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Martin Tillier

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Playing The Expected Theme For 2018

Shale

There is, it seems, one theme that look likely to dominate energy investing in 2018, increased output. On some subjects it seems that the current White House has a problem iterating a consistent and coherent policy vision, but that is not the case on energy, where every word we hear talks about “unleashing America’s energy potential” or some other, similar cliché. And, so far, their actions have backed up their words. Vast areas of the country have been opened up for exploration and drilling, and environmental protections are being abandoned at what many consider to be an alarming rate.

That, though, is a double-edged sword for big oil and E&P companies. To date the relaxation has been accompanied by a big jump in oil prices, but at some point, as the new fields open up and U.S. production increases even more, it will put downward pressure on price. From here though, and with demand picking up nicely, that may not be too much of a problem, but it will cap the upside for many industry stocks. As I pointed out last week when I picked SLB as a stock for 2018, the expansion is good for oilfield service companies, and their reaction to price fluctuations tend to lag. That is why I am looking to midstream operations for other ideas for the early part of the year.

The obvious place to go is to Kinder Morgan Inc. (KMI). They are one of the biggest pipeline operators, and have a relatively stable financial position for a company in a capital-intensive…

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