Excellent piece Arjun. Thank you for taking the time to do these. I appreciate your sharing your wisdom and experience, and know others do as well. I want to challenge your point about the CVX and XOM purchases not representing commodity bullishness. What else could it be? On a per-barrel basis the prices were pretty high-a premium to today's prices certainly. Could there not be a scramble for reserves amongst the big players-neither of whom are replacing production throught the drill bit? These reserves also are in relatively safe parts of the world. I've long held the notion that a barrel in the Permian was intrinsically safer than a barrel in Libya or Iran. As much as XOM and CVX want to diversify away from petroleum the fact remains that now and for the foreseeable future most of their revenue comes from upstream assets. Cheers, Dave
Looked forward to your latest update post the latest M&A activity and Mideast challenges.
Agree with your sentiments.
My big question is why aren’t many of the other oil/gas players increasing in price. It is as if everyone is pointing towards lower recession led demand globally. This is just not the case.
Outside of some portfolio managers steering clear of energy you would think many would be buying shares now ahead of the curve. My base case is oil heads higher in 2024 and continues to north of $100 as demand does not weaken, ongoing M&A due to FOMO, and the reality of a much longer timeframe for the transition.
I drove through a number of states last month in the US and not one person indicated a desire to purchase an EV. That coupled with a distinct lack of charging stations told me all I needed to know. This was before Ford announced their latest news on EV deliveries.
Oct 28, 2023·edited Oct 28, 2023Liked by Arjun Murti
Interesting change of market perception of late toward CVX. After getting investor kudos for passing on Anadarko and being considered a focused, efficient operator, the stock is now getting hammered for paying up for HES and poor execution on massive Tengiz project and, to a lesser extent, the Permian Basin. Reality never is as good as it seems or as bad as it looks.
Oct 28, 2023·edited Oct 28, 2023Liked by Arjun Murti
What a good one this week. Great story about John Hess.
"As a country, it's not clear we ever really worked through what became an extended "free money" era that really only ended in the past year or so". Yes, we still have a lot of that psychology, especially if you've only been working for 10-15 years and it's all you've ever known so far.
Question: do you think that the current spate of M&A will change the buybacks + dividends-first approach that many companies have adopted? Or is it just rearranging above-ground ownership at an opportune moment and the buybacks + dividends first and no-new-production approach continues on for some time?
One thought occurred to me in response to this question: Should M&A capital have instead been directed at new energies opportunities?
Traditional energies have two major advantages beyond the usual ones (energy density, portability, known local safety profile), that is, incumbency and a long and continuing history of not having to internalize all of the social and health costs they incur.
New energies would be a more attractive investment to all players if we did a better job as a global civilization in levelling the playing field with respect to these costs. Unfortunately, even though they make a lot of sense, people hate pollution pricing so we end up having to use new energy subsidies as a second best (or third best?) approach.
In your view, what could lead to a transition from super vol to super cycle Arjun?
Excellent piece Arjun. Thank you for taking the time to do these. I appreciate your sharing your wisdom and experience, and know others do as well. I want to challenge your point about the CVX and XOM purchases not representing commodity bullishness. What else could it be? On a per-barrel basis the prices were pretty high-a premium to today's prices certainly. Could there not be a scramble for reserves amongst the big players-neither of whom are replacing production throught the drill bit? These reserves also are in relatively safe parts of the world. I've long held the notion that a barrel in the Permian was intrinsically safer than a barrel in Libya or Iran. As much as XOM and CVX want to diversify away from petroleum the fact remains that now and for the foreseeable future most of their revenue comes from upstream assets. Cheers, Dave
Arjun,
Looked forward to your latest update post the latest M&A activity and Mideast challenges.
Agree with your sentiments.
My big question is why aren’t many of the other oil/gas players increasing in price. It is as if everyone is pointing towards lower recession led demand globally. This is just not the case.
Outside of some portfolio managers steering clear of energy you would think many would be buying shares now ahead of the curve. My base case is oil heads higher in 2024 and continues to north of $100 as demand does not weaken, ongoing M&A due to FOMO, and the reality of a much longer timeframe for the transition.
I drove through a number of states last month in the US and not one person indicated a desire to purchase an EV. That coupled with a distinct lack of charging stations told me all I needed to know. This was before Ford announced their latest news on EV deliveries.
Keep up the great work.
Interesting change of market perception of late toward CVX. After getting investor kudos for passing on Anadarko and being considered a focused, efficient operator, the stock is now getting hammered for paying up for HES and poor execution on massive Tengiz project and, to a lesser extent, the Permian Basin. Reality never is as good as it seems or as bad as it looks.
What a good one this week. Great story about John Hess.
"As a country, it's not clear we ever really worked through what became an extended "free money" era that really only ended in the past year or so". Yes, we still have a lot of that psychology, especially if you've only been working for 10-15 years and it's all you've ever known so far.
Question: do you think that the current spate of M&A will change the buybacks + dividends-first approach that many companies have adopted? Or is it just rearranging above-ground ownership at an opportune moment and the buybacks + dividends first and no-new-production approach continues on for some time?
You know how much I enjoy/value your Saturday morning posts. I thought today’s was particularly good.
One thought occurred to me in response to this question: Should M&A capital have instead been directed at new energies opportunities?
Traditional energies have two major advantages beyond the usual ones (energy density, portability, known local safety profile), that is, incumbency and a long and continuing history of not having to internalize all of the social and health costs they incur.
New energies would be a more attractive investment to all players if we did a better job as a global civilization in levelling the playing field with respect to these costs. Unfortunately, even though they make a lot of sense, people hate pollution pricing so we end up having to use new energy subsidies as a second best (or third best?) approach.
Amen to that: “ the world is far better off with large, profitable, and healthy US, Canadian, and Western European oil and gas companies.”
excellent