Market sentiment has shifted from investors impatiently waiting for increased production from new drilling activity to producers impatiently waiting for additional infrastructure to connect the supply glut to demand centers, particularly on the U.S. Gulf Coast.
Centennial, CO – October 25, 2018 – East Daley Capital Advisors, Inc., an energy information and insights provider that is redefining how markets view risk for midstream and exploration and production (E&P) companies released their Consensus Comparison Report for third quarter earnings that highlights East Daley’s views on how company earnings forecasts diverge from market expectations. East Daley’s third quarter analysis indicates midstream sector growth for many companies is lagging as producers await new infrastructure to support an increase in drilling activity over the past year.
“Our analysis shows a significant year-over-year shift, where we now have an influx of potential supply that needs to get to market as producers are waiting for new infrastructure to get to the demand markets, which is ultimately limiting potential earnings for many midstream companies,” said Justin Carlson, VP and Managing Director, Research at East Daley Capital. “With that said, until new infrastructure is completed in areas such as the Permian, there are a handful of companies that will profit from the supply bottlenecks due to price differentials.”
Regional price differentials that exceed the cost of transportation exists for crude oil (in the Western Canadian Sedimentary Basin (WCSB), Permian, Bakken and Guernsey), natural gas liquids (NGLs) (between Conway to Mt. Belvieu) and natural gas (in the Permian) and each of those regions have projects being built to alleviate the bottlenecks. Companies like Energy Transfer (ET), ONEOK (OKE), Plains All American (PAA), DCP Midstream (DCP) and Tallgrass Energy (TGE) will benefit once these projects come online. In the near-term, any company with spare capacity, either for 3rd party volumes or through its own marketing affiliate, will benefit. Companies like Enterprise (EPD), Plains All American (PAA), ONEOK (OKE) and Energy Transfer (ET) have potential upside from marketing. For example, PAA has likely trimmed its crude oil hedges in August and September of 2018 while continuing to market volumes on Cactus, Basin and Sunrise.
“Consensus has also raised several company forecasts to be in line with East Daley for 2018, with one example being Energy Transfer,” said Justin Carlson, VP and Managing Director, Research at East Daley Capital. “However, there are wide cash flow divergences between East Daley earnings forecasts versus the street for 2019. We will cover those variances in further detail in East Daley’s 2019 Guidance Outlook Report that will be released in mid-November. 2019 is looking like a great year for well-positioned midstream investors.”
East Daley’s Consensus Comparison Report is released on a quarterly basis and helps clients identify market opportunities by showing East Daley’s earning expectations versus the street. This quarterly comparison shows how East Daley’s unique approach to analyzing companies down to the asset-level can produce different earnings expectations than that of sell-side research. East Daley goes down to the asset-level in its forecasts allowing clients an easy way to spot potential investment opportunities.