Fairfax stock positions

[dartmonkey]

This sounds reassuring for 2025 because they are hedged but maybe not for subsequent years.

 

[buylowersellhigh]

12 hours ago, nwoodman said:

I finally got around to pulling together some notes for Strathcona (attached). Thanks, @SafetyinNumbers. This was another constant reminder of what Fairfax has been up to over the last seven years. I am truly impressed with what Adam Waterous has pulled together—a textbook roll-up. No wonder Prem was so full of praise in the Annual Report.

 

"We met Adam Waterous and the team at Waterous Energy Fund (“WEF”) in 2018. After a storied 27-year career in

energy in Calgary, Adam was raising money for a fund to invest in and consolidate sub-scale, long life oil and gas

businesses and assets in Canada. We were impressed by Adam’s focus on long term returns on capital. The WEF

team had extensive experience in investing in oil and gas and Adam had built Waterous & Co, starting in 1991, into

the largest oil and gas M&A firm in the world before selling it to Scotiabank in 2005. We invested $129 million

which is currently valued at approximately $290 million through a stake in publicly traded Strathcona Resources.

WEF built this company from scratch over 7 years into Canada’s 5th largest oil company producing close to 200,000

barrels per day of long life, low cost, very profitable oil. We then committed another $750 million to WEF’s next

fund. The WEF team has already deployed a total from the fund of $323 million for a controlling stake in Greenfire

Resources, a publicly traded oil company located in the Athabasca region of Canada. WEF’s latest investment is

another business with long life (even longer than Strathcona!), low decline assets producing approximately 20,000

barrels per day that is Canada’s 11th largest oil company by proved plus probable reserves. In every respect, Adam

has proven an outstanding Fairfax partner."

 

Between Strathcona and WEF III, they probably have $1.5-2bn of IV in the making. I didn't have time to dive into Greenfire Resources, but given the pedigree of previous investments, you know it is going to make sense. I have no crystal ball on oil prices, but I think it is a good use of insurance float and consistent with the "100-year company" aspiration.

 

Strathcona Resources Overview.pdf 3.82 MB · 35 downloads

You should post this in the strathcona board 

[nwoodman]

6 hours ago, ValueNation said:

Amazing, @nwoodman, thanks for this comprehensive analysis. 

 

I noted this quote from your write-up:

 

Also, virtually all Strathcona’s exports go to the U.S., so any trade spat or border tax on carbon (a hypothetical future U.S. carbon tariff) could impact it. But North American energy integration is deep, so this is a low risk. By contrast, peers who export globally (like those in OPEC) have to consider trade/shipping risks (Strathcona does not).

 

Do you still consider this to be a low risk in the current political climate? I take the point that in the long term view this risk should fade, but in the short and even medium term, I wonder if the market will ascribe more risk than you might suggest.

 

Thanks again for this.

I think like a lot of us, the on-again off-again tariff spat makes it difficult to call.  Without getting into the politics, I think energy/oil is almost too important to receive the full brunt if Tariffs really do go ahead. 
 

https://www.canadianenergycentre.ca/explainer-why-canadian-oil-is-so-important-to-the-united-states/#:~:text=“Light” and “heavy”,qualities in between the two

 

When I started assembling the notes SCR was trading in the low 20’s, at that price the risk seemed priced in.  The share price has since bounced so a slightly lower margin of safety now.  
 

A higher risk in the short to medium term is oil in the 40’s.  Longer term that will be a great setup.  For a long term holder of assets that sort of volatility is an opportunity for Fairfax not a threat.  I think we can all see what they (Fairfax) are assembling and that is a basket of these types of assets.  As long as you don’t overpay you do OK over the full cycle. OK => Good, with float leverage.