Big changes are afoot in the energy patch. Investors who find comfort in old paradigms and patterns will be disappointed to find that familiar strategies don’t necessarily generate happy returns.
Over the past several years, the stock market has rewarded investors who bought the dips in the energy sector. These fond memories and perceived low valuations have prompted many bargain-seeking investors to allocate capital to upstream names and oil-field services stocks in the hopes of finding a bottom.
There will come a time to buy these names selectively, but smart investors should remain on the sideline for now. Regard any near-term rebounds as a sucker’s rally—another opportunity to exit riskier positions.
Remember that fourth-quarter results won’t reflect the full impact of lower commodity prices; West Texas Intermediate crude oil, for example, averaged $73 per barrel over this three-month period, compared to about $48 so far in 2015. And a mixed barrel of natural gas liquids (NGL) averaged almost $31 in the fourth quarter, about 55 percent higher than in January 2015.
Although some pundits will point to Schlumberger’s (NYSE: SLB) fourth-quarter earnings beating the consensus estimate as a bullish sign, management’s comments during the subsequent conference call gave investors plenty of reasons to remain cautious on oil-field services names, contract drillers and fracking sand providers.
As for what works in this environment, energy analysts are almost universally bullish on midstream master limited partnerships (MLP), citing their fee-based contracts and resilience when commodity prices cratered in late 2008 and early 2009.
But beware complacency when you venture into MLP land. We highlight the emerging risks in the midstream space and review all our MLP Portfolio holdings in light of the recent downdraft in energy 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.
Investors still flock to initial public offerings of master limited partnerships.
US propane exports have soared to a record high--and there's more upside to come.
A number of trends suggest that the MLP space is poised for consolidation. Here's how to play it.
Despite management's best efforts, there's more downside in store for Linn Energy.
The prospect of sky-high yields may draw some bargain hunters to hard-hit upstream master limited partnerships; history suggests that there's more downside to come for these names.
Warren Buffett's biggest investment mistake holds an important lesson for investors eyeing value opportunities in the energy sector.
We pounded the sand for Hi-Crush Partners LP in early 2013, when the stock was a high-yielding value play. Today, investors need to take their heads out of the sand and sell.
Elliott and Roger on Jan. 28, 2015
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.