In this issue:

The results from the most recent earnings season are in and the evidence is incontrovertible; driller after driller has come up short, while the companies further down the energy supply chain have by and large exceeded expectations.

Moreover, the energy price trend so far in 2015 suggests the upstream sector’s troubles are about to get worse, while the midstream and downstream processors should have a field day converting cheap crude into fuels cheap enough to stimulate additional demand without hurting, and in some cases expanding, their margins.

While this is an industry often subject to rapid change, the storage tanks around the world brimming with surplus crude suggest the after-effects of recent oversupply could stick around for quite a while. We’re revising our Best Buys list to reflect our growing conviction that they will. The new list features five midstream operators, three refiners, two tanker fleets — and just two drillers.

Taken as a whole, the new best buys don’t need oil prices to rally to perform well, although that wouldn’t hurt. And they should hold up much better than the energy stock benchmarks if crude surprises most market participants (wouldn’t be the first time) by heading even lower.

One nice ancillary benefit of owning more of the income-oriented midstreams and the cheap refiners is the yield. The new best buys are currently yielding an average of 3.6%, not counting the (sometimes large) special dividends or share buybacks.

The yield doesn’t cancel out the risk. But it’s a reminder that many operators along value chain continue to extract predictable profits even as drillers mothball rig after rig, because the planet continues to set new records for energy consumption.

A very small but very rapidly growing proportion of that demand is being met with solar power, and the developers of solar projects are increasingly packaging them into “yieldcos,” generators of the tax-deferred income so many investors crave in this period of low interest rates. We provide an overview of this niche and interview an expert on the yieldcos in this issue. The yieldcos are already brightening their sponsors’ prospects, and we’re certainly grateful for their considerable influence on the share prices of Sun Edison (NYSE: SUNE) and First Solar (NASDAQ: FSLR) lately.

Exciting things are happening all across the energy space, where plenty of companies continue to make money as well as history. To find them, you just need to look beyond the oil patch and the daily mood swings in crude futures.

Our lone portfolio adjustment of note this week is locking in the gain on half of our recommended position in Bonanza Creek Energy (NYSE: BCEI). Through the accident of fortuitous timing, this recommendation has returned 30% since mid-December. We continue to like Bonanza Creek’s long-term prospects. But when you find a windfall like that these days in a smaller driller — any driller, really — recent experience suggests you’d better nail it down.

Portfolio Update

• Bonanza Creek Energy (NYSE: BCEI) downgraded to Sell Half in Aggressive Portfolio

• Williams (NYSE: WMB) upgraded to a Buy below $59 in Growth Portfolio

• Targa Resources (NYSE: TRGP) buy limit reduced to $110 in Growth Portfolio

• New Best Buys list published, featuring Valero (NYSE: VLO), Energy Transfer Partners (NYSE: ETP), Western Refining (NYSE: WNR), Capital Products Partners (NASDAQ: CPLP), Energy Transfer Equity (NYSE: ETE), Marathon Petroleum (NYSE: MPC), Enterprise Products Partners (NYSE: EPD), Targa Resources (NYSE: TRGP), EOG (NYSE: EOG), Williams (NYSE: WMB), Devon Energy (NYSE: DVN) and Frontline (NYSE: FRO)

Commodity Update

Rising crude oil inventories continue to concern traders, as West Texas Intermediate (WTI) prices are retesting the lows of January. Over the past two weeks the price of WTI to $44.84 per barrel (bbl), down $4.92/bbl from our previous issue. The price of Brent took an even bigger tumble, falling $8.21/bbl to $54.67/bbl. Natural gas prices were unchanged at $2.73 per million British thermal units, but with injection season only 4-6 weeks away and inventories in good shape, there will likely be downside risk for natural gas prices through the spring and summer.

In Other News

• The Wall Street Journal reported that Whiting Petroleum (NYSE: WLL), the largest oil producer in the Bakken formation, is seeking a buyer

• Chevron (NYSE: CVX) announced that it will increase asset sales to $15 billion and reduce new investments for the next two years in response to lower oil prices

• Petrobras (NYSE: PBR) sank to its lowest level in more than 10 years as a former Petrobras executive admitted taking bribes and implicated others    

• A Goldman Sachs analyst admitted being surprised by the strength of oil demand and said he might have been too bearish in predicting oil would fall to $40/bbl this year (a possibility we doubt at The Energy Strategist)

• First Solar (NASDAQ: FSLR) and SunPower (NASDAQ: SPWR) filed with the SEC to form 8point3 Energy Partners; we address details of this yieldco and others in a story this week   

• BPZ Energy, Dune Energy and Cal Dive International all recently filed for Chapter 11 bankruptcy protection in response to declining oil and natural gas prices

• North Dakota announced that January crude oil production declined 3.3% from the record high set in December