Energy Sector

[SharperDingaan]

As Spec points out, with investors trading trends - a downward trend typically generates a larger change (magnitude) than a positive one does. We often don't see it, as the % change (change/starting price) to both trends is roughly the same.

 

So what? Momentum traders can be exploited - and the more volatility the better.

Buy today in expectation of a higher dividend, a share buyback, and greed replacing fear -the $10 share going to $15 (50% more). Sell into the trend after record date, and buy it back at $7.50 (50% less). Collect the dividend plus $12.50 (($15-$10) + ($15-$7.50)). Swing trade producing a gain of 125%+ ($12.50 + div/$10.00 cost).

 

Now an enterprising  lad at a GS might choose to do this with options instead 

and set him/herself up to win the bonus pool this year ....

 

We have an allocation of quality Beluga vodka and caviar to dispose of!

Make some money - so that we can shift them through your club of choice !! 

 

SD

Edited July 6, 2022 by SharperDingaan

[SharperDingaan]

The Q2 parade of record cashflows is starting ... 

Not just cashflows, but multi-billion write-down reversals as well. 

 

https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-shell-gets-1-billion-refining-boost-upgrades-oil-and-gas-assets/

 

" Shell said on Thursday surging demand for oil products that had almost tripled refining profits in the second quarter would boost earnings by up to $1.2 billion. In an update before second quarter results on July 28, Shell also said it would reverse up to $4.5 billion in write-downs on oil and gas assets after it raised its energy prices outlook following Russia’s invasion of Ukraine."

 

SD

[Viking]

It is very interesting to watch the exit of global oil companies from the Canadian oil patch. Most global oil majors have stated they want to exit the country. And sooner rather than later. Forced sellers should result in reasonable prices for the acquirers. 
 

Cenovus has already been able to purchase one joint venture oil sands asset from BP for $1.2 billion. At current oil prices it will be paid for in under 2 years (the clock started ticking May 1 so they are well on their way). After the asset is paid of it should be producing oil for another 3 decades or so… spitting out lots of cash flow. Buying out joint venture partners (especially when you are the partner operating the asset) is also ideal because it carries very little risk. 
 

Canadian companies have been earning record free cash flow for the past 18 months:

- Stage 1 was focussed solely on paying down debt. Debt has been brought way down for most oil companies so this stage is done.
- Stage 2 is focussed on 50/50 split between paying down debt and shareholder returns (dividend/stock buybacks). This stage is ramping up is where most oil companies are today. Most oil companies will hit much lower net debt targets in 2H 2022 and this phase will come to an end.

- Stage 3: as we enter 2023 most oil companies will shift to 25/75 split between paying down debt and shareholder returns. In 1H 2023 final debt targets will be achieved for most oil companies. 
- Stage 4: as we enter 2023 we will start to get some Canadian oil companies shift to policies where 100% of free cash flow will be returned to shareholders (dividends and stock buybacks). As the year progresses more and more oil companies will get to this stage.
 

And we will enter a new age for Canadian oil companies: rock solid balance sheets (very little debt). And massive free cash flows. And what should be a golden age for investors. 
————-—

- stage 5: massive consolidation in the Canadian oil patch as global oil companies exit Canada. Canadian producers will likely be able to use part of their free cash flow to pick up assets from forced sellers at very reasonable prices. This stage will drive top line growth. And pristine balance sheets will help. And shareholder returns will take their next leap upward.

 

The key point here is free cash flow will not move into finding new production. Rather, free cash flow will be primarily used to take out other players. 

 

Edited July 7, 2022 by Viking

[Malmqky]

45 minutes ago, Viking said:

It is very interesting to watch the exit of global oil companies from the Canadian oil patch. Most global oil majors have stated they want to exit the country. And sooner rather than later. Forced sellers should result in reasonable prices for the acquirers. 
 

Cenovus has already been able to purchase one joint venture oil sands asset from BP for $1.2 billion. At current oil prices it will be paid for in under 2 years (the clock started ticking May 1 so they are well on their way). After the asset is paid of it should be producing oil for another 3 decades or so… spitting out lots of cash flow. Buying out joint venture partners (especially when you are the partner operating the asset) is also ideal because it carries very little risk. 
 

Canadian companies have been earning record free cash flow for the past 18 months:

- Stage 1 was focussed solely on paying down debt. Debt has been brought way down for most oil companies so this stage is done.
- Stage 2 is focussed on 50/50 split between paying down debt and shareholder returns (dividend/stock buybacks). This stage is ramping up is where most oil companies are today. Most oil companies will hit much lower net debt targets in 2H 2022 and this phase will come to an end.

- Stage 3: as we enter 2023 most oil companies will shift to 25/75 split between paying down debt and shareholder returns. In 1H 2023 final debt targets will be achieved for most oil companies. 
- Stage 4: as we enter 2023 we will start to get some Canadian oil companies shift to policies where 100% of free cash flow will be returned to shareholders (dividends and stock buybacks). As the year progresses more and more oil companies will get to this stage.
 

And we will enter a new age for Canadian oil companies: rock solid balance sheets (very little debt). And massive free cash flows. And what should be a golden age for investors. 
————-—

- stage 5: massive consolidation in the Canadian oil patch as global oil companies exit Canada. Canadian producers will likely be able to use part of their free cash flow to pick up assets from forced sellers at very reasonable prices. This stage will drive top line growth. And pristine balance sheets will help. And shareholder returns will take their next leap upward.

 

The key point here is free cash flow will not move into finding new production. Rather, free cash flow will be primarily used to take out other players. 

 

Good analysis. How would you play this? CNQ looks good, CVE looks solid as well. Would you buy a basket or do some companies stand out to you?

[james22]

It begins?

 

NASA admits climate change occurs because of changes in Earth's solar orbit, not because of SUVs and fossil fuels

 

https://www.sott.net/article/420049-NASA-admits-climate-change-occurs-because-of-changes-in-Earths-solar-orbit-not-because-of-SUVs-and-fossil-fuels

[Gregmal]

9 minutes ago, james22 said:

It begins?

 

NASA admits climate change occurs because of changes in Earth's solar orbit, not because of SUVs and fossil fuels

 

https://www.sott.net/article/420049-NASA-admits-climate-change-occurs-because-of-changes-in-Earths-solar-orbit-not-because-of-SUVs-and-fossil-fuels

Dude I’m not even kidding someone showed me a Twitter video of some Prime Minister legit claiming that climate change poses increased risk of sexual assault for women. Yup. These are the people driving the school bus and making policy decisions. 

[Spekulatius]

43 minutes ago, james22 said:

It begins?

 

NASA admits climate change occurs because of changes in Earth's solar orbit, not because of SUVs and fossil fuels

 

https://www.sott.net/article/420049-NASA-admits-climate-change-occurs-because-of-changes-in-Earths-solar-orbit-not-because-of-SUVs-and-fossil-fuels

Completely misleading. Yes, changes in the earth orbit do change climate, but they do so over 100,000 of years not the time scales were are seeing here. Go to the source and look up what NASA are really saying, not some amateur website:

https://climate.nasa.gov/news/2948/milankovitch-orbital-cycles-and-their-role-in-earths-climate/

 

https://qr.ae/pv4rYf

 

Sott.net is a site that is associated with the Quantum Future Group, the new religious movement created by Arkadiusz Jadczyk and Laura Knight Jadczyk.

 

 

Nothing to do with investing either.

Edited July 7, 2022 by Spekulatius

[james22]

4 hours ago, Spekulatius said:

Completely misleading.

 

What can't go on forever (the Green delusion), wont.

 

4 hours ago, Spekulatius said:

Nothing to do with investing either.

 

ESG will matter less and less as it proves too costly.

[Sweet]

 

[Sweet]

6 hours ago, Gregmal said:

Dude I’m not even kidding someone showed me a Twitter video of some Prime Minister legit claiming that climate change poses increased risk of sexual assault for women. Yup. These are the people driving the school bus and making policy decisions. 

In the UK the office of national statistics was claiming that climate change was driving up violent crime.

[Gregmal]

1 minute ago, Sweet said:

In the UK the office of national statistics was claiming that climate change was driving up violent crime.

I actually do know that there’s certain data suggesting that violent crime in the hood, IE NYC, LA, Chicago, drastically increases in the summer. Given that these people are incapable of being accountable for anything, it’s obviously climate change and seasonal swings that are the culprit. 
 

That’s probably the angle on sex assault too. Better weather, more skimpy outfits. More skimpy outfits, more scumbags harassing women. But it’s not the scum bags fault, it’s the climate. 

[cubsfan]

^^^ Of course! It's deflection. 

 

Don't want to fight crime or drill for oil - blame climate change for all your problems.

[Viking]

1 hour ago, james22 said:

 

What can't go on forever (the Green delusion), wont.

 

 

ESG will matter less and less as it proves too costly.

@james22  i completely disagree. I think ESG is not only here to stay, but it is going to becomes even more important and bigger. ESG is now religion. It is STRONGLY believed by most of the population. And critically for investors, pretty much ALL governments, educators, institutional investors, pension funds, endowments, banks etc HAVE TO ACCEPT IT AND MINDLESSLY FOLLOW IT (and propagate it). To question ESG is heresy (you are labelled a climate denier). A strong belief in the strength and staying power of the ESG movement is one of the reasons why i am so bullish on oil stocks today.

—————

Now to be clear… i do believe climate change is real. I also think we need to find a way to dramatically cut emissions. I also think the current set up is insanity:

1.) trying to throttle oil production for years in the West (which is what we have been doing… not approving new pipelines and demonizing oil producers and the entire industry are just two examples). And it has worked exceptionally well; supply growth WILL BE FAR LESS THAN IT NORMALLY WOULD HAVE BEEN (when compared to past cycles). 

2.) oil demand growing like clock work by 1.5 million barrels a day for AT LEAST the next decade

3.) any meaningful transition to solar or wind is at least 5 or perhaps even 10 years away

4.) AND WE JUST DECIDED WE NEED TO KNEE CAP THE #3 OIL PRODUCER - RUSSIA

 

And this is all in an environment today where we already have a SHORTAGE of oil. That is why we are drawing down huge volumes from the SPR. Oh, and Buffett was buying more oil stocks today… (does anyone else hear that bell ringing?)

Edited July 8, 2022 by Viking

[Spekulatius]

Drill baby drill:

 

[StevieV]

18 minutes ago, Viking said:

@james22  i completely disagree. I think ESG is not only here to stay, but it is going to becomes even more important and bigger. ESG is now religion. It is STRONGLY believed by most of the population. And critically for investors, pretty much ALL governments, educators, institutional investors, pension funds, endowments, banks etc HAVE TO ACCEPT IT AND MINDLESSLY FOLLOW IT (and propagate it). To question ESG is heresy (you are labelled a climate denier). A strong belief in the strength and staying power of the ESG movement is one of the reasons why i am so bullish on oil stocks today.

—————

Now to be clear… i do believe climate change is real. I also think we need to find a way to dramatically cut emissions. I also think the current set up is insanity:

1.) trying to throttle oil production for years (which is what we have been doing… not approving new pipelines being just one good example) 

2.) oil demand growing like clock work by 1.5 million barrels a day for AT LEAST the next decade

3.) any meaningful transition to solar or wind is at least 5 or perhaps even 10 years away

4.) AND WE JUST DECIDED WE NEED TO KNEE CAP THE #3 OIL PRODUCER - RUSSIA

 

And this is all in an environment today where we already have a SHORTAGE of oil. That is why we are drawing down huge volumes from the SPR. Oh, and Buffett was buying more oil stocks today… (does anyone else hear that bell ringing?)

"ESG is now religion. It is STRONGLY believed by most of the population. And critically for investors, pretty much ALL governments, educators, institutional investors, pension funds, endowments, banks etc HAVE TO ACCEPT IT AND MINDLESSLY FOLLOW IT (and propagate it)."

 

It is a bit interesting.  Does most of the population STRONGLY believe in ESG OR do they HAVE TO ACCEPT IT AND MINDLESSLY FOLLOW IT?  Can you tell the difference?

 

There is a tremendous ESG bureaucracy whose livelihoods depend on ESG.  That doesn't go away easily.  I think that, if anything, it is more likely that ESG goals and programs will shift over time.  We'll see.

 

Whatever one thinks about climate change or CO2, I think most would agree that at a minimum any program or policy shouldn't do more harm than good.  Increasing energy prices are very bad, especially for low income people and countries.  Food price increases are even worse.  I'm not sure how much ESG is contributing to each of these, but policies that leave people cold and hungry today aren't good ones.

[Viking]

@Spekulatius If you remove the pandemic low, rig count today is near a HISTORIC low. And it is plagued by a severe labour shortage and extremely long wait times for equipment and steel. So yes, rig count will help grow NA production some; but likely not nearly enough to offset decline rates from existing wells  and the demand growth we are seeing from the rest of the world. 
 

Edited July 8, 2022 by Viking

[Gregmal]

12 minutes ago, Viking said:

@Spekulatius If you remove the pandemic low, rig count today is near a HISTORIC low. And it is plagued by a severe labour shortage and extremely long wait times for equipment and steel. So yes, rig count will help grow NA production some; but likely not nearly enough to offset decline rates from existing wells  and the demand growth we are seeing from the rest of the world. 
 

Same chart as available homes in many markets. Much is being made of “OMG supply going up massively”….deliberately peddled by folks without mentioning it’s still well below pre COVID levels. Any idiot can build a house though. Certainly not easy getting a rig up and running. 

[james22]

48 minutes ago, Viking said:

@james22  i completely disagree. I think ESG is not only here to stay, but it is going to becomes even more important and bigger. ESG is now religion. It is STRONGLY believed by most of the population. And critically for investors, pretty much ALL governments, educators, institutional investors, pension funds, endowments, banks etc HAVE TO ACCEPT IT AND MINDLESSLY FOLLOW IT (and propagate it). To question ESG is heresy (you are labelled a climate denier).

 

I believe we're probably past peak ESG. 

 

48 minutes ago, Viking said:

A strong belief in the strength and staying power of the ESG movement is one of the reasons why i am so bullish on oil stocks today.

 

I'm bullish too (since the beginning of this thread) for all your listed reasons, I just believe the pivot back to oil will come sooner than you think.

 

[james22]

On 6/6/2022 at 2:53 PM, james22 said:

When the crap hits the fan, people want return.

 

https://jeffreycarter.substack.com/p/esg-has-a-comeuppance?s=w

 

Still this.

[james22]

European Commission Declares Nuclear and Gas to be Green

 

https://wattsupwiththat.com/2022/07/07/european-commission-declares-nuclear-and-gas-to-be-green/

 

Like dominoes.

[Paarslaars]

Well nuclear makes sense, the gas thing is funny, basically just because of the germans who were stupid enough to swear off nuclear.

[nwoodman]

10 hours ago, james22 said:

I'm bullish too (since the beginning of this thread) for all your listed reasons, I just believe the pivot back to oil will come sooner than you think.

 

 

i would be interested in your line of thinking here.  CCS?

 

I remain sceptical of CCS but if the technology scales it could be meaningful.  Chevron’s Gorgon project has been rather underwhelming 

 

https://www.reuters.com/markets/commodities/chevron-says-worlds-largest-carbon-capture-project-has-a-ways-go-meet-goals-2022-05-16/ 

 

Perhaps OXY can deliver

 

https://jpt.spe.org/oxy-to-sell-industrys-first-net-zero-oil-forwards-carbon-capture-plan

 

Edited July 8, 2022 by nwoodman

[Spekulatius]

2 hours ago, Paarslaars said:

Well nuclear makes sense, the gas thing is funny, basically just because of the germans who were stupid enough to swear off nuclear.

Just be aware that Germany does not use all that much NG for power generation. The current number is ~10% of the power generated by NG. Germany can handle the NG crisis from a power perspective, but most NG is used for heating and the industry and that's where lack of supplies will hurt.

 

I am just saying this because people think that nuclear is the solution for the NG shortfall. It is only a small piece of it. Germany will not have power shortage because of lack of NG, but they will see curtailing which might hit the industry hard (especially the chemical industry like BASF).

[SharperDingaan]

ESG is evolving. 

 

The idealist environmentalist wants carbon reduction by either NOT producing carbon, or producing only MINIMAL carbon. Whereas the industry/political approach, is to produce carbon more efficiently, and reduce emissions over time. Energy via more solar, wind, nuclear that doesn't produce carbon - versus energy produced on a carbon/joule basis.

 

Global warming/ESG is accepted fact. Even if you don't agree, mitigation of the growing scale and number of natural disaster impacts simply makes it prudent to follow. The implementation approach is evolving, but ESG itself isn't going away.

 

Not a bad thing.

 

SD

    

[james22]

14 minutes ago, SharperDingaan said:

Global warming/ESG is accepted fact.

 

Nah.

 

14 minutes ago, SharperDingaan said:

Even if you don't agree, mitigation of the growing scale and number of natural disaster impacts simply makes it prudent to follow. The implementation approach is evolving, but ESG itself isn't going away.

 

Not a bad thing.

 

If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need energy. Today, that means oil & gas.

 

It's a bad thing to curtail that.