Wednesday saw the State Department rejecting TransCanada Corp.'s TRP Keystone XL pipeline cross-border permit application. The troubling thing for the Canadian player is that the application was dumped barely two days after it was filed.
All Eyes on 2016
The real problem for energy majors is the upcoming 2016 race to the White House. Focus on green issues also led to oil giant ExxonMobil Corp. XOM coming under New York legal scrutiny on Wednesday over charges of misleading both general public and stakeholders on the dangers of climate change, with an ulterior motive.
As the time gap is closing, more presidential hopefuls are seen throwing their hats into the climate change ring. This includes the remaining Democrats Hillary Clinton, Bernie Sanders and Martin O’Malley. On the other side of the fence, all dozen or so GOP candidates are in favor of the pipeline.
The Keystone XL oil pipeline is designed to be the major carrier of tar sands oil into the refineries of U.S. Gulf of Mexico. Tar sand oil extraction and refining processes demand significant energy and emit considerable carbon dioxide into the atmosphere.
Canada for Keystone?
Keystone’s political capital is due for a shot in the arm with the accession of its long-term supporter – Justin Trudeau – to the position of the Prime Minister of Canada. For Canada’s energy-dependent economy already battered by the ongoing rout of crude prices, Keystone would be a focal point for the biggest trading partner of the U.S.
Regardless of whether the cross-border permit is passed in the future, there is ample trade between the Western Canadian Select (WCS) hub and the U.S. Gulf Coast. However, most of this capacity is now being moved by rail.
The supporters of the pipeline are pushing for approval which they feel would pump multi-millions in revenues and add plenty of jobs in the U.S. They also advocate that the pipeline would drag down oil transportation and provide a breather for oil firms hammered by the prolonged softness in crude pricing.
How to Make a Choice After a Muddled Q3?
Third-quarter 2015 was more or less a repeat of the first two quarters with continued oil price weakness. West Texas Intermediate (WTI) crude futures during the Jul–Sep 2015 period hovered mostly between $45 and $55 per barrel. Well into the last leg of the year, crude prices are still low, with no sign of a recovery on the horizon.
With a wide array of companies now trading at vastly lowered valuations, the Zacks methodology could offer some relief. One could narrow down the list using positive Zacks Earnings ESP as a guide, along with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their next earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
As the political deadlock deepens, we feel it is better to have a closer look at the companies to invest in now:
Breitburn Energy Partners LP BBEP
Breitburn Energy Partners LP is focused on the acquisition, development and production of oil and gas properties throughout the U.S. Breitburn’s producing and non-producing crude oil and natural gas reserves are located in the following seven producing areas: Ark-La-Tex, Michigan/Indiana/Kentucky, the Permian Basin, the Mid-Continent, the Rockies, Florida and California.
Breitburn Energy Partners is expected to beat our next-quarter 2015 earnings estimate as it has a combination of Zacks Rank #2 and positive Earnings ESP of 200%.
Halcon Resources Corporation HK
Halcon Resources Corporation is an independent energy company engaged in the acquisition, production, exploration and development of onshore oil and natural gas properties in the United States.
Halcón Resources’ next-quarter prospects are bright as it has an Earnings ESP of +100% and a Zacks Rank #2.
CrossAmerica Partners LP CAPL
CrossAmerica Partners is a leading wholesale distributor of motor fuels and owner and lessee of real estate used in the retail distribution of motor fuels. With a geographic footprint covering 25 states, the partnership has well-established relationships with several major oil brands, including BP Plc BP, Royal Dutch Shell plc RDS.A, Chevron Corp. CVX and Valero Energy Corporation VLO.
For the next release, CrossAmerica has an Earnings ESP of +83.33% and a Zacks Rank #2.
Calumet Specialty Products Partners LP CLMT
Calumet Specialty Products Partners is a leading independent producer of high-quality, specialty hydrocarbon products in North America. The partnership is based in Indianapolis, IN and has 14 manufacturing facilities located nationwide.
We believe that in the next release, the company will beat our estimates given its Zacks Rank #2 and Earnings ESP of +63.16%.
Bottom Line
This is an intriguing time for an astute investor in the energy space. However, as we move toward the end of the year, we would advise investors keep a close watch on the two threats to the already embittered energy space. The first is the persistent macro weakness and the second is the likelihood of a warmer winter.
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