Chinese oil giant China Petroleum & Chemical Corp., usually called Sinopec, (NYSE:SNP) reported that annual earnings were off 47% for 2008, compared with 2007. The report includes only annual numbers; no quarterly numbers were published. Analysts had been expecting EPS of $3.72, and Sinopec came in at about $1.32 fully diluted EPS.

Sinopec’s refining segment lost about $9.02 million, which it attributes to “pressure from both meeting domestic market demand and suffering huge losses as a result of the government’s strict price control over oil products.”

For 2009, the company expects crude prices “to fluctuate at a relatively low level for a certain period” and demand to slow in China’s domestic market.

SNP’s shares are down more than 5% in early trading today.  CNOOC Ltd. (NYSE: CEO) is also down in sympathy by over 6%.  You might be able to blame the market today in China and in the U.S. on the drop, but the percentage changes here are staggering on the surface.

Paul Ausick
March 30, 2009

Tagged: CEO, SNP

Agrium Inc. (NYSE:AGU) sweetened its cash offer for CF Industries Holdings, Inc. (NYSE:CF) by more than 10% last week. CF Industries has rejected the latest offer, repeating what has become CF’s mantra: “Agrium’s offer is grossly inadequate, substantially undervalues CF Industries and is not in the best interests of CF Industries and its stockholders.”

CF shares are down more than 3% and Agrium shares are off more than 6% in early trading this morning.  This story keeps getting older and older on the surface.  The real question is if all of the merger denials here make the ag-sector and fertilizer sector worth more.

Paul Ausick
March 30, 2009

Tagged: AGU, CF

DryShips Inc. (NASDAQ: DRYS) is trading down hard today on a note from the accountants.  The company’s auditors have a “going concern” noted in the annual report on the company’s Ocean Rig ASA unit.  DryShips filed its 2008 Annual Report and the audit opinions of Deloitte, Hadjipavlou, Sofianos and Cambanis regarding the 2008 financial statements of DryShips and the audit opinion of Ernst & Young regarding the 2008 financial statements of its wholly-owned subsidiary, Ocean Rig ASA, were unqualified.  But the opinions include an explanatory “going concern” paragraph  in the statement.

This note is as follows: “The accompanying consolidated financial statements for the year ended December 31, 2008, have been prepared assuming that the Company will continue as a going concern. As discussed… the Company’s inability to comply with financial covenants under its current loan agreements as of December 31, 2008, difficulties in meeting its financing needs, its negative working capital position, and other matters discussed in Note 3 raise substantial doubt about its ability to continue as a going concern…”

DryShip’s CEO said that the “going concern” note is the result of its previously announced reclassification of $1.8 billion of long-term debt as current. Specifically noted was, “With the proactive approach already taken to reduce $2 billion in capital expenditures, the confidence of our three main lenders with whom we are in close ongoing discussions, secured revenues of over $2.4 billion in the next three years from drybulk time charters and offshore drilling contracts and the recent equity infusion of $380 million through the ATM Equity Offering share issuance program, we have repositioned DryShips for the long-term and remain ahead of the curve.”

Traders aren’t biting for any of the explanation.  Shares are down 16% at $4.89 on active trading.  So far this stock  has seen a range of $4.77 to $5.04 today.

JON C. OGG
March 30, 2009

Tagged: DRYS

This morning we already knew that General Motors Corporation (NYSE: GM) has 60 days and Chrysler has 60 days until D-Day.  The Obama administration pledged that GM brands will be on the road and continue with some help, but he called the situation at Chrysler being a more challenging situation.  While the viability plans and continuity plans do not assure that bankruptcy will not be used, the US Government is going to guarantee auto warranties and is now going to offer some tax incentives for buying new cars.  There are some companies which may win, but the question is what happens to the equity holders of any of these companies in or around any aspect of these beneficiary companies.

At Chrysler, Predident Obama has said that the government will lend up to $6 billion if Fiat and Chrysler can work out an amicable deal to save Chrysler.  If no suitable deal can be reached then the likely outcome is a swift bankruptcy which will take out the old debt.  President Obama said that if taxpayer money gets used that it will have to be repaid before Fiat can take money out of the company.  As a reminder, a bankruptcy at any of the Big Three could trigger waves of bankruptcies throughout the auto sector.  Even if companies are fine on an operational basis, many companies will lose their funding if and when their key clients are deemed financially insolvent.

But here is where this gets more interesting.  President Obama said that servicing and warranties will be safe, and actually safer than now, because as of today the US government will stand behind auto warranties.

As far as an another incentive, you may be able to deduct sales and excise taxes from income for all new car purchases between now and the end of 2009.

Following a program which has been used in Europe, another incentive would come via turning in old cars that are less fuel efficient for more fuel efficient models of new cars would be made.  This will be worked out with the IRS and would also retroact to today.

Ford Motor Co. (NYSE: F) was down as low as $2.40, or down almost 15%, at one point today.  Shares are now only down 2% at $2.77 today.  General Motors stock is still down 21% at $2.85 today.

BorgWarner Inc. (NYSE: BWA) has too many auto part and systems to easily count for auto-makers.  But it does have reduced emissions operations for fuel economy and its stock is still down about 7% at $20.26.

Tenneco Inc. (NYSE: TEN) is very far from being safe.  But the company is a supplier of automotive emission control and ride control products.  Its shares are down 16% at $1.55 today, and that is down from over $30.00 last year.

As a reminder, being an equity investor here has no assured protection regardless of what the administration notes about brands and incentives and guarantees.  That is true even on the “clean emissions parts” side of the business.  And by now you know what happens in just about every bankruptcy scenario… everyone takes a hit.  And common shareholders get to fall on their swords.

JON C. OGG
March 30, 2009

Tagged: BWA, F, GM