In the previous issue, Roger and I shared a round table with Energy and Income Advisor readers, synthesizing discussions we’ve had on a wide range of “Big Picture” topics, including developments in the still red-hot Permian Basin, the latest on regulatory headwinds and trends and our key takeaways from Q2 earnings, including potential MLP to corporation conversions.
Subsequently, we updated our comments, numbers and advice on each of the companies tracked in our three coverage universes, which are explored in tabular form under the “Portfolios” tab on the EIA website:
• EIA Producers and Drillers
• MLP and Midstream
• International Coverage Universe
This issue, we’re putting it all together in a comprehensive discussion of strategy, including the upcoming simplification merger of the current three EIA Portfolios into one Active Portfolio.
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.
Over the past two weeks the big story in energy markets has been oil price differentials, which was a major theme at this year's MLP and Energy Infrastructure Conference (MEIC) conference. However, scratch beneath the surface and there’s a lot more going on.
You can learn a lot about an industry by listening to earnings conference calls, digging into the quarterly numbers and financial results, but there's no substitute for boots-on-the-ground research.
The potential for OPEC to scale back its production agreement doesn't spell doom for oil prices.
Automakers and battery manufacturers aren't the best options for investors seeking to profit from electric vehicles.
Starting in September, we’re taking a giant step to simplify our Energy and Income Advisor Portfolio strategy. Our 3 Model Portfolios are divided into “Conservative” and “Aggressive” Holdings. The Conservative stocks are intended to be bedrock positions, where our objective is long-term capital appreciation and in most cases a rising stream of income. The Aggressive stocks carry more risk but also more upside potential and often very high yields to reward your wait.
Talking Point #1: The Permian Basin of West Texas and New Mexico - Roger Conrad (RC): Elliott, a lot has happened in the energy sector since the Roundtable discussion you and I had following MLP & Energy Infrastructure Conference. But the most striking development to me is how, despite what seems to be an endless legion of skeptics, the action in the Permian Basin just keeps heating up.
Oil services giants Halliburton (NYSE: HAL) and Schlumberger (NYSE: SLB) are two of the most important energy companies to watch during quarterly earnings season. That’s not because they’re the biggest companies in the energy patch; after all, super oil Exxon Mobil (NYSE: XOM) is nearly 4 times the size of Schlumberger by market capitalization. However, no companies have more insight into trends in the global energy industry, new technologies gaining traction in the field and producer activity levels than these two firms.
Our EIA Endangered Dividends List highlights companies in our coverage universe where dividends are at elevated risk of being cut for one or more of the following reasons:
Surging US energy production from shale formations has been the bane of Canadian energy producers for more than a decade. The proof is in the prices. Western Canada Select crude oil recently sold for $26 less per barrel than the WTI US benchmark, and that differential has been as wide as $40 in recent years. Canadian natural gas at the AECO hub has fetched less than $1 per thousand cubic feet for long stretches and today is barely one-third the benchmark price at Henry Hub in Texas. WCS’ heavier oil mix accounts for some of its discount. But transportation constraints are by far the biggest contributor. And the more the US pumps, the more Canadian oil and gas is crowded off North American pipelines, rails and trucking networks.
Elliott and Roger on Sep. 27, 2018
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