresponding yields lower.  Yields on three-month bills, considered one of the safest bets, turned negative for the first time since December.  A Bank of America Merrill Lynch downgrade of semiconductor industry also added to the downward pressure.     

The spike in bond prices came even as the Treasury announced plans to auction a record $118 billion in new notes next week – an auction schedule of $44 billion 2-year notes on Monday, $42 billion 5-year notes Tuesday, and $32 billion 7-year notes on Wednesday.

The Dow, which had plunged as much as 170 points during the session, ended down 93.87 points, or 0.9%, to 10,332.44.  The broader Standard & Poor's 500 index fell 14.90 points, or 1.3%, to 1,094.90, while the tech-heavy Nasdaq composite index dropped 36.32 points, or 1.7%, to 2,156.82.  Wall Street’s fear gauge, the CBOE Vix, jumped more than 4%.  Crude prices dropped $1.93 to $77.46. Gold prices rose to their fifth straight record close, up 70 cents to $1141.90.

As glimmers of a full-blown economic recovery fade, investors have increasingly become intolerant, locking in profits at every opportunity.  Also, a lack of conviction on part of the market to push beyond the current rally has been a dampener and concerns of an asset bubble build-up due to accommodative monetary policies have diminished risk appetites, sending daily average volume to levels of only about 1 billion.   

Nevertheless, to show not all is bad, the OECD raised its growth estimates for its 30-country members to 1.9% in 2010 from June's estimate of a 0.7% growth, and to a 2.5% GDP expansion in 2011.

Tech shares, already up 54.3% year-to-date, fell 1.7% Thursday, after Merrill's analyst slashed 2010 global growth targets, and downgraded ten companies in the semiconductor sector.  Intel (NASDAQ:INTC) shares fell 4.1%, and Texas Instruments (NYSE:TXN) retreated 3.4% after the downgrade.  Dell (NASDAQ:DELL) shares plunged 6.1% in premarket trading, after the company reported earnings that missed analysts’ projections.

Among the S&P 500 industry groups, energy producers, off 2.1%, were the biggest decliners.  ConocoPhillips (NYSE:COP) fell 1.9% and Chevron Corp. (NYSE:CVX) dropped 2% as crude prices fell for the first time in four days. Schlumberger Ltd. (NYSE:SLB) shares fell 3.3%.

Zacks Investment Research

Having gone “all in” on a U.S. economic recovery with his $44 billion acquisition of Burlington Northern Santa Fe Corp. (NYSE: BNI), Warren Buffett showed a less aggressive stance in Berkshire Hathaway Inc.’s (NYSE: BRK.A, BRK.B) Nov. 16 filing with the Securities and Exchange Commission (SEC).[More...]

One thing is for economic recovery the same as ever. Demand for energy during growth simply must grow. And for those who believe in recovery here are some of energy stocks.

Chesapeake Energy (CHK) mines natural gas. While the price of gas is pushed down by the economic downturn and new technologies which allow to isolate the material from clay. But the recovery will come only with the end of the recession, but at the expense of coal, which generates more pollution. Estimated profit for 2010 is over U.S. $ 2.4 per share. So it is possible to buy those shares for about 12 multiples of expected profits.

Devon Energy (OK) is one of the producers of natural gas and oil (which constitute 86 percent of its sales). At estimated profit of USD 6.2 shares are very attractive to buy that provides 11 multiples of expected profits.

Oil giant ConocoPhillips (COP), among other things, owns 20 percent of Russia's Lukoil. From their lows around 35 USD has bounced up to $52, but still have long way to highs (just slightly below $100). ConocoPhillips is at around 9 multiples earnings per share which is currently one of the cheapest stocks in energy sector.

American Electric Power (AEP) generates electricity. 73 percent of production is from coal-fired power plants, which is not in vogue, but the shares are still nearly 40 percent cheaper than that at its peak in 2007.