4/25/15: Cashing In on Oil Rally

By Igor Greenwald • April 25, 2015

Energy Strategist Portfolio Update

  • Occidental Petroleum (NYSE: OXY) sold from Growth Portfolio

  • Carrizo Oil & Gas (NASDAQ: CRZO) sold half in Aggressive Portfolio

  • Continental Resources (NYSE: CLR) sold half in Growth Portfolio

  • EQT Midstream (NYSE: EQM) upgraded to Buy below $100 in Conservative Portfolio

For more information, please see the April 25 issue.

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TT

TT

I apologize ahead if this topic has been raised.
While I understand midstream companies are less immune to drop in oil prices, would a prolonged slump of oil prices, even if stabilized at current level, will eventually hurt midstream companies?
I understand that a lot of midstream revenues are fees based on volume transported, or fees from reserved capacity. Eventually, upstream will slow down pumping (depletion of developed wells and no/less new wells), thus affecting fees from volume and less reserved capacity on renewal. Not to mention some smaller driller might not be able to pay, ie insolvent. Beside crude storage is limited, eventually the oil will have not where to go; well may be tankers would become floating storage to relieve some pressure.
Do you have an opinion on when that may happen and what signs to look out for?
Thanks.

Robert Rapier

Robert Rapier

The midstreams are pretty well insulated from the commodity fluctuations, but you are correct that if oil prices stayed low for long enough it would begin to impact them as customers became unwilling to renew contracts unless they got their rates reduced. There is also the risk that a major customer could go bankrupt or declare force majeure. It’s still a pretty safe place to be in these tumultuous times, but all of these different segments have specific risks associated with them. It comes down to what type of investor you are and how long your time horizon happens to be.

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