As crude oil rallies above $85 per barrel (Brent) and $75 per barrel (WTI), we continue to see a large amount of capital being deployed in the U.S. energy industry -- especially towards prolific assets across the various shale basins and their respective transportation infrastructure.
Notably, the beneficiaries of this capital have been the Lone Star State and the Sooner State. Just this week we saw over $300 million allocated to upstream and midstream deals in Texas and Oklahoma.
In Texas, most of the recent capital allocations have gone through the midstream space. The latest example is Quantum Energy Partners (QEP) investment in Trace Midstream, a private oil and gas gathering, storage and transportation company. Trace is focused on natural gas gathering, processing and transmission in the Eagle Ford shale where QEP has production assets held by Vitruvian Exploration.
In Oklahoma, oil and gas startup Winright Energy received a $67 million capital commitment from a newly launched fund, North Hudson Resource Partners. Winright is focused on the prolific Anadarko Basin in Western Oklahoma.
Amid all this activity, which stocks do we favor? On the upstream side we like Carrizo Oil & Gas' (CRZO) diversified asset portfolio across the Permian and Eagle Ford. CRZO stock is up 50% over the last 12 months and we think it can go higher as management continues to deliver on production goals and portfolio rebalancing.
Jim Cramer recently sat down with Chip Johnson, CEO of CRZO, on his "Mad Money" show on CNBC to talk about the company's growth prospects following the termination of an activist campaign by Kimmeridge Energy, a private equity firm. Real Money's Bruce Kamich had a great technical call back in 2017 and we think the stock will continue to reap the benefits of high crude oil prices.
On the midstream side we like Plains All American Pipeline (PAA) , a publicly traded Master Limited Partnership (MLP) involved in oil pipeline transportation, marketing, and storage in the United States. Plains is also involved in the liquefied petroleum gas business in Canada and the natural gas storage business in Michigan and Louisiana. PAA inked a deal with ExxonMobil (XOM) in early June to build and operate a pipeline network hauling over 1 million barrels of crude oil and condensate a day from the prolific Permian Basin into the Texas Gulf Coast export markets at the Port of Houston.
The XOM/PAA joint venture recently inked a deal with private equity-backed Lotus Midstream, a newly-launched midstream company, to join the JV consortium. This comes on the back of PAA's recent announcement of a joint venture with OMERS, the defined benefit pension plan for municipal employees in Ontario, Canada, to sell a 50% in the BridgeTex pipeline which will also transport crude oil from the Permian Basin into the Port of Houston.
Private capital will continue to flow towards seasonal management teams, mergers and acquisitions, asset acquisitions and divestitures (A&D, as is known in the industry) and midstream infrastructure, which includes processing, gathering, storage and transportation of hydrocarbons.
What is unique about the United States, which cannot be found elsewhere in the world, is the amount of capital focused on the industry, not only from traditional private equity allocators and strategic industry participants, but also from Asian sovereign wealth funds (e.g. Temasek Holdings, GIC) and global commodity merchants (e.g. Vitol, Trafigura), looking to gain a footprint in the region.