During our February and March Live Chats, we fielded a number of questions about specific US exploration and production companies, including Continental Resources (NYSE: CLR), a top producer in North Dakota’s Bakken Shale and leading proponent of the emerging South-Central Oklahoma Oil Province (SCOOP).
Readers’ interest in Continental Resources didn’t come as a surprise; as one of the preeminent players in the Bakken Shale, the name features prominently in many energy-focused investment portfolios.
Outspoken CEO Harold Hamm also appears regularly on financial television to tout Continental Resources’ story, argue for repealing the US ban on crude-oil exports and share his bullish outlook for a snapback in energy prices.
However, questions about SandRidge Energy (NYSE: SD) and Magnum Hunter Resources Corp (NYSE: MHR)—marginal producers with high leverage and dubious business models that struggled even with oil at $100 per barrel—took us aback.
This shift in sentiment in part reflects value-seeking tourists looking for bargains in a late-stage bull market. After all, the Bloomberg North American Independent E&P Index gave up almost 50 percent of its value in the back half of 2014—fertile hunting grounds for non-specialists who remember the snapback that occurred after energy prices collapsed in late 2008 and early 2009.
We prefer to stand aside on most upstream names, as valuations look full, especially when you consider that crude-oil prices will remain lower for longer now that service costs have started to go down, drilling efficiency continues to improve and Saudi Arabia remains committed to building market share by ramping up exports.
Investors interested in wading into the upstream space should consider easing into their positions and focusing on names with strong balance sheets, low production costs, a history of solid execution and franchise assets that can deliver production growth in a challenging environment. Names that can expand their output and win market share should outperform, as cash-strapped peers or those with inferior assets struggle.
With oil prices expected to be lower for longer, better buying opportunities will emerge in the future.
Shares of US refiners have outperformed since oil prices swooned. Here's why and what's to come.
How US producers responded to plummeting natural-gas prices provides useful insight into how names with an oil-weighted output mix will contend with lower oil prices.
The price of a mixed barrel of NGLs on the Gulf Coast has plummeted by 45 percent since the end of the third quarter.
Surging production in the Marcellus Shale has also created challenges for producers and has important implications for investors and natural-gas prices in other regions.
Schlumberger's quarterly earnings call usually includes loads of useful insights for energy investors; the company's most recent conference call was no exception.
We'll be looking for value at the NAPTP's annual MLP investor conference.
The most important event of the year for MLP investors is just around the corner.
Investors are overly eager to spin even minor developments into the first signs of a V-shaped recovery in crude oil.
There's more pain ahead for the energy sector.
Elliott and Roger on Apr. 30, 2015
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