In this issue:

It’s easy to look smart when a commodity is selling well above your production cost and investors can’t get enough of your equity and bonds even though they only yield 3% annually.

Conversely, it’s hard to look solvent, much less intelligent, once prices have fallen well below even the reduced production costs and the capital markets are demanding loan-shark rates if they have not slammed shut entirely.

The key for investors in either case is not to assume that either extreme can last; pricing trends tend to reverse once they’ve accomplished their job of balancing supply and demand.

We could be near one of those turning points now as energy prices plumb seven-year lows. And while the fundamentals have seldom seemed so bleak, keep in mind that they’ll look much healthier once pricing returns to sustainable levels.

In the meantime, we’ve compiled data on the impairments taken by hundreds of producers over the last year. With another force feeding of these noncash charges coming soon, it’s helpful to see which companies have already taken this bitter medicine, and how much.

We’ve also dug into the 2016 spending plans and funding needs of eight key midstream processors to see which ones need additional capital the most and the least.

Do realize that this industry snapshot is being taken at a most inconvenient time. Such spirals can and do frequently reverse. It wasn’t too long ago that SunEdison (NYSE: SUNE) seemed to be on the brink of bankruptcy as investors headed for the exits. But it’s taken vital steps over the last month to stabilize its balance sheet, enough so that we’re restoring this highly speculative developer of renewable energy projects to the Aggressive Portfolio.

We’re also betting that oil and gas prices will bounce imminently; the Energy Trader column recommends two leveraged vehicles for speculating on such trend reversals.

It’s tempting to extrapolate energy industry oblivion based on the current market action. But that would be just as wrong as the assumptions about endless windfalls from 18 months ago.  

Portfolio Update

• SunEdison (NASDAQ: SUNE) added to Aggressive Portfolio; buy below $4.75

Commodity Update

OPEC made the decision most expected, which was to continue producing at high levels. The price of crude has dropped substantially in the meeting’s wake. Since our previous issue, West Texas Intermediate (WTI) has plunged $5.76/bbl to $35.62/bbl — the lowest price in 7 years. Brent crude fell $6.27 to $37.93/bbl. The news also continues to be bearish with natural gas, as it dropped another $0.24/MMBtu since our previous issue to $1.99/MMBtu — the lowest price since April 2012.

In Other News

• Following the Dec. 4 OPEC meeting at which the oil exporters opted to continue their strategy of overproduction, oil prices fell to a 7-year low

• The EIA projects that U.S. shale oil production will fall another 115,000 bpd in January, which would put output 600,000 bpd below the March 2015 peak

• Shares in biofuel producer GEVO (NASDAQ: GEVO) plummeted more than 45% last week after the company announced a $10 million stock offering

• Devon Energy (NYSE: DVN) announced $2.5 billion in transactions to acquire additional acreage in Oklahoma and Wyoming

• Shares of Kinder Morgan (NYSE: KMI) are down more than 30% over the past week as the company slashed its dividend in order to fund capital expenditures

• Bloomberg reiterated the point I have been making about pending writedowns of oil and gas reserves due to lower prices

• Reuters is reporting that the crude export ban may be lifted as part of a year-end budget package that could also extend tax breaks for wind and solar companies.