The Coal Miner's Son
Gerelyn is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Robert Murray of coal producer Murray Energy has added drama to the already somber occasion of having to lay off workers. Murray slashed more than 150 jobs after learning that President Obama had won re-election in light of forthcoming environmental policy that is widely expected to make it it incredibly difficult and expensive for coal miners to upgrade scrubber technology to comply with stricter standards.
Murray, the son of a coal miner and chief executive of the company that bears his name, attempted to soften the blow of the layoffs with a very public prayer, asking God's forgiveness for any decisions company executives might have made that played into the formidable state the Murray Energy finds itself in today. For a private company, Mr. Murray sure made a public display of his frustration. The private held concern employs about 3 thousand workers and mines some 30 million tons of coal annually.
Forthcoming Energy Policy
Indeed, Murray is not the only energy industry executive leary of the presidents energy policies despite the fact that President Obama has declared to free the U.S. from foreign oil. Some, like John Richels, chief executive of Oklahoma City, Oklahoma-based oil and natural gas producer Devon Energy (NYSE: DVN), hopes that the president will in fact support the energy industry's ability to access the country's plenteous domestic resources. In terms of policy, Richels recently told CNBC that his concerns surround the direction in which energy policy is heading because all that federal policy seems to do is replicate protocols already in place in many U.S. states.
Nonetheless, Richels appears hopeful that President Obama will in fact decide to allow the Keystone XL Pipeline, a product of TransCanada. The massive project would deliver crude oil produced in Western Canada to the Midwestern U.S. across some 1,179 miles of pipeline. The president shunned Keystone throughout his first administration, but Richels appears confident that it will become apparent that the only way for the U.S. to conquer its dependence on foreign oil is to have the resource delivered from our neighbor's to the north in Canada, according to a recent interview with Bloomberg news.
In its 3Q, Devon's oil, natural gas and natural gas liquids revenues declined 18 percent versus the year ago period despite incremental gains in the price of natural gas. Richels attributes the shortfall to a plethora of supply coupled with a downward trend in the price for liquid gas, a resource that Devon accesses.
Nonetheless, he anticipates that price stabilizing, which would benefit Devon's performance. The company boasts of keeping a low debt profile, and the balance sheet illustrates "net debt to adjusted capitalization of 15 percent," according to a press release. Oil production was a bright spot for the company in the quarter, with a 26 percent year-over-year increase in onshore oil production in addition to a 30 percent rise in production in the Permian Basin.
The stock is trading at 52-week low levels, and has lost nearly 29 percent since 2009 when the company shed its offshore drilling and international business segments.
Incidentally, the low natural gas prices that have been weighing on Devon's stock are a boon to the petrochemical industry, which is dependent on natural gas for the production of chemicals. Stocks including Dow Chemical (NYSE: DOW) and DuPont (NYSE: DD) are poised to benefit.
Dow Chemical is trading about 18 percent below its 52-week high. In its 4Q, the company revealed it would be taking a charge of up to $1.1 billion as part of a corporate restructuring. While Dow benefits from lower natural gas prices, the nation's leading chemical company has made some haunting choices. Dow Chemical announced job cuts, the closure of certain plants, and a write down tied to a renewable energy venture with TK Advanced Battery, a partnership that seems to have gone bust.
DuPont, which recently declared a 4Q dividend of $0.43 per share, is also undergoing a restructuring. Like Dow Chemical, DuPont's overhaul similarly involves layoffs over the next 18 months, and DuPont hopes to achieve "pre-tax cost savings of $450 million," the majority of which will be achieved in 2013, according to a press release. The stock is trading 19 percent below its 52-week high.
Murray Energy has been in existence for nearly a quarter century, and it remains the largest privately held coal producer in the U.S. Perhaps Murray Energy needs to diversify its business model into other types of energy production. Despite the uncertainty surrounding coal production in the U.S., and the cool investment waters for coal stocks, maybe the coal miner's son should eventually consider an IPO to raise the capital needed to continue producing energy for the country.
GerelynT has no positions in the stocks mentioned above. The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.