In other words it's a financial discipline issue.
Is there any FCF focused energy company ?
This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.
How do you value XOM? XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)
That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.
Labor cost, day rate inflation. Marginal projects getting approved. It’s what happens in industries that like to play on the margin. Typically in the past there was a delay due to long project lead times, but when shale started to dominate, the costs and the prices track each other closer.