Quarterly Report – March 31, 2011
April 20, 2012
Over the past few years the U.S. Energy landscape has been changing at a very rapid pace, and, fortunately, the Fund’s “energy chain” structure provides the necessary flexibility to deal with major shifts such as shale drilling that significantly increased production and the need for enhanced oil service equipment and transportation. This includes pipelines and gathering systems which are necessary to move the oil and gas to markets.
Results in the first quarter were impacted by a number of factors including a further decline in natural gas prices, a slow economic recovery and mild weather. Importantly, natural gas dropped to the lowest levels in over a decade with spot price declining to approximately $2.00/mcf. While this is negative for some of the exploration and production companies it is positive news for the longer term outlook for gas to capture market share. This is already occurring in expanding use by the electric power and chemical industries. Also, natural gas has potential as a transportation fuel; particularly by trucks and large fleets.
Overall, as noted in previous letters, we believe that our competitive edge is tied to our expertise in managing an “energy chain” portfolio that encompasses most sub sectors and companies in the “space”. We continue to be generally positive with oil prices close to $100/barrel and significant amounts of infrastructure needed to access the rising production of shale oil and gas. More capital is now available at a reasonable cost. Also, we expect additional consolidations, particularly with gas prices so low, as well as more restructurings. As stated in our January letter, “we believe the time is right for our selective energy investment” and appreciate your support.
Certain statements contained herein may contain "forward-looking statements" within the meaning of the Private Securities and Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among others, risks and uncertainties associated with the timing and costs of energy sector production, the demand for and prices of oil/gas products, the timing and amount of capital spending in the nation and world wide, and general economic factors. This report is not a recommendation to either buy or sell any securities mentioned.
About ELCO Management, LLC
Established in 1995 and based in New York, ELCO Management (www.elcomanagement.com) offers investment solutions to high net worth individuals and institutions. ELCO also manages two highly specialized energy funds: the ELCO Energy Fund, L.P. and the ELCO Select Fund L.P.