Yesterday we covered the recent run-up in crude prices. Indeed, with crude oil popping above $94 a barrel, the black goo is starting to turns some heads in the trading pit.
Today the trend looks to be continuing upward. With more data out of China yesterday, the global story for oil just keeps getting better (for investors.)
Today, I want to cut to the chase and give you a handful of ways to play it. We’ll cover everything, from exploration and production to processing and storage. All told, there are some bucks to be made in oil this year, let’s grab em…
Remember, our oil thesis relies on two reliable facts. First, the growing global need for scarce oil. And second, the impressive rise of oil opportunities here on U.S. soil.
That said, let’s head out to America’s backyard and get dirty.
Exploration, Production And Profits!
With more oil coming out of the ground it’s clear that American producers can cash in. And now that the dust has settled we can start figuring out which players look best equipped.
I see opportunity with some big names in the field – including ConocoPhillips (COP) and Statoil (STO). Both companies are well established and have footholds in what I’d call the sweet spots of the shale oil field: the Bakken and the Eagle Ford.
Of note, Conoco was the company that dropped the bombshell in a conference I attended last year in San Antonio: “$37 breakeven.” If a company can pull oil and gas out of the ground for the equivalent of $37 a barrel, I’m onboard.
There’s a similarly profitable story with Statoil, too. This big player has a breakeven around $50-60 in the Bakken (and has yet to disclose Eagle Ford details.)
The point here is that these two big, well-established players will give you the ability to cash in on America’s oil riches – plus, grant you the ability to sleep at night. Both pay a 4% dividend too.
But you may not have opened today’s email for two blue-chips. Sure, I get that.
So looking deeper into America’s oil production space I’d make sure you keep an eye on some mid-sized producers like EOG Resource (EOG) and Pioneer Natural Resources (PXD.)
What these companies lack in dividend payout they’ll make up for with targeted growth (that is, they know where the oil is and they’ve demonstrated great ability to get it out, on the cheap.) If management can keep the geologists thinking and the drillbits turning we could see a solid 6-month ride – heck, during the last six month stretch both companies gained over 30%.
And if oil prices shoot above $100, the story only gets better for these producers
Where to next? Let’s follow the oil flow.
Once you get oil out of the ground you’ve got to have a way to process and move it. That’s where the midstream business takes over.
To say the midstream business has been booming would be a stunning understatement.
In this arena I suggest you take a look at four names: Enbridge Energy Partners (EEP), Enterprise Products Partners (EPD), DCP Midstream Partners (DPM) and Global Partners (GLP.)
The most fitting analogy is to say that these players are “bursting at the seams” with moneymaking opportunity. Since all of these players are set up as a tax-shielded Limited Partner, the idea here is to find companies that can maintain share price and continue to pay substantial dividends. All four of these plays fit the bill.
Just recently we’ve seen one major milestone in the midstream field: the reversing and expansion of the Seaway Pipeline (controlled by Enterprise and Enbridge.) The idea of this reversal/expansion is to relieve a glut of oil that has found itself nestled in Cushing, OK.
The Seaway pipeline originally ran north, bringing Gulf Coast imports and production to the central Cushing hub. Ah, how times have changed. Today, with production coming from Canada and North Dakota (to name a few) Cushing is filled up with oil. Thus, the decision was made to reverse the flow of the Seaway pipeline and bring this Bakken and Canadian oil down south to refinery row in Houston.
This is a prime example of how midstream assets can maintain or even appreciate in value. The 50/50 ownership of this pipeline will allow Enterprise and Enbridge to cash in as long as Bakken and Canadian oil is flowing abundantly (think decades.) That’s music to the ears of those seeking consistent dividend payouts.
Along with the big pipeline companies, we can add another crude mover to the list of solid dividend payers, Global Partners LP. This company recently caught my eye for a strategic deal they made to transport Bakken crude.
North Dakota’s Bakken oil formation is booming and, in case you weren’t familiar, the infrastructure to transport this newfound crude isn’t all together there. In fact, on a recent visit there I discovered that a major key to profiting from the Bakken is making sure you can transport your oil. More and more that transport is coming via railway.
Global Partners is one of the go-to players. Just this week Global inked a deal with Phillips 66. The agreement utilizes Global’s rail logistics to bring crude from the Bakken all the way to Phillips’ Bayway refinery in New Jersey – somewhere in the neighborhood of 50,000 barrels per day. All aboard the Bakken-Bayway express!
This is the kind of deal that you want to see if you’re investing in a midstream company. Although you’ve got to keep an eye on lofty share prices, currently Global Partners is paying out a solid 7% dividend. If the company can keep locking in crude transport deals like it has over the past year, we could see more growth and consistent dividends.
If you’re keeping score at home that’s 8 oil plays: COP, STO, EOG, PXD, EEP, EPD, DPM, GLP. These companies encompass much of the profit potential held in America’s oil bounty.
Best of all, they’re your chance to cash in on an oil boom…right in our own backyard!
Keep your boots muddy,
Original article posted on Daily Resource Hunter
The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources. He holds a degree from the University of Maryland with a double major in Business and Environmental Economics. Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department. Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.
Ukrain's new anti-Russian government may soon privatize the country's energy sector... at least according to one pro-Russian news agency. Of course, if the reports are true, this could have significant implications for entire region, and may be a win-win scenario for anyone reckless enough to buy Ukrainian government bonds. Dave Gonigam explains...
People tend to believe they are endowed with a few specific "rights" - property, liberty, happiness, etc. Unfortunately, as Harry Browne explains, rights only exist in theory. In practice they don’t accomplish much - no matter how much people may discuss them. Read on...
Politicians and bureaucrats are notorious for manufacturing euphemisms - clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Apparently, some courageous government officials can't bring themselves to say "tax hike." Lawrence Reed continues...
Whatever your feelings on global warming, the fact is, right now, the world produces an unsustainable amount of carbon dioxide. So much so, that the UAE - a nation that depends almost solely on oil production - is committed to the development of renewable energy sources in the near future. Stephen Petranek has more...
In the vain of great thinkers like Ayn Rand and Rose Wilder Lane, libertarian novelist L. Neil Smith has for many years imagined heroes who tell truth to power at great risk. Today, Doug French reviews his latest non-fiction work, and why it's such a great introduction to the ideas espoused by libertarian thought. Read on...
There are only two possible outcomes of the Russian annexation of Crimea. And neither one involves Putin withdrawing from the region. But what does this conflict portend for the financial markets? Anatole Kaletsky explains, with an examination of how similar scenarios developed, along with the corresponding market reactions. Read on...
As the old saying goes, the only two certainties in life are death and taxes. But while the former may be inevitable, there are ways to mitigate the latter's influence on you and your personal wealth. So today, the late Harry Browne offers a few timeless tips on how to minimize your tax burden. Read on...