A year ago, benchmark oil prices plunged from a high of $75 a barrel in early October to a late December low point of $42 and change. By contrast, Q4 2019 was relatively calm. The North American benchmark hugged the mid-50s before closing out the year in the low 60s.
Despite that relative steadiness, few Wall Street analysts expect favorable earnings comparisons for energy companies with year ago results. One reason is a flood of new associated natural gas supplies hitting the market in 2019, which resulted in Q4 benchmark prices falling to less than half where they traded in the year ago quarter.
But the larger worry weighing on the sector is the pronounced reduction in the national rig count that started in the second half of the year. We’ve commented early and often about North American shale producers’ ongoing conversion to the gospel of generating free cash flow, reversing their long-time practice of maximizing output at any cost.
The number of rigs in the field operating in various shale basins has been a straw in the wind of the potential impact of producers holding in cash, rather than investing in their business. Q4 numbers are the first time we’ll see just what happened up and down the energy value chain.
The Portfolio section below highlights what we’re looking for in the various sectors, and what we expect to see for the companies we recommend.
It’s clear that investors should expect weakness at more than a few companies. And it seems likely that some of the 19 current members of the Endangered Dividends List will announce steep payout cuts as part of the guidance they issue with their numbers over the next few weeks.
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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.
Elliott and Roger on May. 25, 2022
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