Buying Domestic

In this issue:

The failed OPEC summit in Doha has come and gone, but crude has so far refused to stay below $40 a barrel. Just as the meeting was concluding with no agreement to restrain production Kuwait’s oil workers went on strike, taking 1.3 million barrels per day of oil off the market.

We note disruptions in Nigerian oil output below; Libyan oil also remains shut in after Islamic State attacks on storage depots. The Kuwaiti workers went on strike over proposed pay and job cuts, and though their protest ended within days it highlights the precarious position of Gulf monarchies as the slump wears down their oil-fueled economies.

Saudi Arabia’s King Salman has defied his monarchy’s traditions by promoting his son as the crown prince. He’s taken even bigger risks in pursuing repression at home and war abroad that’s costing Saudis much of the American citizenry’s good will, a commodity that was in short supply to start with.

And while all these minor disruptions and huge long-term risks percolate, the world will be losing 2 million to 3 million barrels per day in annual declines in output from wells already tapped. The deficit might only become material in a year or two, since it will take that long to feel the effect of the numerous recent drilling project cancellations.

But current prices all but guarantee that the global energy markets will once again swing from a glut to a shortfall in a not-too-distant future. The recent strength of oil futures prices reflects the growing acceptance of that notion.

We continue to believe domestic energy producers and shippers will be the major beneficiaries of the coming industry upswing.

To take advantage we’ve begun hunting for bargains among domestic drillers, with our reserves valuation screen taking advantage of recently updated annual data filed with the Securities and Exchange Commission.

Elsewhere in this issue, we make the case for an Appalachian coal miner rapidly transforming itself into a natural gas growth story. And we stack up the valuation of Energy Transfer Equity (NYSE: ETE) against other midstream providers to show why it remains such a compelling bargain, compelling enough to rank as our top Best Buy.

The song remains the same: current energy prices are insufficient to assure the long-term stability of Mideast producers and also to avert output cuts in places like Nigeria, Mexico, Brazil and China.

When prices to rebound, it will be the low-cost gas producers of Pennsylvania and Ohio who’ll benefit first. And they’ll need plenty of pipelines.        


Portfolio Update

  • CONSOL ENERGY (NYSE: CNX) added to Aggressive Portfolio; buy below $19
  • Growth pick Energy Transfer Equity (NYSE: ETE) ranked as the #1 Best Buy
  • EuroNav (NYSE: EURN) upgraded to a buy below $13 in Aggressive Portfolio


Commodity Update

Investors braced for volatility leading up to a meeting of most of the world’s oil producers in Doha, but oil prices actually rose after the summit wrapped up despite the failure to agree to a production freeze. Since our previous issue West Texas Intermediate (WTI) rose $1.34 to $41.06/bbl, while Brent crude added $3.59/bbl to reach $44.03/bbl. Natural gas prices added 29 cents to close at $2.09/MMBtu.  


In Other News

  • Chesapeake Energy (NYSE: CHK) shares surged after the company successfully negotiated some breathing room with lenders, preserving its credit line until mid-2017 even as it struggle with $10 billion in outstanding debt   
  • ENI (NYSE: E) has declared force majeure on Nigeria’s Brass River crude oil after a fire on a pipeline, removing 142,000 bpd from the global market. Shell (NYSE: RDS-A) previously declared force majeure on Nigeria’s Forcados crude, and that 249,000 bpd remains shut in  
  • Peabody Energy (NYSE: BTU), the world’s largest publicly traded coal company, filed for Chapter 11 bankruptcy protection
  • Goodrich Petroleum (GDP) became the latest casualty in the oil patch, as it filed for Chapter 11 bankruptcy protection with a plan to eliminate $400 million in debt  
  • The Keystone Pipeline leaked about 400 barrels of oil in South Dakota, interrupting operations while the source of the leak was identified and repaired.


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