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What Trump's Election Means for Sectors

Oil and Gas Sector Likely to Fare Well Under Trump

Morningstar Equity Analysts 22 November, 2016 | 16:02
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For global energy markets, the potential knock-on impacts of a Donald Trump presidency could be meaningful in a few areas. With respect to U.S. oil and gas producers, we can say that the tail risk for regulation of hydraulic fracturing and methane emissions is now somewhat lower. Thus far, the Environmental Protection Agency has maintained that the systemic environmental impact of hydraulic fracturing is benign. A Trump-led EPA is less likely to reverse this view than a Hillary Clinton-led EPA. More tangibly, certain high-environmental-impact upstream segments could benefit from a lighter touch, such as sand mining to supply hydraulic fracturing proppant. Overall, however, state and local governments rather than federal authorities have had the lion’s share of impact on upstream economics.

Additionally, exploration and production firms producing in areas with disadvantaged transportation economics due to incomplete pipeline infrastructure could benefit if Trump-led regulatory agencies accelerate approval of new projects. We also believe the likelihood that pipelines carrying Canadian heavy oil to the United States will proceed has increased. However, Trump’s desire for the U.S. government to capture a bigger piece of the profits could be a barrier to breaking ground on new pipeline infrastructure.

We are reaffirming the fair value estimates, moat ratings, and moat trends for all utilities we cover following the U.S. presidential election outcome. We continue to think utilities are 6% overvalued, and we don't plan any material changes to our forecasts.

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About Author

Morningstar Equity Analysts  Morningstar stock and fund analysts cover 2,000 mutual funds, 2,100 equities, and 300 exchange-traded funds.

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