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Energy & Income Advisor Live Chat November 2019
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Mack
5:55
Are there any noteworthy updates on CEQP,  DKL,  or SHLX?  We haven't spoken about them in a while.  Thanks.
AvatarRoger Conrad
5:55
I've addressed Shell Midstream already in the chat. Crestwood is still in the Actively Managed Portfolio and we recommend as a buy up to 40. We highlighted solid Q3 results in the November 1 Alert and it looks increasingly like we will see that long awaited return to dividend growth next year. Concern about the health of Chesapeake Energy--still a major customer--has had an impact on the share price, as the company has a 20 year contract with CHK in the Powder River Basin. The contract was rewritten last year to hold up in court. And even in a worst case, there's still plenty of cushion for the payout from the Q3 coverage ratio of 1.9 times.
AvatarRoger Conrad
5:58
As for Delek Logistics Partners, we still recommend it as a buy on dips to 28 or lower. The core business is still solid and the distribution should hold, though the 1.11 times Q3 coverage ratio likely means a drop off in distribution growth after this year.
barry
6:02
Roger and Elliott:
Since your recommendation of Plains GP Holdings (NYSE: PAGP) in June 2018 do you have any revised assessment of the company?  What about purchasing PAA?   I believe your preference between the 2 was PAGP back in 2018
AvatarRoger Conrad
6:02
We highlighted the Plains family earnings in the November 25 issue. Plains is a buy up to 25 and Plains GP to 26.50. Since our recommendation, coverage has continued to improve on rising cash flow--particularly from the Permian Basin investments. And the family has continued to retire debt as well. Our portfolio preference is still PAGP but after the conversion of IDRs to shares of PAA, they're more or less the same play now.
Mack
6:04
Thank you both for taking so much time in this chat. Considering what you've said about the 'real' oil output vs. the perception that it's going to be lower, and considering the length of time required for the market to realize that it's got it wrong, investing in financially strong, well managed MLPs is gonna be critical.  Other than EPD, MMP, KMI is there a list of 5 - 7 companies that you are confident can with stand it all.  Are HESM, MPLX and CEQP on such a list?  Others?  Thanks.
AvatarRoger Conrad
6:04
Our view is those three would be on that list. So would be Plains, Energy Transfer LP and a few others we've talked about on the chat. What we want to do when we make our portfolio adjustments the next few weeks is to make sure everything we have is well positioned, to give us the best chance of making the most of what we expect to be a recovery. Part of that will be having that list of midstreams and MLPs.
Frank
6:08
Comment on DCP, pls
AvatarRoger Conrad
6:08
We continue to rate it a hold, though the price is now at the point where it's worth more consideration. The partnership has made some moves recently such as eliminating IDRs that we think will be positive going forward and distributable cash flow coverage has been improving--sitting at 1.23 times for Q3. DCP has historically had more commodity price exposure than other midstreams but appears to have reduced that as well. Again, the key will be proving resilience the next several quarters, given the expectation of lower oil and gas production. But this one is is on our list of potential upgrades for the new year.
AvatarRoger Conrad
6:10
Q. Given the carnage going on in names like EPD, ET, MMP, OMP among others, it would be great to get an update from Roger and Elliott on their take on what's happening.—Tom L.

A. Tom, I hope what you’ve heard in this chat answers you questions on each of these MLPs, as well as the more general question of the sector. Again, our view is these MLPs have to prove their resiliency at least through the first half of 2020 to investors. We think they will and when they do we’ll see a strong recovery for each.
6:16
Q. Hi Roger and Elliot, Now that Antero Midstream EnLink have both had their conference calls, how are you reading the "tea leaves" ... the 20% current yields of stocks pummeled by he market place are historically unsustainable. Would you expect these two companies to announce something soon? A dividend cut or a takeover announcement? I capitulated a week before Buckeye Partners (NYSE: BPL) announced they were being taken over. I lost a lot by not being just a little more patient with an investment in free-fall and a management team that sounded like they didn't have a credible plan. I don't want to make the same same mistake with these two investments. It just seems like to quote the title of a Jack Nickolson movie "something's gotta give." The stocks have fallen dramatically and management conference call comments reflected the reality of the situation that it is hard to inspire investor confidence when there are a lot of unknowns and management doesn't seem to have a plan.
Thanks, I'm sure you're scratching you heads on this one as well—Marty L.

A. Hi Marty and thanks for your question. It’s all too easy to second-guess yourself, particularly when you sell a stock before a recovery. On the other hand, I can think of a lot of times when I should have just sold something and been done with it.
Being patient is essential to successful investing. But there’s also a fine line between that and just holding and hoping something goes right. If we decide to stick with Antero and/or EnLink going into next year, it will be because we really believe they’re the best way to ride what we think will be a recovery year, period. And remember for every Buckeye that attracts a takeover just before it’s about to really crash, there’s been a dozen in the midstream business that have kept right on falling. Again, you look at the merits, make a decision and move on.
6:18
Q. Hi Roger. Hope to have your view on Energy Transfer in light of FBI investigation!—Lee B.

A. Thanks Lee. I hope I’ve provided the answer you need. Again, we’re not seeing this as a make or break event. In fact, if what we’re seeing does unfreeze the process on those permits for expanding the pipeline in Pennsylvania, it would be very positive.
6:19
Q. Guys. I am curious about your reaction to the IEA expectations for oil supply growth.  Thanks--Alan R.

A. Hi Alan. Thanks. I hope Elliott was able to answer the question of where we believe oil supply is heading. If not, there’s more discussion of the implications on sector companies in the November 25 issue.
6:23
Q. Hi Roger. Enjoyed the latest CUI issue as usual, with the update on regulatory conditions. Assume you’re up to date on Chesapeake, but thought you and Elliott would like to see this article from the Nasdaq website last week, and a related excerpt I received from a Valuentum message yesterday. Regards—Bill F.

A. Thanks for comments and for the article Bill. We haven’t really been favorable on Chesapeake for a good many years. But as I pointed out answering a question earlier on, neither Crestwood nor Williams Companies are nearly as dependent on that company continuing to produce gas as they once were. And we would argue whatever damage would be sustained in a worst case scenario is well in their prices in any case.
6:26
Q. Oil stocks have all gotten pounded in the past week – technically they look awful. The IEA said they expect oil supplies to be up. What is your read on this? Why are Enterprise, OXY and oil in general getting so pounded? Thanks.—Alan R.

A. As we’ve answered several questions on both of these during the chat, I’ll just say again that I think the selling we’re seeing in the energy sector is pretty indiscriminate, but that the potential pain from slackening US oil and gas production is anything but evenly spread. Our view is the better companies will prove themselves resilient to investors, which will be the key driver of a price recovery. The key is just to separate them out from others that have no such assurance, i.e. what’s really vulnerable. That’s our goal as we put together our portfolio for 2020 in the coming weeks.
6:35
Q. For years in the Canadian Edge newsletter, you recommended Vermillion Energy (NYSE: VET) as an investment. If you still follow it, what has caused it to drop 40% this year. Buy, Sell, or Hold? Thanks—Larry E.

A. Thanks Larry. We do continue to follow Vermilion in Energy and Income Advisor in our International Coverage Universe, which we’re in process of updating to reflect Q3 results. The main reason in my view that shares have dropped this year is falling natural gas prices, especially in Europe.

Per usual, management is coping by cutting costs, producing from the most profitable areas and keeping a lid on debt and capital spending. And Q3
6:36
results demonstrate the resiliency of this conservative model, as funds from operations covered dividends by a 2-to-1 margin and operating cash flow more or less covered dividends plus CAPEX.

That’s impressive in light of big drops in realized selling prices for natural gas liquids and natural gas. It may get more difficult to continue doing in coming quarters. But in any case, the yield is more than pricing in a cut at this point, which still looks like the company will avoid. It’s on our Endangered Dividends List but Vermilion is still a hold.
6:39
Q. I appreciate these Chats and eagerly await the transcript. Two questions: What is your opinion of Macquarie Infrastructure Corp (NYSE: MIC)? What would be your top recommendations for a long-term investor seeking maximum inflation adjusted income who has the stomach to ride out periods of volatility? Thanks.--Loralie T.

A. The ongoing strategic review has created some excitement around this name. But I would still handle with caution, remembering that they had been increasing dividends right up until they slashed them by almost a third in May 2018. The problem here is too much diversification and too little scale among assets, which in fact are scattered all over the world. I’m not sure who’s going to buy what here but the shares are near their 52-week high and that’s a good idea for at least conservative investors to take a step out.
6:44
Q. I need update on Antero ASAP. They had better coverage of the dividend in Q3 and except for the non-cash loss they seem to be alright. Why is the stock still dropping? The secondary sold at $6.50 or so a few days ago. Why Yorktown bailing out?--Frank J.

A. There’s really no way of knowing exactly why a large holder sells. In this case, it could be simply paring down a position or trying to reduce exposure to a sector that’s definitely undergoing a stress test now. In any case, I’ve discussed Antero Midstream at length during this chat. At this point, our recommendation is still a hold, though we’re reviewing our position now along with everything else in the Portfolios.
Robert P.
6:56
Roger/Elliott, as always, look forward to your live chats. It has been a rough year for the energy markets and without your guidance, most likely of bought and sold at the worst possible times, throwing in the towel for oil. But as I look at my portfolio this year, the energy side has been upwards to the 25% range, until recently. Your insight has me optimistic that energy will have a successful year ahead and your advice will be critical. Have a  Happy Thanksgiving, we all have many things to be thankful for.
AvatarRoger Conrad
6:56
Thanks Robert. It has certainly been a tough time to be an energy investor. And as many times as Elliott and I have been through down markets in our careers, they don't get any easier to navigate, other than realizing that shakeouts are natural to sectors and the best always come out the other side stronger than ever to ride the recovery.

We can't say for certain when everything will get better. But we can say with assurance that the sun will come out again for the energy sector. And that means our job now is to get as ready as possible to make as much hay as we can.
AvatarRoger Conrad
6:56
Well that's all we have in the queue this time, as well as from the emails we received before the chat.
Thanks again everyone for participating this month and for subscribing to EIA.
Have a Great Thanksgiving!
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