US Energy Stocks Retreat As Oil Falls Below $60

By Steve Gelsi

Energy stocks fell Tuesday as Wall Street mulled oil prices below $60 a barrel and more difficult long-term prospects for major oil companies facing pressure to replace aging wells.

OPEC also looms on investors' collective radar screen this week, with the oil cartel expected to avoid any further cuts in production at a confab this week.

Against this backdrop, the Amex Oil Index (XOI) dropped 1.3% to 919, the Amex Natural Gas Index (XNG) lost 2.2% to 405, and the Philadelphia Oil Service Index (OSXX) declined 0.4% to 161.

While mega-projects such as the Thunder Horse project in the Gulf of Mexico are helping production, oil majors such as BP (BP) continue to be squeezed by maturing fields and capital-spending cutbacks, even while maintaining dividend payments.

"Above all, the majors need to reassure investors that the regular distributions of cash are sustainable," wrote Liam Denning in The Wall Street Journal's Heard on the Street column on Tuesday. "That means, when it comes to replacing barrels, proving they can go out and find, not buy, more Thunder Horses."

Among energy stocks in the spotlight, Exxon Mobil (XOM) fell 1.1% to $68.03. The leader in the oil and gas sector is slated to hold its annual meeting on Wednesday. Some shareholders are concerned about the company's move to spend $104 billion in stock buybacks in recent years rather than boosting reserves, according to a Bloomberg article on Tuesday.

Royal Dutch Shell (RDSA) Executive Director Linda Cook is stepping down from the oil major on June 1 after a power struggle surrounding the retirement of Chief Executive Jeroen van der Veer this summer. A 29-year employee of the company, Cook headed the company's massive natural-gas business. Shares of Royal Dutch Shell dropped 0.6% to $51.12.

PetroChina's (PTR) shares dipped 1.2% to $107.13 in trades on the New York Stock Exchange. The state-run oil company has proposed a $1 billion purchase of a minority stake in Singapore Petroleum Co.

Among analyst ratings, FBR on Tuesday upgraded Southwestern (SWN) to outperform from market perform. Shares fell 4 cents to $40.07.

Credit Suisse shuffled ratings on several energy firms by upgrading Noble Energy (NBL) and Occidental (OXY) to outperform from market perform and downgrading EOG Resources (EOG) and Ultra Petroleum (UPL) to underperform from neutral.

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

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