3 Energy Companies Killing Your Investment

When we take our time to choose companies that we believe will be successful investments, we do so with two assumptions in mind: that the companies have sufficient growth prospects that we can expect reasonable rates of return, and that the managers of these companies will make decisions to create sustainable shareholder value. Unfortunately, these assumptions aren't always correct. There are always companies out there that can do the opposite and kill shareholder value. Whether by large equity issuances or management blunders, these companies have done one thing well: dilute shareholder value.

Note: Share price appreciation is from the end of the U.S. recession (June 2009) to today. For a little perspective, the S&P 500 has increased 64.54% in that time frame.

Energy Companies Killing Your Investment from The Motley Fool

What a Fool believes
Not to defend these moves, but sometimes a company needs to take actions against the interests of its shareholders to remain afloat. Enerplus Resources Fund  (NYSE: ERF  )  committed shareholder treason when it cut its distribution in half last June, but the move enabled the company to weather the storm of low natural gas prices and right its ship. The actions of these companies may be hard to swallow, but they may allow for the companies to secure long-term health. Scorn SandRidge for using the equity market as an ATM and scorn LINN Energy for its big pseudo-equity issuances, but perhaps in the long run these moves will pay off.

A lot of investors are already wise to the moves at Chesapeake, and they wisely dumped their stock. Now, the company is trading at a deep discount. Is the resignation of Aubrey McClendon enough to swing this energy giant back in the right direction? Learn more about Chesapeake and its enormous potential by checking out our brand new premium report on the company. Simply click here now to access your copy.


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  • Report this Comment On March 26, 2013, at 1:44 PM, zorro6204 wrote:

    Regarding LINE, you don't seem to understand the upstream MLP space. Issuing new units is not "alarming", it's the normal course of business. To grow (a prime goal of any business manager), an MLP makes acquisitions, and to pay for the properties acquired it must raise equity to support the leverage. Unless an error is made, an MLP doesn't make an acquisition that isn't at least a little accretive to its legacy unit holder base, since they continue to share in distributions, even if the reserves that originally existed to support them are long gone. In that aspect, an MLP must make accretive acquisitions, and therefore must continually make equity offerings.

    LINE is the largest of the upstreams, and its strategy of long-term hedging has been successful, they continued to pay distributions straight through the financial crisis, at a time when oil was below $30. So far their capital program has worked as well, distributions have been maintained and increased, which to the unit holders, is all that should matter. The size and extent of the unit increase is therefore immaterial, whether they are twice the size or half the size, the only thing that matters is per-unit cash flow.

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