Focus List Update: Holding Their Own
Our stock selection in the upstream segment has proved fortuitous in an earnings season where the market has punished companies that reported disappointing results and/or guidance.
Narrowing Our Focus
We narrow our Focus List and dig deep into our picks’ fourth-quarter results to kick the tires on our investment theses.
Paradigm Shift in MLP Land
Big changes are afoot in the midstream segment. Many master limited partnerships appear to have taken Enterprise Products Partners LP’s lead and shifted their focus to building distribution coverage and reducing equity. We explore which names will be able to make this transition with relative ease and which names face more of a slog to put themselves on a path to sustainability.
Upstream Overview: Thoughts on Q2 Results
Within the upstream space, we continue to focus on names with low costs, solid balance sheets, high-quality acreage in the STACK and Permian Basin, and the flexibility to monetize noncore assets or retain cash flow through captive midstream MLPs.
Although our outlook for oil prices and the US energy patch favors an overweight position in core midstream holdings, nimble investors can generate alpha in upstream names by buying when oil prices retreat to the low end of their range and taking some profits off the table when they recover. Timing and stock selection—easier said than done with shorter cycle times—will be critical to producing differentiated returns. Adhering to our Dream Prices can help in this regard.
Permian Basin to Take Market Share in a Short-Cycle World
Break-even rates continue to fall across the board in US shale plays, but the efficiency gains that come from exploiting multiple oil-bearing formations with the same infrastructure give the Permian Basin an edge in the battle for market share.
Focus On The Permania
The latest additions to the Energy & Income Advisor Focus List have lagged of late, primarily because of the selloff in West Texas Intermediate crude oil. In light of these recent market moves, we we revisit our outlook and investment strategy.
Upstream Takeover Targets
Some of the biggest winners from mergers and acquisitions activity in the US upstream space have been the acquirers. Deal flow will continue to focus on assets and private-equity outfits monetizing their investments. We prefer names with solid balance sheets and exposure to franchise assets with low production costs; these names will continue to take market share, outperform their and grow their inventories of potential drilling locations.
Profitable Trend: Horizontal Drilling Picks up Steam in Permian Basin
The Bakken Shale, the Eagle Ford Shale and the Marcellus Shale may get all the press, as output from these plays continues to grow. But the Permian Basin–an area in west Texas that’s been in production for more than a century–appears poised for a breakout this year.
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Elliott and Roger on Sep. 27, 2022
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Our assessment of every energy-related master limited partnership.
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Experts
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Elliott H. Gue
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor
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Roger S. Conrad
Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor