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Energy Sector Earnings: The Recovery Continues

By Roger S. Conrad on Nov. 7, 2018

It’s hard to tell from the volatility of sector stocks. But third quarter earnings season is going well for best in class energy companies up and down the value chain.

A lot of oil and gas in North America is still bottlenecked by transportation constraints. That’s hampering producers in many places, notably the booming Permian Basin. Canada, meanwhile, is in a virtual depression with Western Canada Select recently fetching less than $20 a barrel and natural gas at the AECO hub going for just 48 cents per million BTU.

But best in class producers are generally finding ways to maintain prices and control costs. And it’s full speed ahead for well-capitalized midstream companies, who now can literally pick and choose their favorite pre-contracted project to serve bottlenecked basins.

The super majors we featured in the September 22 issue also lived up to our expectations, simultaneously raising production and free cash flow after capital spending to buy back stock, pay off debt and make acquisitions. And judging from guidance, there’s a lot more where that came from.

That’s not to say there isn’t still very real weakness in the energy sector. For example, despite all the opportunities for profitable expansion and four years of building conservative financial strategies, cost of capital is in the midstream sector remains prohibitive. That reality continues to force companies to move closer to self-funding models for capital spending, as our Endangered Dividends List highlights.

Producers in places like the Permian Basin and Alberta Canada that failed to lock up pipeline capacity are being forced to use everything from rails to trucks to get their product to market, at great cost. And with the exception of a handful of niches, the services sector remains a hard place to make a dollar.

We continue to expect a broad-based and explosive recovery in energy in coming months. For now, however, selectivity is more important than ever.

This issue, we highlight our take on energy sector earnings thus far and they mean for individual companies as well as broad sector trends. We also look at developments affecting our Actively Managed Portfolio and highlight more distribution cuts on our Endangered Dividends List.

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Your complete guide to energy investing, from growth stocks to high-yielders.

In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.

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    Elliott and Roger on Oct. 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

    • 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