A few words about this ‘Rapid Roundup” of energy names before I start reeling them off (or as many as I can reasonably do).
My request for stock names was answered with more than 100 emails from subscribers. I cannot tell you how heartening it is for me to receive such enthusiastic interest in my work – mostly when I check my emails and comments they are limited to trolling or taunting, an expected hazard but still no fun. The quantity and quality of your responses gave me great pleasure and I thank you. I cannot mention your names in this column, but please know I greatly appreciate each one of your requests.
First the macro situation: Energy continues to see a rally from ridiculously low numbers, but despite some drops in US (and OPEC!) production, there are still stockpile gluts everywhere which should limit the upside, at least for now. If you haven’t begun accumulating long-term names, any down-day in oil would provide a chance to start – if you’re trading, however, I think that gains accumulated when oil was in the 20’s should be taken. Now, let’s get to some names:
Let’s start by trying to bite off two big subsectors in one go:
1- Pipelines: I’ve made clear that the dropping production inside the U.S., combined with ‘lower for longer’ oil and gas prices make the growth potential in the mid-term for pipelines difficult, and therefore their distributions suspect. I put faith in only one of these in the last 6 months – KMI – and you all know how that worked out. I won’t do it again; there are better places to invest. In one case, I’ll make a quick judgment because it’s a microcosm for what’s currently wrong with the subsector: Energy Transfer Equity (ETE). Like other pipelines, the debt load is huge, there’s no cash on hand and despite their great subordinate companies (Sunoco, LNG, ETP), I’m not at all convinced about long-term stability of the distribution (which is what all of these are ultimately about). Now, if that wasn’t enough to convince, throw in the Williams merger (WMB, WPZ). ETE definitely overpaid, the cash kicker adds another $6B in debt and they’ve needed a secondary anyway – at the worst possible time. They’re definitely going to strip distributions at ETP to save their bond status and no matter what they say, bailing on the Williams deal would be a godsend for them. Had enough? I know I have. No thank you, with a capital NO.
2- Deep-water Offshore: I’ve gone from thinking that the cycle in oil would recover completely by the end of 2017 to now at least wondering whether we’ll see my famed call of $150/barrel oil by the start of 2018. That’s made the deep-water players, including Transocean (RIG), Seadrill (SDRL), Noble Corp (NE), Diamond Offshore (DO) and Atwood Oceanics (ATW) in for a longer down cycle than I originally might have hoped. In fact now I think that at least one of these, if not two, must go bankrupt before the rig glut will clear enough for the cycle to recover fully. Who will it be? And who will survive? I may tackle that in the future, having taken a shot with Seadrill and gotten punished for it (but happily able to recoup some of the losses on the short covering rally to $7 recently). For now, there’s no need. As with the pipes, I’m staying clear – the value will make itself known further along in the cycle and we have other, better fish to fry right now. Which leads to the E+P players……..
Occidental (OXY) – not normally in my hit parade, I’ve been deeply impressed by this name recently, and anyone who has begun accumulating it as one of the likely solid survivors of the crude bust has done a great job in finding it – It’s on my first page screen now.
Whiting (WLL) – the Bakken has clearly reached peak production, which is shocking in itself, but lends us to even more carefully consider who in that shale play we should even bother to look at for the long haul – and it ain’t them (nor Gastar (GST) for the one guy who asked!). My one dedicated Bakken play (outside of Hess) is now Continental (CLR).
Conoco (COP) – Since the dividend cut, I’ve rathered this one than Chevron (CVX) despite it’s bigger run, and still believe they are most at risk for their own capital raise of some kind. Exxon (XOM) raised using bonds and a cut in the stock buybacks and remains the strongest of the mega-caps.
Marathon (MRO) – NO
Weatherford (WFT) – I’ve been steering clear of this name, waiting for them to do a secondary since 2010 and of course they chose the worst possible time to finally dilute – I’ll continue to steer clear despite Goldman’s upgrade.
Chesapeake (CHK) – Aubrey McClendon’s life and tragic death has been a strange mirror into this company he built. If the crude bust needs one very big name to go out before this market finally clears, it could likely be Chesapeake. Day trade only.
I’ve run out of words long before I ran out of names – but hope I’ve touched on a few of the ones you’ve asked for. I promise to make this a regular column feature, certainly every few weeks at least. Thanks again for your responses.