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Elliott Gue knows energy. Since earning his bachelor’s and master’s degrees from the University of London, Elliott has dedicated himself to learning the ins and outs of this dynamic sector, scouring trade magazines, attending industry conferences, touring facilities and meeting with management teams.

Elliott Gue’s knowledge of the energy sector and prescient investment calls prompted the official program of the 2008 G-8 Summit in Tokyo to call him “the world’s leading energy strategist.”

He has also appeared on CNBC and Bloomberg TV and has been quoted in a number of major publications, including Barron’s, Forbes and the Washington Post. Elliott Gue’s expertise and track record of success have also made him a sought-after speaker at MoneyShows and events hosted by the Association of Individual Investors.

Elliott Gue also contributed chapters on developments in global energy markets to two books published by the FT Press, The Silk Road to Riches: How You Can Profit by Investing in Asia’s Newfound Prosperity and Rise of the State: Profitable Investing and Geopolitics in the 21st Century.

Prior to founding the Capitalist Times, Elliott Gue shared his expertise and stock-picking abilities with individual investors in two highly regarded research publications, MLP Profits and The Energy Strategist, as well as long-running financial advisory Personal Finance.

In October 2012, Elliott Gue launched the Energy & Income Advisor, a semimonthly online newsletter that’s dedicated to uncovering the most profitable opportunities in the energy sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

The masthead may have changed, but subscribers can expect Elliott Gue to deliver the same high-quality analysis and rational assessment of investment opportunities in the energy patch.

Articles

Alternative Fracks

Fourth-quarter results and 2017 guidance from the big four oil-field service companies—Schlumberger (NYSE: SLB), Halliburton (NYSE: BHI), Baker Hughes (NYSE: BHI) and Weatherford International (NYSE: WFT)—highlighted recovering drilling and completion activity in the US onshore market and ongoing challenges in international markets.

Once again, the prospect of increased upstream capital expenditures appears most robust in prolific US shale oil and gas fields, where exploration and production companies have taken advantage of the recovery in oil prices to hedge future output and ramp up spending.

The Permian Basin in West Texas may be the hottest area in terms of drilling activity, asset acquisitions and media coverage. That said, the recovery in the US rig count looks broader that one might expect, with the formerly out-of-favor Eagle Ford Shale and the Haynesville Shale posting surprisingly impressive gains.

In contrast, international capital expenditures are expected to remain flat to slightly down in 2017, with the Middle East and Russia regarded two markets with any upside.

Although we struggle to identify a compelling reason to buy any of the big four at current valuations, recent weakness in the energy sector—and questions from readers—have prompted us to delve into names that offer concentrated exposure to the US onshore market.

The bullish case for US oil-field services hinges on accelerating drilling and completion activity helping to relieve the capacity overhang built up during the boom years, potentially setting the stage for a recovery in pricing.

Industry survivors with superior scale and balance sheets may have an opportunity to take market share from smaller operators. Oil-field service companies have also slashed costs aggressively, providing earnings leverage to a recovery in volumes.

At the same time, investors must remember that many of these companies operate cyclical businesses and consider the extent to which current valuations have priced in any incremental upside in earnings.

We continue to expect short-cycle US shale plays to take market share in coming years, as underinvestment in deepwater plays and other complex developments manifests itself in the international decline rate. Chevron Corp (NYSE: CVX) and Exxon Mobil Corp’s (NYSE: XOM) plans to allocate a growing portion of their budgets to US shale development underscore this point.

Beyond The Big Four

The bullish case for US oil-field services hinges on accelerating drilling and completion activity helping to relieve the capacity overhang built up during the boom years, potentially setting the stage for a recovery in pricing.

Industry survivors with superior scale and balance sheets have an opportunity to take market share from smaller operators. Oil-field service companies have also slashed costs aggressively, providing earnings leverage to a recovery in volumes.

At the same time, investors must remember that many of these companies operate cyclical businesses and consider the extent to which current valuations have priced in any incremental upside in earnings.

Midstream Focus And An Upstream Update

A little over a year ago, we added three high-quality oil and gas producers to the model Portfolio. Our selection process targeted names with strong balance sheets, low production costs, a history of solid execution and franchise assets that can deliver output growth in a challenging environment. With oil prices a point of pain or profit for all upstream operators, names that can deliver on a volumetric growth story and take market share should outperform.

This strategy has played out to perfection thus far, with our positions in Anadarko Petroleum Corp (NYSE: APC), Concho Resources (NYSE: CXO) and EOG Resources (NYSE: EOG) up an average of 86.9 percent over the intervening months.

In light of this run-up and the risk of rising service costs, the Jan. 25 issue of Energy & Income Advisor suggested that readers consider taking a partial profit off the table, especially with hedge funds’ aggregate long positions in West Texas Intermediate futures reaching record levels and creating a significant liquidation risk.

Our Model Portfolios also contain four legacy upstream names that we held through the down-cycle: Noble Energy (NYSE: NBL), Occidental Petroleum Corp (NYSE: OXY), Eni (Milan: ENI, NYSE: E) and Total (Paris: FP, NYSE: TOT). Here are our latest thoughts on these positions.

Focus Up

Our Focus List has continued to outperform the S&P 500 Energy Index over equivalent holding periods. Note that we have dropped MPLX LP (NYSE: MPLX) from the Focus List after the stock gained more than 25 percent since early December and traded above our value-based buy target for more than a month.

The Oil-Field-Service Industry Is A Battlefield

Each earnings season, we look forward to poring over quarterly results from the two largest oil-field-service companies–Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL).

These industry giants’ earnings calls–particularly the wide-ranging discussions hosted by Schlumberger, the world’s largest oil-field services company–provide invaluable insights into other aspects of the energy patch.

Because of Halliburton’s strong presence in the US and Canada, its management team tends to take a more bullish view on the North American market than Schlumberger, which usually emphasizes international activity. Evaluating both companies’ results and commentary helps investors to form a complete picture of key energy markets.

The read-through from Schlumberger and the other major oil-field services companies’ earnings reports and subsequent conference calls are particularly useful because they occur before many other energy-related names announce quarterly results.

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  • Live Chat with

    Elliott and Roger on Mar. 30, 2017

  • Portfolios & Ratings

    • Model Portfolios

      Balanced portfolios of energy stocks for aggressive and conservative investors.

    • Coverage Universe

      Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.

    • MLP Ratings

      Our assessment of every energy-related master limited partnership.

    • International Coverage Universe

      Roger Conrad’s coverage of more than 70 dividend-paying energy names.

    Experts

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Peter Staas

      Managing Editor: Capitalist Times and Energy & Income Advisor