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Energy & Income Advisor January 2021 Live Chat
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Richard
4:06
reasonable investment anticipating oxy return to higher price?
AvatarElliott Gue
4:06
I think OXY could double by early 2022 if our commodity outlook appears reasonably on point and they continue to execute on cost, free cash flow and debt reduction.
John
4:09
What's your outlook on HMLP?
AvatarRoger Conrad
4:09
As I wrote answering an earlier question, we've been pretty negative on this segment recently--LNG has a great future and Hoegh LNG has some good assets. But there's a lot of supply just now. I think the dividend may hold and we might upgrade it depending on what we see on Feb 25. But for now we see other areas of energy with more upside this year.
Hans
4:20
Is Rare Earths Minerals, Miners of any interest with the additional need now and which ones are good?
AvatarRoger Conrad
4:20
Not really. Rare earths minerals are certainly important for a variety of things. But the so-called pure plays for the most part have not proven their case as viable companies. You're much better off--especially at this stage of the cycle--with major players like BHP that can absorb price volatility that's increasingly created by the latest rumors from China. BHP is also building a major position in nickel production--which is a key metal in many advanced technologies including batteries. You also get a dividend.
AvatarRoger Conrad
4:22
This is the kind of issue we explore with quarterly coverage of metals in Deep Dive Investing. We just believe the bigger companies offer a better risk and return tradeoff at this point of the cycle, where prices and demand are coming up from a trough everywhere outside of China.
Hans
4:47
Are any of the companies in the Active Managed Portfolio and High yield Target list affected by the Executive Orders that we should be concerned about
AvatarRoger Conrad
4:47
Not really. Pretty much everything that has happened so far was expected and we wrote about it in previous issues of Energy and Income Advisor. The only exception in the Model Portfolio is TC Energy, which as lead developer of the Keystone XL pipeline would obviously have preferred not to lose its presidential permit. But as we've pointed out, this company has multiple drivers of cash flow growth to reach its target of upper single digit annual dividend growth--and that are non-controversial. It's no accident the company announced it would buy in the publicly traded portion TC Pipelines shortly before the Biden Administration announced its decision on Keystone XL. That's a solidly accretive deal going forward for TC Energy and is far more significant to its results than any writeoff that may come for Keystone. As I've mentioned before in the chat, Enbridge is trying to finish a major pipeline project and Energy Transfer is trying to keep one open. That means they're exposed to possible future administration
AvatarRoger Conrad
4:50
Finishing Hans' question, they're exposed to future moves. But despite being lead owner of DAPL, that pipeline contributes less than 5% of Energy Transfer EBITDA. And finishing Line 3 is far more important to Canadian producers than it is to Enbridge--which also has multiple ways to reach growth targets. Bottom line is we always watch to see what companies we own that are vulnerable to political moves but we don't see anything so far to worry about. And keep in mind that anything the government does to restrict future supplies of energy or infrastructure will only make what's operating that much more valuable--along with the companies that own it.
Ron
4:53
Do you have a "buy up to " price for COP and any inclination to add to a portfolio?
AvatarRoger Conrad
4:53
We do consider it in the Portfolio now. The merger was completed after the last issue of EIA posted so that's not now reflected in the various tables. But the advice is buy up to 45. We also track Conoco in the E&P and Services coverage universe, the table for which is under the Portfolio tab on the EIA website.
Hank
4:56
I hold MRO shares from a much earlier recommendation and didn't get out when removed from the portfolio. What are the recovery opportunities for the company as energy prices improve?
AvatarRoger Conrad
4:56
We believe Marathon OIl will recover fully and that it's likely passed its low point for the cycle. We do prefer our portfolio producers as better bets for big returns this year. But this is a name we'll likely revisit. Q4 earnings are Feb 17 and we expect to see a relatively stable picture, including free cash flow after dividends at the level reinstated in October.
Mark
5:38
Don't know if my message went through. What do you think is the probability that the DA pipeline permit will be declared invalid and the pipeline shut down. Thanks Mark
AvatarElliott Gue
5:38
Our view remains that's possible; however, the company has the option of appealing to the Supreme Court on the basis that shutting down DAPL would cause economic harm and the court would likely be sympathetic. That said, we have limited exposure in the Model Portfolio regardless of the outcome.
Mark
6:22
Given the opening moves by the Biden admin and the executive orders to date what do you think is the likelihood that the DA pipeline permit will be declared invalid and the probability it will be shut down.
AvatarRoger Conrad
6:22
The Court of Appeals has already upheld the District Judge's ruling that the water crossing permit is invalid. What it didn't say was that the pipeline was dangerous to the environment or that it should be shut down--in fact, the ruling allows the pipeline to stay open until it can get another permit. That of course will require a full review from Biden administration appointees, which is likely to be under considerable political pressure not to grant one. If that is the case, the next move would be for an appeal to the US Supreme Court, again with the pipeline staying open per the Appellate Court ruling. I would still rate DAPL staying open as likely, given the disruption of closing it. But as Elliott just said, the key point for us our Model Portfolio has limited exposure--even Energy Transfer as I've pointed out here realizes less than 5% of EBITDA from DAPL. And every pipeline that shuts down makes the rest more valuable.
Michael L
6:25
which of the MLPs in the portfolio do you think have the most price upside in the next 12 months.  Thanks!
AvatarRoger Conrad
6:25
In the last issue of EIA, I highlighted Enterprise Products Partners as a conservative pick and CrossAmerica Partners LP as a more aggressive one. CAPL is already up a bit after declaring its winter quarter distribution. Enterprise is about flat and I think even more attractive yielding almost 9%. CAPL still yields a little over 11%.
AvatarRoger Conrad
6:28
Well that looks like all we have in the queue for this month. Thanks everyone for what turned out to be a quite lively session with a little bit of everything to address. If for some reason your question was not fully addressed, please do drop us a line at service@capitalisttimes.com and we'll get back to you. And look for the link to the complete transcript of all of today's Q&A shortly after I sign off. Transcripts of all past Q&As are posted on the EIA website under the "Events" bar. Stay well everyone!
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