Energy Sector

[mattee2264]

Inflation adjusted oil price is way below the $100 reached in the middle of last decade. 

 

Shale productivity is declining and ESG concerns are making it difficult to fund exploration and development spending. 

 

Oil demand shows no signs of declining and it is becoming increasingly clear that fossil fuels will play an important role in bridging the energy transition. 

 

There has been a lot of consolidation in the space and bigger players are more focused on paying dividends/buying back shares and producing FCF rather than growth at all costs. 

 

Near term there could be some weakness if we go into recession and China continues to struggle economically. But low prices will discourage production and investment and provide a setup for a big rebound in the future. 

 

And you are being paid to wait because dividends are very generous in the sector and buybacks at lower prices are more accretive to value. 

 

 

[SharperDingaan]

Inflation is ya friend. 

 

Today's new field &/or pipeline will either be economic, or written down to today's economic value; but if there is an economic write-down ... no other competing field/pipeline will be developed, and the existing build will have a monopoly for the rest of its economic life. A moat that will generally get stronger every year.

 

It's a cyclical industry. From time-to-time, at the depths of the cycle, liquidity demands will often force a sale of these assets at cents in the dollar, as they are deeply uneconomic at the time, and cash-flow negative. That now 40 year life asset becomes available at 30c on the dollar, plus the negative carry until the cycle turns. Thereafter it's a new day; and you're a monopolist with no competitors, minimal upkeep, deep tax pools, and no taxes ... for quite some time; hallelujah! 

 

Ya dance with the one that brung ya, and ideally hedge her near the top of the cycle. Then ya dance with her all the way down, keeping the 'funny money' along the way. Treat her right, and she'll buy you that dream retirement.

 

SD   

Edited 17 hours ago by SharperDingaan

[Ulti]

https://www.reuters.com/sustainability/climate-energy/canada-oil-gas-emissions-cap-likely-curtail-production-report-says-2024-06-18/
 

I’m curious…. Does this really have a chance to pass with elections coming up next year? And how much damage will this legislation do? I plead ignorance of Canadian politics 

[Dalal.Holdings]

3 hours ago, Ulti said:

https://www.reuters.com/sustainability/climate-energy/canada-oil-gas-emissions-cap-likely-curtail-production-report-says-2024-06-18/
 

I’m curious…. Does this really have a chance to pass with elections coming up next year? And how much damage will this legislation do? I plead ignorance of Canadian politics 

 

Trudeau gonna Trudeau

[SharperDingaan]

21 hours ago, Ulti said:

https://www.reuters.com/sustainability/climate-energy/canada-oil-gas-emissions-cap-likely-curtail-production-report-says-2024-06-18/
 

I’m curious…. Does this really have a chance to pass with elections coming up next year? And how much damage will this legislation do? I plead ignorance of Canadian politics 

 

Even if it passes, it may well be repealed later or just not enforced. Should the oil-sands have to take write-downs it will not just be less economic activity overall, it will be a less tax revenue as well; and Ottawa making multi-billion transfer payments to the western provinces versus the other way around. Most would expect new political faces well before then.

 

SD

[Ulti]

53 minutes ago, SharperDingaan said:

 

Even if it passes, it may well be repealed later or just not enforced. Should the oil-sands have to take write-downs it will not just be less economic activity overall, it will be a less tax revenue as well; and Ottawa making multi-billion transfer payments to the western provinces versus the other way around. Most would expect new political faces well before then.

 

SD

Thanks SD … I was thinking along those lines in addition with the massive expense of the new pipeline thrown in.. all the parties would be unhappy with less revenue 

[SharperDingaan]

5 hours ago, Ulti said:

.. all the parties would be unhappy with less revenue 

 

There will also be enough very unhappy newly unemployed oil workers all over BC/Alberta/Saskatchewan, to make it very difficult for whichever political party is ruling Canada at the time. More rounds of protest in Ottawa, and everybody singing/pushing for more CCS and higher tar-sand production, or they are out of a job tomorrow. 

 

SD 

Edited 11 hours ago by SharperDingaan