• Twitter
  • Roger S. Conrad

Feature Article

Model Portfolios: Simplifying our Strategy

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.

Roundtable: Our Views on Q2 Earnings, Picking Permian Basin Targets, MLP Corporate Conversion, 2018 Political Risks and More

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.

A 30,000 Foot View of the Global Energy Industry Today

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.

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.

Oil Prices Lead an International Renaissance

The OPEC-Plus decision to boost oil production is one of the most bullish developments for the global oil market since the crude oil bear market kicked off four years ago.

While it might seem counterintuitive to say that rising global oil output could be positive for prices, the key is to focus on spare capacity and the growing risk the world could face a real supply shortfall by early 2019.

Spare capacity is defined as oil production that can be brought online within 30 days and sustained for 90 days. In other words, spare capacity represents mothballed fields or wells that are not currently producing oil but could be brought online quickly to meet “shocks” such as temporary disruptions in global oil supply or tanker traffic.

Endangered Dividends List

Energy & Income Advisor sifts through literally hundreds of energy companies from around the world to separate the best from the rest. You can check out key metrics for each along with our comments and advice in the tables under the “Portfolios” tab on the EIA website.

The current issue features an updated look at the stocks we cover. Unfortunately, we found a large number of companies we track are still at risk to dividend cuts, along with a handful that are genuine bankruptcy risks.

Many of these weaklings have already cut their distributions at least once since oil prices peaked in mid-2014. As a result, they trade at much lower levels than just a few years ago.

In an unforgiving market like this one for energy stocks and particularly MLPs, however, another cut would still set off a selling wave. And that’s at the same time stronger companies that have taken their lumps are making gains.

The upshot is we want to avoid at risk dividends now as much as ever. To provide an early warning system, we’re initiating ourEnergy & Income Advisor Endangered Dividends List with the 16 companies in our table.

Picks, Pans and Takeaways from the 2018 MLP & Energy Infrastructure Conference

General Takeaways from the MLP & Energy Infrastructure Conference (MEIC)

Roger Conrad (RC): The first thing I think both of us noticed was how much smaller this year’s event was than last year’s, and certainly than it was four years ago in Jacksonville. That was really the peak of the boom for MLPs and I remember how uncomfortable you and I were then about how popular the sector was.

What Drives Performance for Exploration and Production (E&P) Companies?

When I analyze any industry group I like to start by attempting to answer one simple question:

What are investors looking for?

In other words, it’s crucial to understand which quantitative metrics and/or stock characteristics drive stock market returns over time. Answer that one question and you’ll be well-positioned to select stocks that outperform their peers and the broader market.

Subscribe today to receive a sample issue of EIA
  • Live Chat with

    Elliott and Roger on Sep. 27, 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

    • 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