I put out a note on Columnist Conversation yesterday, asking subscribers for energy stocks of interest for me to comment on. The response was stunning: More than 75 emails poured in.
Every one of the messages were intelligent and appreciated and I can't tell you how super your notes made me feel -- you sometimes forget how many people you're reaching when you write, and you've all reminded me. Thanks.
For the many of you who mentioned having read my book, more thanks -- and a request that you please add an Amazon review online, when you have a chance.
With so many messages, however, it's literally impossible to choose who to answer. Instead, let me make some observations on energy subsectors that encompass several dozen of the stocks that readers' asked about, and perhaps make some other quick comments on the large-cap companies that several readers mentioned.
Let's start with the Canadian oil companies, a group I was very taken with in the Spring of 2014, before the oil bust began. I've not mentioned them for a long time, for purely macro reasons: Using the timelines that I outlined in my book and here on RealMoney, the Canadian companies simply face an even more difficult comeback trail than their U.S. brethren, and the dirty word here is "basis." As high quality oil has poured in from shale assets here in the US, it has forced even greater discounts upon Canadian grades, which were already seeing a $15, $20, $25 and sometimes $30-basis West Canada Select (WCS) discount to West Texas Intermediate (WTI) U.S. crude. When oil was above $100, this was a discount that many Canadian players could cope with. But now with prices under $50, and likely to stay reduced for several quarters to come, I'd just rather take my chances with U.S. players.
Take someone like Crescent Point Energy (CPG). I like what they do, where they do it and how they've managed their finances, but Crescent Point will need to deal not just with the reduced Capex and production scheduling -- like the U.S. independents -- they'll also have to overcome a $30 oil price realization, and that's not even counting the $0.20 Canadian dollar discount versus the US greenback.
Sorry, but the timing's wrong for any of these, for me, no matter how admittedly cheap they're all trading, for now.
Next, let's talk about the pipelines, which many of you wanted to touch upon. I've been clear that the timing on these has also been wrong, at least to start a position. The only one that I feel is worthy of accumulating now, even conservatively, is Kinder Morgan (KMI). The reason for this is also entirely macro, and the problem, here, is similar to the exploration and production companies'. Pipeline Master Limited Partnerships rely on growth to maintaining distributions. New networks need to be bought or built, as old pipes' transport volumes slacken when old oilfield volumes dry up. Deep distributions force pipelines to rely on credit for this expansion -- a plan that works, as long as volumes continue to deliver the revenues to keep it all humming along. But the future production and transport profile in the U.S. looks to me to be anything but optimistic, as rigs drop and new completion rates collapse. Normally, I'd dig deeper to find the better-placed networks and storage assets, but the market doesn't rate the work. Pipeline stocks have already been well supported by low interest rates and the scramble for yield, in the last several years -- making new investment in any of them seem to me to be badly timed. I know that many retirees depend upon pipeline MLPs for return, and I'm not recommending a full-scale bailing out, here. But as a new investment, I don't see value and am avoiding the group.
Well, I've already run long in this column and will save a more micro drill down on Anadarko (APC), Devon (DVN) and Schlumberger (SLB), as well as some smaller stocks -- including Linn Energy (LINE), Whiting (WLL) and Oasis Petroleum (OAS) -- for Thursday.
Thank you all, again, for your terrific input.