Bakken to Permain- Elliott Gue’s Top Plays for Energy Gains

Elliott Gue is an industry-leading expert on the energy sector. Here are some highlights from his year-ahead outlook for the industry in his Energy & Income Advisor newsletter.

My core rationale for expecting a rally in energy in 2019 is that I believe the headwinds that plagued the group in the fourth quarter of last year are widely overblown and due to reverse.

In short, I believe the big, panicky sell-off in oil prices towards the end of 2018 had very little basis in fundamentals and that you’ll continue to see prices recover in 2019. Just as the big sell-off in oil drove energy stock downside in Q4, I see that reversing this year.

The Permian Basin of West Texas and New Mexico is clearly the largest shale play in the US and it’s clear that there are major infrastructure constraints in terms of pipeline capacity in the region. It’s good for producers like WPX Energy (WPX), Concho Resources (CXO) and Occidental Petroleum (OXY) with significant acreage and a strong operational track record in the field.

However, I think it’s a huge mistake to ignore the myriad other shale fields in the US. High-quality producers in plays like the Bakken Shale of North Dakota have brought down their costs and improved the economics of their acreage immensely in recent quarters.

So, I think high-quality producers in the Bakken like Marathon Oil (MRO) should do well even with oil prices in the $55/bbl region. That stock has been hammered even though they’ve been drilling some impressive wells in recent quarters. If our outlook for oil prices proves correct, I think this is a huge buying opportunity in Marathon.

Also, midstream MLPs with exposure to the Bakken — including Oasis Midstream (OMP) and Hess Midstream (HSM) should benefit from the still-improving economics of the field.

I think Plains GP Holdings (PAGP) is a solid conservative name to buy here. It’s got distribution coverage just under 2 times, which is among the highest of any MLP in our coverage universe.

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