JotCast | Energy & Income Advisor January 2021 Live Chat

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Energy & Income Advisor January 2021 Live Chat

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Elliott Gue

2:50

I think there could be some upside to their containership business as economic reopening is generally going to benefit world trade and container shipping. But, we think there are just better names to buy here.

Guest

2:54

Hey Roger, Hope you are all doing well. Thanks so much for your insights. Really liked "we pay too much attention to politics over economics."

Roger Conrad

2:54

Thanks. I don't say that lightly, and I do have my own beliefs and preferences as we all do as Americans. But the record of "political investing" paying off for investors over the years is truly laughable. And in this case, any action by government that tightens oil and gas supplies in coming months is only going to accelerate the normal cycle--which means higher prices and returns for our energy stocks.

Elliott Gue

3:00

Obviously, a lot of questions today re: politics and oil and that's understandable. However, I think it's important to remember that politics are usually a bit player in global markets as the forces of supply and demand ultimately prevail. Restrict drilling or try to "ban" leasing on US federal land and you will drive down oil supply and drive up prices, which usually doesn't play well at the polls. Also, remember, that the state most impacted by such a move is New Mexico which has 2 Democratic House members out of 3 and 2 Democrat Senators. Something upwards of 20% of their labor market is tied to energy. That's not going to play well there....How about EVs? The best-selling car in American is the F-150 pickup, SUVs and trucks account for almost three-quarters of new car sales and there are on the order of 250+ million cars and trucks on the road compared to 17 million in new cars sales in a good year. Try to promote electrics all you want to but it's going to take time -- a long time -- for it to impact

demand.

Mel W.

3:01

Please give me your recommendations on AGL, Enlink, Energy Transfer and ENBL. Thanks for your excellent insight and research.

Roger Conrad

3:01

Thanks Mel. Australian electricity company AGL Energy has been disappointing stock the past several years. We've held onto it as an Aggressive Holding in Conrad's Utility Investor because it's still a dominant company in that country and though profits have been hit by the pandemic and erratic regulation, it's still doing things to maintain that dominance such as transitioning to gas and renewables from aging coal and investing in energy technology. I think the stock is approaching a cycle low and intend to keep holding it. My view is Enable's minority shareholders will receive a takeover offer later this year, as the two utilities holding 100% of the GP and nearly 80% of the LP interest find a buyer for their stakes. I think uncertainty about drilling in Oklahoma is probably holding back a deal now and therefore the price. But the distribution appears well covered (earnings Feb 24) and I'm good with holding on patiently until there is a deal. Enlink announces results on Feb 16 and we also expect to see

Roger Conrad

3:03

Continuing to answer Mel's question, we expect to see a continuation of the same improving trends we saw in Q3 for EnLink in Q4. The merger of former GP Devon Energy with WPX could mean more pressure on throughputs in some areas and there's still debt to cut. But the company did maintain its distribution for the winter quarter, which is a good sign we'll see steady results.

3:08

And finally for Mel's last question, Energy Transfer won't announce Q4 results until mid-February. Management won a net victory when the US Court of Appeals agreed with the District Court Judge to throw out the Dakota Access Pipeline's water crossing permit, but allowed the pipeline to stay open as it pursues a new one. It's possible the Biden Administration will refuse to grant one but the company would still have the option of appealing to the Supreme Court--which has been more supportive and would likely be more sympathetic to the owners' arguments that shutting it would create great economic harm. In any case, Energy Transfer gets less than 5% of EBITDA form DAPL, so it's much less exposed than others like Phillips 66 Partners at 20%. And the dividend cut last year has built in a pretty big cash flow cushion to support the current level as well as to cut debt. It's still a buy for aggressive investors.

Bups

3:19

Comment: Regarding politics, I think the Obama years were kinder to energy stocks than the Trump years and I say this even though I am an always Trumper. The Donald wanted cheap gasoline prices for the American consumer so he encouraged significant increases in oil production. Biden will do the opposite!

Roger Conrad

3:19

Good point. The other unintended consequence the last four years that we've commented on here that is the easier the federal government made it to permit new energy infrastructure like pipelines, the easier it was for keep it in the grounders to raise money to fund opposition in the courts--even to projects that were heavily supported. And as a result, it's been almost impossible to site and build new pipelines and other large energy facilities in the US, other than places like Texas and Louisiana. That's also a contrast to the Obama years, when permitting was more difficult but successful court challenges far less common. Not saying it will get easier to permit at this point or to navigate the courts--just that trying to handicap the impact of this or that government policy is hazardous to your wealth!

Ken in Phx

3:26

The last few days have seen unheard of price fluctuations in stocks that are beaten down and have a heavy short interest. Are there any stocks that you follow that might find themselves involved in this sort of short squeeze? Elliott's BBBY certainly benefited from this yesterday!

Elliott Gue

3:26

Yes, BBBY was fun and the gain on those call options was solid, though I felt like I was missing out a little after taking a profit only to watch BBBY top $50 soon thereafter. That said, I was worried something would happen (it always does) with these short squeezes and we're seeing that today with all these names like GME and BBBY down and the brokers jacking up the margins to trade them (or prohibiting trading altogether). Yesterday I was even considering a spread trade in GME puts to take advantage of the stock coming down however, it was moving so quickly I felt the risk of a bad execution was just too high. I don't know of any energy stocks I'm particularly interested in that are too heavily shorted. I do a screen of stocks with high short interest for the options trading service periodically (will probably do it more often now) but it's going to be a secondary input for me. By the way, there's some chatter that the reddit crowd has moved on over into the commodity ETFs trying to force a short squeeze in

Elliott Gue

3:26

silver

Jon

3:27

Thanks for all the commentary. Understand your reasons to discount politics versus supply/demand drivers. But can you comment on the political situation in Canada, and how that might favor (or not) Canadian pipelines like ENB, PBA, KEYUF? Will there be any north of the border winners from E&P or pipeline permitting hurdles in the US? Thanks again.

Roger Conrad

3:27

Good question. I actually think the biggest winner from Keystone XL losing its US presidential permit is the TransMountain Pipeline, which is now Canadian government owned and will get Alberta oil to Asia for the first time. I also think Enbridge's Line 3 pipeline expansion/replacement have no problem staying full if it makes it to the finish line, though there's still opposition as it tries to complete the final and now fully permitted leg through Minnesota. And out of the limelight, TC Energy, Enbridge and others have been adding incremental transportation capacity via pipelines from Canada to the US. Bottom line is the bottlenecks that have plagued Canadian producers really for a decade now are easing and should continue to do so. Players like Pembina and Keyera benefit by owning assets that feed the big pipelines. But they like Enbridge should be cross border winners and we rate them all buys now.

Jim T

3:32

How do you compare ARC, ERF, VET to best US producers and TOT?

Roger Conrad

3:32

The main difference is Arc, Enerplus and Vermilion are a lot smaller and more concentrated geographically than Total, which makes them less able to take a real punch in a down market. And all three of them have demonstrated that the past several years. Total in contrast is a super major with a very strong balance sheet that's been able to make investments even as these three companies have pulled back their CAPEX sharply. If I'm conservative, I'm going to stick with super majors. If i want to benefit faster from an upturn in the energy cycle, I'm going to go with Pioneer and the producers in the Model Portfolio. But I do think those three Canadian stocks have reached the bottom of their cycle and are definitely worth holding onto if you're patient. And again, I invite everyone to check out our Canada and Australia coverage universe for buy/hold/sell advice on these companies, which I have tracked now for the better part of two decades.

Hans

3:32

Is BSM a good investment since their portfolio has Royalty assets

Elliott Gue

3:32

I've generally liked BSM because they don't have any direct commodity exposure. The one problem they have is that most royalty deals call for an up-front payment when a lease is signed and drilling commences followed by payments based on the gas/oil that comes out of the ground. So, they do have exposure to the drop in commodity prices and drilling activity. So, given our outlook on commodity prices I think these royalty names are OK and certainly very, very preferable to the trusts like BPT (which I believe to be worthless).

Mack

3:35

Hi guys... Re: CEQP -- What do you want to see in the upcoming earn's report that will convince you to fully upgrade it to "buy?" I'm holding some shares and would like to add but waiting for an 'all clear' signal. Thanks.

Roger Conrad

3:35

We have ratcheted up our highest recommend entry point for Crestwood over the past few months as we've become more confident it can sustain the distribution. The current advice is buy up to 22, which is slightly above the current price. Q4 results aren't scheduled until Feb 23 but I think the fact they maintained their dividend for the winter quarter is an excellent sign they expect steady numbers and will deliver the same for guidance. One very good sign for them was results from Kinder and Hess Midstream indicating strong activity in the Bakken. That's also potentially good news for ONEOK Inc, which also maintained its payout this month.

Mack

3:39

Now that Keystone is dead, what will happen to the Alberta oil sands oil? Like you said, supply & demand will prevail. That oil is gonna find its market somewhere.

Roger Conrad

3:39

I agree. As I noted answering a previous question, the TransMountain Pipeline's odds of completion just increased with the failure of Keystone. Enbridge's Line 3 looks set to enter service by early next year. And Canadian midstream companies have already been successful adding incremental transportation capacity, both with pipelines and via rail. The change in US shale producer strategy to focus on free cash flow is probably the biggest plus for Alberta in the past few years. That alone means less congestion on pipelines. So is the implosion in Venezuela, which has historically produced the heavy oil that oil sands output would replace. If the economics are right, the oil will flow--and it looks like they will be increasingly going forward as the cycle turns.

Jack

3:45

LNG seems to me to be a growth industry for the foreseeable future with the addition of India,Packastan, and Bangladesh as growing consumers. Your thoughts on TGP? Looks like they will report a record Q4, and with no new ships on order are now in a position to pay down debt, increase the distribution, and/or buy back units. All 3 options are unit holder favorable. Your thoughts?

Roger Conrad

3:45

We've been cautious on most shipping stocks in general the past few years. The main reason is so many ships have been built at the same time older ones have not been retired, which has created at least a temporary supply glut. The pandemic's negative impact on demand coupled with new restrictions on fuel usage from the European Union and other jurisdictions may be tightening the market somewhat. But we'd like to see some evidence in the numbers that things are stabilizing--including renewal rents on expiring contracts. Teekay reports toward the end of February and its results will be instructive. But this is still a weaker space in the energy sector for the most part. We track TGP in the "MLPs and Midstream" coverage universe--the table is under the "Portfolios" tab on the website

Guest

3:46

Thanks for the informative chats. I am a bit confused by the ratings on PAGP and ET in the various portfolios. Could you please enlighten.

Roger Conrad

3:46

We consider both to be "Aggressive" as far as risk because of leverage and the fact that cash flows are heavily affected by volumes, especially Plains'. That's opposed to Enterprise, for example, which has neither problem. Does that help?

Ken in Phx

3:48

A silver squeeze? Didn't Bunker Hunt loose a billion or so about 50 years ago trying something like that and failing?

Roger Conrad

3:48

Yes, you have a good memory. The Hunts tried to corner the silver market and the result was a temporary run-up in the price but ultimately disaster for them. I remember there was an increase in thefts of silver cutlery for meltdown at the time. We do believe silver has a lot of upside leverage at this time, however.

Guest

3:51

Somewhat and between the two PAGP and ET which one is less aggressive?

Roger Conrad

3:51

Plains is definitely less complicated than Energy Transfer, which has its hands in multiple business lines. Plains just has interests in pipelines and related facilities, along with a marketing unit that's supposed to conservatively try to optimize value of the other assets. That diversification can reduce risk but in the past it's often meant that one or the other of ET's operations is taking on water. I really put them both in the same camp for risk

Guest

3:52

What's your outlook on NEM at this time for a 2-3 year horizon?

Roger Conrad

3:52

We're bullish on gold over the next several years. Newmont as a producer is leveraged to those gains and is also a perpetual takeover target. It's not the most leveraged gold stock to a higher gold price. But it could easily be a $100 stock at some point.

Mack

3:56

Do you have an opinion on MGY (Magnolia Oil & Gas)? Small operation, no div, but seems to have a strong balance sheet and overall good finances. Recently recommended by Zacks.

Roger Conrad

3:56

Everything has its time in the energy price cycle. We think the larger producers like Pioneer are more likely to deliver better returns this year, but from a cursory look at Magnolia it appears able to stay on track for modest production growth with a program of tight capital discipline and hedging--which is essential to making it to the next phase of the cycle.

salvatore

3:58

Afternoon Gentleman Last weeks webinar was great and as usual informative . Thanks Is there any reason for the high trading volume on KMI today .

Roger Conrad

3:58

It's one of the more heavily traded energy stocks. As far as company news, they reported pretty solid Q4 results and guidance. We'll be reviewing them in more detail in the upcoming regular issue of EIA. Kinder still looks like high quality selling cheap to us.

Joe

4:04

Roger, Good Afternoon. In what publications do you cover gold and silver stocks?

Roger Conrad

4:04

Thanks for joining us. We do that on a quarterly basis in Deep Dive Investing--along with the REIT Sheet, our actively managed income and growth portfolios and other features. It's basically where we do everything long-term related that's not utilities (Conrad's Utility Investor) or energy, which is obviously EIA. For trading we have Pig Versus Bear and Elliott's options advisory. Thanks for asking.

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