• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

My Energy Sector Trading Plan for the Next Few Weeks

I'll add to positions in down days in crude and stocks.
By DANIEL DICKER Sep 03, 2015 | 12:22 PM EDT
Stocks quotes in this article: HK, GDP, LINE, XCO, HES, CLR, EOG, XOM, CVX, RDS.A

If you've taken advantage of the weakness in the last two weeks to begin accumulating a long-term energy position, as I have previously suggested, we need to get a further understanding about how to manage that position and what I see as the likely timetable for oil and oil stocks. Here's my latest "trade" report: 

China worries and a few quicker indicators that domestic production was beginning to slacken accelerated my timetable for investment that I laid out in my book, "Shale Boom, Shale Bust".  I now believe that the lows in oil have likely been seen, but that does not mean that I believe that oil will become constructively bullish anytime soon, either.

Why is that? It's because so many of the signposts for the next boom in oil that I laid out in my book have not materialized as yet -- particularly the consolidation movement of shale assets into the hands of larger major oil companies and a few select private equity players. 

One other thing I never counted on when I wrote my book was the varied level of corporate accounting "tricks" that even the most overleveraged shale players were capable of -- there is a lesson here in the sophistication of modern investment banking, capable of so many "life-saving" restructures that keep them alive. 

Halcon Resources (HK) shows an example of this. In their latest restructuring, they have literally forced bondholders almost at the point of a gun to take fierce haircuts on tranches, pushing effective yields down while exchanging for later dated paper and practically worthless stock. 

Why are bondholders agreeing to this? Halcon argues that they are only going to offer this deal for a portion of their debt -- leaving other bondholders with lower priority paper should a bankruptcy occur and further diluting shares to the detriment of equity holders. All this enhances Halcon's ability to hang on for longer, another argument in favor of getting large holders of bond tranches to agree to this devil's bargain. 

So while the "standard" methods of capital-raising and bond issuance is reaching its limit with the marginal exploration and production players, many continue to find ways to "keep the clock running."

This kind of debt malarkey only works, of course, if you can push the clock back far enough to wait out a significant crude rally -- probably back into the $70 range. This just won't happen in time, and Halcon remains on my "walking dead" list. In my mind, they've only managed a temporary stay from the electric chair. Still, you can bet that several other oil and gas companies will follow suit in Halcon's outline and we'll see these kinds of bond swaps from Goodrich Petroleum (GDP), Linn Energy (LINE), EXCO Resources (XCO) and SandRidge Resources (SD), to name a few.

These kinds of shenanigans also insure that a full-scale "market clearing" needed for oil to stage a real and constructive recovery will also take longer as well ¿ so, while I was fairly sure of the W-type recovery in oil that has seemed to begin, I equally don't see prices rallying much above $52 in the mid-term. 

Why the majors have been so quiet, at least so far, in finding value in solid shale players to make bids for here has also frankly surprised me. 

For the long haul, Hess (HES), Continental Resources (CLR) and even Action Alerts PLUS portfolio holding EOG Resources (EOG) strike me as three tremendous opportunities for Exxon (XOM) and Chevron (CVX) to look at -- particularly as Shell (RDS.A) continues to blow (as in waste) billions into future production potential in the Arctic. U.S. shale, at least in these few solid names, is a far more bankable bet, in my view. 

But no one called me to be a major executive for a major oil company, that's for sure. In the meantime, I am expecting oil to maintain a (relatively) narrow range for a while, making it clear where your investment opportunity will emerge -- on down days in crude and in equities to add to positions, and in up days in both near the top of my projected range to lighten up a bit.

And that's what I'm going to be doing for the next few weeks, barring something new emerging. 

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Dan Dicker was long EOG, although positions may change at any time.

TAGS: Investing | U.S. Equity | Energy

More from Energy

FuelCell Energy's Charts Tell Us a Bearish Story

Bruce Kamich
Apr 13, 2021 10:16 AM EDT

The speculative runup in FCEL seems to be over. Approach with caution.

These Stocks Are Losing Energy

Ed Ponsi
Apr 13, 2021 8:30 AM EDT

Several signs point to underperformance for energy names in the near term.

Avoid Tanking Up on Schlumberger

Bruce Kamich
Apr 12, 2021 11:48 AM EDT

Instead, the charts advise taking profits. Here's why.

Plug Power Is Still Unplugged

Bruce Kamich
Apr 12, 2021 11:21 AM EDT

The charts of PLUG are bearish and losing power.

Retirees: Get Plugged Into This Dividend Stock

Bob Ciura
Apr 7, 2021 12:27 PM EDT

Evergy is a high yield utility stock offering dependable dividends.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:05 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    How recency bias and the Pareto Principle impact y...
  • 02:42 PM EDT PAUL PRICE

    Wednesday on Real Money Pro

    Make this stock a 'part' of your portfolio.
  • 04:44 PM EDT PAUL PRICE

    Pretty Incredible + Hard to Believe

  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login