Energy Sector Remains Attractive
I sold out of my position in Abraxis Petroleum (AXAS)last week. I had owned the shares since the early summer of 2013 and it was listed as my "Best Idea" on Real Money. I still like the company from a long-term perspective. The stock had run, however, from just over $2 a share to over $5 in the year I had held the shares.
Abraxis had gone from significantly undervalued to fully-valued in that period. I did the same thing earlier in the year on my position in Warren Resources (WRES) for the same reasons after the equity made almost the exact same move.
I am still bullish on the energy sector and it holds an overweight position in my portfolio. The United States continues to increase impressively its energy production and build out its gathering and processing infrastructure. We are still in the early innings of this move.
The Bakken shale region, for example, has gone from producing around 100,000 barrels of oil a day five or six years ago to a predicted 1.1 million barrels a day by the end of this year. Wood Mackenzie recently predicted this number will grow to 1.7 million barrels a day by 2020.
We are seeing even faster production growth in the Eagle Ford and also from some smaller and newer shale regions. I have a myriad of positions that will continue to benefit by this massive increase of fossil fuel production.
Devon Energy (DVN) continues to be my favorite mid-major for 2014. I recently articulated the reasons behind that faith. Earnings should grow 30% or better this year on back of a projected 20% increase in revenue. A good portion of this revenue increase should be driven by a $6 billion acquisition in the Eagle Ford the company made late in 2013.
The stock has had a good run in 2014 so far with Devon up about $10 a share from the beginning of the year to a recent $70 a share. I have owned since the low $50s in the summer of 2013. The stock is not expensive given its growth prospects at just over 12x forward earnings. I am not adding to my current position at current prices, but would add shares if the market had a significant selloff, which I consider as a decent probability between now and the end of summer.
Emerald Oil (EOX) is small Bakken exploration and production play I have had for some time and continue to hold. So far Emerald has not rewarded my patience like Abraxis Petroleum and Warren Resources. I hope that changes sometime in 2014.
The company should more than double production revenues year-over-year in 2014. Emerald should also swing from a loss in FY2013 to a small profit in the current fiscal year. Projections call for earnings to more than double in FY2015 to some 45-cents a share.
Emerald's acreage in the Bakken and Williston basins is priced at a substantial discount to other players in these regions such as Kodiak Oil & Gas (KOG). The company also has a solid balance sheet with approximately $2 of its $7 a share price accounted by net cash on the books.
For investors looking for income and that do not have the tax complexities of limited partnerships, Calumet Specialty Product Partners (CLMT)could fit the bill. This continues to be one of my favorite refinery plays. The shares have a distribution yield right at 10%. After doing just better than breakeven in FY2013, earnings are tracking to some $1.50 a share this fiscal year with projections calling for over $2 a share in FY2015.
The company has several projects coming on line over the next two years, including a new refinery in the Bakken region. Once these projects are complete, they should add some $200 million to existing earnings before interest, taxes, depreciation and amortization. Calumet's current market capitalization is right at $2 billion so this should be a significant positive catalyst over the medium term.
These are just some of my current energy positions in my portfolio. With the continuing domestic energy production boom, oil over $100/barrel and natural gas prices near four year highs; I continue to find the energy sector attractive. I expect it to continue to garner an overweight position within my own portfolio throughout 2014.
At the time of publication Jensen was long CLMT, DVN, EOX and KOG.