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3 Companies I'm Watching Closely This Earnings Season

By Matthew DiLallo - Apr 12, 2013 at 12:00PM

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Earnings season is upon us. Here are three energy names that I'm watching very closely in the month ahead.

While earnings season kicked off earlier this month, the floodgate of reports will really begin to hit the wires over the next couple of weeks. With so much news and so little time you really need to have a plan. I have three companies on my list that merit my attention.

Buckeye Partners (BPL)
Earlier this month I participated in a Motley Fool roundtable discussion and made Buckeye my top pick. Needless to say, my reputation is at risk if Buckeye turns out to be a quick bust. While a poor earnings report could make that happen, that's not what has my attention.

When I made Buckeye my one MLP to buy, I saw a company that should soon have the ability to begin to raise its distribution to investors. This is a company that just last year broke a streak of 30 consecutive quarterly distribution increases. After five straight static distributions, the company could raise its distribution when it reports earnings.

Over the past two years Buckeye has aggressively expanded by announcing more than $2 billion in acquisitions while spending another half billion on organic growth projects. Buckeye has another $330 million in organic growth projects already in the works this year, and is likely to announce another acquisition before the year is out. This growth is geared to generate extra cash flow, which should put Buckeye in the position to raise its distribution soon.

Investors in LINN energy are no strangers to the role acquisitions play in giving the company the ability to raise its distribution. Along with its announced acquisition of Berry Petroleum (NYSE: BRY) in conjunction with its affiliate LinnCo (NASDAQ: LNCO) earlier this year, LINN announced a sizable boost to its distribution. While I wouldn't expect to see any mention of another dividend increase this quarter, what we might see is confirmation that the company is switching to a monthly distribution.

This move won't alter the intrinsic value of the company but it could make it much more attractive to investors. Higher-valued units could make them a better currency for future acquisitions, which would add value. We should know more when LINN reports earnings on April 25.

SandRidge Energy (NYSE: SD)
One thing I won't be watching for at SandRidge is any notion of a dividend. The oil and gas exploration company is in the midst of a major growth phase thanks to its prime position in the Mississippi Lime formation. It's already announced plans to spend more than $1.2 billion this year to further develop the play.

The one area I'll be keyed into is how much of that production is oil and liquids. With 80% of the company's Mississippian cash flow tied to oil, I'd like to see its drilling capital going toward the most oil-rich prospects. If there's oily upside to its current commodity mix of 45% oil and liquids to 55% natural gas, then the company might be worth a whole lot more than investors think. We'll know more when SandRidge reports earnings on May 5.

The Foolish bottom line
There's a lot more to each story so I plan to drill down even deeper into what to expect as we get closer to the actual earnings release date. Of the three, I think investors need to pay the most attention to SandRidge this time around. The company's CEO is in a battle to keep his job, so this report could provide more insight into the company's future plans. 

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Stocks Mentioned

Linn Energy, LLC Stock Quote
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Buckeye Partners, L.P. Stock Quote
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