StevieV

What? Really? It is January 7th. There have been 4 trading days.

I don't understand why more companies in the O&G space don't adopt that model if they want to pay a big dividend. With the volatility in oil prices, it only makes sense to have a variable dividend. I actually think characterizing the dividend as fully variable is most prudent and sensible, but understand the desire for a base dividend. Presumably investors like a fixed dividend or companies think that investors like a fixed dividend. Of course, at the end of the day, if oil prices drop enough the "base" will turn out to be variable (gone) as well.

$500 million of Q4 monetizations as of their recent update. That's not bad in a slowing monetization environment, but I don't have a good idea for '23. For comparison, monetizations peaked at $1.15B in Q4 '21. Been trending down since. As you know RL, that's one component of the value. They also have the significant book value and the more stable FRE. Not really paying much for the incentive fees (monetizations) if you believe in some multiple of FRE and the book value is worth something.

Maybe this is a dumb question, but what is this BOL + ODET as BRK substitute? What a boring portfolio. Maybe time to rethink the whole thing? Nothing at all wrong with boring. I believe ELF = ELF.to. All 4 in insurance is what sticks out.

I like Fairfax's outperformance to continue for a bit. I like JOE longer term, but I'm not sure it will be a great '23 calendar year performer. (Of course, I'm not sure about any particular stock being a great calendar year performer). I like Canadian E&P OBE as a bigger upside performer. If oil prices cooperate, they should hit their long-term debt target sometime in '23. Highly levered to the price of oil and WCS differentials and so highly dependent on pricing. I think at current WTI ($80), they have significant upside from today's price. I still like APO, but if I had to pick an alt today, I think I'd go with KKR. I expect both to do well over the medium/longer term, but I'm not sure about '23. KKR in particular I expect to bounce fast if the market rallies, but I have no idea when that will be.

I had forgotten about this thread. APO was negative 12% for the year, before dividends. Not great, but several percentage points better than the S&P. Also, the best of the peer group - better than BX, CG, KKR, ARES, BAM. Not the right sector for '22.

I don't know what oil will do in '23, but I think that if supply growth in the US and elsewhere is constrained OPEC will try to support oil prices if demand falters.

Plus, the market seems to be relying heavily on the steadiness of earnings growth for valuation. I think ARES is probably the most richly valued alt. I'm guessing that's because of the high percentage of FRE earnings (so less volatile) and the very steady 15-20% growth in FRE. I'm not sure ARES is the safest, but the FRE and FRE growth record and projections are the most straightforward. On the other hand, CG has the least FRE percentage and probably the least certain FRE growth outlook (among other issues). So, worst multiple. I think APO's stock price is strengthening on the strengthening belief they have a strong, sustainable and becoming more certain FRE and APO specific metric SRE growth runway. Basically, BREIT weakness hits what the market has cared most about - steady and long runway FRE growth.

I think the BX BREIT developments are more than nothing and far from catastrophe. At Q1: "We have continued to raise a total of $4 billion to $5 billion per month of equity capital for our three retail perpetual vehicles: BREIT, BCRED and BEPIF, including the most recent monthly subscription on April 1." and "BREIT more than doubled in size year-over-year to $63 billion, generating 5.8% appreciation in the first quarter. We have the most powerful brand in the retail channel and an enormous first-mover advantage, selling our products today through a broad network of distribution partners. We are in the early innings of our build-out in this vast and underpenetrated market." https://seekingalpha.com/article/4502730-blackstone-inc-bx-ceo-steve-schwarzman-on-q1-2022-results-earnings-call-transcript BREIT was gathering billions a month AND promoted as a growth engine. In turn, the growth drove the multiple. So a slowdown in growth and a multiple compression. BREIT flow issues didn't start this week though and there has been concern for a while. The stock price has reflected at least some of that, down from a 52-week high of $141 to $85 now. One thing about BX's model that I think can go overlooked is the combination of paying out a high percentage of earnings while growing. BX's dividend is highly variable, but let's say 5% normalized here. They've been growing very fast and 5% dividend + 20% growth is certainly attractive, but even if the growth slows down 5% dividend + 10% growth can be very attractive too. Depends how you see the growth, brand, certainty, etc. I was concerned that BX's growth would slow down back when they had just a few hundred billion AUM. So, shows what I know. Of course, when buying, I don't like to pay a price that assumes 20% growth continues. Maybe 7-10%, which should be hit or exceeded minus serious problems. I'm not sure whether BX is cheap or not here, but the stock certainly isn't pricing in 20%/year AUM growth.

My favorite of the 4 and one of my favorite movies of all time. I think the Crystal Skull wasn't just meh, but outright terrible. I hope this new one will be a good sendoff.

Thanks Viking. FWIW, I share your general view on energy. If energy and financials outperform, and the US economy booms that would all be very much alright with me.

I don't know enough to say for sure that more nuclear is the right direction - but that's my guess and I'd like to see more nuclear. That being the case, is there really much of a nuclear push? Not in the US and lead times in the US would be much, much longer than 5 years. It would really take a pretty monumental shift in the US for any significant nuclear. Is there big progress on nuclear elsewhere?

If Fairfax actually earns $100+/share in 2023 and thereafter, it's hard to see how the share price won't do well over time. The share price has been in the penalty box for a while. I don't think that's been totally unjustified. It can take a while to change perceptions, but you can see it happening now with Fairfax finally outperforming this YTD.

I generally agree with RL. Incentive fees are interesting. While all of the alts are trying to move towards an FRE model, the incentive/performance fees are still significant. Especially for say CG where performance/incentive was more than half of earnings last year. Market doesn't want to pay for incentive fees, but even lumpy earnings are still earnings so long as they are cyclical and not gone. I think the push into retail is important. ARES's CEO recently said something along the lines that they could raise their 20%/year on institutional alone, but are building out retail for diversity of funding. I figure it is good to have multiple sources and better to build out retail before you think you need it. Could be too late then. I'd be concerned about a decline in AUM growth well before it went negative. Without looking, I think ARES is probably about the least lumpy AUM growth and is about 20%. If they did dropped to say 5%, that would be a big deal. As RL says, the alts have had resilient business models. I think that will hold up. Unfortunately, if something in that changes, I doubt I'd see it ahead of time. Put another way, if APO or BX or whichever company did go negative AUM that probably means a big problem and then a drop. I don't think I'd realize the problem before the market and/or wouldn't see that the AUM trend was broken until the particular company reported it. So, sure, I think so long as AUM growth holds up they'll do well, but I don't think I'd see a change ahead of the market.

A couple of price target cuts today, or at least I saw them today. Piper Sandler from $68 ---> $62 JMP $60 --> $58 Stock closed yesterday around $26. That puts both reduced price targets 100% plus from today's price. Not sure whether there is any interesting associated commentary with the target cuts.

I thought that CG was headed in the right direction and then their CEO (Kew) left abruptly on a Sunday night. Kew was seemingly pushed out and it is a bit baffling as to why they'd want to do so. CG was diversifying away from just PE, were rapidly growing their FRE and so becoming less dependent on incentive income/performance fees. I think that was the right direction. The exit was not well received. For example, Bank of America gave a double-downgrade and slashed their from $58 to $33 on the move. The company's original succession planning has now clearly failed as the former co-CEOs are now both out. Obviously, the CEO hire is important. They need to get that right and then will also need some time to convince the market that things are under control. Of course, the share price reflects a lot of that. Distributable earnings were $5.01/share last year and the share price is currently $26 (or a bit over 5x earnings). Earnings are cyclical because of the incentive/performance fees. At least for now the $5.01 is going to be a bit of a cyclical high. Still, run rate earnings should be pretty good. Distributable earnings for the first half of the year were $1.91/share and just over half of that was "stable" FRE. Perhaps about $2 in FRE this year. I think it's fair to say normalized run-rate earnings should be in the $3-4 range today. The company was growing assets under management double digits. Pays a healthy dividend and the room for margin improvement. It will be interesting to see what they do on the CEO front, but regardless of who it is, I think it will be a while until we see if the new hire plays out.

I'm not sure what there is to disagree with in this statement. War is bad and we should all want it to end. I'm not sure you've thought this through Viking. I think the WWII/Hitler comparisons to this conflict are poor for a ton of reasons. Regardless, uh, that opposition was a world war, and you can't be advocating world war, but this time with nukes.

Sounds like you've had some different jobs. Any specific careers you think are more or less taxing? Do you think it is more about the field or the specific job? Generally interested in hearing what careers people like or don't like.

I'm confused by this statement. In 2021, the US consumed 18.7 million boe/day. Latest data has US oil production at 12.2 million boe/day. Am I missing something? I believe it is much worse if you look at "green" energy. Solar panels, lithium, cobalt, copper, rare earth magnets. All are extremely reliant on non-US mining and production. For example, just doing a quick search it looks like roughly 70% of worldwide solar panel construction is in China and about 3% in the US. I think the considerations as to whether and to what extent the US should have an SPR go beyond whether the US is energy self-sufficient, but I don't understand where the premise that the US is "energy self sufficient" comes from.

That's a stretch. This couple lives one of the most material comfortable lifestyles in the history of humanity. They're 25 years old, plan to travel internationally 3 times this year to music festivals plus more local events. They spent over $600 on Ubers alone at the last music festival. $200 gym memberships. $60 sushi meals. Even at that, they can do those things and have a home. They just are in the red if they do all of those things and just bought a condo.

I think a Democratic executive and a Republican legislature is probably best for O&G companies. If we get a Republican legislature, that doesn't change anything with the regulatory environment. They aren't going to pass any relevant legislation that Biden will sign. Just a continuation of the current executive policies and deadlock legislatively.

Come on SD. It looks like you are trying to redefine Enterprise Value (EV). EV has a defined and calculated value. Essentially, Market cap + debt - cash. The EV just is what it is. Just like the market cap. There is no "calculated from either the asset or liability side of the Balance Sheet". Perhaps you meant intrinsic value.

Spek, I'm just trying to fill in some blanks and responding to a few things that catch my eye. I'm not trying to carry the bull case. I agree that the underlying commodity prices are a huge deal. How could they not be? There is a massive difference in what an oil company makes if WTI averages 60-80-100 or 120 over the next 5 years. I also agree that, at the least, it is very difficult to predict future oil prices. Oil looked like it would be tight for the foreseeable future and then US shale production came in and changed that. Even look at the very short term. As you say, Russian hasn't yet reduced their oil exports. That would have been a contrarian view just a couple months ago and Russian exports are a huge deal. FWIW, I'm long a few Canadian oil stocks. I think oil prices will average a high enough for the companies to do well and think the equity prices are sufficiently low to compensate for the risks. Hopefully for me that's correct.

Doesn't change the 5-year that much. As mentioned above, WTI + 109%; XPO -9%; XLE +8%. I agree. I was just responding to your iron ore chart that mentioned energy. I believe your iron ore chart was spot. I think the spot and equity divergence was most clear in 2020 actually. Every oil company is a zero at $20 WTI, let alone negative WTI. April 2, 2020, WTI was $25; up from $16 and on its way to -$36. That's a zero for everyone. Equities traded way down, but obviously and rationally the equities didn't all trade to zero. There are some nice things about trading oil directly, but I think there are also some big advantages to the equities themselves. I'll take MEG.TO as an example. Very roughly speaking, I think they do better than $1B in FCF/year at $70 WTI in '25 (tax pools exhausted) and pretty much eliminated debt by that time. Today, their market cap is $5B. WTI in USD. Others in CAD. Who knows what the market will think of oil stocks in '25, but MEG certainly would have the cashflow to do much better than a 0% return if oil drifts to $70 over the next 3 years and much better than +40% (98/70) if WTI stays at today's $98 rather than drifting down to the futures $70. I think my MEG FCF estimate is reasonable, but I did it quickly and so certainly could have screwed it up.

WTI and the XOP ETF have correlated well over the last 1 and 2 year periods, but XOP has extremely underperformed the price of the commodity over the last 5. Over the last 5 years, WTI has advanced 109% versus a negative 9% for XOP. Can say a lot about that, but the briefest is - the E&Ps are being valued much less richly vis-a-vis oil prices than they used to be.