This was originally published on RealMoney in Columnist Conversation on Jan. 31 at 3:53 p.m. EST. It's being republished as a bonus for TheStreet.com readers.
So, lots of questions about how to think about the State of the Union address tonight, especially as it relates to energy. Here are some quick thoughts:
1. President Bush will stress energy independence and the need to work harder to supply more of our own energy. That should, in a macro sense, benefit the independent exploration companies like
Those names will benefit even more if Bush refers to "resource plays" -- areas such as the Barnett Shale or Fayetteville Shale -- that are "unconventional" in nature. That would also benefit a company like
If he talks of Alaska companies like
might find a trade as they are important players there.
2. Bush may also talk about the importance of relaxing restrictions and providing incentives to return to the Gulf of Mexico after Rita and Katrina. That would benefit the offshore companies like
Energy Partners, Ltd.
ATP Oil & Gas
( ATPG) among others.
If he talks of deepwater, that would benefit the majors, but it would also benefit the service providers that traffic in that business, especially sub-sea completion companies -- the name there is
3. He will talk about the importance of technology advancing the ball in environmental processes that will make coal a viable fuel in the future. If so, this will benefit companies focused on clean-coal technology -- names like
all are speculative but emerging plays on various aspects of clean-coal applications.
4. He may talk about alternative sources of energy as well. While there are a number of choices in the alternative energy space, investors are likely to look for a name that is relatively liquid, has working projects and is in the mainstream of alternative energy. If correct, one name that fits the trade is
There are certainly a host of plays in the space and it is not my area of expertise, so I will leave that to others. That said, Fuel Cell Energy has some very nice demonstration projects (e.g., Starwood) that, if they turn into commercial contracts, would provide a nice base for future growth.
On the downside, the Democrats are likely to talk about energy in their response, and that could pressure some companies. I expect the response to take a hard line on oil profits (what they think is a populist approach) and that could pressure the majors, depending on the rhetoric. And, while I don't believe it's likely, Bush talking about reinvestment vs. profit distributions could pressure the majors more.
Net impact of the State of the Union address will likely be benign to slightly positive. Watch the spin afterward for clues. I'll have more tonight.
Have a great night.
At time of publication, Edmonds was long Chesapeake and Conoco, although holdings can change at any time.
Christopher S. Edmonds is a partner and managing director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he appreciates your feedback;
to send him an email.