Energy Sector

[Spekulatius]

US overthrowing Maduro is not that easy. It’s not so much Venezuela’s oil production I am worried about but Guyanas. They are small now but the production is supposed to grow over 1.2M BOE in 2028 and that’s significant. If Venezuela does controll the offshore oil fields, none of this will happen. 

Edited December 13, 2023 by Spekulatius

[Dalal.Holdings]

Unlike the Gulf War, Maduro will need a strong navy to gain and hold control of offshore fields. It won’t be as simple as rolling across a desert into Kuwait and taking its onshore fields. 
 

He would simply be blown out of the water by the U.S. if he tried to make a play for Guyana’s offshore fields. It would be child’s play for the overpowered U.S. Navy to defend Guyana’s offshore oil.

Edited December 13, 2023 by Dalal.Holdings

[Xerxes]

I should add that the 1990-91 invasion of Kuwait, there was more to it than just land grab because Kuwait at one time was part of Mesopotamia. And I don’t mean oil.
 

Sure Media likes to over blow everything “…., and with Kuwait he will have control over xxxxx blah blah “ like a finale episode of Game of Throne ending in a cliffhanger.  
 

The reality is that coming out of Iran-Iraq War, Saddam had two major problems:

 

Firstly, he had a massive wartime army that was structurally build up over eight years, that he couldn’t just unravel with a magic wand. Most of these men would have no jobs, massive unemployment would create problems for an already war ravaged economy. They needed to be kept busy. 
 

Secondly, both the Kingdom and the Kuwait owed him money (I don’t remember the details anymore). He was sustained largely by the Gulf powers money but there was more to it. He bled for them, without him the tsunami would have broken through the dam toppling monarchies in its wake. … Now I am getting overdramatic 

[NnnnotSoSmart]

"The emergence of the “Magnificent Seven” has dominated all investment thinking. Owning these seven mega-cap growth stocks has become mandatory for survival in today’s invest- ment world. These seven stocks alone now constitute almost 30% of the S&P 500’s weighting and advance daily in price.

Waking up after a fitful night’s sleep, dominated no doubt by worries over underperformance tied to being underweight this group, a portfolio manager gazing into the mirror, might debate what “Magnificent Seven” stocks must be purchased the coming day.

 

“NVIDIA has pulled back a little here; the stock is expensive here, but everyone agrees AI will be taking over the world....” On the other hand, they muse: “ Microsoft looks a bargain at only 30x earnings [only twice its long-term earnings growth!] and aren’t they doing AI too—look, they just hired that AI guru from chatGPT to run their AI business ?” Then again, “Meta’s multiple is below its estimated growth rate and thankfully, Mr. Zuckerberg has stopped wearing those silly glasses—isn’t the Metaverse just another form of AI?” Or maybe Amazon: “Now there’s a great way to play AI—even though the stocks trade at a PE of 40, everyone forgets that almost all their earnings come from server farms and cloud computing—remember: you want to own the retailers of picks and shovels, not the miners—I think my grandfather told me that.” Google and Apple are also considered. Ultimately, our sleep-deprived investor considers Tesla – maybe both the stock and the product. “After all, the IEA reiterated how EVs are taking over the world. Everyone in my neighborhood has a gleaming $100,000 Model S – one certainly does not want to be left out. It’s settled then: today, I buy Tesla—both the car and the stock.”

Seldom, if ever, would our investor think about energy."

2023.Q3 GR Market Commentary.pdf

[Dalal.Holdings]

https://www.bloomberg.com/news/articles/2023-12-16/red-sea-shipping-chaos-as-us-military-defends-threat-to-commercial-vessels?srnd=premium

 

Quote

The US military said it shot down 14 drones in the Red Sea launched from Houthi-controlled areas of Yemen as attacks on commercial carriers continue from the Iranian-backed group, threatening havoc for world trade.

...

The drones were struck down by the USS Carney guided missile destroyer early on Saturday. The UK navy also repelled a suspected drone attack.

 

U.S. and UK militaries involved in repelling attacks

[Sweet]

Biden still want a deal with Iran?  Or is that finally dead?

[SharperDingaan]

It is far more likely that the shipping chaos is deliberate manufacturing of a 'war premium', intended to raise the price of all crude. The Houthi's are proxies in the Saudi-Iran contest for control over Yemen, and both Saudi/Iran will benefit in a big way- if a 5% war premium can be tacked on. Dropping drones/rockets on passing tankers is simply good business; that also demonstrates anti-Israeli protest over Gaza.

 

The magnificent seven is little different to Nortel back in the day; PM's were forced to hold it on penalty of being fired, and dumped it en-mass as soon as they could. In the the age of 'bots, we merely go down quicker!

 

The financial press is currently doing near everything it can to slag "buy back's"; it's not a buying signal, management uses it to 'goose' results, it's a way of getting around stock options, been burned on these before, yada, yada .... Yet utter silence, about o/g production manufacturing, big stock buybacks (>5% of o/s shares) at well below book value, high dividends, etc, etc. Good! cheap like borscht, and more for me  

 

If my dividend paying energy stock has a very good chance of at least doubling in two years, I really don't really care if today -  she looks like a curvy pig wearing lipstick. With sizeable monthly/quarterly dividend cash, and a 36%+ CAGR; I just call my pig Marilyn, and give her a kiss every day

 

PM's measured by quarterly performance are at a disadvantage, use it.

 

SD

 

  

 

 

Edited December 18, 2023 by SharperDingaan

[brobro777]

 

QQQ back to all time high, time to buy some oil and gas?

 

Worth a shot I guess, why not baby why not

[jouni1]

5 hours ago, SharperDingaan said:

It is far more likely that the shipping chaos is deliberate manufacturing of a 'war premium', intended to raise the price of all crude. The Houthi's are proxies in the Saudi-Iran contest for control over Yemen, and both Saudi/Iran will benefit in a big way- if a 5% war premium can be tacked on. Dropping drones/rockets on passing tankers is simply good business; that also demonstrates anti-Israeli protest over Gaza.

 

The magnificent seven is little different to Nortel back in the day; PM's were forced to hold it on penalty of being fired, and dumped it en-mass as soon as they could. In the the age of 'bots, we merely go down quicker!

 

The financial press is currently doing near everything it can to slag "buy back's"; it's not a buying signal, management uses it to 'goose' results, it's a way of getting around stock options, been burned on these before, yada, yada .... Yet utter silence, about o/g production manufacturing, big stock buybacks (>5% of o/s shares) at well below book value, high dividends, etc, etc. Good! cheap like borscht, and more for me  

 

If my dividend paying energy stock has a very good chance of at least doubling in two years, I really don't really care if today -  it looks like a curvy pig wearing lipstick. With sizeable monthly/quarterly dividend cash, and a 36%+ CAGR; I just call my pig Marilyn, and give her a kiss every day

 

PM's measured by quarterly performance are at a disadvantage, use it.

 

SD

 

  

 

 

Can you name some of your favorites in the space doing buy backs?

[brobro777]

4 hours ago, jouni1 said:

Can you name some of your favorites in the space doing buy backs?

 

Yea out with specific names cuz I'm too lazy to do stuff like read 500 pages a day of boring industry reports 

 

I have a feeling though Sharper will give all kinds of names that remind me of Bre X

 

Maybe I'll just XLE and call it a day

 

 

[SharperDingaan]

Go look at the quarterly reports of the Canadian names in the WCSB ... quite a few names in there. 

 

OBE is one example. OBE started the year at 80.7M shares and a 2PNPV10 reserve value of 2.8B; a 2PNPV10 of CAD 34.70/share (2.8B/80.7M). They bought back 3.6M of those shares at < CAD 9.17 and added a gain of CAD 92M to the IV of the now 77.1M shares of the company, or CAD 1.19 (92/77.1). All else equal, cash flow/share is now 3.8% HIGHER than it was (80.7/77.1); and most would expect that OBE has very likely bought back even MORE, since Nov 08.

 

Yet according to the press .... this was a stupid idea? According to the market this was also a stupid idea ..... as the share price is down quite a bit, versus up by at least 3.8%? Maybe ..... 'cause the market is short-term trading orientated, this is a long-term investment orientated idea, and media is incentivized to sing the traders tune? 

 

Can't get rich unless there are lots of bunnies to slaughter. And really rich if/when the magnificent seven falters/fails, and the bunnies run to the fat yields and buybacks of o/g. An enterprising lad could eat very well!

 

 https://obsidianenergy.com/press-releases/obsidian-energy-announces-third-quarter-2023-results-2/

Continued Share Buyback Program – In the third quarter of 2023, a total of approximately 1.6 million shares were repurchased and cancelled under the Company’s normal course issuer bid (“NCIB“) for $14.4 million ($9.17 per share). In total, we repurchased and cancelled 3.6 million shares as at November 8, 2023, for approximately $32.9 million ($9.13 per share) for the year.

 

SD

Edited December 18, 2023 by SharperDingaan

[Xerxes]

“BP has changed course of its tanker fleet. The flow of Spice is being challenged. The Spice must flow undisrupted through the straight Bab Al Mandab.
 

The “rule-based post-1945 world order” must be preserved. Spice is life. Send in the Sardaukar. Send in Beast Rabban. Kill all the Fremens. Squeeeeez them hard.” ~ Guild Navigator 

[Dalal.Holdings]

Joe Biden needs them gas prices to go down, not up, for 2024

[SharperDingaan]

What does the world really expect them to do? destroy Houthi launch sites on Yemen, and start Gulf War III?  The only things this does is ensure that crude oil carries a war premium for longer, extends that premium into global shipping (8 days of additional transit time), and allows the world to demonstrate active/global support for Gaza. Parking your thug on your opponents doorstep has no value, unless you intend to use him/her; and as soon as you do ... crude prices spike.

 

Give up the Gaza invasion, and this whole thing disappears. Israel very likely ends up with a new government, Houthi leadership gets replaced, the UN demonstrates its mandate, oil prices return to higher 'lows', etc, etc. Everybody wins ... the dictators handbook prevails ... and the ME returns to a more peaceful norm. Just not so hot ..... if you're an opponent.

 

SD     

[Xerxes]

1 hour ago, SharperDingaan said:

What does the world really expect them to do? destroy Houthi launch sites on Yemen, and start Gulf War III?  The only things this does is ensure that crude oil carries a war premium for longer, extends that premium into global shipping (8 days of additional transit time), and allows the world to demonstrate active/global support for Gaza. Parking your thug on your opponents doorstep has no value, unless you intend to use him/her; and as soon as you do ... crude prices spike.

 

Give up the Gaza invasion, and this whole thing disappears. Israel very likely ends up with a new government, Houthi leadership gets replaced, the UN demonstrates its mandate, oil prices return to higher 'lows', etc, etc. Everybody wins ... the dictators handbook prevails ... and the ME returns to a more peaceful norm. Just not so hot ..... if you're an opponent.

 

SD     

Gulf War III is highly unlikely. Removing Houthi launchers surgically is not going to anything close to that.

 

That said, Riyadh has a say in what U.S. can or cannot do in the peninsula. it’s after all its backyard and went to war for it. Optics is everything. The Western-oriented ME Arab governments cannot back down on Gaza (even though they soon rather see Hamas wiped out), by explicitly giving green light for U.S. explicit involvement in Yemen.

That would be an endorsement of the slaughterhouse that is Gaza.
 

 

[Dinar]

@Xerxes, Gaza is NOT a slaughterhouse.  Had Israel done what Assad did in Syria ten to twenty times more people in Gaza would be dead and Gaza would not exist anymore.   How do you propose fighting a war when terrorists are hiding among "civilian" population and hospitals are used as Hamas command centers?

[Xerxes]

34 minutes ago, Dinar said:

@Xerxes, Gaza is NOT a slaughterhouse.  Had Israel done what Assad did in Syria ten to twenty times more people in Gaza would be dead and Gaza would not exist anymore.   How do you propose fighting a war when terrorists are hiding among "civilian" population and hospitals are used as Hamas command centers?

Dinar,

Israel is doing God’ work with Hamas. Without getting into specifics, it is not easy to do that without collateral. And the optics is bad for them. 
 

That said it is also a slaughterhouse.
 

Two things can be truth at the same time. 

[Castanza]

18 hours ago, Xerxes said:

Dinar,

Israel is doing God’ work with Hamas. Without getting into specifics, it is not easy to do that without collateral. And the optics is bad for them. 
 

That said it is also a slaughterhouse.
 

Two things can be truth at the same time. 

 

Urban warfare is a major bitch, especially when civilians still occupy the area. What Israel has to do right now is like taking a jar full of red and green M&Ms; mixing them up and then trying to remove only the red ones by opening the top and shaking them out one by one (impossible).  Between Israel and the US (consulting) you couldn't ask for a more capable force at doing exactly this. But yes, it's a slaughterhouse anyway you slice it. Now imagine another force (not US or Israel) trying to take this endeavor on. I do not think Israel has a choice here. Very similar situation to the US with Mosel and Raqqa where ISIS was deeply intrenched and roughly 12k civs lost their lives. 

 

War is never black and white and people should stop discussing it in such terms. There are always pre-cursors, prerequisites, causes, effects, other doors (open and closed), impossible choices, justifications, tragedy and suffering. 

 

_________________________________________________________

 

Regarding the Houthis.... The powers at be have never had a better excuse to do what they really would like to do... time will tell....It's a bad time for poor leadership (is all I have to say about that).

 

Oil supply shocks are definitely on the table here.  

[nafregnum]

https://pracap.com/just-smash-the-buybacks/

 

Kuppy's rationale seems well reasoned for profitable-but-unpopular companies like O&G and coal.  

 

Obsidian (OBE) is doing buybacks.  Who else is in this unpopular sector and doing buybacks at cheap valuations instead of dividends and mergers?

 

[KJP]

12 minutes ago, nafregnum said:

https://pracap.com/just-smash-the-buybacks/

 

Kuppy's rationale seems well reasoned for profitable-but-unpopular companies like O&G and coal.  

 

Obsidian (OBE) is doing buybacks.  Who else is in this unpopular sector and doing buybacks at cheap valuations instead of dividends and mergers?

 

 

Alpha Metallurgical (AMR) is the poster child for this.  The stock price has responded (to put it mildly).

[Luke]

2 minutes ago, KJP said:

 

Alpha Metallurgical (AMR) is the poster child for this.  The stock price has responded (to put it mildly).

i bought at 220 USD couple of weeks ago, actually even meaningful position at 8% ish of the PF, stock is partying...

[SharperDingaan]

This isn't going to go well.

 

The big and strong seem to think a few defensive surgical strikes, and that will be the end of it. Take out the launch sites, decapitate the leadership, make some examples, everyone gets the 'message', and there is no possibility that any of the fleet ships sink. The Moskva also thought it was big and strong; the underdog Ukrainians thought otherwise, and now it sails with the fishes.

 https://ca.finance.yahoo.com/news/us-weighs-whether-attack-houthi-204958449.html

https://en.wikipedia.org/wiki/Sinking_of_the_Moskva

 

Thing is, this is the land of the 'eye for an eye'; the initial 'take out' is easy, surviving the reprisal ... not so much. Russia lost in Afghanistan, the US lost in Vietnam; and Iran can close/harass BOTH the Arabian Sea AND the Gulf of Oman egresses, threatening much of the Saudi production (Iran doesn't even have to be successful). The real 'why' the coalition fleet is there. 

https://en.irna.ir/news/85328464/US-to-face-Vietnam-scenario-if-Yemen-attacked-Ansarullah

 

It really all comes back to Gaza, and Bibi stepping aside; what Israel wouldn't do for 30 years+, and eventually proposed to do, now being imposed. 

 

SD

Edited December 20, 2023 by SharperDingaan

[Dinar]

1 hour ago, SharperDingaan said:

This isn't going to go well.

 

The big and strong seem to think a few defensive surgical strikes, and that will be the end of it. Take out the launch sites, decapitate the leadership, make some examples, everyone gets the 'message', and there is no possibility that any of the fleet ships sink. The Moskva also thought it was big and strong; the underdog Ukrainians thought otherwise, and now it sails with the fishes.

 https://ca.finance.yahoo.com/news/us-weighs-whether-attack-houthi-204958449.html

https://en.wikipedia.org/wiki/Sinking_of_the_Moskva

 

Thing is, this is the land of the 'eye for an eye'; the initial 'take out' is easy, surviving the reprisal ... not so much. Russia lost in Afghanistan, the US lost in Vietnam; and Iran can close/harass BOTH the Arabian Sea AND the Gulf of Oman egresses, threatening much of the Saudi production (Iran doesn't even have to be successful). The real 'why' the coalition fleet is there. 

https://en.irna.ir/news/85328464/US-to-face-Vietnam-scenario-if-Yemen-attacked-Ansarullah

 

It really all comes back to Gaza, and Bibi stepping aside; what Israel wouldn't do for 30 years+, and eventually proposed to do, now being imposed. 

 

SD

What exactly are you referring to?

[Spekulatius]

Gaza is just an excuse. Neither the Saudi leadership nor the Houthis care about it. The Houthis talk more about a Jerusalem then Gaza, Iran has allied with them because they have the same enemy which is Israel.

[Sweet]

If the best bull case for oil is hoping for a black swan in the Middle East then the market is in a bad way.

 

These supply shocks are always on the cards but they are barely investable events.

 

It wasn’t too long ago that Saudis production was attacked.  The weekend spike in prices fizzled in a day or two.