i think energy stocks need to rally here, with or without oil. obviously with oil, the rally will be far more powerful. far too many prognosticators talking are calling for $30-$40 oil and it is scaring all of the antsy money out of the sector. if oil rallies above $70, or by god, touches $75, everyone is going go, huh, maybe oil won’t hit $30 and buy the crap out of everything again. whether buying when oil is at $75 is smart or not, i’ll make that call when we’re at $75. technically, i can’t imagine there is much downside left in the names i’ve listed above.
i mean, most of the names above are down 5-10% today and oil is up, possibly forming a ST bottom.
I’d be interested in a small cap oil producer ETF, but I’m not familiar. And Viceroy - I’m not going to throw around specific names without due diligence. I haven’t had the time to update my analysis, so I can’t really say what’s looking good. I have no conflicts in any oil and gas names.
Man I avoid energy in general but I am KILLING the energy index. My one short is down 60% since I got in. My one long is up 45%. SO MUCH ALPHA. I have no idea what to do with energy stocks here… small and microcap energy is such a graveyard, and at ~5% of the R2K it is okay for me to be systematically short energy (by not playing for the most part). Still, the value investor in me wishes I knew more about this sector.
I am going to look at the canadian stocks recommended above but it got me thinking : why not an oil major ?
I mean given that there is an overreaction in the market, wouldn’t it be wise to take a position in a stock that isn’t too exposed to North American production (which has higher break-even costs) ?
So far Total SA seems to have the best value on a Schiller-ish P/E basis, P/CF basis, past earnings volatility basis, as well as analyst recommendations.
Oil majors all seem to have a 45-50% equity ratio on the B/S.
I don’t really understand the focus on government budget break even prices. The journalists act like no government has ever borrowed money. What is debt to GDP in Saudi Arabia? 15%? Some other countries may have trouble finding financiers, but overall budget deficits aren’t going to be a very useful indicator IMO
Yes, also on the list of “not real countries around the world,” giving company to Greece, Argentina, Myanmar, basically all of the Middle East, and several more I’m surely forgetting. It would be nice if Venezuela just sank into the ocean and we could call it a day on that one.
Avoiding high-cost production is avoiding growth, unfortunately. Many of the low-cost oilfields are mature and in decline (oil fields deplete over time), so the investment community doesn’t find that very attractive…think of all the valuation formulas that are highly influenced by “g”. There’s been excitement in recent years b/c we were seeing companies actually show growth in production of hydrocarbons. Major E&P’s like Marathon Oil, ConocoPhillips, Apache all had a lot of reserves in these low-cost fields but they were all experiencing production declines so they all traded at EV/EBITDA ratios of 3.5x to 4.5x. The U.S.-based E&P’s in tight oil plays that were actually showing production growth were trading at EV/EBITDA 7.0x to 9.0x – companies are greatly rewarded for showing production growth (and low exploration and geopolitical risk associated with North American reserves)
If by some chance you could get all of the under-developed/undeveloped Iraqi oilfields in Kurdistan, not have to pay royalties to the gov’t, take away all of the major, major geopolitical risk you’d have an awesome E&P with low-cost growth but that is just not realistic. Those opportunities are just not out there. Bottom line. Existing major oilfields are often owned by state-owned companies and you can’t invest in them. If you want growth, you’ve got to look to oil sands, deepwater and/or tight oil (Bakken, Eagle Ford, Permian) and it takes major capital investment to do so.
The oil E&P industry is tough. Proven reserve lives are only 12-14 years on average; your existing fields decline in production every year and you’ve got to replenish your reserves (this requires big money and geological skill) otherwise you’re going to be out of business if you sit on your hands for too long.
I don’t know Total well enough to say much about them. You spoke about oil majors and Canadian players earlier. Suncor, Imperial (majority owned by Exxon), Cenovus are major companies that have refining and/or petrochemical businesses that help offset some regional oil price volatility they are exposed to. These are all well thought of companies in the industry and if you want large companies with strong financial resources and balance sheet strength, these are some places to look.
I’m buying Majors and a few drillers with strong balance sheets. SDRL got absolutely crushed but was expected. I believe this is a short term correction and a lot of smaller players are going to be squeezed.
I’m glad you bumped this rawraw. I was curious as to some reactions now that oil is well below $70 and shows no signs of slowing down. Particularly people like geo and others who are knowledgeable with unconventional oil production. Morgan Stanley predicted $40 a barrel…but I’m of the opinion that if oil ever did get to $40, somebody would be predicting $20, and if it got to $20 somebody would predict $10. The media always latches on to the most bearish prediction when things are headed south.
lol MS = adam parker. frnakly too quant for my taste and overall his recommendations have been shoddy since 2009. oil did hit 40 bucks i think during the financial crisis. but honestly, it could hit it, but even so, it’ll prolly bounce right up again. the best cure for low oil prices is low oil prices. heard that somewhere from some bsd, also i saw some charts that basically tracked the stds of price of oil vs 200 day average. Anyways we are 2 stds below, and typically shit bounces and overshoots it within a year.
Unless demand begins to crash, I’m not sure I’d count on prices going *too* much lower. Companies are widely reining in development spend for next year, so hopefully production growth should slow and prices should steady. I might begin accumulating some E&P ETFs. I’m compliance restricted from individual names, so that’s not likely to work.