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Staying Focused

By Elliott H. Gue on Jul. 16, 2013

Our high-grading of the Focus List continues. We are sticking with two of our top performers, Oasis Petroleum (NYSE: OAS) and Western Gas Equity Partners (NYSE: WGP), even though these stocks trade above our buy targets.

Upstream operator Oasis Petroleum continues to benefit from a combination of declining production costs and growing output. Moreover, favorable developments in the downstream and midstream spaces have bolstered the price of West Texas Intermediate (WTI) and light-sweet crude oil that’s delivered to the hub in Clearbrook Minn. Improving price realizations in recent weeks have likely boosted investment sentiment toward Oasis Petroleum and other upstream operators in the Bakken Shale.

Investors should note that the narrowing price differential between volumes delivered to Clearbrook and Cushing, Okla., and Brent crude oil reflects temporary developments in the downstream and midstream spaces.

Specifically, Canada Syncrude–a joint venture led by Canadian Oil Sands (TSX: COS, OTC: COSF)–in June moved up the turnaround of a bitumen upgrader that can produce up to 350,000 barrels per day of synthetic light crude oil. This outage, coupled with Enbridge (TSX: ENB, NYSE: ENB) temporarily shutting down two oil pipelines in Alberta, prompted refiners to seek replacement volumes from the Bakken Shale and other US oil plays.

Temporary improvements to price realizations aside, we remain bullish on Oasis Petroleum because of its declining production costs and growing output. 

Western Gas Equity Partners, the general partner to Western Gas Partners LP (NYSE: WES), remains our top pick for investors seeking rapid distribution growth and low risk. Investors should regard any downdraft in the stock related to concerns about rising interest rates as a buying opportunity.

We’d also like to highlight the recent strength in shares of oil-field services company Weatherford International (NYSE: WFT), a name that stands to outperform because of its limited exposure to the US market for pressure pumping and anticipated demand for the company’s artificial-lift solutions. Although heavy rains likely weighed on the firm’s results in Canada, investors will likely welcome a clean quarter after a series of frustrating accounting missteps and subsequent restatements. Trading at an undemanding valuation, the company remains a potential takeover candidate

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