Latest / Bloomberg Intelligence / Cushing's Toudouze: Big Energy Companies Need to Adapt (Audio)

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Cushing's Toudouze: Big Energy Companies Need to Adapt (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with pin Box and Kathleen
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  Speaker 1: Hayes on Bloomberg Radio. Oil Texas t oil prices lower.
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  Speaker 1: What does that mean for the profits of large integrated
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  Speaker 1: oil companies such as x on Mobile and Chevron. Well,
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  Speaker 1: it means you're making less money. But should you invest
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  Speaker 1: in these companies? Let's find out from Libby two dues
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  Speaker 1: partner portfolio manager Cushing Asset Management with four point three
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  Speaker 1: billion dollars of assets under management, joining us from Dallas, Texas. Libby,
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  Speaker 1: thanks very much for being with us. Go ahead, tell
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  Speaker 1: us about x On Mobile and Chevron and what this
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  Speaker 1: means for an investment opportunity. Yeah, I think I think
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  Speaker 1: you kind of said it him. You know, first quarter
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  Speaker 1: results show they continue to struggle in this locommodity price environment. Uh,
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  Speaker 1: there were some bright spots because they are both big
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  Speaker 1: diversified energy companies, so businesses that are more what we
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  Speaker 1: call the downstream part of the supply chain that benefit
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  Speaker 1: in locomodity prices. They did well. But the bottom line,
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  Speaker 1: the broader implications here are that big energy companies need
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  Speaker 1: to figure out how to adapt to a more moderate
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  Speaker 1: crew to environment. I will say on both calls, you
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  Speaker 1: did hear a commitment from management to their distributions. Exons
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  Speaker 1: about a three and a half percent yield, Chevron is
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  Speaker 1: about four. I think it's four too. So I do
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  Speaker 1: think that the businesses UM, although struggling, are continuing to
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  Speaker 1: to to move forward. Chevron, They've got a lot of
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  Speaker 1: large creative projects coming online and in the second quarter
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  Speaker 1: UM And I think that these these are good companies
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  Speaker 1: for for investors to look at. Tell me about the
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  Speaker 1: strategy of acquisitions in order to replace reserves at a
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  Speaker 1: company like let's say Exon Mobile or Chevron, buying natural
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  Speaker 1: gas properties for example. Yeah, I think that um and
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  Speaker 1: and Excen kind of shied away from UH much in
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  Speaker 1: the way of M and A commentary. But they both
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  Speaker 1: companies have a big, solid balance sheets and and could
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  Speaker 1: But when you're in a low commodity price environment, it's
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  Speaker 1: much more expensive to drop and drill a will than
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  Speaker 1: to spend a dollar of capex to buy existing production. So,
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  Speaker 1: whether it is some weaker players that go into bankruptcies
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  Speaker 1: or it is other players who maybe are having a
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  Speaker 1: harder time standing on their own, you better believe that
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  Speaker 1: that both companies are kind of sharpening UH their their
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  Speaker 1: pencils right now and trying to figure out how to
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  Speaker 1: add production in the most cost efficient manner. How can
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  Speaker 1: people add to their portfolio stocks that may be targets
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  Speaker 1: of these large integrated oil companies. What are some of
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  Speaker 1: the characteristics? Well, I think what you want to look
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  Speaker 1: for is companies that are in the more prolific basins,
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  Speaker 1: meaning basins that have a lot of growth potential, basins
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  Speaker 1: that have geology that allow them to have a very
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  Speaker 1: low finding and development costs UH and basins where you
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  Speaker 1: have midstream companies that are committed to building UH. The
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  Speaker 1: infastry sure, because as you know, no matter how much
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  Speaker 1: you find, if you can't get it to market or
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  Speaker 1: have the optionality you get it to several markets, it
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  Speaker 1: doesn't matter. So you've got to look for companies that
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  Speaker 1: that are in in that have those UH characteristics. Master
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  Speaker 1: limited partnerships and yield tell us where is it safe
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  Speaker 1: and where is the opportunity. Yeah, I think that in
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  Speaker 1: this pricing environment, you want to be with the businesses
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  Speaker 1: that can prosper UH in a moderate UH pricing environment.
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  Speaker 1: And midstream business is all about the volumes. Now, the
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  Speaker 1: companies in the midstream business tend to on average have
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  Speaker 1: a significantly higher yield here um. And we need about
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  Speaker 1: four hundred and seventy billion dollars this is a recent
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  Speaker 1: industry report National Gas Association of infrastructure to be built.
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  Speaker 1: So these master limited partnerships are going to be the
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  Speaker 1: companies to build it. Because the excens in the avrons
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  Speaker 1: of the world, they don't want to spend their capex
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  Speaker 1: right now, they're trying to to keep the business together.
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  Speaker 1: They got to spend their capex on, as you said,
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  Speaker 1: replacing existing production. So these master limited partnerships are going
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  Speaker 1: to be the beneficiary of of and be the guys
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  Speaker 1: that are going to build out the infrastructure. So you've
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  Speaker 1: got a nice income component and a growth component if
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  Speaker 1: you own a master limited partnerships. Why have so many
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  Speaker 1: master limited partnerships traded lower when they are not necessarily
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  Speaker 1: connected to the price of oil or natural gas? Yeah,
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  Speaker 1: it was. It was amazing to see that last year
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  Speaker 1: oil service stocks perform better than master limited partnerships when
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  Speaker 1: when they truly don't have the majority of them don't
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  Speaker 1: have this pricing connection. I would say, um in in
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  Speaker 1: the fear of the big decline in in crude oil,
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  Speaker 1: even natural gas companies kind of the baby got thrown
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  Speaker 1: out with the bath water. Now, I will say you
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  Speaker 1: have to be selective. They're about a hundred and fifties
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  Speaker 1: stocks in the energy publicly traded energy the infrastructure universe,
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  Speaker 1: which we also call MLP universe. And not all of
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  Speaker 1: these companies are going to continue to do well. Not
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  Speaker 1: all of these companies are gonna be able to sustain
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  Speaker 1: their distributions. So you have to be selective. But there
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  Speaker 1: are plenty of good companies that over the next decade
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  Speaker 1: plus are going to be um be able to do well,
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  Speaker 1: and they're basically on sale right now because they got
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  Speaker 1: dragged down as crude oil drop. Thank you very much
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  Speaker 1: for spending time with us. Libby two does two is
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  Speaker 1: a partner and portfolio manager at Cushing Asset Management and
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  Speaker 1: giving us details about investing in energy companies such as
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  Speaker 1: Exxon and Chevron right now. Taking a look at crude oiling,
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  Speaker 1: it is basically unchanged at forty five dollars and nine
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  Speaker 1: cents for a barrel of West Texas and to media
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  Speaker 1: crude natural gas, though moving higher today by more than
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  Speaker 1: three and a half percent at two dollars in fifteen
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  Speaker 1: cents per million BTU. This is Bloomberg Radio coming up
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  Speaker 1: on Taking Stock, a look at companies and their corporate earnings.
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  Speaker 1: With more than three hundred companies in the SMP five
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  Speaker 1: hundred already reporting their quarterly results. Will find out the
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  Speaker 1: trends that's next