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The Election's Impact On Energy, Fracking

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The Election's Impact On Energy, Fracking

The initial market reaction to the U.S. midterm elections was certainly positive. But now that the dust has started to settle, energy investors are digging deeper to determine exactly what the fallout will be from a divided Congress.

Height Capital Markets recently addressed the potential election fallout for the energy sector, including an under-the-radar victory for exploration and production companies in Colorado.

Winners: Colorado E&Ps

Colorado voters voted down two measures related to fracking regulation in the state on Tuesday. Proposition 112 called for increasing the setback for new oil and gas development to 2,500 feet and Amendment 74 would have expanded property owners’ takings rights.

If the measures hadn’t been voted down, Height analyst Katie Bays said Wednesday that both would have been disastrous for E&Ps in the region such as PDC Energy Inc (NASDAQ: PDCE), Extraction Oil & Gas Inc (NASDAQ: XOG) and SRC Energy Inc (NYSE: SRCI).

The failure of the two propositions is a win-win for the local energy industry and Colorado Democrats, Bays said. 

“This result is almost a best-case outcome for Democrats in Colorado and potentially for the oil and gas industry,” the analyst said. “Democrats can use their majorities in the House (38-27) and the Senate (18-16-1) to push for more popular policy priorities, like economic, education and health care-related measures.”

Winners: Oil Majors

Nationwide, Height said there are both winners and losers in the energy sector from Tuesday's election returns. 

Winners include PJM merchant generators such as Vistra Energy Corp (NYSE: VST) and NRG Energy Inc (NYSE: NRG), as well as oil majors that will likely enjoy at least another two years without major restrictive regulations. Those winners include Exxon Mobil Corporation (NYSE: XOM), Chevron Corporation (NYSE: CVX), Concho Resources Inc (NYSE: CXO) and Pioneer Natural Resources (NYSE: PXD).

Losers: Coal, Nuclear

Potential losers include coal and nuclear power generators and pipeline companies.

Federal Energy Regulation Commission nominee Bernard McNamee will likely be confirmed and will is unlikely to follow through with the Department of Energy’s proposed subsidies for on-grid use of coal and nuclear power, according to Height. In addition, Height said the Democratic House will likely propose some form of legislation to address recent pipeline spills.

Height said the following companies could see regulatory headwinds in the next two years:

  • Public Service Enterprise Group Inc. (NYSE: PEG)
  • Exelon Corporation (NYSE: EXC)
  • Southern Co (NYSE: SO)
  • Duke Energy Corp (NYSE: DUK)
  • EQT Corporation (NYSE: EQT)
  • Dominion Energy Inc (NYSE: D)

Overall, energy investors seem to be optimistic about the political outlook. The Energy Select Sector SPDR (NYSE: XLE) is up 3.3 percent so far this week.

Related Links:

What A Split Congress Means For The Stock Market

Midterms And The Stock Market: Potential Winners, Losers From The Coming Election

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