Please find below some talking points regarding our exposure to the oil sector:
Why is the energy sector down since the October’s peak oil price?
2019 forecast shows growing inventory levels (lead in part by the US shale production that increased much faster than anticipated)
A reminder though that 80% of the global supply is from international countries
OPEC sees a slowing global economy, especially from emerging markets, reducing demand for oil
This leads to a return of supply/demand imbalance and thus a lower oil price
President Trump is rooting for lower oil prices, advising Saudi Arabia to not cut production at the coming OPEC meeting (Dec 6th). OPEC countries seem to be in favor of a cut.
Our current exposure:
Underweight the sector by 79bps.
· EOG position size: 2.09%, 1 year performance: -0.9%, dividend yield: 0.87%, FCF Yield 2.03%
· SLB position size: 1.46%, 1 year performance: -25%, dividend yield: 4.31%, FCF Yield 5.4%
· XOM position size: 1.78%, 1 year performance: -7%, dividend yield: 4.34%, FCF Yield 5.22%
Why own those companies?
Crestwood has historically had an “energy barbell” approach to the energy sector: 2 high beta stocks (SLB and EOG), 1 low beta stock (XOM)
· EOG offers exposure to natural gas, has a diverse mix of premium assets, and a strong balance sheet
· SLB offers exposure to the international market as the technology leader in the service industry. As international E&P need to spend again (see XOM comments below), SLB will benefit
· XOM has a longer term approach to investing in its business, currently increasing capex while competitors cut spending. Since 2014, many operators focused on cash flow by pushing their wells harder and prioritizing short-term actions, at the expense of longer term investments. Today, production rates are declining faster than anticipated. XOM could benefit from this, as competitors will have to spend more while XOM reaps the benefits of today’s investments
[tag XOM] [tag SLB] [tag EOG]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109