Change in the US energy industry has been dramatic over the past decade.
Sentiment has shifted from a culture of energy scarcity to one of abundance and the US overtook Russia and Saudi Arabia as the world’s largest oil producer.
And, not long ago, you would have been laughed out of a room for predicting that the US would ever export meaningful quantities of oil. Soon however, the nation looks on track to overtake Saudi Arabia as the world’s largest exporter of crude oil on a full-year basis.
We’d argue the shale revolution has also been one of the most important positive developments for the US economy in recent years, helping to reduce dependence on energy imports from politically unstable countries, revitalizing vast swathes of the US manufacturing industry and giving us all a break in the form of lower gasoline prices.
The end of the shale revolution does NOT mean that all of these positive changes and economic trends will reverse, nor does it mean that US energy production will fall again. It does mean that the industry is maturing and that has profound implications for investors.
Gone are the days of growth for growth’s sake, access to seemingly unlimited pools of capital at ultra-low prices and boom-or-bust shale drilling cycles. The winners in the next phase of the shale boom will be disciplined producers that can generate reliable free cash flow with moderate oil and gas prices and services and equipment firms that focus on driving efficiency rather than simple providing basic, commodity services to their customers.
The conventional wisdom is the MLP sector is dead money. That’s a mistake for several reasons.
We still smell investor panic in the air. But the trading action of the past couple days is nonetheless encouraging, as the stock market has reversed big intra-day selloffs to finish higher.
Antero Midstream Partners' (NYSE: AM) merger with its general partner is the latest "simplification deal in the MLP sector.
Dominion Energy's (NYSE: D) offer could do a lot to resolve uncertainty surrounding Dominion Midstream Partners LP's (NYSE: DM) future.
Last week, two more members of our Energy and Income Advisor Endangered Dividends List cut distributions. We strongly suspect they won’t be the last to do so before second quarter earnings reporting season is over.
Change in the US energy industry has been dramatic over the past decade. Sentiment has shifted from a culture of energy scarcity to one of abundance and the US overtook Russia and Saudi Arabia as the world’s largest oil producer. And, not long ago, you would have been laughed out of a room for predicting that the US would ever export meaningful quantities of oil.
There have been no additional dividend cuts in our three coverage universes since the previous EIA issue. That’s largely a function of timing, as companies are winding up the calendar first quarter and won’t be declaring their next distributions until next month.
However, calendar fourth quarter reporting requires considerably more legal filings. That means it typically takes several weeks longer for many companies to compete filings than it does other times of the year. And the good news is several later reporters did come in with encouraging news and guidance.
Almost all of the midstream energy companies in the EIA coverage universe have now reported their calendar fourth quarter results and issued guidance for the coming year. Have any of your key takeaways changed for the sector?
Summit Midstream Partners LP (NYSE: SMLP) is cutting its quarterly payout in half from 57.5 cents to 28.75 cents. Management called the move a “repositioning” to “fund attractive growth opportunities and maintain a prudent capital structure.” The partnership also swapped its general partner’s IDRs for 8.75 million new common units, boosting outstanding shares by roughly 12 percent.
Earnings reporting and guidance call season often provoke investor confusion, angst and unfortunately all too often some very bad decisions. But they’re also where the rubber meets the road in this business.
Elliott and Roger on Mar. 26, 2019
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