The Gist: (1) Big Tech has a capex lesson to learn from Big Oil. It took time but O&G is now a less volatile sector with 7-9% real returns per annum for the next decade. (2) The fundamental drivers for oil and gas equities are still in play: excessive money creation, slowing well
I implore anyone with an interest in energy, geopolitics and markets to set aside 2hrs of your time to listen to these heavy hitters discuss the current environment.
Thank you
@DoombergT
@Geo_papic
@ttmygh
@LukeGromen
for taking the time!
A long time ago, my mentor told me that whenever you are looking at long-term projections put them into historical context and ask yourself, "does it make sense?"
My take on $BP's latest oil demand scenarios out to 2050.
I am gonna take the over.
#EFT
Back in the day when ARAMCO was owned by the Exxon, Mobil, Chevron and Texaco they used to produce annual reports for the ARAMCO entity.
Unfortunately no financial data was disclosed probably because it was a state and foreign policy secret.
Nonetheless they used to disclose
If you thought oil supply was a problem, have you seen refinery capacity and thus throughput over the last 20 years?
$XOM $CVX $BP $TOT/$TTE $RDS
(All acquired companies included)
FWIW, energy always appears "cheap" in a secular bull. P/E compression is offset by strong earnings.
Even the great Standard Oil, a monopoly & for a time unregulated pricing power, @ the doorstep of the biggest growth stage for oil (autos) traded below a market multiple
The Energy Bull Thesis:
• Cheapest P/E Ratio
• Highest CF Per Share
Still massively underweight amongst institutions/HFs.
What’s your favorite way to play this opportunity?
H/t
@chigrl
I am seeing a lot of charts showing the wide gap between oil price and energy stocks.
For educational purposes. Here is the relationship between oil & energy equities for past century plus
As you can see, divergence can occur, often for extended periods.
1/
I may have outdone myself on this one.
This history of big oil production.
(All acquired companies included & log scale for effect)
Have a great weekend everyone!
$CVX $BP $XOM $SHEL $TOT $COP
Can someone please explain this to me?
There are a billion media stories and commentators out there talking about how efficiency gains in shales are leading to record production numbers.
But if you just simply look at a chart of U.S. tight oil production, the rate of change
For the first time since 1912, the Supermajors' % of global production has fallen below 10%
1912 was the 1st year w/o a Standard Oil. It was the beginning of WW1. It was around this time they would look for oil in far off places which bred nationalization
Around the 🌎 & back
1) Energy multiples compress during a super-cycle. They DONT expand!
2) They go to single digits but EPS more than offsets.
3) It's when multiples begin to expand that ya gotta start to look for the exit (we are not there yet).
$CVX $XOM $BP $SHEL
#EFT
This history on $RIG took me over ~9 months to put together because of all the acquisitions but it was fun to learn a new industry.
Here is what I learned.
#EFT
#offshore
@Josh_Young_1
back of envelope. Capex (IOC and E&Ps) during the last cycle ('00-'14) was ~$2.6T.
These co's are responsible for about ~16% of global O&G supply
So 2.6T divided by 16% = ~$15T. So $12T is in the ball park.
But there's that pesky thing called cost inflation..
Rando @$$ thought of the day.
6 months ago I took the plunge, quit my 6 figure job, and went all in to do this blog thing full-time with two kids that we have to still put through all the life stuff.
It was and still is a risk but the way I saw it the risks were asymmetric. If
$RIG 2Q EBITDA beat ($237mm v low $200mm est) on higher rev eff (97.2% v 96.5% guide) partially offset by opex (new contracts). Contract drilling rev up 12% sequentially (annualized runrate $2.9bn). We are just getting started. Don’t be the “why is the stock down in AH?” guy
Rule
#1
of the 10 Commodity Commandments.
Over the long run, they ALL move in unison. Always have, and always will.
Incentive demand for one, they all go up.
Here's an interesting take.
Going back to the Crusades, no institution has been more bullish for inflation than the one that was given a mandate to fight it....The Fed.
The history of $CVX is fascinating with roots dating back to the wildcatters in Texas, California and Oklahoma.
Std of CA 1st discovered oil in Bahrein opening the door to Saudi.
Saudi potential was so big they brought in Texaco & $XOM.
#Oil
#Chevron
#EFT
#OOTT
#OilHistory
Please correct me if I am wrong here
@Big_Orrin
@ManchesterUtd81
. It is extremely difficult to make middle distillates from NGLs correct?
The last time I studied the refining process I came away with the observation that NGLs were great for refining into lighter products that go
I fired up my old O&G historical data in the depths of the Covid lockdowns out of sheer boredom & with the thought that Ap20 was the secular bottom.
To now see some of my charts being used by some heavy hitters in the energy investing landscape makes me tear up.
Much love
Excerpt from an upcoming piece
"Since the COVID lows, the industry has become so cautious that it is investing as if it were in a $55/bbl price environment NOT the present ~$80/bbl."
Question. Who paid Deloitte to do the survey?
Let me guess, investors in battery companies that arent getting dividends and buybacks.
How close did i get?!
Major institutional
#oil
and gas investors would be open to having
#dividends
and buybacks cut by more than half in favor of more spending on energy transition projects, a Deloitte survey says. Battery storage and electric charging stations rank high
#OOTT
https:/bun.is/oned9a
In a forgotten time there was a sell side bank named Chase Manhattan. They used to publish an estimate of "Free World" Oil & Gas Industry capex.
The survey ran from ~1958-1986
Your friendly neighborhood oil historian is on the prowl to bring it back to life.
#EFT
Probably the most out of consensus view that anyone could put out there is that refining/downstream capex could have another up cycle.
And you wonder why we had so many issues with refining capacity in 2022.
Happy New Year Everyone!
$XOM $CVX $BP $SHEL $TTE $PSX $VLO $MPC
Did you know $XOM hasn't been over 5mil boe/d since 1982 when they produced the last couple of barrels out of ARAMCO?
Stand alone (no Mobil) last did over 5 mil boe/d in 1980.
"As you can see with the addition of Pioneer, by 2027 about 60% of our production will come from our
Everyone is a gold bug these days so I will add my 2 cents.
The Oil to Gold (OGR) ratio was made popular because in the 1970s Middle East and OPEC nations were seeing the value of their commodity, which was controlled by the Seven Sister via the Posted Price, deflate vs. other
A generalist investment memo in Energy. My take. 🧵
Opener - which energy source holds the best forward return outlook?
Selecting from renewable (wind / solar / hydro), oil, gas, nuclear & coal
Which subset has the best S&D set up to provide for outsized investment returns?⬇️
In the Game of Commodities (GoC) there is no such thing as a reasonable trading range where everyone is happy.
Commodities are either in a Boom or Going Bust.
In the GoC we live in excesses and deficits.
This chart amazes me.
The public doesn't think of O&G industry as "techy" but DYK at one point 43% of the holes they poked in the ground in the U.S. came up empty?!?
That figure is now less than 9%. And for many co's well below that.
All due to technological advances!
I recently had the pleasure of giving a presentation to a wonderful group of individuals within the oil & gas investment and corporate community.
Below, you will find a copy of that presentation with some slight alterations (i.e. moving a couple charts around) that makes up my
One may think seasonality is witchcraft but it is a thing, has always been a thing and will always be for energy stocks.
Seasonality is like golf, you are only as good as your bad swings. For energy those bad swings tend to occur from April to September. 🏌️♂️
P.S. Who is pumped
What did you do this weekend?
Oh, you know the usual! Watched a coup/mutiny in Russia, drank some beer and counted up some offshore drilling vessels. $RIG
#OFS
#Offshore
Funny story about these Iraqi and Confederate bonds.
About 10 years ago I visited a vendor in London that was selling some old stock certs and bonds.
Below are some of the ones i bought- Iraqi debt under Saddam and Confederate coupon debt (those are the actual coupons that you
I concur
@WarrenPies
!
Unless it’s a secular bust, energy outperforms the market right after a pause and then just for a bit when the Fed starts to cut.
But by then you are on borrowed time
Late-cycle Energy performance is much different around hard and soft landings.
Heading into a recession, the Energy Sector leads the S&P.
Around soft landings, Energy lags significantly.
Oil's late-cycle performance can cause a recession or facilitate a soft landing.
Ya know if you wanna believe that $XOM and $CVX are gonna ramp total supply that would be something they (including predecessors) haven't done since well.......the post World War 2 era.
Since the 1970s nationalization years, big oil's total production has been nothing but flat.
All this talk about $XOM and $CVX ramping capex.
Ya gotta remember, they are coming off levels not seen since 1933 & 1986.
The industry doesnt survive very long at those sort of replacement rates.
And if you are worried about capex and investment, it's not the oil companies
Saudi Capacity insight
In the late 1970s ARAMCO had plans to take capacity from 10.5mil bbl/d to 13.5 mil bbl/d (sound familiar).
There was even talk of taking capacity up to 16mil bbl/d.
Two things were going on at the time
1) The Saudis were negotiating with the ARAMCO
One was a descendant of Standard Oil
The other was born out of the Oklahoma oil boom.
They formed like Vultron to become an integrated.
But now back to a pure play E&P.
The production history of a legend, $COP
The
@WSJ
dropping an awesome chart from
@Bob_McNally
and Rapidan.
For those that may not know, finding spare capacity before 1990 is a bit tough. It's not a simple data download from the agencies.
The post WW2 & 1970s inflation was put to rest with massive supply side response.
We will have zero, Z-E-R-O, supply side response coming out of this downturn in the economy
If you study your history, inflation comes in waves often with increasing amplitudes. Buckle up
#EFT
$CVX Historical well count.
This data was a BEAST to gather.
Part that sucks is Texaco prior to '75 is spotty.
Ill have to make assumptions for them.
Beauty about this data is there is no source for well counts/completions on a global scale but company data provides a lens
Some oil charts. I often get asked where are we in the cycle?
I think a mid-cycle pause (and by cycle I mean secular bull cycle which can encompass many economic cycles).
Oil was over-extended due to Fed (See chart comparing this rally vs. all others in history)
Thoughts?
Who feels super smart when they have their books on a shelf even though you may not have read half of them?
(Wife bot me the shelf to get them off the ground)
We often “figure out the narrative” after move. So if crude really did bottom back in mid-December this will be the chart i use as to why.
If not, well then you never saw this chart and I will issue myself 10 lashings.
It's crazy to say, but could $XOM cost of capital actually be declining?!?!
(I'm sure some of you pros have an issue with how I calculate W.A.C.C. - it's based on trailing data - but I had to justify the countless hours I spent studying for the CFA)
It's amazing how energy is tracking eerily similar to prior Fed hike cycles.
Anyone that's been in the O&G game long enough knows Thanksgivings are never fun.
@WarrenPies
I would love to get your take/thoughts on this.
In all O&G nothing has more operating leverage than offshore rigs
Both on the up and downside
For 14 years, investors have only seen the latter
High risk but high reward if get the cycle right
Working on history of $RIG for my paid subs
Lotta companies to collect
To anyone thinking about starting a paid for blog/newsletter.
The following has been my experience.
#1
- Start out posting for free and build your email list.
This matters because
#1
this is the audience that you want to nurture and get to know, like and possibly trust
One of my big projects for 2023 is to do a refining history.
Not just U.S. data but data from all the oil companies.
FYI, did you know refining was NOT a profitable business in the 1970s cycle
On this day, not only did "Colonel" Drake discover oil in the U.S. but did so at the all time inflation adjusted peak of ~$702/bbl.
Maybe one day we will get back there. 🙏🙏
#EFT
From 2009-2017, E&Ps became more "oily" while the Supermajors were getting "gassy"
Since 2017 the roles have reversed with the Supers staying "flattish" on the gas cut.
But over the long run, they are all getting gassy.