SharperDingaan

We come at London RE from the Quantity Surveyors viewpoint. Agreed if you want out of the box, you are going to overpay. The flipside is that if you have the expertise/connection, a re-development can be fixed up/remodeled, and resold fairly easily. It just means partnering up with trusted entities, which we're OK with. Ultimately the long-term aim is a reliable rental machine, throwing off a few bob every week. SD

We own a lot of CVE (SU competitor) warrants at a very low cost base, a lot of OBE at a ridiculous cost base, and a lot of PD, ESI, CET that we have been steadily adding to. We are long tar sands via CVE/OBE (Peace River), long light oil/gas via OBE, and long the industry itself via the drillers. We take an investment versus trading view, and the WCSB is a strong circle of competence. Drill rigs have been coming out of cold stack in a big way, demand/day rates are materially higher than they were, and spring breakup is temporarily freeing up some crews. Drillers spent their money on consolidation, and cashflow is rapidly paying down debt. Not hard to see what happens once target debt is reached. Delusions of grandeur managed by redirecting wealth into London(UK) RE. Haircut at 40%, margin to get to target capital allocation, and buy the RE mortgage free. O/G goes tits up tomorrow; we walk away with a stub and fully paid up London RE. The longer the o/g party continues, the more RE we accumulate. Why London RE? We have a strong circle of competence in it. Commodities are known for their risk, and their ability to create wealth. If you hope to do well in this area, your risk management needs to be up to the game - we aren't playing for annual 10% returns, we're playing for 75%+ Obviously, not for everyone. SD

We have no idea how this plays out. While the o/g risk/reward is attractive, it really depends upon your circle of competence and time horizon. There are currently a great many CDN o/g firms of moderate risk, that will very likely both double < 18 months, and reinstate dividends to former levels. Example: In 18 months, most would expect an OBE currently trading at CDN 9.39, to trade at CDN 18-20 on an 20-25c dividend/quarter. Potentially a cash yield of 8.52% to 10.65%, and a double; but obviously more risk than a SU More inclined towards a new world order, and secular change versus long term cycle. It's pretty clear to me that 'big oil' is being asset stripped, and proceeds redirected into green energy. Hard not to be long term supportive, and we invest accordingly; but it's very much the outlier position. It is highly likely that the Soviet, Iranian, and Chinese tanker fleets have been routinely engaged in at sea ship-to-ship cargo transfers. The oil is still getting to market, it's just the price being paid for it, and China/India have obviously being doing very well. China isn't stupid, and neither is Biden. They both have very well connected advisors, and each team will be very aware of the relative risks, costs and benefits. Putin needs to exchange Yuan receipts for USD in volume, which really means China selling down its USD reserves ... for a transactional fee Ultimately, it leads to a globally shared central bank reserve currency and everybody's benefit; again not a popular view! Green transition is already here, and alive and well. There are even west coast forestry companies concluding that their growing trees are worth more in carbon credits, than cut down as lumber. Green in Europe is pretty much everywhere, and accepted fact; whereas it is just starting in NA, but further ahead in Asia. A number of Cdn o/g companies have long term warrants, look at those with big hedge positions rolling off this month SD

The required gas is already stored; in the ground, at the source fields. Generally the shorter the supply chain, and the more above ground storage it has (storage tanks, floating, pipeline, etc.), the more in ground storage you can have. Hence to a Europe, supply from the ME or Scandinavia is preferable as it results in less stress on the infrastructure, and more underground storage. Example: If your supply chain is reliable, your delivery time from well-head to local storage is 3 months, and you can secure enough above ground storage to comfortably cover 'emergencies' - you can store roughly 9 months of your annual need, less the above ground inventory, in the ground, for free, and at source. However the more/faster you can move to green energy, the less reliant you will be on that underground storage in whatever nation it may be. The reality is that European transition away from Russian gas, is not as difficult as Russia would like you to believe - 'cause if it were, Russia would not have recently sold the future long term supply to China SD

It really comes down to a planed depletion of ME storage and a ramp-up of Gulf state production. The facilities are already on-line, and the proceeds will fund upgrades that ultimately power Europe's coming EV demand. NA will supply as well, but it will primarily be the growing gas cut on ageing shale wells, and not from newly drilled gas wells. US Shale is primarily from gas fields, producing oil/liquids as byproduct. We think of US Shale as oil fields; because at the well-head, on a new well, the oil production is worth materially more than the gas production. Whereas in reality, over the total producing life of the well, the accumulated value of the gas production will typically exceed that of the oil/liquids. SD

Gas producers will be going flat out this summer, as Europe will be doing everything it can to build inventory as high as possible ahead of next winter. Gas for heating, will also be competing against gas for fertilizer, as the globe attempts to offset reduced Ukrainian food production. The more gas produced the more oil produced as well.. Russian o/g wells are stranded, but not shut in While sanctions continue, flow will be cut back to minimum levels, and inventory allowed to build until all Russian controlled land and floating storage is maxed out. Thereafter, wells will begin to shut in, and for many - it will be permanent. As/when sanctions lift, most would expect Russia to reclaim market share by flooding the market and driving down prices. If o/g companies used the good times to pay down their debt there will be no ill effect, and existing fields are simply allowed to deplete into the incremental demand resulting from lower oil prices. If debt wasn't repaid, in favor of M&A field consolidation, all remains good. However, if the money was used to simply open new fields, those new fields are at risk of stranding. Obviously, not what US independents want to hear. Bigger players controlling entire fields, and managing the medium term transition from primarily oil to gas. ESG metrics as the scorecard driving the process. 'Old School' o/g men/women shown the door if they choose not to get on board. Market at work. SD

It’s useful to look at the Sovcomflot fleet. 145 tankers averaging around an Aframax, or 800,000 bbls/load. Closed off from western off-loading facilities, these tankers are now idling, and are essentially floating storage. https://en.wikipedia.org/wiki/Sovcomflot https://www.bloomberg.com/news/articles/2022-03-11/russia-s-state-owned-fleet-of-oiltankers-is-starting-to-idle Back-of-the-envelope calculation Assume roughly ½ the fleet is currently stranded. 70 tankers @ 800,000 bbl, or 56 million bbl. Assume the oil is sold underground at a deep discount, we know from recent press that the discount for a direct sale from Russia to China is around US 28.50/bbl. Assume the underground discount is 20% above this, or US 34.20. Total discount of roughly 1.9BM (56M bbl @ US 35) on ½ the fleet. Assume another 60% on the remaining 50% of oil going directly between states. Every time that 145 ship fleet fills up, the total sales discount is a conservative 3.00-3.25B. At maybe 6 refills/yr? this is costing Russia 20B+ All that Russia can do, is try to keep oil prices as high as possible, and they can’t hold the oil off the market because they need the money. Very similar dynamics in the diamond trade as well. SD

It would appear there is going to be a cease-fire, and that the Ukraine is going to agree to never join NATO. I would also suggest that oil sanctions are going to remain on Russia for some time, and that China will continue to extract the USD 25-30/bbl discount it is taking on each barrel of Russian crude. SD

Simply look around you. Both the CAD & US economies are coming out of lockdown, employment levels are pretty much what they were pre-Covid, large numbers of office workers being recalled to downtown offices, people are pushing hard to shake off 2 yrs+ of cabin fever, and there is way too much money sloshing about (inflation). Today, the 1M people+ city events are back on across the land, and are as common as water. 2022 is looking pretty good! We have no idea how the Ukraine ultimately turns out. All we know for sure is that the Ukraine will have a very limited harvest this year, and that a great many displaced Ukrainian farmers will very likely take up Canadas offer of relocation - all good for Canadian agriculture and demographics going forward. The long term economic solution remains Putin in a box, same as the 1942-45 solution was the early and successful assassination of Hitler; in the interim, sanctions are likely to remain with us for some time. Higher prices for everything, less hasty interest rate rises to cool the economy, shares prices remaining high as they continue to discount at artificially low rates. Everybody paying more via higher mortgage interest on variable loans, and higher prices on everything they purchase. Lots of bitching, because folks either have to lower expectations, buy less, or move to a cheaper location - 'cause the piper always gets paid. Lots of disruption and uncomfortable change. SD

The return of the Iron Curtain is a very valid possibility here. Whatever we might think, Ukraine grows the food for a great many people in Europe, and the economies of both Russia and Europe would prosper under a return to the military spending of the old 'cold war'; generals on all sides need a robust career path. SD

Americans aren't being stupid, they are being entirely rational. Give me use of the auto TODAY, for the LOWEST possible monthly operating cost. Buy new and pay most of your cost in financing, or buy a clunker and pay most of your cost in repairs and higher gas/oil/fluids cost. Decision depends on the individual car & its history. Fact is .... used SUV gas guzzlers ARE going to get real cheap .... 'cause they will be scrap Most lessee's are going to have a pay a terminal cost when they discover that MV is well under the guaranteed RV on their leases. The SUV bad mouthed because of its high operating cost ... bad mouthed again because of the terminal payment ... and bad mouthed a third time as the more expensive the model was the greater its 'loss of value' has been. Even if it were completely free, it would still cost more to run than similar functional alternatives. If you cant give it away, and it costs too much to drive, isn't that the definition of scrap? Different POV. SD

I just pulled the numbers from our spousal car, a leased 2022 Toyota hybrid RAV4, and compared against a posters mileage example. This RAV4 is not a plug-in, is current state-of-the-art tech, & converted at 4.5 litre/gallon. Point is that between gas, upkeep, and insurance a driver has a large enough monthly cash saving to make the next car electric. Posters clearly agree, as everyone is claiming their next car will be electric! Data came from Statista, as at 2020. Most people do not care about cap cost, they care only about the monthly cost (lease/loan) - we all know how to manipulate that as low as possible. It's also not just this boards posters going electric, it is everybody else doing it as well, en-mass and all at the same time. https://www.statista.com/statistics/183505/number-of-vehicles-in-the-united-states-since-1990/ EV uptake is reaction to higher costs; but as monthly driving costs rise - rising numbers are forced to public transit. Cant use public transit unless you are in a major city, and if you want less congestion around those cities - cars need to come off the road. Virtuous circle both retiring existing fleet 'early', and reducing overheated demand for EV. Agreed, current state, there isn't enough commodity to meet anticipated EV demand. Thing is, future state looks quite different, and many of todays bottle necks have already been solved; todays batteries are recyclable, weigh less, use far less rare material than they used to, and save way more charge for longer. Newer batteries aren't even batteries anymore, they are integrated fuel cells, using hydrogen vs plug-in. Future state also isn't a decade away, it is 3-4 years at most, and getting shorter as manufacturers scale up. So what? The reality is that much of the money for upgraded electric grid, EV and hydrogen roll out, is going to come from o/g. O/G assets being run down, and cash from production going into these new areas. We don't see it, because we do not want to. Invest today for where you want to be in X years, NOT next quarter. SD

280/20 = 14 years to replace entire fleet, 7 years to replace half the fleet. You don't need to replace all of a fleet for it to go all EV. Do any M&A and you will quickly discover the tipping point is around 30-40%, depending on circumstance. At 5 years, 36% of the entire current fleet has turned over, and that will be enough to push the entire fleet into EV. SD

Assume your current car is using 15 gallons/week (67.5 litre). Your current hybrid ('cause plug-in is not available everywhere) will use maybe 30% of that, 20 litres/week. Costco gas is currently CAD 1.69/liter, and there are 4.33 weeks/month (52/12). Just the gas saving on that hybrid is CAD 347.59/month (67.5-20)x1.69x4.33. Repair/insurance is also cheaper, and savings of CAD 100-150/month are fairly common. At savings of CAD 450-500/month you are going to switch to hybrid asap. https://www.gasbuddy.com/gasprices/ontario/toronto The average family car may be 12 years old, but that ownership is over 2 or more owners. Most cars are leased, and most are for sales reps who have to be seen in fairly new cars. Most leases will be for 5-7 years, and they represent the company as well as the rep. If your company is selling "greening" tech, your reps need to 'walk the talk', and your fleet needs to be all hybrid asap. When the average lease is 7 years, the average fleet age is roughly 4 years (lease life/2). Every major auto manufacturer makes EV's, exports, and a high cost spread over a 15 year life cycle is peanuts/yr. A 2022 Toyota RAV4 Hybrid only costs roughly CAD 40,000, even in a constrained supply chain environment. Capex isn't a limiting factor. We just cannot imagine such radical change happening so quickly, even though it is staring us in the face. We do not see that gasoline powered auto's are not wearing out, they are becoming obsolete. Just as your fully functional ancient beer fridge was replaced with a new one, when you eventually decided that its 2-3x power consumption just wasn't worth the cost anymore. It became obsolete. SD

It is already here. I would suggest to you that most gas guzzlers on the road today, would already be gone were it not taking the supply chain 6-9 months to deliver a replacement hybrid car. Once Covid recovery starts to dominate, and supply chains begin to untwist, the re-sale value of those gas guzzlers drops like a brick - and hybrids don't need price 'rebates' any more. New car plants produce all electric/hybrids, very few produce new IC cars. As existing IC car plants are run down; the existing vehicle fleet will rapidly be replaced. Assuming an average 8-year new-vehicle cycle, about 4 years until most cars on the road are electric/hybrid. Less demand for oil & more demand for gas to fire up the electricity generating power station. O/G reserves extend their lives as the gas/water cut typically rises at the expense of liquids/condensate; existing collection facilities transition to gas at minimum incremental cost. However, there is NO new reserve addition - you simply extend the life of what you already have. Hence the idea that the 'best' oil, is that oil which is never produced. Effing heretics!!! Lot of implications here. SD

The tax thing is unlikely to pass. O/G companies are not paying taxes, because they are both incurring big tax losses when writing down assets to comply with ESG, and carrying forward prior year losses. Every 100B of write down reducing tax owing by roughly 37B. No additional moneys other than royalties on additional production. The Biden view is longer term, the industry view short term. Like it or not IC engines are being phased out in favor of electric, creating less demand for ongoing o/g. Restricting drilling on new lands, foot dragging on egress, etc. is just asset stripping; minimize ongoing net capex, and get as much out of the existing infrastructure now while you can - before o/g production is wound down in favor of electric generation. The industry view is 1970's first oil price shock. Get the gas pump price down! asap!!! Give us the leases, give us the financing, get out of our way, and let us drill baby, drill. Problem is that it is now 50 years later, times have changed, and a great many haven't been able to move on with the times. Lots of frustration 'cause its our last shot at the golden ring, we know exactly what we have to do, yet you will not let us do it - what the f*** is wrong with you people!!! Obviously, lots of ways by which this could be played. SD

Bear in mind that the US/Poland exchange is really an open-ended revolving 'lend/lease' arrangement. US supplied Polish planes (of different types) over the Ukraine, flying out of Polish air bases, supported by US AWAC assistance. Predator drones continually looking for high-ranking 'targets of opportunity'. Arms merchants need to demonstrate the efficacy of their weaponry, live targets are better, and it is very easy to make foreign pilots 'dual nationals'. Hot pursuits back into Polish airspace providing live targets for sophisticated friend/foe air defense systems. Putin propaganda cant hide large numbers of crashing aircraft, or burnt bodies coming home in body bags, and it would appear that is now the intent. It also cant hide how the war has turned the 1945 Russian 'special hate' for Nazis... into todays very similar Ukrainian 'special hate' for Russian troops. Afghanistan repeating itself. SD

US/Canadian production is to be held down, and put under ESG controls. Iran/Iraq/ME production increased to supply Europe and displace Russian oil. They can supply a lot more o/g and quicker than the US/Canada can, and the more they do the less extreme the price spike will be. 'Cause after this is over, we're all going to driving electric, and all those US/Canadian investments need to have already been paid off. It's just being smart. SD

Not a big risk. Russia already has weapons, and still needs USD/Euro to pay for what it needs - can't easily do that with Yuan. In the near term there is no real reserve currency alternative, in the long term it just accelerates replacement with a functional digital currency equivalent. All good. Today the sanctions are primarily banking, tomorrow it would seem that oil will be added, the day after - the illegal drug trade selling into the West? When the troops coming back from the Ukraine start talking about what they saw/did, 'external' news feeds cannot be totally kept out, and ruthless rich men become poor - what do you think happens? Putin in a box, and we all go back to being friends again. He pushes the button, we all lose. Go back to being a gang level street punk, or take care of the problem? SD

The primary end buyers of black market oil are India and China. In simplified terms, the oil sanctions discussion is remove Iranian sanctions, and impose Russian ones; China and India sell their Iranian purchases into Europe, buy the replacement crude from Russia, and keep the price difference. Temporary demand/supply imbalances met from SPR releases and new drilling. The US clearly sees new drilling/infrastructure repair as primarily coming from Iran/Iraq, not the US/Canada. The risks are relatively small, the increments very large, and egress already established. However, not what many from US oil want to hear. It would appear that the tool of choice to tame inflation pressure is going to be higher oil prices versus higher interest rates. Oil prices were already going to rise as Covid related recovery demand came to bear. However, it will rise a lot higher when Russian export terminals suddenly experience ongoing 'accidents', shutting in production. While Russia may take the Ukraine, sanctions are unlikely to stop until Putin is gone. High crude prices for at least another 12 months. SD

The reality is that the USSR used to be a super-power. Now it's just Russia, and its the junior in what are now three super-powers. The powers that be recognize they have little remaining time at the top, and want their 'glory' days back! Gaming wise they have little to lose - whether death by misadventure, or death by dementia/failing health, death is still very near. The world has moved on, whereas these individuals were not able to. THE big takeaway from 1945, was that an early and successful assassination would have saved millions of lives. The SECOND takeaway was that population/infrastructure replacement will touch off a long and sustainable economic boom. Putin in a box, as an economic policy; wars exist because it was not possible to reach a political solution. Lot of direct investment opportunities presenting themselves, but expect to lose everything invested. The reality is that trying to predict outcome on the other side of a difficult regime change is impossible. In the meantime try to take in as many Ukrainians as you can, get them to safety, support them in a fresh start, and get out of their way. Stand up to be counted when it mattered, and you will reap the rewards for DECADES to come. SD

We used to be mocked by those in love with their Ford 150, 250, etc. - primarily because we prefer the zip of the Mini (Baby BMW), and now the hybrid. Many of the folks who own those 150's, also own variable mortgages, and their overall costs (inflation) are now escalating by at least $100/month - each and every month. They knew they were taking a risk, but the money was good! and the risk? ... far away, and remote! But if enough people were 'wrong' at the same time, it really wasn't going to be 'their' problem anymore - it was going to be 'ours'. Welcome to poor mans moral hazard ! Obviously, if you took precautions, you're going to do very well; whereas those 'others' ... not so much. Just keep in mind that it's not a lot of fun when you're making a killing, and your neighbors are losing their homes to their new inability to make ends meet. Everyone has to live somewhere, but to keep your wealth - others have to allow it. 'Gated Community' is just the pretty word for 'compound' ... otherwise known as a 'gilded cage' SD

Physically sever where the (western) replacement parts/expertise cannot be easily replaced. Can't bribe if the pipe is physically bust, to repair they have to cannibalize from elsewhere, and accidents happen . Cut off the money flow (oil sales, banking, etc.) and they suffocate. Use military force to physically sever the drug pipelines to the west, and the oligarchs have to react. Quickly becomes a choice of give up the Ukraine, or give up your life. Peace negotiations take time, Putin's time is rapidly running out, the failures are mounting (Kiev airport), tanks/choppers are trapped in the Ukraine, and mercenaries now have the required weaponry. Ultimately the czar has to go, and everybody (oligarchs included) loses if he goes the nuclear route. Both Cesar, and Genghis Khan, were not able to survive their hordes SD

There is more than enough existing LNG capacity in Qatar and Oman. Tankers only need to go to/from the Netherlands &/or southern European facilities from which the LNG/gas can be subsequently piped - short trips. Tankers can also go to/from US Gulf & East Coast facilities direct to Rotterdam, at the already tested roughly 12/week - longer trips. There is a reason why the Netherlands o/g loading facilities were recently cyber attacked. https://www.spglobal.com/platts/en/market-insights/latest-news/energy-transition/091521-global-gas-power-sector-to-drive-middle-east-gas-demand-as-hydrogen-stays-small https://www.cpomagazine.com/cyber-security/fuel-troubles-continue-in-europe-as-oil-terminals-in-netherlands-and-belgium-suffer-cyber-attacks-unclear-if-breaches-are-coordinated/ Physically sever the Nord Stream pipelines, and you cant bribe to let the gas through There will be disruption, but the Russian gas will ultimately be permanently displaced - hence the new deal with China. The smart folks would also ban off-loading tankers from Russia, and physically sever the loading facilities on the Northern Sea Route to the Pacific. Russian would be forced to sell to China at a both a discount and a fearsome transportation differential - welcome to the egress bitch!. The Chinese in turn selling their now 'surplus' imports into Europe at elevated prices https://en.wikipedia.org/wiki/Northern_Sea_Route The banking stuff is important, but to really make it bite - states need to coordinate seizure of toys/assets/accounts, liquidate them, and keep the proceeds. Even in a Canada, protestor truck rigs are seized and sold, with proceeds going to the City of Ottawa to pay for damages Suddenly make lots of rich people poor, and they will be quick to assign blame. With mercenaries everywhere you go, Moscow becomes a very dangerous place. SD

The reality is that the Ukraine will be invaded .... however Russia then needs to keep it. The political solution is another Ukrainian state declaring itself independent, recognition by the west, and a provisional acceptance into NATO subject to missile placement in that state. Sanctions remain, Putin goes ballistic, and the Ukraine remains a no-mans land until both sides pack up and go home. Mercenaries exist for very good reasons, and are widely used by all. Sever the Nord Stream pipelines, such that they can't pump for a while, and can't be easily repaired under sanctions. Prices go up, Germany temporarily gets its gas from the ME/US instead, and everybody but Russia makes out like bandits. Call the bluff. SD