Winners And Losers Of $80 Oil, Part IV

For the last few columns on winners and losers of $80 oil, I want to try and construct an investment strategy we can use for the duration of what I’m calling the $80 oil winter. There are definitely some positional moves that should be made in portfolios right now as stock indexes streak higher while most energy shares lag.

We’ve seen capital expenditure cuts come from the big and small in energy, from Shell (RDS.A) to Conoco-Philips (COP) to Continental Resources (CLR) and Rosetta Resources (ROSE) to Halcon (HK). And despite the rosy spin that most of these companies have tried to put on these capex cuts, the final result of lower spends will be lower volume growth. We’ll inevitably see the markets instill some discipline into the US oil sector that has expanded on a platform of a breakneck drilling pace, expensive leases and high-yield bond leverage. A recent FT article highlights areas, particularly in the Mississippi Lime and Eaglebine that put over 400,000 barrels a day at risk, while I have outlined various players in the Bakken and the Tuscaloosa Marine Shale that I believe add close to 500,000 barrels a day of production that is at risk. All of this doesn’t count the better-capitalized players in more core areas that will also inevitably lower growth rates in an $80 oil environment. But all that will take time.

How long? We’ve already been clear that production declines will come as a last resort for US E+P’s, as bondholders…