Energy Sector

[Sweet]

3 hours ago, Viking said:

This post was the first made on this thread back in 2020. @james22 freaking brilliant call. Just as relevant today? 

 

Eric Nutall is not my favourite oil analyst… but i do like his chart (i prefer Arjun Murti and Josh Young). 

 

It’s not September 2020 anymore.  I was 90% O&G at the time.  I think energy stays a comparatively low multiple investment for many years.  For you to make out from here, I think companies have to buy a hell of a lot of shares back, or pay fat dividends and many aren’t.  Which comes to the major problem with these sector, in my view management generally is poor and not particularly shareholder friendly.  It’s obvious what many of them should be doing yet they don’t do it.

[james22]

9 hours ago, Viking said:

Just as relevant today? 

 

I believe so, yes.

 

For all the same reasons.

[TwoCitiesCapital]

9 hours ago, Sweet said:

It’s not September 2020 anymore.  I was 90% O&G at the time.  I think energy stays a comparatively low multiple investment for many years.  For you to make out from here, I think companies have to buy a hell of a lot of shares back, or pay fat dividends and many aren’t.  Which comes to the major problem with these sector, in my view management generally is poor and not particularly shareholder friendly.  It’s obvious what many of them should be doing yet they don’t do it.

 

It's not September 2020 anymore - exactly. It's been 3-years of under-supply and we've burned through commercial and government reserves. 

 

Barring a recession - the shortage will grow even more acute. Perhaps even inside of one, but I'm much less optimistic there. 

 

Plenty of companies that are consolidating the industry, paying fat dividends, and/or repurchasing shares. 

 

The easy money has been made, but I think energy will be a leading sector for returns for several years to come given how cheap it started and how unproductive policy has been to ease shortages. 

[rkbabang]

11 hours ago, Viking said:

You can’t make this stuff up. We haven’t even reached peak coal usage yet. Peak oil or gas?

 

Global Coal Use Set to Stay at Record Levels This Year, IEA Says

 

“Lower natural gas prices in the US are also encouraging a move away from coal, the IEA’s report said.”

 

https://www.bloomberg.com/news/articles/2023-07-27/global-coal-use-set-to-stay-at-record-levels-this-year-iea-says

 

 

I know Germany in shutting down all its clean Nuclear plants has decided that Coal is the future.

[TwoCitiesCapital]

41 minutes ago, TwoCitiesCapital said:

 

It's not September 2020 anymore - exactly. It's been 3-years of under-supply and we've burned through commercial and government reserves. 

 

Barring a recession - the shortage will grow even more acute. Perhaps even inside of one, but I'm much less optimistic there. 

 

Plenty of companies that are consolidating the industry, paying fat dividends, and/or repurchasing shares. 

 

The easy money has been made, but I think energy will be a leading sector for returns for several years to come given how cheap it started and how unproductive policy has been to ease shortages. 

 

Would also add with inflation the top of everyone's mind - energy and energy producers are the most direct way to hedge that and CAN move inversely to markets during inflationary periods as demonstrated in 2022. 

 

If we get inflation again, the only stocks you're gonna want to are energy producers and marginal producers of base commodities that will see incremental profits explode. 

[TwoCitiesCapital]

10 minutes ago, rkbabang said:

 

 

I know Germany in shutting down all its clean Nuclear plants has decided that Coal is the future.

 

Really wish this trend was heading the other way. I understand the concerns around nuclear - I have a few myself.

 

But I cannot envisaged supporting the burning of coal while shutting down existing plants with useful life left

 

If you're concerned about the safety of it, put the plants in the middle of nowhere and pipe the energy in. You'll lose 50+% of it in transmission, but it's SOOOO efficient and uranium so cheap that you can still probably cut energy prices and emissions go down dramatically even with the most inefficient approach. 

 

And then the low hanging fruit becomes improvements to infrastructure for more efficient delivery instead of worrying about the intermittency or pollution from generation. I'd imagine that's a very manageable problem to tackle. 

 

[rkbabang]

16 minutes ago, TwoCitiesCapital said:

 

Really wish this trend was heading the other way. I understand the concerns around nuclear - I have a few myself.

 

But I cannot envisaged supporting the burning of coal while shutting down existing plants with useful life left

 

If you're concerned about the safety of it, put the plants in the middle of nowhere and pipe the energy in. You'll lose 50+% of it in transmission, but it's SOOOO efficient and uranium so cheap that you can still probably cut energy prices and emissions go down dramatically even with the most inefficient approach. 

 

And then the low hanging fruit becomes improvements to infrastructure for more efficient delivery instead of worrying about the intermittency or pollution from generation. I'd imagine that's a very manageable problem to tackle. 

 

 

Sure and modern designs are far less dangerous still and far cheaper to build, but nothing is better than the feeling of firing up those coal plants and pouring tons of soot into the air while patting yourself on the back in public for saving the planet from politically incorrect clean energy.

 

[TwoCitiesCapital]

1 minute ago, rkbabang said:

 

Sure and modern designs are far less dangerous still and far cheaper to build, but nothing is better than the feeling of firing up those coal plants and pouring tons of soot into the air while patting yourself on the back in public for saving the planet from politically incorrect clean energy.

 

 

 

I guess so

 

I'm in the secondary markets to make money and will continue to bet on the idiocy of policy makers by buying oil companies, but would prefer to be buying uranium ones.

 

Just sold Cameco after it's recent run-up. Will look to re-add, but until policy makers get serious about nuclear, I just can't see a path for a long-term exposure to it other than trading spikes/dips in sentiment as the uranium shortage thesis plays out. 

[Sweet]

1 hour ago, TwoCitiesCapital said:

 

It's not September 2020 anymore - exactly. It's been 3-years of under-supply and we've burned through commercial and government reserves. 

 

Barring a recession - the shortage will grow even more acute. Perhaps even inside of one, but I'm much less optimistic there. 

 

Plenty of companies that are consolidating the industry, paying fat dividends, and/or repurchasing shares. 

 

The easy money has been made, but I think energy will be a leading sector for returns for several years to come given how cheap it started and how unproductive policy has been to ease shortages. 

You looking at it incorrectly in my opinion.  The reason for investing then was price which was the opportunity.  We are at a level right now where much above starts to 1) disrupt demand, and 2) bring additional supply to the market.  We were at $130 dollars at many oil stocks still down from their high.  I was 90%+ energy in about September 2020 and now I’m about 10%, there are better opportunities IMO.

 

 

Edited September 21, 2023 by Sweet

[Viking]

11 hours ago, Sweet said:

It’s not September 2020 anymore.  I was 90% O&G at the time.  I think energy stays a comparatively low multiple investment for many years.  For you to make out from here, I think companies have to buy a hell of a lot of shares back, or pay fat dividends and many aren’t.  Which comes to the major problem with these sector, in my view management generally is poor and not particularly shareholder friendly.  It’s obvious what many of them should be doing yet they don’t do it.

@Sweet i am not sure the names you are speaking of. Note, i am after 15-20% per year returns over the next year in the sector (not 100% in 12-24 month type returns).
 

I follow Suncor closely. With their windfall profits from energy the past 2 years they have been:

1.) paying down debt aggressively.
2.) buying back stock aggressively (i think 6 or 7% of shares outstanding per year) at very low prices.

3.) paying a good dividend (4.4% yield today).

 

In another 6 months or so they will likely hit their net debt target. At that point, most of the free cash flow will go to share buybacks and probably a higher dividend
 

The company recently announced a 10% reduction in total workforce that will save it about $400 million per year. The new CEO is laser focussed on making Suncor a simpler, more focussed company. He also looks to be VERY shareholder friendly.
 

Bottom line, i think there are some pretty compelling opportunities in the energy sector (still). Not as cheap as 2020. But the comlanies are in much better shape (their balance sheets). And the outlook for energy is also much better - oil is at $90 and my guess is it goes higher from here.

 

OPEC (Saudi’s) appear back in control of the oil market. The US has played its SPR card. I’m not a conspiracy guy… but the Saudi’s and Biden/Democtrats clearly hate each other. What will higher oil prices do you Biden’s chances of reelection in 2024? I think the Saudi’s are VERY motivated to keep prices high for the next year. Russia probably as well - want to get the upper hand in the Ukraine war? Get Trump elected. Geopolitics sometimes matters.

Edited September 21, 2023 by Viking

[Ulti]

https://www.msn.com/en-us/money/companies/michael-bloomberg-pumps-500-million-into-bid-to-close-all-us-coal-plants/ar-AA1h0rYH

Mike trying to do his part

[Sweet]

20 minutes ago, Viking said:

@Sweet i am not sure the names you are speaking of. Note, i am after 15-20% per year returns over the next year in the sector (not 100% in 12-24 month type returns).
 

I follow Suncor closely. With their windfall profits from energy the past 2 years they have been:

1.) paying down debt aggressively.
2.) buying back stock aggressively (i think 6 or 7% of shares outstanding per year) at very low prices.

3.) paying a good dividend (4.4% yield today).

 

In another 6 months or so they will likely hit their net debt target. At that point, most of the free cash flow will go to share buybacks and probably a higher dividend
 

The company recently announced a 10% reduction in total workforce that will save it about $400 million per year. The new CEO is laser focussed on making Suncor a simpler, more focussed company. He also looks to be VERY shareholder friendly.
 

Bottom line, i think there are some pretty compelling opportunities in the energy sector (still). Not as cheap as 2020. But the comlanies are in much better shape (their balance sheets). And the outlook for energy is also much better - oil is at $90 and my guess is it goes higher from here.

Suncor might be doing well now but what have they done for shareholders in the last 15 years.  It’s not a company I’m familiar with but the sector as a whole just underperforms.  I checked the PE - it’s at 10 a healthy multiple.  I think oil price spikes higher on occasions but demand gets hurt when it does and supply responds - faster than ever.  I just don’t expect multiple expansion, most companies don’t deserve it.

[rkbabang]

1 hour ago, TwoCitiesCapital said:

 

 

I guess so

 

I'm in the secondary markets to make money and will continue to bet on the idiocy of policy makers by buying oil companies, but would prefer to be buying uranium ones.

 

Just sold Cameco after it's recent run-up. Will look to re-add, but until policy makers get serious about nuclear, I just can't see a path for a long-term exposure to it other than trading spikes/dips in sentiment as the uranium shortage thesis plays out. 

 

I'm up significantly in SRUUF and think there is a huge upside still to come.  I hesitated buying Cameco or the other uranium companies while trying to understand them and missed out on the run-up so far.  Physical Uranium seemed like the surest way to play it to me, I always hesitate to buy mining companies.

 

[TwoCitiesCapital]

1 hour ago, Sweet said:

You looking at it incorrectly in my opinion.  The reason for investing then was price which was the opportunity.  We are at a level right now where much above starts to 1) disrupt demand, and 2) bring additional supply to the market.  We were at $130 dollars at many oil stocks still down from their high.  I was 90%+ energy in about September 2020 and now I’m about 10%, there are better opportunities IMO.

 

 

 

I definitely take queues from price. I've been trimming WCP every time it was above $10 and buying back every time it fell to $8-9 for the last 2-years. I've been trading in and out of PBR with it's wild swings in prices and dividends. Have had multiple round trips and tons of trading profits from my energy names.

 

But $12/share on WCP 2 years ago is different than $12 today. Companies have consolidated the industry some, have delevered some, have retained earnings some, and have repurchased shares/dividends along the way. And now the exhaustion of inventories supports  "$90+ is the new $70+" for the foreseeable future barring a recession (and perhaps even then).

 

 

[TwoCitiesCapital]

22 minutes ago, rkbabang said:

 

I'm up significantly in SRUUF and think there is a huge upside still to come.  I hesitated buying Cameco or the other uranium companies while trying to understand them and missed out on the run-up so far.  Physical Uranium seemed like the surest way to play it to me, I always hesitate to buy mining companies.

 

 

Definitely taking some basis risk by buying the miners over the commodity. They don't always move as expected.

 

But I wanted the operating leverage to enhance the shortage dynamics. I don't need it to perform at a specific time like I would gold so can have patience if they behave weirdly. 

 

And while I don't know much about the SMR industry, and expected roll-out profitability, I liked that Cameco bought Westinghouse out of bankruptcy and now has exposure to the manufacturing of new plants if policy makers ever take their heads out of their asses. 

Edited September 21, 2023 by TwoCitiesCapital

[UK]

https://www.bloomberg.com/news/articles/2023-09-21/hedge-fund-manager-jampel-stops-shorting-fossil-fuel-stocks?srnd=premium

[Castanza]

16 hours ago, rkbabang said:

 

I'm up significantly in SRUUF and think there is a huge upside still to come.  I hesitated buying Cameco or the other uranium companies while trying to understand them and missed out on the run-up so far.  Physical Uranium seemed like the surest way to play it to me, I always hesitate to buy mining companies.

 

Yup I own a small amount of this as well. Payed attention when Kuppy started pounding the table on uranium. At some point the world will wake up and realize it needs nuclear. 

[KJP]

On 9/21/2023 at 2:50 AM, Sweet said:

 For you to make out from here, I think companies have to buy a hell of a lot of shares back, or pay fat dividends and many aren’t.  Which comes to the major problem with these sector, in my view management generally is poor and not particularly shareholder friendly.  It’s obvious what many of them should be doing yet they don’t do it.

 

Unit Corp. (UNTC) may interest those who agree with this view.

[thowed]

18 hours ago, rkbabang said:

I always hesitate to buy mining companies.

 

 

This.

 

I'm happy with one or two Oil Royalty Cos where management is OK, but for Uranium Gold etc. Physical is generally more reliable.

[Sweet]

Not seeing much a slow down in oil.  This is the problem with this sector.  The companies should be shitting money out of their ass and giving it back to shareholders who have got wrecked if you were a long term holder.  Instead it’s going to new production, new average highs in production from the sector which supposedly found religion.

[rkbabang]

1 hour ago, thowed said:

 

This.

 

I'm happy with one or two Oil Royalty Cos where management is OK, but for Uranium Gold etc. Physical is generally more reliable.

 

Same.  I've had some success with oil companies, but even with oil about half the time I lose my shirt.   I haven't tried investing in gold or uranium mining companies yet, and I most likely will not.

 

[UK]

https://www.bloomberg.com/news/articles/2023-09-25/short-sellers-mount-attack-on-esg-stocks-bloated-from-green-hype?srnd=premium-europe

Edited September 25, 2023 by UK

[Spekulatius]

Looks like the overdue correction in the energy markets is here. I don't think crude can really hold north of $90/brl for long periods of time. For example -petrochemicals have been very weak and that is one area that has quite a bit demand elasticity. The Saudi's have been creating a tight supply and high spot prices, but the future curve is a different story and predicts $70/brl a few years out.

 

I have no idea who is correct here, but the shares of energy companies trade more based on longer term future prices than spot ( as they should).

 

I own PBR-A and  bit of SU and keep what I have, since they are great dividend payers.

[TwoCitiesCapital]

10 minutes ago, Spekulatius said:

Looks like the overdue correction in the energy markets is here. I don't think crude can really hold north of $90/brl for long periods of time. For example -petrochemicals have been very weak and that is one area that has quite a bit demand elasticity. The Saudi's have been creating a tight supply and high spot prices, but the future curve is a different story and predicts $70/brl a few years out.

 

I have no idea who is correct here, but the shares of energy companies trade more based on longer term future prices than spot ( as they should).

 

I own PBR-A and  bit of SU and keep what I have, since they are great dividend payers.

 

I just repurchased some of the PBR I sold @ 15.25 and some of the WCP.to that I had sold at ~$11.50. Rode them up, missed a 10+% drop on the shares sold, and proceeds used to repurchase even more shares than were sold growing the allocation and the dividend income.

 

I think some weakness now makes sense given the recent dollar strength and the coincident rally in the USD over the same period. Ultimately I expect Russia might attempt to weaponize energy exports again . They've already done it with diesel and China has already bulked up their reserves if they need to take a backseat from buying for a a bit.

 

The Saudis don't owe us any favors either and may continue to support price via reduced production targets along the way. $90+ may not be sustainable outside of some geopolitical shock, but I think $70-80 is basically a given barring an immediate recession. $70-80 is still very profitable for most producers and this is still the sector I want to own for the next decade as $70 5-years from now strikes me as a joke. 

Edited October 4, 2023 by TwoCitiesCapital

[SharperDingaan]

Been shopping as well ...

 

Keep in mind that the more EV takes over the world, the more valuable heavy oil gets; as it cracks into the feed-stock for asphalt, etc. Cars still need to run on roads, the roads need asphalt, and we get asphalt feed-stock from the bottom-middle layers of the heavy oil crack. If you want the benefits .... you have to crack heavy oil, and the more heavy fractions you want the more you will displace light oil (primarily shale). 

 

Today; heavy oil is typically despised; publicly seen as highly polluting to get out (oil sands mining/refining), and as 'dirty oil' when burnt (higher carbon release). Yet it is also routinely extracted in quantity; with minimal pollution via cold flow, water flood, and C02 sequester techniques, often at depletion rates < 10%/yr.

 

Market miss pricing is a wonderful thing 

 

SD

  

Edited October 4, 2023 by SharperDingaan