Energy Shares Hit On Crude Prices, Weak Stocks, Obama Budget

By Steve Gelsi

Weakness in the broad market, a retreat in crude-oil prices and even provisions contained in the Obama administration's budget blueprint weighed on energy stocks Friday.

The Amex Natural Gas Index (XNG) surrendered 3.3% to 324 in the early going -- though it has since pared its losses -- while the Amex Oil Index (XOI) fell 3% to 821 and the Philadelphia Oil Service Index (OSXX) gave up 2.5% to 118.

The Dow Jones Industrial Average was last down about 1% at 7111.

In energy trading, crude prices fell $2.24 to $42.98 a barrel, pulling back from one-month highs set earlier this week.

Fewer tax breaks and other incentives for the oil and gas business appear to be in store under the proposed U.S. budget by President Barack Obama.

The latest proposal includes a repeal of the expense treatment of intangible drilling costs, a repeal of percentage depletion for oil and natural-gas reserves, and potentially higher royalties for federal lands, according to an analysis by Tudor Pickering Holt.

A component of the Dow Jones Industrial Average, Chevron Corp. (CVX) has issued $5 billion in debt, according to a Friday filing with the Securities and Exchange Commission. Shares fell 4% to $60.47.

Among analyst actions, Tudor Pickering downgraded Goodrich Petroleum (GDP) to hold from accumulate. Analysts noted the company needs to report better Haynesville well results to renew confidence in its acreage following a weak fourth quarter. Shares fell 9% to $19.99.

However, Plains Exploration & Production (PXP) drew an upgrade to buy from Tudor Pickering on a combination of exploration and expectations for a boost from rising oil prices. Shares dropped 9% to $18.40.

Meanwhile, Petrohawk Energy Corp. (HK) plans to offer 22 million common shares to help fund capital projects, a deal that would raise $409 million based on a Thursday closing price of $18.60. Shares fell 9% to $16.96.

Regency Energy Partners (RGNC), GE Energy Financial Services and Alinda Capital Partners announced plans to invest about $1.1 billion to build a new pipeline system in the Haynesville region of northern Louisiana, considered one of the country's fastest-growing natural-gas fields. Shares of Regency rose 5% to $10.12.

Separately, the General Electric Co. (GE) subsidiary said it'll invest $150 million for 49% interest in a deepwater floating oil and production unit in the Gulf of Mexico with Houston-based ATP Oil & Gas Corp. (ATPG). The unit has been in operation since March 2006 and produces ATP reserves, and the partnership plans to process additional reserves from a third-party producer by 2010. Shares of ATP Oil & Gas rose 5% to $3.28.

Also on the move, shares of Cheniere Energy Inc. (LNG) lost 6%. The company said it has sufficient liquidity, primarily due to cash on hand, to fund operations and pursue its strategy for the next several years.

-Steve Gelsi; 415-439-6400; [e-mail]