March 2016

March 2016 Issue

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No matter how much I’d love to start off today’s issue with a rant about Saudi Arabia, Russia, or any other rumors that these two are going to get along and decide to cut production (spoiler alert: they’re not — at least not anytime soon), I’ve decided to switch things up.

Instead, I want to get the ball rolling right away on the next of our string of new recommendations.

If you recall, last month we jumped back into the growing U.S. LNG trade with Cheniere Energy Partners (NYSE MKT: CQP). Well, it turns out that we’re not the only ones bullish on Cheniere’s LNG exports.

Morgan Stanley upgraded CQP to Overweight, which simply means that the analysts there believe the stock is a better value for our money.

We wholeheartedly concur.

Yet the fact that Morgan Stanley just became excited about CQP’s value doesn’t come as a shock to us. We learned last Wednesday that the United States’ first shipments of liquefied natural gas left Cheniere’s Sabine Pass terminal in Louisiana. The cargo, which consisted of approximately 3 billion cubic feet of gas, is headed for Brazil, where Petrobras is set to take the shipment.

And while this is only the beginning for our LNG fortunes, I want to take advantage of a more domestic play today.

Despite plummeting oil prices, a grossly oversupplied global market, and even the possibility of even more crude hitting the market, there’s still one very serious infrastructure problem plaguing the second-largest oil-producing state of North Dakota.

You see, one major problem with the United States’ shale boom has been the proliferation of crude oil shipments by rail.

Don’t get me wrong; the rail business is absolutely benefiting from all of the extra crude that needs delivering. But the truth is, violent incidents have become all too common.

The worst was a derailment and explosion in Lac-Mégantic, Canada, that killed 47 people and incinerated the small town.

Beyond that, there have been accidents and spills throughout the U.S. in places like North Dakota, Alabama, and Virginia, among others.

As a result, new regulations on tank cars are on the way from the Department of Transportation;

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some were already passed in May this year. These new regulations stand to sputter profits for companies that deliver crude by rail, such as Buffett’s Burlington Northern Santa Fe.

Once companies are forced to replace all of the old rail cars that ship oil (a big hit on profit margins) or retrofit them to meet the new regulations, they will also need to maintain slower speeds on the rails and add more crew members to trains carrying oil.

And while these new rail cars and regulations start for train companies, the slowdown for crude by rail will create an opportunity for other forms of oil transportation to take over — namely pipelines.

As you can see, pipeline capacity in the United States will nearly double in the next couple of years, and building that amount of pipeline is a major expense that will be spread over various operators.

Although we sometimes recommend regular pipeline companies in the Energy Investor portfolio, the one we have for you today is not simply a pipeline operator...

Instead, it makes sense for us to find an opportunity that can profit from the growth in pipeline capacity without losing too much money on construction and raw materials.

And much like Buffett when correcting his rail blunders, it’s important for us to find ways to profit off of multiple pipelines without actually building them.

Our play for you follows the Buffett model.

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While we don’t know that this company will work on every pipeline being built, chances are the boom in pipeline construction won’t hurt the company’s business — and there’s no question that North Dakota will address its pipeline capacity issues over the next few years.

So without further adieu, here’s our way to play it...

Buy Cypress Energy Partners, L.P. (NYSE: CELP)

Market Capitalization: $39.6 Million

Shares Outstanding: 5.9 Million

52-Week Range: $5.28–$19.02

Current Annual Dividend/Yield: $1.625 / 24.2%

Founded in March 2012, Cypress Energy Partners is a master limited partnership that offers saltwater disposal and environmental services to U.S. onshore oil and gas producers. The company also provides pipeline inspections and integrity services to pipeline, utility, and oil and gas companies.

Cypress has two main segments to its business. The first is its environmental services for oil and gas companies. Currently, the company has several EPA Class II saltwater disposal facilities.

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The other big segment of the company’s business — the one we are really excited about over the long term — is its pipeline inspection and integrity operations. The company expanded to this realm of the oil business when it bought Tulsa Inspection Services in June 2013.

The company has over 1,500 certified inspectors deployed throughout the United States and Canada.

This business offers stable long-term returns for us because of the longevity of pipelines and their need for inspection. Of course, when a pipeline is first built, it’s inspected tirelessly. But as it ages, the pipeline will need routine maintenance and inspection to prevent it from too much stress or potential leaks and damage.

The company follows predictions by the Interstate Natural Gas Association of America, which estimates that various types pipelines, support structures, and storage capacity will be built in the United States between 2014 and 2035, amounting to more than $313 billion in investment.

That means Cypress will look to glean its share of the money needed for pipeline inspection and integrity. Remember, too, that those are just construction numbers — add to those the 2.5 million miles of pipeline already operating in North America and the many years those pipes will be in service, and we have ourselves a tasty opportunity for long-term returns here.

The company’s current affairs include 11 total saltwater disposal facilities with two in Pecos, Texas, and Orla, Texas, and the other nine throughout the Bakken. Each of these facilities has a disposal capacity of 135,000 barrels per day and is open 24 hours.

When an oil driller fractures a well, a cocktail of water, chemicals, and proppants are left over and flow back to the surface of the well. The driller then trucks this waste to one of Cypress’s saltwater disposal facilities where the company filters it, treats it, and injects it at least 4,000 feet below ground.

Cypress also separates residual oil left in the flow-back water, stores it, and then sells it to third parties once it has enough to make a profit.

The company’s pipeline integrity and inspection services currently serve more than 70 customers from oil and natural gas producers to pipeline owners and operators to public utility companies in North America.

The company examines various types of pipelines including transmission lines for oil, gas, and liquids, oil and gas gathering systems, pump and compressor stations, storage facilities and terminals, and gas distribution systems.

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Now, Cypress IPO’d in January 2014 and has already made strides on the open market.

Before the fall of crude oil prices, Cypress hovered comfortably around $25 a share and paid out a 7% dividend. Since oil has fallen, the company’s share price (already undervalued) has slid even more, creating an incredible buying opportunity to purchase shares.

And although we’re not expecting Cypress’ next earnings announcement until the end of March, let’s take a look at its most recent financials.

For the three months ended September 30, 2015, the company saw revenues grow 6% compared to the previous quarter, to $96.4 million, and had an adjusted EBITDA of $7.6 million — a solid 42% year-over-year increase.

During the first nine months of 2015, the company generated approximately $279 million in total revenue.

Right now, shares are looking ripe for the picking.

Although the stock price took an undeserved hit on oil price fears, the growth in earnings and revenue shows that the company isn’t really susceptible to oil prices like a run-of-the-mill driller.

Sure, it took a slight hit on residual oil sales and from drillers wanting cheaper waste disposal, but otherwise it remains unaffected.

Like I mentioned above, the company saw decent upkeep on distributable cash, and as such, the company maintained its distribution of $4.8 million in cash to shareholders at $0.40 per unit.

And since we love high-dividend paying infrastructure investments, then Cypress certainly fits the bill. Even though the current 24.2% annual yield may be adjusted as oil prices languish around $30 per barrel, the company’s long-term goal is to reach a 10% annualized increase in dividends per unit, which also gives us cause to be bullish on the company.

And once oil prices rise and market fear subsides, I believe we’ll see the stock price return to the high end of the 52-week range... if not higher.

Cypress Energy Partners is a Buy for us under $10.

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Company Spotlight: Dajin Resources

Ticker Symbols:

• TSX-V: DJI

• OTC-Pink: DJIFF (Investor note: The secondary

listing on the OTC Pink Sheets is “Blue-Skyed”

by S&P Capital IQ)

• Frankfurt: A1XF20

Market Capitalization: $14.91 Million

Outstanding Shares: 106.52 Million

52-Week Range: $0.04–$0.16

We’ve been on a tremendous run with Dajin Resources since last May, and this early-stage energy metals company is poised for even more success.

As you may know, the company is developing three projects right now: the Alkali Lake and Teels Marsh projects in Nevada, as well as the Salinas Grandes in Argentina.

Up until now, we’ve almost exclusively focused on its Nevada properties, which consist of 191

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placer claims totaling 3,851 acres in Alkali Lake, which is located right next to North America’s only producing brine-based lithium mine — the Rockwood Mine — as well as 215 placer claims totaling 4,574 acres at its Teels Marsh Project in Minerals County, Nevada.

Last time, we learned that the company had completed its structural study of Teels Marsh, which revealed a large catchment basin of 313 square miles in area and is bounded by faults (the basin is also tectonically active).

Furthermore, thick accumulations of ash deposits known as “Bishop Tuff” are likely to occur beneath the marsh, as the marsh occupies a closed basin and is located east of nearby Mono Lake and Long Valley Caldera. More important is that these ash layers have proven to be the most productive brine sources in Clayton Valley.

What we haven’t touched lately, however, is Dajin’s progress in Argentina, which is considered the brine lithium center of the world!

One of Dajin’s Directors, Dr. Catherine Hickson, who is Dajin’s point person in Argentina, was recently interviewed to find out what the company has been up to in the Jujuy Province, where Dajin controls a 100% working interest in 100,000 hectares through concessions and concession applications.

I urge you to read the interview for yourself, which you can find in full by clicking here.

Inside, she gives a very thorough breakdown of Dajin’s prospects in Argentina, including how the company is addressing some of the risks associated with junior miners in the area.

Our Dajin position is current up 141%, and we’re expecting further gains to come as the company continues to progress in developing its assets in both Nevada and Argentina.

If you’ve been with us on this trade for a while, feel free to take some of your hard-earned gains off the table now, and look to build again on any weakness.

Dajin Resources is rated a STRONG BUY for us under C$0.15. As always, I recommend

you perform your own due diligence before investing, due to the higher risk tolerance

associated with these smaller plays.

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Rankings and Portfolio

Over the last few weeks, I’ve been compiling a ton of data on our open portfolio to reshape our Top 10 rankings to better reflect this bear market for crude.

Although I expected to be able to send you the updated list today, there are still a few kinks left that need to be worked out.

While we wait for the completed list, let’s take a look at what some of our current positions have been up to lately.

Abraxas Petroleum (NASDAQ: AXAS)

Abraxas Petroleum is an independent oil and natural gas company with assets in the Bakken, Eagle Ford, and Permian Basin.

Recently, Abraxas announced an operational update on its assets in North Dakota, with some encouraging news on its wells there.

In McKenzie County, the Sten-Rav 1H and Ravin 8H wells achieved production of about 900 barrels of oil equivalent over their peak 30-day production.

The Stenehjem 5H well, located in the central part of the Bakken formation, reached about 809 barrels of oil equivalent over its own peak 30-day production.

Abraxas also announced the successful drilling of Stenehjem 10H-15H, each of which the company holds a 78% interest in. These are due to be completed in the third quarter of 2016.

You’ll want to keep in mind that two of these, the 10H and 11H, weren’t supposed to be drilled until sometime this year. Increased drilling efficiency in late 2015 made it possible to get them through the first phases earlier than expected.

Abraxas is also making up for some lost time. The company’s natural gas takeaway expansion saw some delays in 2015, but the newly finished loop line was fully functional as of December 22nd.

Despite having to idle yet another rig due to low commodity prices, Abraxas has set itself up with some valuable assets going into 2016. We have no doubt the company is capable of using those new assets to see itself through to the market recovery.

Abraxas is a BUY for us under $3.

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Apache Corporation (NYSE: APA)

Apache Corporation is an independent energy company that explores, develops, and produces crude oil, natural gas, and natural gas liquids in the Permian Basin, the Gulf Coast, Western Canada, Egypt, and the North Sea.

Apache’s earnings came out late last month to some mixed reviews.

The company posted a loss of $0.06 per share for the fourth quarter of 2015, which, while in the red, is far better than the $0.52 loss analysts expected.

The year overall was a good one for Apache, given the state of the market anyway.

The company managed to reduce capex by 60% and drilling and completion costs by 35%.

This freed up cash to reduce Apache’s debt from $11.3 billion to $8.8 billion. The company stated in its most recent investor presentation that it hopes to either keep the debt level or reduce it further in 2016.

For 2016, the capex budget will be between $1.4 billion and $1.8 billion. Apache will be looking to achieve cash flow neutrality through 2016, so long as oil prices stay around $35 per barrel.

Apache’s CEO and president John Christmann stated in the earnings release, “We believe a conservative plan and a flexible capital spending program are paramount to protecting the financial position we have worked hard to establish.”

And if that’s not enough support for you, Apache has also kept its dividend up; the next payment of $0.25 per share will go out on May 23, 2016.

The good news here is that Apache is setting itself up to weather this volatile market and survive through until the recovery later this year.

Apache Corporation is rated a BUY under $50.

Cenovus Energy (NYSE: CVE)

Cenovus Energy is a Canadian oil, natural gas, and natural gas liquids developer, producer, and marketer. The company has refinery operations in the U.S., which allows it to refine, transport, and sell its own petroleum and chemical products.

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Cenovus is getting a good rep nowadays for undertaking its cost-cutting measures recently, and you can bet we’re not ready to throw in the towel on this long-term investment, especially as it goes on the defensive.

The most shocking news for investors, it seems, has been the company’s decision to cut capex again this year. However, keep in mind that Cenovus had already planned to reduce spending by 19% from 2015 levels, but recently announced that it could cut capex by as much as 27% this year.

Some of these cuts include more workforce reductions. In 2015, Cenovus let go of 24% of its workers.

On the surface, this sounds pretty desperate. But one view, which we optimistically agree with, has claimed that these decisions give Cenovus “one of the best balance sheets in the North American exploration and production sector.”

Let’s take a look at the numbers:

In 2015, the company increased proved reserves by 7% and decreased oil sands operating costs by 19%, all while reducing capex by a whopping 44% for the year.

For 2016, it expects some of the same results. Moreover, these spending and workforce cuts will save the company an estimated $400 million to $500 million.

Every little bit helps.

Cenovus has also reduced its dividend for the first quarter: a 69% cut down to C$0.05 per share... another reason we’re sticking around for the long haul.

Cenovus Energy is rated a BUY at $17.

Centrica (OTC: CPYYY)

Centrica is an extremely diverse integrated company that generates, trades, and optimizes power from gas-fired plants, wind farms, thermal plants, and nuclear power plants. This has gained it a reputation as a utility, but its services are not limited to those a regular utility would have.

For the full year 2015, Centrica posted some good numbers in its preliminary results.

Though earnings were down by 4%, operating profit from energy supply and services was up 19%, and operating cash flow was up 2%.

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These are in large part due to the company’s utility services, which did extremely well throughout the past year.

Centrica also managed to reduce its debt by £449 million.

For 2016, the company’s efficiency program is on track to continue saving. The end goal is an average £750 million per year in savings by 2020, and £200 million is expected in 2016.

As we mentioned last month, we can’t blame Centrica for reducing its exposure to oil and gas right now. Furthermore, it’s good to see that the company is excelling by using its other businesses to the best advantage.

Centrica is a BUY below £17.

Egdon Resources (LSE: EDR.L)

Egdon Resources is a hydrocarbon exploration and production company with operations in the U.K. and France.

Recently, Egdon announced the commencement of drilling activity at the Laughton-1 site.

This is, of course, exciting news. Any new drilling action these days is a good sign, and this particular project is good for Egdon for a number of reasons.

First, it didn’t have to pay for the whole thing. As we’ve told you about before, Egdon has made partnership agreements with Blackland Park Exploration Limited, Stelinmatvic Industries Limited, and most recently Union Jack Oil plc.

These partners have traded a stake in the project for a portion of its cost. And now it’s about to pay off.

The next big benefit for Egdon is the new oil reserve number. So far, the three rock formations the project plans to tap into amount to reserves of about 1.3 million barrels of oil.

And that’s without any hydraulic fracturing. Because of the uproar against fracking in the U.K., Egdon has assured that high-volume hydraulic fracturing for shale gas will not be a part of the process.

Egdon’s managing director Mark Abbott seemed confident that the project would be valuable nonetheless.

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“We look forward to updating shareholders with the preliminary results from the well in around one months’ time,” he said at the end of the announcement.

We’ll keep you posted on those results here, too.

Egdon Resources is rated a BUY at current prices.

Enbridge Inc. (NYSE: ENB)

Enbridge Inc. is a transporter, generator, and distributor of energy throughout North America. The company holds itself to the highest standards in safety, integrity, and respect.

Enbridge has been, in large part, weathering the market rout well. Its presence in the midstream sector of the oil and gas markets has shielded it somewhat from the drop in prices, though its customers have taken some pretty harsh hits.

Still, there is always room for saving money...

“We will be lowering the microscope even further to make sure that we are deploying the most optimal projects,” stated the company’s chief executive Al Monaco after the earnings report.

This, of course, is referring to Enbridge’s pipeline expansions. Only the most profitable are worth moving forward with until oil and gas prices recover a bit.

Already, the Sandpiper and Line 3 pipeline replacements are being pushed back from 2017 to 2019, though these are being attributed to the need to complete environmental reviews and permitting in the Minnesota section.

But even without this, Enbridge is looking good financially. The company actually reported earnings that were higher than expected for the full year 2015.

To the right is a better look at this earnings increase.

In a climate where it’s common to see dramatic drops in earnings from last year’s highs to this year’s lows, it’s awesome to see some actual increases coming in.

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Enbridge’s next step is raising cash by selling about C$2 billion in shares. This money will go into paying off short-term debt, so the company will have an even bigger cushion to fall back on if oil stays low for longer.

Enbridge Inc. is rated a BUY at $48.

Encana Corp. (NYSE: ECA)

Encana is a North American oil, natural gas, and natural gas liquids developer, explorer, producer, and marketer. The company focuses on its most productive assets in the Permian, Eagle Ford, and Duvernay oil plays, and the Montney natural gas play.

Like much of our portfolio, Encana is tightening its belt to stay afloat in today’s market.

But unlike much of our portfolio, this company is actually getting praised in the media for it.

Late February saw a stock price rise of around 23% in a day. This came after a disappointing revenue report, but an encouraging savings update.

Analysts were quick to point out that the company’s reported earnings per share was above previous estimates — earnings of $0.13 versus the expected break-even. While Encana reported a fourth-quarter loss of $612 million, it intends to make up for it in 2016.

This year, the company has said it will be reducing its workforce again, and has reduced the year’s capex budget from between $1.5 billion and $1.7 billion to just $900 million to $1 billion.

What’s more, nearly all of Encana’s drilling budget will go to its lasting assets in the Eagle Ford, Permian, Montney, and Duvernay shale plays.

Only the most productive assets get attention these days, and lucky for us, Encana has some particularly valuable ones.

Encana Corp is rated a BUY at $8.

Magellan Petroleum Corp. (NASDAQ: MPET)

Magellan Petroleum is an independent oil and gas exploration and production company with assets in the U.S., the UK, and Australia.

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There’s nothing better than easy oil, and that’s exactly what we expected out of the newly drilled Weald Basin formation of the UK.

Last week, Magellan saw the benefits of being one of the first on the scene with its Horse Hill-1 well.

CEO and president J. Thomas Wilson stated simply, “We continue to be encouraged with the results of the flow test of Horse Hill, which provided evidence of free flowing oil from two of the three formations planned to be tested.”

It was reported by UK Oil and Gas Investments PLC that initial tests produced 100% light, sweet crude in the Upper Kimmeridge area at a rate of about 900 barrels of oil per day.

No extra fracking required.

The last news of this test a few weeks ago came back with results totaling just 450 barrels per day. Apparently they weren’t even seeing all that the well could do.

This is only the beginning of Magellan’s business in the Weald Basin. There are more and more opportunities every day for the company to take advantage of in this mostly un-tapped oil resource.

Magellan Petroleum is rated a BUY at $3.

Matador Resources (NYSE: MTDR)

Matador Resources is an independent oil and gas exploration, development, production, and acquisition company. Its main assets are located in the Eagle Ford and Permian shale plays.

Matador saw some mixed results in 2015, according to its quarterly and full-year report.

On one hand, the company saw record production levels.

Overall 2015 oil production was just under 4.5 billion barrels of oil, or about 35% more than the company produced in 2014. Natural gas production saw a huge rise of 81% over 2014 levels to total 27.7 billion cubic feet.

On the other hand, those resources weren’t worth nearly as much…

Oil and gas revenues actually fell 24% as compared to 2014, though were still higher than 2013

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levels. However, cash operating expenses from oil and gas operations also fell 24%, meaning the company saved quite a bit as well.

Matador also noted an increase in proved reserves to 85.1 million barrels of oil equivalent. And the company plans to tap into those reserves with its three remaining drilling rigs throughout the year.

Capex will remain low for 2016 — only $325 million. But that will be enough with higher efficiency and lower per-barrel costs to keep those record production numbers up.

Matador Resources is rated a BUY at $30.

Oasis Petroleum Inc. (NYSE: OAS)

Oasis Petroleum is an independent oil and gas exploration, development, production, and acquisition company with a focus on unconventional shale plays in the U.S. Its biggest focus is in the Williston Basin in North Dakota.

There’s no stopping Oasis this year. The company’s drilling and production momentum doesn’t seem to have slowed much since oil prices fell.

In its latest earnings report, Oasis announced that it had drilled, completed, and brought online 80 gross wells in 2015, 16 of which were done in just the last quarter of the year.

The company also noted that it had another 85 wells awaiting completion, and expects at least 46 of them to be completed throughout 2016.

The year also saw a drop in lease operating expenses per barrel of oil by about 23%, which amounts to some great savings as well as a good chance more of those wells will be able to come online.

Capex for the year was also down 61% from last year. And despite the loss in actual earnings, we’re taking this as a good sign that the company is well prepared to deal with low prices for a while longer.

Oasis is only looking to spend $200 million on drilling and completion this year, with total capex only reaching $400 million. But it’s not really the amount that matters so much as how well it’s used.

Every one of the wells being completed this year will be in the core area of the Bakken formation, so every one of them is sure to be highly productive as well as increasingly affordable.

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Chairman and CEO Thomas B. Nusz also noted that the company had hedged about 70% of its projected oil volumes at $51 per barrel, giving Oasis a little wiggle room and time to expand.

Oasis Petroleum is rated a BUY under $12

ONEOK Partners (NYSE: OKS)

ONEOK Partners is a gathering, processing, storage, and transportation company for natural gas and natural gas liquids (NGL) supplies in the U.S. The company operates its own midstream pipeline businesses that cross 17 states with 36,000 miles of gas and liquids pipelines.

ONEOK also saw some hit-and-miss action after its latest earnings report. While its revenue came in about 17% under expectations, it beat estimates on earnings per share: $0.58 rather than the expected $0.54.

But there’s hope yet. The company said in its earnings report that it expects to have distribution coverage through 2016, and reiterated that it has to debt maturities until late 2017.

The fourth quarter saw some good business for ONEOK Partners, too.

The company’s natural gas segment saw an increase of 12% in gathered natural gas and 10% in processed natural gas as compared to the same period of 2014.

Gathering and processing fees are also proving to be a boon: ONEOK’s fees increased to $0.55 as compared to $0.36 the year before. The company expects fee-based income to rise 85% in 2016.

A lot of this business is going to be coming from the Permian Basin, where producers are still pumping away. Some are even sending their supply out into the world, now that both oil and natural gas have been approved for exports.

Just think... If business is booming now, imagine where it’ll be after oil rebounds!

ONEOK Partners is rated a BUY at $35.

Pacific Drilling S. A. (NYSE: PACD)

Pacific Drilling S.A. is an offshore driller focused on the ultra-deepwater operations in the “Golden Triangle” area between Brazil, Nigeria, and the Gulf of Mexico. Their rigs are exclusively tailored for ultra-deepwater operations at depths of 7,500 feet or deeper.

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Pacific Drilling saw a pretty decent end to 2015, despite the posted loss it announced early this month.

You see, even though the fourth quarter’s earnings were a bit lacking, the whole year’s numbers are still pretty encouraging.

For instance, the company’s EBITDA reached $595.1 million, or 5.6% higher than 2014. And the year’s cash flow reached a record $422.1 million, about 6.5% higher than 2014.

Some of this was due to the cancellation of the new-build Pacific Zonda, a contract that Pacific rescinded when it turned out the rig wouldn’t be delivered on time.

This leaves Pacific with no new rig orders waiting, and no plans to buy any more this year.

Meanwhile, the company’s existing fleet did well in the fourth quarter. Contract drilling revenue reached $267.6 million, an increase of $7.4 over the third quarter.

For the full year, contracted drilling revenue was $1,085.1 million, just $0.7 million below 2014. Given the amount of drilling done in 2014, it’s impressive that Pacific was able to keep that particular source of revenue up so well.

More than half of its fleet is currently contracted to Chevron and Total, and has been operating at 94.7% efficiency for the duration of 2015.

CFO Paul Reese had this to say about Pacific’s future: “The cash that is generated from our existing backlog should reduce our net debt balance significantly. This positions us well during these challenging times in our industry.”

Pacific Drilling is rated a BUY for us at current levels, but we’re adjusting our ‘Buy Under’ rating to

$1.50 to better reflect the volatility we’re seeing right now in offshore drillers.

Range Resources (NYSE: RRC)

Range Resources is an independent oil, natural gas, and natural gas liquids (NGL) acquisition, exploration, and development company.

Range released some some rare news recently: it actually beat its own production guidance at the end of 2015.

The company produced about 1% more than estimated in the fourth quarter, which amounted

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to a 12% increase in production from the same period last year, and a 21% increase in full-year production.

Remember, Range sold off some assets this year too: the Nora, Virginia acreage sold for $865 million, which the company used to reduce its overall debt.

The company did spend a little more than it had originally planned to... about $30 million more.

But the asset sale and this year’s budget cut — down to only $495 million for 2016 — more than makes up for that.

And here’s the real kicker: Range expects to continue producing around 1.4 billion cubic feet equivalent per day through 2016 on a total of three drilling rigs.

Think about that: three drilling rigs as compared to the 15 the company had at the beginning of 2015, and it still expects to keep production high.

That’ll be because its assets are all going to be in the Marcellus Shale play in southern Pennsylvania, one of the most productive natural gas plays in the country.

Doesn’t hurt that the area has some of the lowest break-even prices around, too.

Range is using the best of its assets well. Late February brought news that the company had actually increased its proved reserves by 6% from 2014 levels.

Range Resources is rated a BUY at $50.

Scorpio Tankers (NYSE: STNG)

Scorpio Tankers is an offshore transporter of crude oil and petroleum products worldwide. The company’s fleet offers three contracting options: voyage charters (short-term), fixed-period time charters, and commercial pools (collaborations in large numbers).

Say what you want about the tanker business these days, but Scorpio did some good business at the end of 2015.

In fact, Scorpio’s revenue and EPS actually beat the analyst consensus by 6% and 10% respectively.

For the full year, Scorpio reported an earnings per share of $1.20. Scorpio also managed to keep its dividend intact: $0.125 per share will be paid on March 30.

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Unfortunately, in the interest of bolstering savings and cutting excess weight, Scorpio has entered into an agreement to sell off five of its MR Tankers: STI Powai, STI Chelsea, STI Olivia, STI Lexington,

and STI Mythos.

These will be sold for about $33.3 million each. The sales themselves will go through in phases, two in March and the last three sometime in the second quarter.

Now, it’s always sad to see a company cutting its fleet, but this is no different than an onshore driller reducing its rig count.

Companies have to focus energy on the most valuable assets, and these were evidently worth letting go of.

But keep in mind the rest of Scorpio’s fleet, and the multi-year contracts some of its tankers entered into late last year. This isn’t nearly the end for this high-demand fleet.

Scorpio Tankers is rated a BUY at $10.

Trinidad Drilling (TSX: TDG.TO)

Trinidad Drilling is a designer, builder, and operator of drilling rigs, as well as a refurbisher of rigs and related equipment.

Nothing big has happened to Trinidad in the past month short of the resignation of three directors brought over in the CanElson acquisition last year.

We can’t say what this will do for the business, but we’re on top of the situation and will hopefully have more for you soon.

Meanwhile, Trinidad’s fourth-quarter earnings release will be out soon, and those numbers will be in our next update.

Trinidad Drilling is rated a BUY at $6.

On the Radar

I have a little bit of news for you regarding a few upcoming reports that will be headed your way in short order.

March 2016 Issue

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Look, it should be clear that we’re not expecting a sudden, inexplicable spike in oil prices. The fact that the market is incredibly oversupplied should be the first indicator. If oil prices were to go to $100 per barrel tomorrow, it would further exacerbate the supply/demand imbalance.

Fortunately, there’s a very easy way we can take care of stagnant oil prices. I’ll save the details for the report, but I’ll show you exactly how to capitalize on this supply glut.

Stay tuned.

Until next time,

Keith Kohl Energy Investor

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