When navigating the twists and turns of the energy industry, sometimes listening to management and industry experts can give you an edge. Of course, you won't find anything interesting within scripted conference calls and press releases. But by cluing into candid comments and reading between the lines, diligent analysts can sometimes uncover hidden trends. Let's take a look at my three favorite quotes from the past month and what they might mean for investors.
1) Keystone XL no longer relevant
One of the biggest selling points for TransCanada's (NYSE: TRP ) Keystone XL pipeline is that it would bring not just Canadian bitumen from the oil sands but also oil from North Dakota and Montana. A few years ago, Keystone was seen as critical to the industry's development because Midwest crude was trading at a large discount to international benchmarks. But with so much new pipeline capacity coming online, some are questioning the project's value.
Here's what Continental Resources (NYSE: CLR ) CEO Harold Hamm told the National Review on the matter: "It's [Keystone XL] not critical any longer. They just waited too long. The industry is very innovative and it finds other ways of doing it and other routes."
Of course, Mr. Hamm may just be talking his book. The last thing Continental wants to see is a rush of Canadian crude competing against Bakken oil. But the billionaire oilman may have a point. Enbridge (NYSE: ENB ) , one of the largest pipeline operations in the Bakken, has doubled its shipping capacity since 2011 to 475,000 barrels per day. The company recently announced another pipeline that would ship an additional 225,000 bpd of Bakken crude by 2016.
Crude by rail is also making up for pipeline shortfalls. Earlier this month, Kodiak Oil & Gas CEO Lynn Peterson told analysts that rail now accounts for 60% to 65% of all crude oil shipped out of the Bakken.
That means only one thing for Bakken producers: They will continue to receive top-dollar for their output. But for TransCanada, this development could crimp the company's political leverage needed to get Keystone approved.
2) The end of the crude-by-rail boom
But investors should be cautious before hitching all of their transit hopes to rail. Recent derailments such as Lac-Megantic, Quebec and Mattawamkeag, Maine have sparked safety concerns from the public and may attract the attention of regulators. Here's what energy economist Jeff Rubin told The Motley Fool Canada on the issue:
I think we can see a significant increase in the cost of rail transit as we tighten up safety requirements. And that goes back to my original point that the Achilles' heel of North American energy independence -- whether we're trying to double oil sands production in Alberta or double shale production in the Bakken -- is that we don't have the infrastructure to move that production.
Crude by rail hasn't played much of a role in the industry since the days of Rockefeller. Many of the regulations haven't been updated since then, either. If regulators clamp down, growing production from landlocked formations like the oil sands or the Bakken could become more expensive or halt completely.
3) A new philosophy gripping the oil patch
Five years ago when commodity prices were higher, the philosophy governing the oil patch was aggressive growth, usually at the expense of the balance sheet. But when the bottom fell out of natural gas prices, shareholders were left holding the bag after years of reckless spending.
Now a new mantra is gripping the industry. Chesapeake Energy (NYSE: CHK ) Chief Executive Doug Lawler exemplified the new attitude perfectly in this passage:
The first part of our strategy is financial discipline. This discipline is absolutely critical for us going forward. I have made the comment in our earnings call that we intend to balanced our [capital expenditure] spending with our operating cash flow.
Mr. Lawler is leading a remarkable transformation at Chesapeake. The company plans to slash capex spending 46%, increase liquids production, and sell off non-core assets. And while this may sound like common sense, it's a complete reversal from how Chesapeake operated before.
Low natural gas prices are inspiring similar changes at other companies. EnCana CEO Doug Suttles echoed a similar sentiment when he spoke to analysts earlier this month.Talisman has made efforts to boost liquids production and sell off non-core assets. This is a welcome change for shareholders.
Foolish bottom line
You can learn a lot by listening to a company's management or industry experts. If you're careful, sometimes you can catch a peak of an emerging trend that you might've otherwise missed. This can give an attentive analyst the investment edge.
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