Energy stock rankings (Oct 2014)

I find that ranking stocks is a useful analytical tool.  Ranking stocks against each other helps me be more realistic about how good or how bad a stock is.

I have some extreme and unconventional viewpoints.  Many “value investors” would have a list that would be the opposite of mine.  Many of the stocks I have shorted have been mentioned on ValueInvestorsClub.com as longs or potential longs.  Many of these people are quite intelligent and eloquent.  In my opinion, the longs do not understand how they are being bamboozled and misled by stock promoters.  I’ve written about this many times on this blog (e.g. “How would a sociopath fleece investors in oil and gas?” and “Beating Wall Street in oil and gas“).

While the independent E&P sector has seen a meltdown in share prices, I don’t see undervaluation.  The problem is that many of the companies continue to be run by stock promoters and charlatans (more so in the small caps than the large caps).  Until the management teams get better, I don’t think that the independent E&P space will be a good place to look for longs.  My prediction is that there will be more pain to come when NGL prices collapse.

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Access Midstream Partners: Are their distributions sustainable?

I think that ACMP’s cash flows will decline due to:

1. Less gas being carried on their gathering pipelines.  Throughput will decline as shale gas wells naturally decline.  Throughput on ACMP’s existing assets cannot grow unless more shale gas wells are drilled.
2. Cash flows from minimum volume commitments ending.

*Disclosure: I am short ACMP common.  This is not one of my better short ideas and I may cover this position in the future.

Chesapeake’s one-sided midstream deals

Originally, I thought that Chesapeake may have been using its midstream deals to inflate its profits.  I was mistaken.  Chesapeake’s midstream vehicle (now named Access Midstream Partners) was structured in a very one-sided deal that heavily favored Chesapeake.

I don’t think that many people give credit to Aubrey McClendon for this deal.