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What's Working in Energy?

posted Feb 13, 2012, 12:59 AM by Jeff Davies   [ updated Feb 13, 2012, 1:02 AM ]
2012 is young, but the Energy sector has seen incredible crude basis blowouts, new lows in natural gas, data pointing to decades weak gasoline demand, sprinkles of m&a, and a massive discovery that should result in robust activity offshore W Africa.  Moves have been massive in both directions in many cases, so alpha has been key.  In an attempt to provide granularity into 'What's Working in Energy' - and what's not - twenty-four thematic baskets were created across a number of energy sub-sectors (Integrated, Independent E&P, Refining, Oil Field Services).  

Exploration has been big.  Clearly CIE's discovery offshore Angola is a huge story in 2012, but international e&p's with exploration focuses have been performing well across the board.  Refiners have been on fire, led by the mid-con group with the reversal of the Brent/WTI contraction, back toward $20.  Interestingly, the integrated names have underperformed the large cap independent e&p group despite the huge outperformance of the refining sector....probably a nod to most of their refining capacity in the Gulf Coast region.  Stating the obvious, gassy e&p's continue to underpeform, while Marcellus names have reverted back to the mean early this year.  The Bakken is the worst performing liquid basin, behind the Eagle Ford, Permian and Gulf of Mexico.  Perhaps surprisingly, the Gulf names have shown the most strength in 2012.  It's also worth noting, the names considered liquids transition stories are largely gaining little traction ytd.    

Offshore (deepwater and mid/shallow) is the theme that is massively outperforming in OFS.  That may continue if additional wells offshore W Africa have success.  Small cap OFS is underperforming.  Offshore long / small cap US-centric short in OFS is another deviation on the long oil / short gas trade, so not too surprising to see.  Likewise, land drillers are underperforming as they are more tied to the onshore gas activity.  

Link to full data, including basket constituents.....

(may need to zoom for larger view).