Michael J. Blum has been a senior analyst for Wells Fargo Securities since January 2005 covering energy master limited partnerships (MLPs). Blum has authored several industry-leading thematic reports, including Wells Fargo’s “NGL Snapshot” and “MLP Monthly” newsletters. He has been ranked first in the MLP category of the Greenwich Associates Institutional Investor Survey.
It was a winding road for Blum to his current position. He graduated from the University of Pennsylvania with a bachelor’s degree in English and a minor in economics, and initially, had no inclination to work in energy.
When Blum first emerged from the academic world, he was hired by Mount Sinai NYU Health’s department of strategic planning as an analyst. He then worked in investor relations for an Internet startup, but found an interest in Wall Street. He turned to equity research, covering alternative energy for FAC/Equities, a division of First Albany Corp.
In a recent interview, Blum discussed trends in the energy space and companies to watch.
Midstream: Will you stay in energy?
Blum: I will definitely stay in energy. It’s always in current events, it’s always politically relevant, and it really keeps you on your toes. I’ve been covering it now for 10 years and I still feel like I’ve just scratched the surface, so I definitely plan on making it my career.
Midstream: What are some of the most interesting deals you’ve been involved in lately?
Blum: Recently, Energy Transfer Partners and Energy Transfer Equity acquired the general partner of MLP Regency Energy Partners. It’s an interesting deal, because in the MLP space you’ve got different entities acquiring other entities, to reduce the cost of capital, to broaden their resources in a new area and to gain access to new shale plays.
Energy Transfer Equity now controls two MLPs—Energy Transfer Partners and Regency Energy Partners. It demonstrates how management teams in the sector are using the MLP structure in a creative way to try to generate value for unitholders.
Midstream: What trends are you following?
Blum: There has been a lot of talk about natural gas shale-play development, and that’s a big topic. But there’s been a big upswing in oil production in this country. We’ve seen domestic onshore production pick up for the first time in more than 25 years.
The other big oil-related trend we’re seeing is the import of Canadian oil-sands production to the U.S. Right now, Trans- Canada is in the midst of building the Keystone pipeline, which will take production from Western Canada down to the Gulf Coast.
Midstream: Will this impact midstream infrastructure?
Blum: Yes. Those two trends combined are shaking up midstream oil infrastructure. Not only will they affect the flows of crude oil, but they will create a lot of investment opportunities. New oil-shale development is taking place where there is not significant infrastructure to transport the product to market.
For example, in the Bakken play in North Dakota, there have been a number of infrastructure project announcements. Also, we are seeing an increase in storage being built in Cushing, Oklahoma, which is the settlement point for Nymex futures contracts and a major crude-oil trading hub.
Midstream: What about the production shift from dry gas to liquids-rich gas?
Blum: There’s been a persistently wide oil-to-gas price differential. This has caused light-end feedstocks, like ethane and propane, to be advantaged over the crude-based products.
We’ve seen a tremendous demand increase for NGL products, and, with the economics being where they’re at, producers are incentivized to produce NGLs. The question everyone is asking is, “Is this another cycle or is this a permanent shift in this country?” We are seeing the petrochemical industry re-tool or retrofit steam crackers to accept more ethane and more light-end products.
Midstream: What about exports?
Blum: We are seeing exports of ethylene increase because that widening oil-to-gas ratio has made the U.S. the third-cheapest producer on the cost curve for ethylene in the world. We’re expecting natural gas prices to stay low, so the dynamics in the petrochemical industry should remain like this for some time.
Midstream: Any lessons learned you’d like to share?
Blum: The biggest lesson I’ve learned so far is that the industry is constantly changing and it always surprises you. When consensus points to one direction, when the last guy jumps on board, that’s when things are going to change.
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