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Investing Topics: Haynesville Shale

Upstream IPOs: Private Equity Cashes Out

Despite the underperformance of SPDR Oil & Gas Exploration & Production (NYSE: XOP) this year because of concerns about the outlook for energy prices and surging US production, several upstream operators have completed initial public offerings and more remain on the docket. Here are our takes.

Deal Flow Accelerates In Cotton Valley And Haynesville Shale

Enterprise Products Partners LP’s acquisition of Azure Midstream Partners LP’s gas-gathering and -processing assets marked the latest in a series of deals involving assets in the resurgent Haynesville Shale and the emerging Cotton Valley play. We explore what it all means and whether it’s worth placing a bet.

Naturally Volatile

Much of the recent upside in natural-gas prices reflects the unusually hot summer weather, expectations for a cold winter and modest supply growth, as oil and gas producers have curbed their drilling and completion activity in prolific US shale plays. However, our intermediate- to long-term outlooks for gas supply and demand remain unchanged–nor has our investment strategy.

We prefer to buy shares of high-quality producers that have strong balance sheets and high-quality acreage in leading basins–names that will take market share over the long term.

However, timing is a critical component of our strategy.

Investors should buy when gas prices inevitably tumble because of excess production and an unusually warm winter–a confluence of events that has occurred on several occasions over the past decade. You might also consider taking smaller positions in some higher-beta names that we wouldn’t regard as the best long-term holdings.

It’s equally important to take some profits off the table when natural-gas prices rip higher. The time for such a move is imminent.

Investors should also maintain exposure to well-positioned midstream operators that stand to benefit from accelerating production growth in low-cost basins. With natural-gas demand expect to climb in coming years and the US boasting a world-class resource base, the potential volumetric growth is truly impressive.

Natural Gas: Impressive Rally, But Wait for the Production Response

Much of the recent upside in natural-gas prices reflects the unusually hot summer weather, expectations for a cold winter and modest supply growth, as oil and gas producers have curbed their drilling and completion activity in prolific US shale plays. However, our intermediate- to long-term outlooks for gas supply and demand remain unchanged: Expect the price of the thermal fuel to continue two fluctuate primarily with winter demand. And don’t bet on a sustainable breakout unless a new Ice Age (not another installment of the children’s movie franchise) cometh.

Three Growth Themes for MLP Investors

We highlight some of the key growth themes investors should keep in mind as they position for the next few years and highlight the MLP Portfolio holdings that stand to benefit from these opportunities.

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