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  • Roger S. Conrad

Bond Update

By Roger S. Conrad on Jul. 31, 2015

With seven bankruptcies this year and more to come if oil prices remain lower for longer, investors should avoid marginal North American exploration and production companies’ shares at all costs.

In December 2014, we highlighted a basket of undervalued bonds issued primarily by upstream master limited partnerships (MLP) that we thought would rally if they cut their distributions to shore up their balance sheets and focus on paying down debt. We also reasoned that these securities would pop on any relief rally in energy prices. (See Afraid of Dividend Cuts? Buy Bonds.)

Our strategy worked out nicely. With oil prices climbing to $60 per barrel a few months later, we suggested lightening up on these positions to take some profits in anticipation of further downside in West Texas Intermediate (WTI).

We’ve added a handful of securities to our original list. With the exception of Energen Corp (NYSE: EGN), all these names are financially stressed, primarily because of their marginal asset bases, expiring hedges and the collapse in energy prices.

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    • Elliott H. Gue

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

    • Roger S. Conrad

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