In this issue:

As an undoubtedly wise trader observed, our investments can make us richer or wiser, never both. Wisdom will unfortunately be most energy investors’ main reward for 2014, after a nasty oil crash severely dented portfolios. Ours performed a shade better than the benchmarks — and considerably better in the case of the Conservative basket.

We intend to tackle a highly uncertain 2015 with a smaller and safer array of recommendations, and to that end are dropping five names while adding two this week. You can expect more subtractions in the near future.

One of the newcomers is a heavily discounted fracking sand supplier offering a unique mix of growth and income. The other is a leveraged play with a double-digit yield backed by the biggest MLPs.

Midstream services is where the best risk-adjusted opportunities seem to reside these days given the sector’s limited exposure to spot energy prices.  

The outlook is much harsher for the small shale drillers like the handful we’re now disowning. Energy investors should ask themselves whether they’d buy any position they own if they didn’t already own it. And if the answer ends up being No, perhaps it’s time for a fresh start.      

Portfolio Update

• Core Laboratories (NYSE: CLB) sold from Growth Portfolio
• Emerald Oil (NYSE: EOX) sold from Aggressive Portfolio
• Gastar Exploration (NYSE: GST) sold from Aggressive Portfolio
• Green Plains (NASDAQ: GPRE) sold from Aggressive Portfolio
• Oasis Petroleum (NYSE: OAS) sold from Aggressive Portfolio
• Hi-Crush Partners (NYSE: HCLP) added to Aggressive Portfolio; buy below $40
• ETRACS 2xMonthly Leveraged Long Alerian MLP Infrastructure Index ETN (NYSE: MLPL) added to Aggressive Portfolio; buy below $58
• Chesapeake Energy (NYSE: CHK) and Marathon Petroleum (NYSE: MPC) transferred from Aggressive to Growth Portfolio
  
  

Commodity Update

 West Texas Intermediate (WTI) fell to a six-year-low since our previous issue, trading at $46.52 per barrel before bouncing back to $48.46/bbl toward the end of last week. Brent suffered an even steeper decline of $14.51 over the past two weeks to $46.89/bbl — at one point briefly wiping out the Brent premium over WTI that has been the norm in recent years — before bouncing up to $49.99 by the end of the week. Natural gas briefly dipped below $3.00 per million British thermal units (MMBtu), and is currently trading at $3.03/MMBtu, down $0.13/MMBtu since our last issue. So far this winter has been much warmer than last year’s, with the most recent Weekly Natural Gas Storage Report showing inventories only 3.8% below the five-year average, but 11% above their level of a year earlier. The warm winter is presently the biggest factor weighing down natural gas prices.

In Other News 

• Consistent with a pair of 2014 rulings, Royal Dutch Shell (NYSE: RDS.A) has received U.S. government approval to export lightly processed condensate

• The New York Times reports that the Obama Administration is planning to use executive authority to require the oil and gas industry to reduce methane emissions by 45% by 2025 from levels recorded in 2012

• OPEC doubled down in its price war with U.S. shale drillers, with the United Arab Emirates announcing an increase in production and calling on U.S. shale drillers to curb their output. The news helped send oil prices to a six-year low

• North Dakota announced that the number of drilling rigs operating in the state fell to the lowest level since November 2010  

• In a move expected to become the norm among upstream master limited partnerships, Linn Energy (NASDAQ: LINE) announced a 57% cut in its distribution and reduced its 2015 oil and natural gas capital budget by 53%

• The U.S. Energy Information Administration released the monthly Short-Term Energy Outlook, lowering its forecast for 2015 oil prices to $54.58/bbl (versus the December projection of $62.75/bbl). It also cut its projection for this year’s U.S. oil production to 9.3 million barrels per day (bpd), still an increase over 2014 but down 10,000 bpd from the December forecast