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Exxon Energy Outlook to 2040


txlaw
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Phenomenal read. XOM has been producing this outlook and investing based upon it for fifty years. Given its impeccable operating record, I find it quite bullish for long term natural gas prices that XOM is investing so heavily in NG at today's depressed prices. Tough to take an upbeat view of gas with so much supply coming online, but obviously these guys are quite bullish on future demand balancing out the glut.

 

As a side note, the outlook for energy demand from the heavy duty trucking industry is an exciting prospect for a company such as Cummins. I had only been vaguely familiar with CMI before reading the Outlook, but have recently been doing some work on them. CMI's 2015 projections are quite impressive if one can get comfortable with them projecting record high EBIT margins. XOM's outlook for trucking demand as well as the demand for increasing energy efficiency lends credence to CMI's projections, IMO.

 

Exciting stuff!!

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Yes, I keep reading about natural gas and its coming use, but every time I look at companies, the cap ex is greater than the cash flow--I have a lot trouble investing in a company like that.  Presumably, it just operates differently (since they always invest in the future, but its hard to invest in companies with no real owner earnings...

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Yes, I keep reading about natural gas and its coming use, but every time I look at companies, the cap ex is greater than the cash flow--I have a lot trouble investing in a company like that.  Presumably, it just operates differently (since they always invest in the future, but its hard to invest in companies with no real owner earnings...

 

 

You've nailed it.  This is what I call the growth trap, where capex is greater than cash flow, even though returns on capital may be relatively high.  Then, after the growth phase of that company and usually its industry ends, the mature business experiences a contraction of its return on capital -- not merely to the mean, but often to the lower realms of industry.

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The other issue is that if this is new growth area funded by debt you may end up like the railroads in the early 1800s and the fiber networks in the 1990s/2000s where the growth happens pushes down prices and causes many of the players to go into BK due to not being able to cover the interest expenses.  In those cases, the best time to enter is after the Chap 11 if the plan looks viable. 

 

Packer

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