7 Stocks Cheering the Keystone Pipeline's Demise

(Story updated with Whiting analysis by Jason Wangler, analyst at SunTrust Robinson Humphrey)
NEW YORK ( TheStreet) -- A genuine setback in TransCanada's ( TRP) crucial Keystone oil pipeline system running from Canada to the U.S. could lead to a spike in a variety of energy stocks, according to analysts.

President Barack Obama 's rejection last Wednesday of a key permit for this highly strategic pipeline beneficial to U.S.'s energy independence and job creation goals fueled nationwide outrage, but did very little to boost shares of energy-related companies that could have benefited from Keystone stumbling blocks.

"Perhaps this is because the rejection was so foolish by the Administration pandering to environmentalists in an election year that investors are assuming it gets approved eventually when rationality prevails in Washington," says a money manager who prefers to be kept anonymous amid company fundraising efforts.

Keystone Oil Pipeline Construction - North Dakota

Upon completion, the Keystone Pipeline system is projected to have the capacity to carry about 700,000 barrels of crude oil a day from the oil sands in Alberta, Canada, through six U.S. states, to U.S. Gulf coast refineries. The 1,661-mile Keystone pipeline project could create up to 20,000 jobs in the U.S.

Still, the chance of a genuine setback for Keystone Pipeline plans remains a very real possibility depending on who gets elected this year as president, say analysts. And that could be to the advantage of a mix of energy companies.



Bill Gunderson, president of Gunderson Capital Management, says if the Republicans win the election this year, the Keystone pipeline system will definitely be completed. But if Barack Obama is re-elected, "I think it's 50-50." Canada is reportedly already exploring options to ramp up oil sand exports to China.

"If we get a Republican president, then it's highly likely that Keystone will move forward -- with an administration that is more supportive of the U.S. becoming more energy independent, particularly from the Middle East," Alan Lammey, energy analyst at WeatherBell Analytics agrees. "It very much depends on who's elected. If we get Obama for another four years, we're going to have more of the same anti-oil industry actions."

Jeffrey Sica, manager of SICA Wealth Management adds, "if the application is stalled for a longer time frame than after the election or there are significant changes over the feasibility of the project," a number of stocks could appreciate.

Energy stocks that could benefit most from a real setback for the Keystone Pipeline project would include U.S. Bakken Shale as well as alternative energy plays, as less U.S. imports of Canadian oil essentially could lead to a better guarantee of demand for their products, say analysts. Importantly, Bakken Shale producers would also benefit from the additional support of the U.S. benchmark WTI price -- factoring in the long-term potential reduction of supplies from Canada. Shale names included in this category are Hess ( HES), Continental Resources ( CLR) and Whiting Petroleum ( WLL), according to managers.

Meanwhile, oil companies that have been able to benefit from volatile oil prices -- thanks to the influences of unreliable foreign oil sources -- could continue benefiting in this manner, as a steady supply of Canadian oil would have likely helped keep prices stable. Last, but not least, fund managers say that rail operators such as the Burlington Northern Santa Fe unit of Warren Buffett's Berkshire Hathaway ( BRK.A) ( BRK.B) could benefit from a real Keystone pipeline setback, as demand for their services would soar on the need to transport large volumes of Canadian oil to the U.S.

Here are more reasons Continental Resources and Whiting Petroleum could spike this year and other stocks that could jump on a major Keystone pipeline setback.

El Paso Pipeline Partners ( EPB)

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Description: Operates one of the largest natural gas pipeline systems in the U.S. with key assets running through the southwest region.

Potential Upside in 2012: Over 15% to 20%, according to Jeffrey Sica, SICA Wealth Management manager.

Stock Price (Jan. 23 Close): $35.44

TheStreet Ratings Grade: Buy. The company's growth in net income has outpaced the industry average, though its revenue growth has not, say TheStreet Ratings analysts.

Sica's View: A real Keystone Pipeline setback could be to the short-term benefit of El Paso by helping the company retain a competitive edge in energy in the southwest -- an area where the pipeline system would have run through following its approval. El Paso shares could appreciate more than 15% to 20%, in this case, says Sica. But even without these developments, El Paso could rise 10% to 15% over 2012, says the money manager, thanks to the company's significant dividend payouts and natural gas increasingly becoming a more relevant source of energy.

TC Pipelines ( TCP)

Description: The company transports natural gas from the Montana-Saskatchewan border to the U.S. midwest.

Potential Upside in 2012: Over 15% to 20%, according to Jeffrey Sica, SICA Wealth Management manager.

Stock Price (Jan. 23 Close): $47.46

TheStreet Ratings Grade: Buy. TheStreet Ratings team says although the company's third-quarter sales and net income grew compared with a year ago, it was unable to keep up with the average competitor's growth during that period.

Sica's View: As an alternative energy business, TC Pipelines would benefit from a critical setback for Keystone, says Sica. And even without such as setback, TC Pipelines could rise 10% to 15% over the year given its substantial dividend payouts of over 5% and the steady demand for natural gas at record low prices.

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Enbridge Energy Management ( EEQ)

Description: Enbridge Energy Management, the limited partner of Enbridge Energy Partners L.P. ( EEP) -- an owner and operator of crude oil and liquid petroleum transportation and storage assets, and natural gas-related assets in the U.S. -- manages the partnership's businesses and affairs.

Potential Upside in 2012: About 40%, according to Todd Horwitz, chief trading strategist at the Adam Mesh Trading Group.

Stock Price (Jan. 23 Close): $34.70

TheStreet Ratings Grade: Not Available

Horwitz's View: This energy management company already oversees companies with large pipelines extending from Canada to the U.S., so a big setback in Keystone plans would essentially be a setback for the competition, says Horwitz. "The stock has been solidly up-trending for the last three months, going to $35 from $29, and it looks like it wants to go higher." Horwitz adds that Enbridge Energy Management remains a thinly-traded stock, rendering it susceptible to sharper spikes if buyers decided they wanted in. "It's got a heck of a chance," he remarked.

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ExxonMobil ( XOM)

Description: Exxon is the world's largest-publicly traded multinational oil and gas company. This oil major operates in most parts of the world, with oil and gas exploration projects in six continents.

Potential Upside in 2012: Approximately 10%, according to Todd Horwitz, chief trading strategist at the Adam Mesh Trading Group.

Stock Price (Jan. 23 Close): $87.47

TheStreet Ratings Grade: Buy. TheStreet Ratings team cautions that Exxon wasn't able to grow at a faster pace than its industry peers in the third quarter, despite a big increase in sales and net income. Still, stockholders' equity increased 7.52% in the period from the same time last year.

Horwitz's View: As one of the biggest names in the oil industry, Exxon, says Horwitz, could benefit from big stumbling blocks for Keystone. Horwitz says that Exxon, like many other oil companies, continues to be able to take advantage of the volatile oil prices that come from too much dependence on unreliable oil sources in the Middle East. But "if you bring it in from Canada -- although the oil is a little dirtier -- there would be more of a standard price point," Horwitz says of this friendly business partner of the U.S. In this type of situation, these bigger oil companies wouldn't be able to take advantage of an "underlying, hidden price factor."

Horwitz notes that Exxon, as a very heavily traded stock, would probably be less susceptible to sharp price spikes.

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Continental Resources

Description: This $14 billion dollar, Enid, Okla- based company is one of the first and largest exploration companies in the shale oil and gas-rich Williston Basin region of North Dakota and Montana.

Potential Upside in 2012: Roughly and easily 20%, according to Bill Gunderson, president of Gunderson Capital Management.

Stock Price (Jan. 23 Close): $74.45

TheStreet Ratings Grade: Buy. TheStreet Ratings Team says that Continental Resources has "significantly" grown sales and net income, outpacing the average growth rates of its competition. In addition, stockholders' equity soared 93.68% in the third-quarter from a year ago. But the analysts note that the company's third-quarter liquidity decreased from the same period last year.

Gunderson's View: Even though the stock has already soared over 150% in the last three years, Gunderson remains long in them. He believes that Continental Resources can easily spike to the $90 range before the end of the year with the help of a surprise denial of the Keystone pipeline. Delays in sending Canadian oil to the U.S. means less competition for this U.S. oil shale play.

Gunderson, for one, doesn't think that alternative energy stocks could receive any added benefit from such an event due to their "lousy" business models.

Continental Resources said this week that its January production continues to accelerate at more than 80,000 barrels of oil equivalent a day (Boepd). The company also said that in the fourth quarter, production rose 57% to 75,219 Boepd from 48,034 the same time last year. Crude oil accounted for 72% of Continental's fourth quarter 2011 production as the company successfully drilled the North Dakota Bakken and Anadarko Woodford, Okla. shale formations. Following the Continental report, Stifel Nicolaus analysts upgraded their earnings per share estimates for the company's first quarter to 78 cents from 73 cents and full-year to $3.50 from $3.16.

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Whiting Petroleum

Description: This $6 billion dollar, U.S. mid-cap shale exploration company drills in the Permian Basin, Rocky Mountains, Gulf Coast and Mid-Continent.

Potential Upside in 2012: About 28%, says Bill Gunderson, president of Gunderson Capital Management.

Stock Price (Jan. 23 Close): $50.27

TheStreet Ratings Grade: Buy. Analysts from TheStreet Ratings team say that the company was able to outpace its typical industry competitor in the third-quarter for net income growth, but not for revenue growth. Stockholders' equity rose 19.89% from the same quarter last year, while the company's liquidity also increased.

Gunderson's View: Gunderson sees a delay of Keystone plans, and therefore Canadian oil imports, as in a sense a setback of competition for this shale company. Gunderson believes that Whiting could easily trade up to the mid-$60 range before the end of the year, adding that the stock, with a price to earnings ratio of 14, is a good bargain.

Whiting's Risks -- Jason Wangler, Analyst at SunTrust Robinson Humphrey: Whiting was 5,000 barrels short on production in the fourth quarter and the company has not yet clarified whether those "lost barrels" will lead to an unexpected production bump this year. "You never get those barrels back," Wrangler cautioned. The analyst will, of course, be paying close attention to the company's upcoming fourth-quarter earnings announcement on Feb. 22 for more guidance on this matter.

Wrangler does point out however that it's quite possible it wasn't the company's fault there was a production shortfall, specifically if it were the case that oil service company workers didn't show up when they said they would. A situation of this sort would highlight the growing difficulty of securing oil service workers due to competitive bidding from exploration and production peers amid the ongoing shale exploration boom.

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Heckmann ( HEK )

Description: A fairly new, $667 million publicly-traded small-cap company, Heckmann assists oil drillers with the clean-up of water used in hydraulic fracking. The company recently finished building a 50-mile water disposal pipeline in the Haynesville Shale, which can treat and dispose up to 100,000 barrels of water a day.

Potential Upside in 2012: Approximately 40%, according to Bill Gunderson, president of Gunderson Capital Management.

Stock Price (Jan. 23 Close): $5.63

TheStreet Ratings Grade: Hold. TheStreet Ratings team notes that even though the company's third-quarter sales increased, net income fell, representing a bottom line decrease. Also during the period, Heckmann's liquidity fell from a year ago. Still, the analysts say that key liquidity measurements show that it's relatively unlikely the company will face financial difficulties in the near future.

Gunderson's View: Gunderson is especially impressed with the company's management. That, and with the help of an unexpected Keystone setback, should provide the stock with "lots" of upside potential. As a U.S. shale play, less Canadian oil supply could mean better business for Heckmann and its customers.

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>>To see these stocks in action, visit the 7 Stocks Cheering the Keystone Pipeline's Demise portfolio on Stockpickr.

-- Written by Andrea Tse in New York.

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