Energy Prospectus

This morning Raymond James sent out a detailed update on the Permian Basin Pipeline Takeaway Capacity issue. It is a problem, but not the HUGE problem that some blow it up to be.

Part of RJ's conclusion: "WPX, Pioneer, and Parsley are the best-positioned Permian operators when it comes to being insulated from in-basin price fluctuations. Each has less than 25% of their 2018 expected Permian crude production exposed to Midland pricing. On the flip side, we see Cimarex, and Matador as being highly exposed to the lower Midland spot pricing, which given the potential for better than feared differentials may be a good thing. Given the significant overreactions in the stock markets, we believe that some of the most attractive E&P names in this context include Matador, Concho, Parsley, and Laredo.

MY TAKE: Like most FEARs, the Wall Street Gang tends to blow them out of proportion to reality. By this time next year, most of the problem will be solved. Cimarex and Matador do have exposure, but they also have lots of production outside of the Permian in areas that are getting WTI or even higher prices. I think Cimarex has an extremely under-valued position in the Mid-Continent STACK play. Matador has Eagle Ford production.

Send me an email if you want to see the new RJ report: dmsteffens@comcast.net

More from the RJ Report:
Oilfield Services. Investors in the OFS space may have overreacted even more than E&P investors to widening Permian
differentials. As mentioned earlier, the shift of Permian E&P’s to a “manufacturing process” dis-incentivizes adjustments to
development plans. We believe the fears of reduced Permian oilfield activity are overblown and this stock pullback has created
an attractive opportunity for investors to buy into a solid multi-year growth opportunity at a discounted price. Favorite names
(just to list a few) with high levels of Permian exposure include Halliburton (HAL), ProPetro (PUMP), and Patterson (PTEN). < I will add Hi-Crush (HCLP) to this list.

Midstream. Permian oil differentials can be a double-edged sword. On the positive end, volume growth has been a boost to
cash flow, the large discounts also incentivized more volume commitments from E&Ps to push pipeline projects to fruition, and
wide diffs allowed for marketing/arbitrage opportunities for several companies. On the negative side, there’s now fear of a
Permian overbuild – and we do expect there to be an excess of capacity from mid-2020 for a few years, but is manageable in the
overall context in our view. In the near-term, we still favor names with exposure to the Permian and believe the growth outlook
will continue to be robust for all commodity streams (oil, NGLs, gas) in the region. Top picks with meaningful current Permian oil
exposure (in alphabetical order): Enterprise Products (EPD), Energy Transfer (ETE/ETP), Magellan Midstream (MMP), and Plains
All-American (PAA/PAGP).