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We’re making this move now because — negative investor sentiment notwithstanding — underlying supply and demand drivers for oil and gas are still overwhelmingly positive.

At the same time, dividend cuts in the energy sector have been relatively rare in the past few years — other than for companies with payouts directly tied to energy prices and those attempting to dramatically cut debt.

Dorchester Minerals LP (DMLP)
 

That’s to be expected in the middle of an energy upcycle that has now passed its fifth birthday...with a long way still to climb. Nor are companies in our coverage universe by and large taking the kind of risks now that could come back to hurt them in tougher times.

North American shale discipline reigns supreme. Producers continue to tie output and CAPEX decisions to commodity price signals. Midstream companies are not building unless there are contracts in hand to lock in return on investment. The same is true of refiners and chemical companies. And services companies are in a restraint mode as well, joining forces to reduce costs.

Investors continue to reward cost discipline over production growth rates. And we expect expense reduction to be the major theme of energy company earnings calls in the coming weeks, especially for producers with commodity prices at current levels.

The Trump Administration’s oil and gas deregulation push should also be a positive for the sector as a whole. We expect our favorite producers to comment favorably on opportunities to push costs lower, as well as potential new investment.

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