Our Views on Q2 Earnings and More
Two months ago, Elliott and Roger shared a round table with Energy and Income Advisor readers, essentially a written transcript of discussions we had following the 2018 MLP & Energy Infrastructure Conference (MEIC). This issue, we return to that format with a wide-ranging discussion of energy sector issues affecting investors.
What follows is a condensed version of our conversations of recent days surrounding three key talking points:
1 | Developments in the Permian Basin, still the world’s hottest shale oil region and increasingly a hotbed for M&A;
2 | The latest on regulatory headwinds, including a referendum in Colorado and a first look at the potential impact of November 2018 elections on the US shale industry;
3 | Key takeaways from Q2 earnings, including the latest word from management teams on potential MLP to corporation conversions.
No Surprises: Earnings Reporting Season Brings Distribution Cuts
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:
Endangered Dividends List: Heed This Early Warning System
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.
Canada and MLPs: Time to Buy
In this issue of Energy & Income Advisor:
1 | We offer our outlook for the ongoing recovery in Canada’s long-suffering energy patch and the emerging favorable impact of expanding takeaway transportation capacity for natural gas and natural gas liquids (NGLs), as well as oil.
2 | We look at prospects for our favorite Canadian exploration and production companies, as well as oil and natural gas midstream, and we offer an addition to our Focus List.
3 | Per our July 19, 2018 Alert, we view as very bullish for the entire MLP sector this week’s clarification of a previous Federal Energy Regulatory Commission proposal on treatment of tax items in pipeline rates. We see a “table pounding buy opportunity” for readers who are light on our favored MLPs:
Canada’s Landlocked Energy Is Finding a Market
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.
Earnings Reporting Season Raises Risk
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:
- Cash flow coverage of distributions is inadequate.
- Elevated debt levels with imminent refinancing needs.
- Revenue pressure triggered by weakness for at least one key asset.
- Inability to access the equity market on favorable terms to fund capital spending, forcing management to utilize more internally generated cash flow.
- Exposure to volatility in commodity margins from either rising or falling prices of raw materials.
- Aggressive general partners anxious to buy in limited partners’ cash flows at discounted prices.
- Regulatory reversals.
- Expiring contracts with little hope for renewals at comparable rates.
Most of the companies on our list suffer from more than one of these afflictions.
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Live Chat with
Elliott and Roger on Nov. 29, 2018
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
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Elliott H. Gue
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor
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Roger S. Conrad
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor