More recently, surging production growth from the Delaware and Midland Basins have butted up against existing pipeline capacity, blowing out the price differential between West Texas Intermediate in Midland and Louisiana Light Sweet on the Gulf Coast.
Lower price realizations, coupled with price inflation in the services segment, will hit the returns generated by oil and gas producers in the Permian Basin, especially those that lack scale and/or sufficient takeaway capacity.
One of the reasons we have focused on Concho Resources (NYSE: CXO), WPX Energy (NYSE: WPX) and Occidental Petroleum Corp (NYSE: OXY) is for the pipeline capacity they have secured to move barrels to the Gulf Coast.
Enterprise Products Partners LP’s (NYSE: EPD) Midland-to-Sealy pipeline came onstream earlier this month, but exploration and production companies will need to wait until 2019 for a significant increase in takeaway capacity.
Whereas these widening price differentials create challenges for oil and gas producers in the Permian Basin, refiners in the region stand to benefit from their ability to source discounted crude oil and sell gasoline and refined products at higher international prices.
Andeavor (NYSE: ANDV) offers exposure to this tailwind after acquiring Western Refining, but Delek US Holdings (NYSE: DK) offers the most leverage to this trend after rolling up Alon USA Partners LP (NYSE: ALDW).
We would also expect Plains All-American Pipeline LP’s (NYSE: PAA) oft-maligned marketikng division to benefit from arbitrage opportunities created by this widening price spread.
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.
Elliott and Roger on Apr. 26, 2018
Balanced portfolios of energy stocks for aggressive and conservative investors.
Our take on more than 50 energy-related equities, from upstream to downstream and everything in between.
Our assessment of every energy-related master limited partnership.
Roger Conrad’s coverage of more than 70 dividend-paying energy names.