An environment where oil prices remain lower for longer favors US independent exploration and production companies that own high-quality assets in the lowest-cost shale plays.
The best upstream operators continue to reduce their per barrel production costs through efficiency gains and enhanced drilling and completion techniques that boost per-well output. Some of the strongest names can generate a decent return on capital with oil prices in the mid-$30s per barrel.
Despite significant volatility, crude-oil prices have trended lower since the beginning of June. Our near-term outlook calls for West Texas Intermediate (WTI) to tumble into the $30s per barrel over the next one to three months, a period of seasonally weak demand.
This weakness could create another opportunity to buy our favorite exploration and production names.
Weak demand, a wave of contract expirations and excessive leverage are all reasons to remain bearish on offshore contract drillers. Investors should continue to avoid these value traps.
Overall equity issued by energy-focused master limited partnerships (MLP) declined by 58 percent last year; we expect this trend to continue in 2016.
Our near-term outlook for crude-oil and natural-gas prices hasn't changed, though investors should consider taking profits on demand-oriented names that tend to thrive when oil prices dive.
The severe downdraft in the prices of crude oil, natural gas and natural gas liquids has pressured producers’ cash flow and outpaced reductions to service costs and capital expenditures. Accordingly, the cash flow shortfalls that predominated in the salad years have continued in the lean years, setting the stage for further spending cuts in 2016.
We delve into some the recent trends in mergers and acquisitions involving master limited partnerships and other midstream operators.
Second-quarter earnings season is done and dusted for midstream master limited partners (MLP) that own pipelines, processing and fractionation capacity.
The Master Limited Partnership (MLP) Association hosted its annual investor conference in Orlando last week and, as always, the Energy & Income Advisor team was on the ground to talk to management teams and fellow investors. Here are some of our bigger-picture takeaways from the event.
After plunging almost 50 percent from early May 2015 to mid-February 2016, the Alerian MLP Index has defied the critics and torched slow-to-react short sellers by surging 45 percent since its nadir. But the easy money has been made: Investors must now focus on which names are best-positioned to grow in an environment where energy prices remain lower for longer.
Activity levels and pricing for oil-field services and equipment will likely remain under pressure in the US onshore market this year, with early 2017 bringing a bit of a recovery on both scores. But a return to the levels witnessed during the boom years appears unlikely, especially if Saudi Arabia opts to tap some of its spare capacity to take market share and keep oil prices in check.
Elliott and Roger on Sep. 26, 2016
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