You can learn a lot from a company’s quarterly conference call if you listen carefully. Sometimes you can catch a glimpse of a future industry trend that you might have otherwise overlooked. This can give you an upper hand in choosing where to plunk down your investing dollars.
So far this earnings season energy investors have been treated to some very solid reports along with an overall positive future outlook. However, hidden in plain sight are comments which foretell trends that you don’t want to miss. Let’s take a look at three of my favorites and what they mean for investors.
The rails are making a difference in the Bakken
As I’m sure you’ve heard, crude oil shipments by rail were up huge last year. Overall shipments rose 46.3% over 2011. While this has been good to the bottom line of the rails, it’s also helped correct the massive price disconnect between Bakken crude and U.S. benchmark West Texas Intermediate. Listen in to what Continental Resources, Inc. (NYSE:CLR) President and COO Rick Bott had to say in his company’s last earnings release:
We’ve recently seen a significant improvement in Bakken oil price differentials, reflecting higher volumes being shipped by rail to the coasts and the anticipation of increased pipeline capacity … We now have excess transportation capacity in both pipe and rail, and, with additional infrastructure projects in the planning and construction stages, capacity should remain ahead of Bakken production growth.
This means one thing, Bakken producers are going to get more money for the oil that’s produced. That’s better for both margins and profits and something that investors don’t want to miss. You also don’t want to miss the end phrase of that quote. Capacity remaining ahead of Bakken production growth could squeeze midstream margins if we end up with more capacity than is needed. If nothing else, its something to keep an eye on.
The deepwater is a wellspring of profits
Judging by some of the valuations in the oil-field service and equipment space you’d think that the deepwater drilling business was as dry as the U.S onshore has been over the past year. That couldn’t be further from the truth. Last year was actually the best year ever for deepwater drillers. Discoveries were up 40%, with a total of 52 discoveries across the world.
The thing is, few people noticed. Take the comments from National-Oilwell Varco, Inc. (NYSE:NOV) Chief Operating Officer Clay Williams:
Offshore drilling contractors steadily committed capital through 2012 to expand our deepwater fleets and we believe that this will continue through 2013. Our outlook for continued strong deepwater orders is a view that appears to be out of step with Wall Street’s conventional wisdom, which seems likely to have convinced itself that deepwater rig ordering will slow. Candidly, we do not understand why.