SharperDingaan

As we do not wish to derail the FFH thread; some brief comment ... then back to FFH discussion only. We have been in and out of OBE for years; ever since it was cents in the dollar, and universally cursed by all as devil turd incarnate! Over time, the swing trades have bought us a fully paid off house in London (UK), and a good chunk of UBS shortly after it took over CS. Today it is very well run, and with Canada's new focus on o/g infrastructure, will very likely get bought out at multiples of today's price within the next 5 years. OBE will have burned through this years current NCIB (10% of outstanding shares) by August. The lock-up on the IPO shares received expires mid August, following which an IPO for OBE share swap becomes possible for an additional 10% of outstanding shares. Should the current ME war premium come off, there may well also be a material gain on cancellation. All positives. All goes well, there are materially fewer shares outstanding, and primarily consolidated in very strong hands. Insiders have been heavy buyers for a while, and ain't nobody doing a stink bid to buy out the company cheap. The already low PR depletion rate will go lower still as water flood comes into play, further reducing maintenance capex. Smart. OBE has had some very good wells of late, and ceased drilling at around USD 60-65. Three rigs have resumed, almost certainly because some existing production was hedged at today's high prices. Smart. OBE isn't for everyone, but if you have both the risk tolerance and the time horizon, one could do very well. Back-of-the-envelope calculations around potential IPO/OBE conversion are illuminating. One would get the IPO at the same 14%+ dividend yield that OBE is currently receiving. Wouldn't be a buyer of OBE at present as WTI is likely to fall quite a bit if Iran doesn't do the expected retaliation. Do your own DD, reach your own conclusions, and if opportunity knocks .... SD

Buyback tidbit .... There are many ways by which to view a buyback, but one of the immediate measures is whether the buyback is being done at below the BV of the day; a buyback at $900/share, when the BV is $1,000/share, results in a gain on cancellation of $100/share. Fewer shares, and a gain for doing it! All good. Whether the money goes into buybacks depends upon the ROI, buyback if this is the highest return on the funds available. Very occasionally the stars align, and the company has both the means and opportunity to buy back at less than 50% of the BV of the day. Sometimes the stars really align, and a company also has the ability to exchange holding company shares for its own shares at market rate, to achieve a material reduction in the share count. Take a look at one of our favourites, OBE ..... it might buy you a very nice European vacation. Not an investment recommendation, and do your own DD SD

The reality is that the US really didn't have any choice re the Iranian nuclear facilities; even if peace broke out tomorrow, the facilities had to go, as under the current regime nuclear weaponry is just too close a possibility. The US either had to bomb it using their military, or support a ground force incursion. Bombing was far the better choice. Regime change is inevitable, it's just a matter of how quickly. Better if the Ayatollah comes to the table, but it could be done via assassination as well. To remove the regime is also to remove Hezbollah, Hamas, and the Huthi. Peace returns to the gulf, and the 20%+ war premium on oil comes off. Shite happens, oil spikes higher, and the war premium just gets bigger. SD

The reality is that Trump is an old man, politicians age like dogs, and time is not on his side. As the senior moments mount, at some point he will be worth more dead than alive, and the next assassin will be a better shot. SD

A lot of this is driven by both complacency, and in Alberta ... by how long the federal conservative party has been out of power. Of course, it's a different song when you're the folks in power! ... and the conservatives have been continuously out of power for a decade plus. When the political parties routinely change places every 1-2 cycles, it becomes pretty fringe. Canada came extremely close to a break up with the Quebec referendum, and it's largely down to only a handful of people that we still have a Canada today. At the time nobody thought it could possibly happen .... until it was almost too late. The reality of course is that Canada is ever changing and the North is the new frontier. As the North grows, the separatism dynamics will change as well. SD

Very apt! Just keep in mind that Canadian o/g deleveraged a long time ago, and for the most part buybacks are just replacing drilling. No need to drill when you can buy 2PNPV(10) at cents on the dollar, and a bonus if that 2PNPV(10) is via your own stock bought back at 30-50% under BV. Buy back a share with a BV of $12 for $8, and equity goes up by $4/share. Intrinsic value measured as 2PNPV(10)/share-count rises, and debt/equity metrics improve. Pay down too much debt and you're no longer at your optimal WACC (many a Canadian o/g company). Best thing for the Canadian oil patch would be a spike in oil prices. The additional CF would flood into the new infrastructure projects being discussed (new pipe, new rail, CCS, port expansion, upgraded grid, nukes, etc.), so as to bring them to market quicker. SD

Many ways this could go. Everyone's pipelines and loading facilities are much easier targets, and once blown - it's either take Iranian crude or pay higher prices. Blow up Iranian oil facilities, and pay the price spike until the others flood the market ... assuming Iran DID NOT damage their infrastructure. All good. Trump has already had his low prices. Devalue your currency 10% and that same product now costs you 10% more. Drill baby drill just gets re-branded at a much higher price than $50/bbl. SD

You might want to read the Al Jazeera press. Do targeted assassinations and some of your people will go the same way. There are public ones and the private ... heads on platters delivered via an Uber Eat. It doesn't end well, and oil prices are going higher. SD

Those price spikes are the opportunity. That 10% run up and fall back, is a 20% round trip gain in maybe a month. It will run a lot higher when the retaliation occurs, and this is the land of an eye for an eye. Also keep in mind that IV is value per share. Rising as either value is increasing or the share count is dropping. Look at the OBE share count It's just not the COBF way. SD

If you were sitting on the fence re energy investment you have run out of time. The Israelis struck Iran earlier this evening and WTI is up 12%. Were you also sitting on names that were also being heavily shorted (OBE), tomorrow morning is going to feel like Xmas . GLTA. SD

If you could eat everyday off of bone china plates, using silver cutlery, and drink from crystal wine glasses ... you were rich. They were very high quality status symbol things that you got at weddings, or as dowry from a wealthy aunt. Today, at a good estate sale, you can pick up the crockery and glassware at maybe 30c on the dollar, and eat like a king. So cheap, that if you break or damage the odd piece in the dishwasher, you don't really care. When it's heavily tarnished, silver plate goes for less than the metal value. Same thing with real furniture made back in the day. Nobody wants it because it's not a built in, or the right size for today's smaller apartments. IKEA is preferable. Nickles and dimes to be made for merely putting them to use. SD

Back in the day everybody had the 8-12 setting bone china dinner set .... only brought out for special occasions. Today you can't give the stuff away .... so every morning its cornflakes eaten off of Royal Doulton China, the same with every dinner, and the whole lot in the dishwasher as regular dishes! Times a changing! SD

Couple of things ..... Getting rich is not the same as staying rich; staying rich is purely about generating more after tax cash flow than you spend. Could be via employment, pensions, interest, dividends, option premiums, gains. etc. The more reliable the cash flow the better, if your common pays a rising dividend over time so much the better. Reduce your spend (by paying off your mortgage, margin, etc.), and you also reduce the needed amount of after tax cash flow. Painless when you systematically adjust your capital requirement as the investing climate changes, and apply that surplus against debt. CAGR matters; aim for 7.2%+ before tax (a double in 10 years), and the longer the historic measuring period the better. Simply 'cause if at age 65 you spent down all of today's capital over the next decade ... you could expect to reach age 75 with the same amount of capital you had when you were 65. Dividends, interest, premiums every year ... all bonus. Your actual cost is just the cost of inflation on that initial principal over 10 years. Point is ... it's primarily a change in mindset. Nothing complicated, and in most cases it's pretty hands off. Time goes into enjoying family/friends/travel instead. SD

Ever the heretic, look at this differently. Good at concentration diminishes the bigger the portfolio gets, as even a small adverse 10% swing now becomes the size of the average salary. It becomes hard to manage what is really just a small change in volatility. The solution is to periodically sell off and reduce the portfolio to some minimum size appropriate to the current market. The surplus funds paying off mortgage or going into prefs and bonds for income. F*** ** tommorow, and you still walk away with both something in the bank, and a higher cash flow every month. As life and interests change, change the size of the portfolio to match. SD

Agreed; when the place works, the US is formidable. But, today .. most folks would hazard that this isn't a reasonable possibility for at least the next 2-3 years. The tide is going out, and investors need to act accordingly. Waving executive orders around for photo ops, is not the same thing as executing on them. Maybe 10% of the orders will actually get traction, and of those - maybe 50% of the direction will actually become a reality. SD

It's useful to look at the UK experience when GBP was the reserve currency, that ceded reserve currency status to the USD following WWII. Like it or not there is a debt ceiling, and the US has hit it. There is a reason for the 5% treasury yield, and the more Trump uncertainty the wiser it is to hold asssets other than USD. Solid businesses should do well, but expect a lot of adverse volatility, and recognise that investor and business time horizons are often quite different. That former great business in a country that HAD reserve status, may also not be worth it anymore. However the volatility may be a very good opportunity (TACO trades). Arguably there is a lot more to be made investing against the US than is to be made investing with it. So long as nobody breaks Trumps fingers Not what many want to hear. SD

Quite agree. One of our o/g coys is buying back its stock for cancellation at less than 50% of bv/share, booking a healthy accounting gain on every purchase, and will have bought back 10% of its float by the end of October. Not possible unless everyone thinks the prospects are utter sh1te!, and it is foolish to dissuade them The other will have reduced its div payout ratio to around 70% sometime in Q4, when a material expansion comes on line. The big capital spend is over, but everyone is convinced that with the current payout ratio the dividend is about to be cut. Terrible waste to dissuade them otherwise SD

And the trend for the last how many months has been? .... flat. With rigs drilling ... new additions pretty much equal to depletion. But now the rigs count is down every week ... and the declines are getting bigger. SD

Production coming down. Ongoing US shale depletion continues, and no new production added. Cost of production. At USD 50/bbl it's around the cash cost for most, including interest on bank debt. Add overhead, and most will be forced to produce at a loss to raise the cash to pay interest. P&L takes a hit, and lots of 2P reserves get sold at distress prices. If you have the Balance Sheet, you buy versus drill. SD

Keep in mind that the USD has devalued by quite a bit of late. Were one to use $62/bbl as the Permian, pre-Trump, pre-devaluation base; assuming 10% USD devaluation, that $50 bbl is actually a $45.45/bbl (50/1.1) pre-devaluation. A 27% like-to-like decline. The good news is that at $50/bbl US drilling is essentially shut down, US production rapidly declines, and quite a few US producers will go to the wall. Available for pick-up at distressed prices before oil prices are run up again. SD

If you see polluter pays as just another cost of doing business, its purely a cost vs benefit thing. If there is more benefit to investing in it, and your project can exceed your ROI threshold, its a smart thing to do. All about the money. The challenge is what the investment is in. Is the capex less to going with nukes and not produce the CO2, or is it less to produce CO2 as part of production and pay to clean it up afterwards, saving on carbon tax. The environment aspect is purely driven from the price of carbon. No virtue signaling, no Kyoto Accord, etc. If your community doesn't put a price on CO2, pollute all you want, as there is no cost to it. SD

All the big six Canadian oil sands partners are a part of this via the pathways alliance. Injectors using the CO2 for gas flood and getting paid to take it. Producers earning carbon credits for sequesture to offset CO2 generated and net out to zero. Keep net emissions at near zero and emmission caps are a non issue. Reduce the gross emissions (via nukes) and the gain falls to the bottom line as additional revenue. Good business. Same argument for the smaller players such as CJ The mystery is where the nuke powered electrification is built, the amount of new grid required to carry it to the oilfields, and the capacity of that new wire. Building nukes on Canadian Shield is smart, putting them in the oilfields themselves... not so much. Sizing so as to include forecast electric vehicle use, and green power bolt-ons is smart, thinking small ... not so much. Steel, workers, vision, etc. .... much of it intentionally minimizing US involvement. CAD becoming more of a petro currency over time. SD

The basic idea is that the polluter pays to pollute. Savings from reducing the amount paid supporting the business case for investment in carbon removal technology. Not economic unless there is a concentrated flow of CO2, and a disposal facility that can turn it into something inert. Highly economic if the CO2 can also be used as gas flood within an existing reservoir. Best if emission and capture are all local. $ spent stay in the area raised, shorter pipe etc. Variety of who pays approaches. End user polluter through to source polluter. Pour a lot of concrete, pay a lot for pollution that made the cement. Variety of tech approaches. Nukes to replace coal powered electricity and/or gas powered steam injection to eliminate at source, through to post production reprocessing. Good for the global macro environment, not so much for those who make a career out of secular micro environment oppositon. Obviously there are business opportunities in here, but what are the thoughts? SD

Our GBP portfolio is domiciled in the UK, hence GBP versus EU tax treaties apply. Pulling the strings from Canada does not affect that. As it is mostly our London RE, we also have little exposure to the EU other than via our UBS. The reality of course is that what happens in the US affects the entire world; but the more that Trump isolates the US, the progressively better off we will become. If the US loses reserve currency status, we do really well. SD

It's only viable 'cause nobody calls out the opportunity cost cash drag. If/when the drag is called out, it would ideally lower the share price, and the company would simply buy its shares back whenever they are < BV Win for all concerned. SD