JotCast | Energy & Income Advisor Live Chat March 2019 | 3/26/2019

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Energy & Income Advisor Live Chat March 2019

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Elliott Gue

4:16

WPX is a high quality Permian producer. It's out of favor because the market seems to hate any stocks that aren't going to be free cash flow positive immediately. As the industry swings back into favor, WPX should see a significant upward re-rating. Do you mean MRO? If so, Marathon is a solid name and has been outperforming this year...They have a credible plan to generate free cash flow even with oil at $45 to $50/bbl and, as long as they stay disciplined, the stock should do well.

MartyR

4:18

What is the latest on KMI? thanks for BA advice

Roger Conrad

4:18

It's a buy up to 22 and a member of the Actively Managed Portfolio. Management has affirmed the 25% dividend increase for next month and another 25% for 2020. Projects like Elba Island LNG export are on track and Q1 results should be very solid. Like Enterprise does in the high 20s, KMI has encountered a lot of resistance in the low 20s. But we feel strongly that so long as they execute their self funded CAPEX plans, they're going to keep growing as natural gas demand rises in the US and elsewhere--including Mexico where they've become a major player.

Steve O

4:23

My notes have the new Antero Midstream Corp (AM) distribution looking very attractive, especially considering projected distribution growth for three years. Does this ring true? Seems like I should "overweight" a bit until websites like Yahoo Finance catch up.

Roger Conrad

4:23

The new Antero Midstream (NYSE: AM) resulting from the merger of the former MLP and GP is in our Actively Managed Portfolio. And we see no reason to doubt management's guidance for an acceleration of distribution growth thanks to benefits from the merger. The continued reliance on CAPEX plans of former parent Antero Resources is I would say the principal uncertainty over the next 10 years. But there's enough going on to keep growth going at a robust pace, which should be enough to produce strong returns at Antero. As for weighting, our official advice is to follow what we have in the Actively Managed Portfolio. We're also considering publishing a purely income focused list of energy recommendations and would be interested to know what you think.

Hans

4:41

Is there still any hope for Jones

Elliott Gue

4:41

It's tough to see a "way out" for them. While I think they've got good acreage but just too much debt and they haven't been able to work through an alternate financing arrangement

Roger Conrad

4:45

Q. Gentlemen. Retired, need income, but would like to leave legacy for future generations...am positioning myself for some “Green energy.” Although as you state we have decades yet to go with our current holdings, I do have a position now in Next Era Energy Partners (NYSE: NEP). Will not chase NextEra Energy (NYSE: NEE) now in the stratosphere. Massive debt has always been a common denominator in my prior financial failures. NEP’s debt / EBITDA is 6.9 on Yahoo. Don’t understand their creative financing with KKR. I worry about the debt. Please tell me to relax and enjoy the ride to carbon free utopia!--David O.

A. First off, not to pick on Yahoo but I generally don’t set a lot of store in numbers generated from mass screens. These services can be a good point of departure for further research but certainly not the end point. In the case of NEP, this yieldco should be viewed as an affiliate of NextEra. So long as the parent is supportive of drop down-led growth, the distribution will continue to grow at

4:46

the 12 to 15% annual guidance rate. The latest financing deal/dropdown of assets is the latest affirmation of that support. It basically allows NEP to complete the deal to diversify and increase cash flow now, with the option to buy out its financial partner in the next 6 years. As for debt, I’d prefer a lower debt/EBITDA ratio and NEP will bring that down as it continues to grow. But again, they do have an ultimate guarantor in A-rated parent NextEra. I don’t know about carbon free utopia but I think we can relax with this one for the time being, especially now that NEE has supported NEP in the wake of uncertainty from the PG&E bankruptcy.

4:53

Q. I currently own EPD, MMP, MPLX and PAGP. I've been thinking about swapping out one of them for KMI. Of these 5 names, which 4 do you like most right now?—Scott K.

A. That’s a very difficult question to answer, mainly because all five of these midstream companies are currently in our Actively Managed Portfolio in various amounts. And as we’ve indicated throughout this chat, we continue to recommend all of them for multiple reasons.

One way to think about this would be from the standpoint of income. For some investors, a higher current income stream is more important than the promise of future growth to produce capital gains. It’s also true that EPD, MMP, MPLX and KMI have either already raised distributions this year at least once or have declared their intention to do so. We expect that from PAGP later this year but some will prefer the bird in hand. Finally, it’s also possible to diversify by lightening up a bit on other names while maintaining holdings. This is a strategy we frequently recommend for

investors that are particularly overweight in certain names.

5:08

Q. Enbridge Inc (TSX: ENB, NYSE: ENB) announced on March 1 that Minnesota would provide environmental permits for the Line 3 Replacement Project by November 1, delaying the in-service date by up to a year. While ENB reassured investors as to the outlook for the corporation’s 2019 earnings, what likelihood do you see that there may be intervenors to this project and whether ENB will be able to raise its dividend in 2020 as previously projected? Thanks—Will F.

A. The great irony in the US oil and natural gas pipeline business is how much more difficult it’s become to permit and complete projects under the Trump Administration. Basically, opponents have seen a record influx of funding to challenge almost anything at multiple venues.

In the case of Line 3, all that’s left are permits that in past years would have been routine to obtain. Opponents of the project are attempting to stretch out their issue to increase the potential regulatory approval to be overturned, and they appear to be supported by the

governor who took office this year. At this point, that seems unlikely, as demand for the pipeline’s promised new capacity remains robust.

The good news for Enbridge shareholders is, even if it is eventually abandoned, the company still has multiple places to invest and particularly in natural gas, which will drive future earnings and dividends. That’s why the share price is basically where it was a month ago. The companies really hurt are Canadian producers, which if Line 3 isn’t revamped face a further crunch on transportation capacity.

MartyR

5:09

an income focused list would be much welcomed.

Roger Conrad

5:09

Thanks Marty.

Mack

5:15

Do you have any thoughts on Hoegh LNG Partners (HMLP) ??

Elliott Gue

5:15

Yes, in fact we spoke to management a year or two ago at one of the conferences we attended and recommended it in our post-conference wrap up. (I actually wish we'd added it to the portfolio outright as it has done well). Their business model makes a lot of sense since the capital investment to build a traditional onshore regas facility for is pretty high -- floating units that can be moved around seem a sensible (and popular) alternative.

Buddy

5:16

you posted my question at 4:12 but didn't answer it.

Elliott Gue

5:16

I actually made a mistrake there and posted your question after I posted my answer...so, look just above the question and there's my answer. Sorry -- still getting used to this new system/platform for the chats.

Jim N

5:20

Thoughts re Riviera and Roan. Buy,sell or hold.

Roger Conrad

5:20

First, just to review anyone unfamiliar, these were the stocks that came out of the split up of post-bankruptcy Linn Energy. Those who were bondholders in the bankruptcy received shares of the new Linn, and if investors held onto those shares, they got shares in these companies. There's not a lot to say about either of these companies at this point. They're small, which has been a real disadvantage in a market where investors are valuing safety. It does look like Roan is executing its business plan of growing production and pushing down costs in primarily central Oklahoma. Riviera is also moving toward its goal of restructuring its asset portfolio and increasing what management calls NAV. We don't track either of these companies in our coverage universes, but I don't see any reason to change the hold recommendation I've given to those who own these shares from owning Linn bonds.

Steve O

5:23

I am mostly income focused. Would love a publication of energy, utility, REIT, and baby bonds; without bonds or closed end funds.

Roger Conrad

5:23

Steve, we do cover all of those investment sectors as a company. Of course, energy is the focus of Energy and Income Advisor. We track utilities and other essential services companies in Conrad's Utility Investor and we focus on a wide range of income investing in Deep Dive Investing. if any of these interest you, please check them out on their respective websites. You can also call our customer service chief Sherry Roberts, Monday through Friday, 9-5 ET at 1-877-302-0749 or write us at service@capitalisttimes.com Thanks for your interest.

Jon

5:24

Just a request to consider. In the EIA newsletter, the table of holdings for the Actively Managed Portfolio might be more useful if those holdings were listed by value (largest to smallest) and by also including the percentage that each holding takes up (by value) in the portfolio. In this way, a reader can immediately understand which stocks the portfolio is placing the most emphasis on.

Roger Conrad

5:24

Thanks Jon. We're in the process of trying to simplify our portfolios at Energy and Income Advisor. We appreciate your comments and patience and promise a solution in the coming weeks.

Buddy

5:25

I should rephrase my previous comment...you posted my question about SLB and HAL at 4:12 but no answer appeared.

Elliott Gue

5:25

think SLB is the stronger company for the long haul...Their technology leadership plays well with what producers want. So, if I were buying one for a 3 to 5 year holding period SLB would be it. For the second half of this year, I think you probably have more upside in HAL as producers frack wells they've been waiting to put into production for the past few quarters (due to pipeline shortages).

Michael L

5:25

I, for one, vote in favor of publishing a purely income list of energy focused entities.

Roger Conrad

5:25

Thanks Michael. That seems to be a popular proposal. In the meantime, the vast majority of the Actively Managed Portfolio do offer high yields.

Roger Conrad

5:33

Q. Any hope for Anadarko (APC)? I used to have a gain of several thousand dollars but now I have a loss. Time to buy, or just wait for a while? Kinder Morgan (KMI)? Seems like they hit a 52-week high several times a week. What's your take on them? Thanks--Arnold S.

A. Both of these companies are in our Actively Managed Portfolio and we continue to recommend them up to our buy below targets of 74 and 22, respectively. We continue to believe Anadarko is well positioned to boost output and margins over the longer haul, though the share price has lagged recently due to political worries in Colorado and transportation concerns in the Permian Basin. We view the current price as a good pickup opportunity.
I’ve already talked a bit about Kinder in this chat and won’t repeat. But the key is they’re self-financing a number of natural gas focused projects that will ensure they meet dividend and EBITDA growth targets the next several years. The current price is still an opportunity to pick up shares,

though as I pointed out before, the low 20s have been pretty consistent resistance for the stock in recent years. Sooner or later it breaks out but it may take some more patience.

5:47

Q. Dear Roger. I live overseas so rarely get to attend the live chats due to time differences if time permits, please address a buy target for the new AM shares, and please clarify your position on Equitrans Midstream (NYSE: ETRN). I saw that EQM Midstream (NYSE: EQM) is now sell due to concerns over risks of further pipeline delays or even cancellation arising from recent troubles with another pipeline (of Dominion?). Thanks—Cliff W.

A. Thanks for writing Cliff. We like the new Antero Midstream (NYSE: AM) as a buy in the Actively Managed Portfolio up to a price of 14. For Portfolio record keeping purposes, we recommended swapping the old Antero Midstream Partners for the general partner at the end of last year. When the merger took place, we received new AM shares for our AMGP units on a 1-to-1 ratio. As I indicated earlier in the chat, we like this midstream company’s assets and growth prospects. I especially like the frac water operations, both for their ability to cut costs at chief customer

Antero Resources (NYSE: AR) and for third party servicing.

Energy and Income Advisor is the only service where we cover Equitrans, and it’s currently a sell as is its chief asset EQT Midstream Partners. We made this call because of the increased likelihood the Mountain Valley Pipeline would be challenged in its final construction phase, forcing a very large writeoff and likely a distribution cut should that come to pass.

MVP proposes to cross federal parklands. When a federal Court of Appeals ruled Dominion Energy’s (NYSE: D) Atlantic Coast Pipeline can’t cross the Appalachian Trail without an act of Congress, it opened the door to a challenge of MVP on those grounds. Dominion is appealing to the US Supreme Court. If it’s successful, MVP’s permits from the US Forest Service will also be upheld. We’ll find out this spring whether they’re successful. But in the meantime, we recommend staying on the sidelines with both EQM and ETRN.

Eric

6:01

What sector do you think has better 1-2 year total returns, upstream vs. midstream companies?

Roger Conrad

6:01

Both sectors will benefit if our forecast for oil prices and shale output pan out. I think the better way to think about this is whether you need reliable yield or value capital gains more. If it's yield, midstream is going to be your best choice. If it's leverage to energy prices, it's producers. But we're bullish on both, though for different reasons.

Lyndon

6:01

I am a Dividend Growth Investor; so "publishing a purely income focused list of energy recommendations" would be great for me.

Roger Conrad

6:01

Thanks Lyndon.

MartyR

6:14

It would be most helpful if you could bold or italicizes changes in the tables as it would help to look closer to our holdings

Elliott Gue

6:14

That's a good idea...Thanks.

ken in phx

6:18

If someone buys stocks you recommend, there are inevitably winners and losers. Quite often you advise holding on to stocks with significant losses. These can pile up in a portfolio next to winners, and pretty soon you find yourself with a portfolio that is seriously overweight in EIA "names". What do you suggest in this situation. Do you sell the winners like BEP and PBA, the solid performers waiting for a breakout like EPD and KMI, the losers which "should" turnaround eventually like SLB and HAL, or the question marks like APU and AM? Do you recommend selling some of each or concentrating on one group or another, assuming taxes are not a consideration?

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