Crude Oil Drops Below $75; Major Oil Stocks Follow

It has happened. U.S. oil prices dropped below $75 a barrel for the first time in more than three years amid continued pressure from over supply and soaring production.

Big oil companies, services companies and offshore drillers felt the pain as share prices fell in response. The Energy Select Sector SPDR ETF (XLE) fell 2.28% 0.35% to close at $85.60 as companies from Exxon Mobil (XOM) to Halliburton (HAL) to Diamond Offshore (DO) followed crude prices lower.

Light, sweet crude for December recently traded at $75.38, a 2.3% decline, after earlier falling as low as $74.93 a barrel, Brent, the global benchmark, traded down $1.98, or 2.46%, to $78.40 a barrel.

The Brent contract for January delivery fell $1.97, or to $79.15 a barrel.

Barron's predicted $75 oil earlier this year (see "Here Comes $75 Oil," March 29). The commodity has been in a downward slide for months as U.S. production has soared and global demand has waned. More recently, prices have been hurt by worries that OPEC would maintain its collective output target at its Nov. 27 meeting.

Even recent remarks by Saudi Arabia Oil Minister Ali al-Naimi dismissing talk of an oil price war among producers did nothing to stem the slide.

Among the U.S. majors, ConocoPhillips (COP) fell 1.6% to $70.03, followed by a 1.3% decline by Chevron (CVX) and Exxon's 1.15% fall.

Services companies and offshore drillers suffered sharper drops. Halliburton fell 2% to $51.60. Meanwhile, Transocean (RIG) fell 3.75% to $26.07, while Diamond Offshore and Seadrill (SDRL) each fell 3.5%. Noble (NBL) fell 2.86% to $53.63.

Last week, my colleague Ben Levisohn weighed in on the impact of falling oil prices on the offshore drillers. Read his post here.

Morning Movers: Time Warner Jumps on Earnings Beat; Devon Energy, EOG Gain

Stocks are surging this morning after the Republican Party took control of Congress yesterday.

Bloomberg

S&P 500 futures have gained 0.6%, while Dow Jones industrial Average futures have risen 0.5%. Nasdaq Composite futures have advanced 0.6%.

Midstates Petroleum (MPO) has surged 21% to $3.46 after the independent E&P company easily topped analyst earnings forecasts.

Jamba (JMBA) has tumbled 9% to $11.74 after the juice store missed the Street’s earnings and revenue expectations. Jamba also announced a $25 million share buyback program.

EOG Resources (EOG) has jumped 5.3% to $59.05 after the oil & gas company beat earnings and revenue forecasts and upped its full-year production outlook. Devon Energy (DVN), meanwhile, has gained 3.5% to $58 after the independent energy exploration & production company also surprised to the upside and boosted its production guidance.

Time Warner (TWX) has risen 4% to $78 after the media company beat earnings and revenue forecasts and lifted its full-year earnings guidance.

Sprint Is About to Pass the No. 3 Title to T-Mobile

Earlier this year, T-Mobile (NYSE: TMUS  ) CEO John Legere made a prediction: the Un-Carrier would overtake Sprint (NYSE: S  ) in total subscribers by year's end. Sprint released earningsMonday night, and Legere's forecast is inching closer to becoming a reality.

Sprint shareholders are losing patience with the company's turnaround, with shares down 22% at the low today. How bad were the results?

T-Mobile is catching up in a big way
Total revenue was $8.5 billion, and Sprint saw an operating loss of $192 million during the third quarter. The company saw a total net loss of $765 million, and Sprint continues to bleed postpaid subscribers, the most valuable customers in the industry.

Specifically, the No. 3 (for now) carrier saw 336,000 retail postpaid subscribers jump ship, along with 20,000 retail prepaid subscriber losses. A small silver lining is that Sprint added 840,000 wholesale connections, enough to grow total connections to just over 55 million. Still, postpaid connections are where it matters, and Sprint fell short in this department.

Meanwhile, T-Mobile just reported its strongest growth in the company's history, adding 2.3 million total customers during the third quarter. Of that total, 1.4 million were branded postpaid additions. That puts T-Mobile's total subscriber base at 52.9 million -- within spitting distance of Sprint.

Source: SEC filings.

At this rate, it's entirely possible that T-Mobile will overtake Sprint as the No. 3 domestic carrier next quarter if it can maintain its momentum, and there's no reason to doubt Legere now. T-Mobile's postpaid customer churn continues to trend lower, while Sprint's is heading the opposite direction.

One of these days
New CEO Marcelo Claure acknowledged that the company's pricing plans were too cumbersome and uncompetitive, particularly given the intensifying competition within the industry right now. Claure revamped Sprint's pricing structure just weeks after being named CEO in August.

Sprint is expecting higher costs due to increased upgrade volumes in the current quarter, although the company still expects wireless revenues to be under pressure from mounting postpaid customer losses. Sprint is still expected to meet its 800 MHz and 2.5 GHz LTE deployment targets this year, and 2014 capital expenditures should be nearly $6 billion.

Sprint's purported turnaround has been a decade in the making, yet the company has made little meaningful progress. Former CEO Dan Hesse failed to revitalize the company, and now Claure is taking a shot. Still, one of these days, investors are going to run out of patience.

$19 trillion industry could destroy the Internet
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SEC charges Ohio adviser with custody violations, lying about client assets

Bloomberg News

The Securities and Exchange Commission has charged an Ohio investment adviser with violating rules governing custody of client funds and consistently lying about client asset totals.

The SEC alleges that Professional Investment Management Inc. of Columbus, Ohio, overstated the amount of client assets in an approximately $7.7 million money market fund by $753,535 for each of the last three months of 2013. The agency also claims that the firm maintained control of client assets but failed to arrange for independent verification of the funds.

U.S. District Court Judge Algenon L. Marbley has issued a temporary restraining order against PIM and has frozen client assets following an SEC request for emergency relief for investors.

The SEC commenced its investigation of PIM on Sept. 30, 2013, after it found that the firm had failed for four years to file a certificate regarding surprise examinations of its custodian.

Under the SEC custody rule, advisers must maintain client funds at a custodian who is subject to an annual exam by an independent public accountant who verifies client assets. The agency once again this year made custody an examination priority. The emphasis on custody has grown in the wake of the multibillion-dollar Ponzi scheme perpetrated by Bernard Madoff.

After a call from SEC staff members on Sept. 30, 2013, Douglas E. Cowgill, PIM president and chief compliance officer, withdrew PIM's SEC registration. The firm — which has approximately $120 million in assets under management and provides advisory services to about 15 retirement plans as well as 20 to 25 individuals — did not register with the state either, but continued to operate.

On Nov. 21, 2013, while SEC examiners were at PIM offices, Mr. Cowgill allegedly entered a fake sale of $753,535 in PIM's records to cover up the shortfall in the money market fund. Later that night, he reversed the trade and disguised the transactions in client accounts, according to the SEC complaint.

In a meeting with SEC staff on Jan. 23, Mr. Cowgill allegedly admitted entering the fake trade. A week later, he tried again to hide the discrepancy by wiring funds from a cash account into a securities account, leaving the former overstated by $746,087.

“Our complaint alleges that Cowgill went to extraordinary lengths to hide a significant shortfall in client assets, even providing manufactured documents to SEC staff,” Robert J. Burson, associate of the SEC's Chicago Regional Office, said in a statement.

The SEC said that the firm represents an ongoing threat to investors.

“PIM is operating without registration with any regulatory authority and has submitted false documents to the commission — with whom PIM is required to be re! gistered,” states the SEC complaint, which was unsealed on May 2. “PIM continues to issue false account statements to clients, make redemptions requested by clients misinformed about their holdings, and charge fees to clients based on a percentage of assets under management (which assets are overstated).”

An attorney for Mr. Cowgill was not immediately available for comment.