MLPs, Outperformance & Fears Over Fracking

Videos on YouTube show homeowners in fracking-areas lighting fires from the methane fumes purportedly coming out of their water faucets. The issue continues to attract media attention: Forbes recently published an article, “The Facts vs. The Fracktivists,” that discussed criticisms of Chesapeake Energy’s exploration efforts. Potential backlash against the practice obviously concerns producers: witness the Exxon television commercial promoting the method’s safety, although the spokesman refers to “technologies” and doesn’t mention fracking directly.

At this point it isn’t clear if or how the anti-fracking movement will affect the industry or its regulation at the federal or states’ level but it’s a development that MLP investors should monitor.

Judd Cryer, senior research analyst with MLP-investment management firm Swank Capital in Dallas, agrees that there probably is greater pushback against fracking than in the past. However, his understanding of fracking is that is safe and he points to the industry’s record in his state of Texas.

“We’ve been doing it (fracking) for quite some time, for 5-6 years or more,” says Cryer, in a discussion with AdvisorOne. “We’re not seeing the issues that the media has kind of played up as potential environmental problems. We don’t see it here. We think it’s more noise but as far as our investment decisions go, it’s really more on a state-by-state basis.”

Cryer monitors the anti-fracking movement and believes that the industry’s efforts to educate drilling-area residents will reduce concerns eventually. He’s also confident that the movement won’t damage producers.

“(The) industry is taking a lot of steps to be more forthcoming, more transparent about what’s involved in fracking, how it’s done, the safety measures that are taken,” he says. “So, I think it’s an issue of education over time, and at this time we’re certainly not concerned that it’s going to be impacting in a negative way the producers.”