Energy Sector

[bizaro86]

29 minutes ago, mcliu said:

@bizaro86 Thanks for the interesting insight! It certainly corroborates with CNQ's operating & financial results. What do you think they're doing differently? CNQ has been smart capital allocators too, using their size/balance sheet to acquire during downturns. Btw, do you have any thoughts on the teams at CVE/SU? Thanks!

 

I think a big part of it is an owner mindset. Murray Edwards is a low cost operator and has become a billionaire by purchasing cheap oil and gas assets and sweating them. That mindset has become culturally ingrained in CNQ, basically owner operator culture.

 

Re: CVE/SU, I have less insight there. Both (especially CVE) have been on the leading edge technologically, but I'm not sure that is a big asset in this industry. The barriers to entry tend to be based on land ownership not technology ownership. CVE management has also turned over basically 100% since I left the industry, and new management does seem better than previous management, so my thoughts may not be relevant. SU is probably the "grand dame" of the industry, and CVE and SU both have better oil sands land bases than CNQ. I have no educated opinion on SU management. 

[Spekulatius]

This makes a ton of sense:

https://finance.yahoo.com/news/u-europe-energy-agreement-expected-193056888.html

 

NG is much more important than Oil at this point for Europe and that's where the focus should be. Russia's NG can become stranded for a good while , if other supplies can be lined up. That's just not possible with oil embargos.

[Pelagic]

Good thread on underinvestment in the O&G space. A poll in a comment below of O&G executives and their reasoning (shareholder pressure to increase capital returns) for not drilling is also interesting when you compare it to the narrative in the media which mainly focuses on blaming government/environmental measures.

 

 

 

[fareastwarriors]

1 hour ago, Pelagic said:

Good thread on underinvestment in the O&G space. A poll in a comment below of O&G executives and their reasoning (shareholder pressure to increase capital returns) for not drilling is also interesting when you compare it to the narrative in the media which mainly focuses on blaming government/environmental measures.

 

 

 

 

It will take time and sustained prices to bring on more drilling and eventual production. 

 

[Sweet]

Oil price is just a shade over $100 but oil products are trading as high as $275 equivalent according to this article.  It argues a recession is the only way to tame prices through demand destruction. 
 

https://www.bloomberg.com/opinion/articles/2022-05-09/crude-hovers-at-110-a-barrel-but-the-refinery-margin-makes-us-pay-a-lot-more?sref=5dj0X2VO

[Ulti]

https://podcasts.apple.com/us/podcast/javier-blas-explains-how-commodity-trading-shops-really/id1056200096?i=1000559307878
 

by the same author

[lnofeisone]

And this is with China being in the lockdown and we are currently in the shoulder season. Diesel market is going absolute bonkers. 

 

Here is another article (I don't find it particularly well researched) that points to electricity shortages in the US.

https://www.wsj.com/articles/electricity-shortage-warnings-grow-across-u-s-11652002380

[SharperDingaan]

The NA reality is that the infrastructure was built for a different time, that has long since passed. 

This is not a simple repeat of the 70's oil crises; raise supply, and the whole problem goes away. This time around it is the fuels themselves transitioning to cheaper alternates, auto makers changing to entirely new tech (IC versus electric engines), and blockchain technology fundamentally re-making the old 'world orders'. Organic and disruptive change, without a plan, scaring the sh1t out of everyone.

 

Example: National electric grids are elderly, and were just not designed for this century's requirements. Nukes providing base load are at retirement, and will not be replaced until waste disposal is permanently addressed. Clean energies are limited primarily by energy storage, and 'not in my back yard'. 

• US coastal electricity should be almost entirely from offshore windmills 
• Spent fuel rods; packed into rockets, and fired into the sun.  

The obvious approach is to asset strip the o/g investments, and redeploy the capital. 

Same as the energy majors have already been doing, and for some time.

 

SD

Edited May 11, 2022 by SharperDingaan

[Gamecock-YT]

6 hours ago, Sweet said:

Oil price is just a shade over $100 but oil products are trading as high as $275 equivalent according to this article.  It argues a recession is the only way to tame prices through demand destruction. 
 

https://www.bloomberg.com/opinion/articles/2022-05-09/crude-hovers-at-110-a-barrel-but-the-refinery-margin-makes-us-pay-a-lot-more?sref=5dj0X2VO

 

thanks for the article, product tanker rates have also skyrocketed since the russian oil embargo.  

[Ulti]

https://ourfiniteworld.com/

 

Seems like an excellent blog on all things energy related. Just starting to rread.

[changegonnacome]

@SharperDingaan we’ve chatted over in the “TOP” thread….and coming around to O&G exposure as logical place to look to deploy capital in this inflationary bear market.

 

Can I ask what areas/names your invested in, seems to me you’ve thought a great deal about this? Thanks.

[SharperDingaan]

3 hours ago, changegonnacome said:

@SharperDingaan we’ve chatted over in the “TOP” thread….and coming around to O&G exposure as logical place to look to deploy capital in this inflationary bear market.

 

Can I ask what areas/names your invested in, seems to me you’ve thought a great deal about this? Thanks.

 

This is very dependent upon basin, risk tolerance and holding period.

As Canadian investors, we invest only in the WCSB, and only on the TSX. Better investor protections, real companies, and none of the typical Vancouver/Alberta bucket shop drama.

 

The easy money has already been made, the 300,000 share blocks at CAD 1-2 that were widely available 18-24 months ago are now gone. Today it's more can you reasonably expect a double within 12 months, and do you need dividends or not.

 

Look at the drillers (ESI, PD, etc.) and the related services (MLT). Lot of possibilities in this space, but do your own DD. There are going to be no issues passing on inflation increases, and cold stacked rigs are back in service. Industry 2022/23 earnings are very likely going to be at/near records.     

 

We also hold OBE, WCP, GXE, and a stub of CVE.WT. Primarily dividend plays at this point (after OBE refinances), the share price doubling in 1-2 years, and potential dividend cash yields in the 8-12% range. We hold the CVE stub solely because of the cash flow that CVE is generating; at some point they will do something with it.

 

The caution here, is to have a systematic withdrawal plan - easy to be a hero in a boom, not so much in the bust.

Pay your mortgages off, buy houses, stack T-Bills away somewhere, but take the gains off the table.

 

Good luck!

 

SD

Edited May 21, 2022 by SharperDingaan

[Paarslaars]

Other than some of the names SD mentioned, OXY seems to be a rather save place to store your money. They are substantially reducing their debt and because good old Warren seems to be buying continuously that puts a bit of a floor on the stock price.

[changegonnacome]

On 5/21/2022 at 2:33 PM, SharperDingaan said:

 

This is very dependent upon basin, risk tolerance and holding period.

As Canadian investors, we invest only in the WCSB, and only on the TSX. Better investor protections, real companies, and none of the typical Vancouver/Alberta bucket shop drama.

 

The easy money has already been made, the 300,000 share blocks at CAD 1-2 that were widely available 18-24 months ago are now gone. Today it's more can you reasonably expect a double within 12 months, and do you need dividends or not.

 

Look at the drillers (ESI, PD, etc.) and the related services (MLT). Lot of possibilities in this space, but do your own DD. There are going to be no issues passing on inflation increases, and cold stacked rigs are back in service. Industry 2022/23 earnings are very likely going to be at/near records.     

 

We also hold OBE, WCP, GXE, and a stub of CVE.WT. Primarily dividend plays at this point (after OBE refinances), the share price doubling in 1-2 years, and potential dividend cash yields in the 8-12% range. We hold the CVE stub solely because of the cash flow that CVE is generating; at some point they will do something with it.

 

The caution here, is to have a systematic withdrawal plan - easy to be a hero in a boom, not so much in the bust.

Pay your mortgages off, buy houses, stack T-Bills away somewhere, but take the gains off the table.

 

Good luck!

 

SD

 

Appreciate the reply SD & insights......very interesting space.....but own DD is key. Thanks again for the pointers.

[Sweet]

@SharperDingaanin your opinion, where are we in the cycle.  Are you taking profits off the table now, if not when is a good time to start?

[SharperDingaan]

2 hours ago, Sweet said:

@SharperDingaanin your opinion, where are we in the cycle.  Are you taking profits off the table now, if not when is a good time to start?

 

Lot of variables, so everyone will be different. Over the summer we expect a significant jump in the price of WTI, and will be using it to take $ off the table and reposition.

 

Cycle wise, we look at doubling cycles, and less at position in the larger o/g cycle. The 1.50->3.00; the 3.00->6.00; the 6.00->12.00, the 12.00->24.00; the 24.00->48.00 

 

The earlier the doubling the more company specific it is, the later the doubling the more the larger o/g cycle it is. Generally we only play the first 2 cycles, recover our remaining capital in the 3rd, and age out the stubs into the 4th/5th cycle. But at the 5th cycle it's not really our game any more.

 

We assume a total wipe-out in the 5th cycle, have only house money at risk, and are net of 5-12x recovery of our original capital at risk. The reality though, is that a total wipe-out would be an anomaly.

 

Different approach, but it ensures that we always survive, and that the market always works in our favor.

And when the market periodically crashes, we always have the capital to take advantage of it. 

 

SD

 

 

Edited May 25, 2022 by SharperDingaan

[Sweet]

@SharperDingaaninteresting rules of thumb.  
 

Think many of the O&G investors on Twitter forget the cyclic nature of the industry.

 

In your opinion, what cycle are we in?  

 

Feels like late 2nd or 3rd doubling, but I’ve noticed that booms and bust tends to last about 7 years.  From 2014 we had 7 down.  Possibly in 2nd year of boom but given short nature of shale.  I can see that cycles could be either shorter because of Shale’s responsiveness, or longer because Shale’s responsive keeps investment suppressed for longer.

Edited May 25, 2022 by Sweet

[SharperDingaan]

4 minutes ago, Sweet said:

@SharperDingaaninteresting rules of thumb.  
 

Think many of the O&G investors on Twitter forget the cyclic nature of the industry.

 

In your opinion, what cycle are we in?  

 

Feels like 2 or 3rd, but I’ve noticed that booms and bust tends to last about 7 years.

 

From 2014 we had 7 down.  Possibly in 2nd year of boom but given short nature of shale, I can see that cycles could be either shorter or longer.

 

Bottom part of the S curve generating additional supply.

Depletion on existing wells, plus shortages of mud/sand/chemical/casing putting a major drag on net growth from drilling. Heavy crude shortages limiting refining, and limiting the uptake of light oil. SPR releases masking the true state of affairs. All good 

 

SD

    

[Sweet]

@SharperDingaanthanks

[Ulti]

https://www.yahoo.com/finance/news/energy-chief-says-canada-could-133922364.html

[Cor]

@SharperDingaanThank you for your insights into this sector. Been following your O&G trades for PD, WCP and OBE - very pleased with how this balanced the rest of the portfolio in 2022. Used to hold just XOM but rotated into these instead last year and doubled down. 
 

In your opinion, if one were to hold either PD or ESI into end of this year, which do you think would do better?

[SharperDingaan]

Sorry but we cant speak to this. 

We've done very well by both names, but over the summer we will be taking $ off the table to fund our London RE. Purely a risk management thing, and not a judgement on the prospects of either company.

 

SD

 

[Cor]

On 5/26/2022 at 11:08 AM, SharperDingaan said:

Sorry but we cant speak to this. 

We've done very well by both names, but over the summer we will be taking $ off the table to fund our London RE. Purely a risk management thing, and not a judgement on the prospects of either company.

 

SD

 

Thank you SD. And best of luck on the London venture. 

[nwoodman]

Interesting interview with Josh Young

- Covers his Sandridge position in detail

- Lays out his thinking in terms of oil price rising to $130-140/bbl which finally leads to demand destruction, oil drops 30% to 90-100> Stimulus then leads to all time inflation adjusted high for oil

-TOTAL and Shell competing to blow up the most shareholder capital - renewables/powegen not their core competency

- Interesting commentary on OXY.  Much better values to be found in smaller names.  Cultural issues at the company according to his contacts.  1:08:14

 

 

Edited May 31, 2022 by nwoodman

[Sweet]

I find Josh quite irritating on Twitter, but he comes across well in the video.

 

I’d be hesitant to predict oil prices, but for energy investors, a large spike higher would be destructive to demand, and be bad for equities.