While I completely agree with your comment that peak oil is not anywhere in the near future, have you seen Doomberg’s recent comments regarding the idea that there is far more available oil at reasonable prices than currently considered? Very compelling argument and potentially detrimental to share prices of the sector
It seems to me that the explosion of PE backed midstream followed PE upstream as a means of diversifying risk. As the upstream industry consolidates into a few mega companies, they have the financial firepower to build out their own midstream. Could we be near the end of PE midstream investments?
The passage that strikes me is "For countries that are short (i.e., do not have) oil and gas resources, we see a strong motivation to diversify into new energies areas and limit dependence on imported oil and natural gas. It is not "energy transition due to climate concerns" that we think will motivate the development of new energies; it is instead the traditional drivers of ensuring energy abundance, affordability, and geopolitical security that will drive individual countries to develop and implement a broad array of energy sources and technologies beyond traditional oil, natural gas, and coal." The is the most hopeful (actually the only really hopeful) outlook I have read on the Energy Transition. If we wait for the 7-9 billion people on earth to start worrying about climate change . . . well welcome to Venus. Selling the Energy Transition as the surest road to energy abundance, affordability, and security looks like a much better strategy.
Great summary Arjun. 12 billion market cap DINO (HF Sinclair) is a good example of counter cyclical investment. HollyFrontier used the funds from suspending the dividend after 2020 to buy a refinery that supplies Seattle from Shell for a fraction of replacement cost and then bought the Sinclair brand, refineries and pipelines. The dividend was resumed in 2022 and the company is following the buyback playbook of the Big 3 refiners. Since the Holding family that previously owned Sinclair is a ready seller of stock, DINO has been able to buy back huge amounts of stock without spiking the stock price... yet. They also purchased the rest of the midstream HEP they didn't own helping to reduce the cyclicality of earnings and simplify analysis of the company. DINO trades for a lower P/S ratio (0.35) than the Big-3 yet should probably trade for a higher P/S ratio now that midstream, Sinclair retail, and lubricants (Sonneborn) are a significant share of revenue.
To your point about renewables, they have converted two Wyoming Refineries to Renewable Diesel. Previously it has been hard to source cheap enough inputs to generate profits on Renewable Diesel. The recent announcement that the Bingham Copper mine near Salt Lake City will use Sinclair's Renewable Diesel should help provide a local buyer of Renewable Diesel so it doesn't have to be sent via train to California or BC.
This is an excellent summary which gives the reader much to ponder and research. In a piece like this, I seem to latch on to a given phrase/concept. To wit:
"however, the best areas for un-subsidized profitability are not yet clear to us"
As an investor, it's hard to avoid an attraction to sectors or companies which seem to be the recipient of boatloads of government giveaways. In that regard, do you have any opinion on an entity such as NPWR? Anyone claiming "Clean, Reliable, Low-Cost Energy" (front and center on the website) would seem to fit the bill as a worthy recipient. But does CCUS survive and thrive without a helping hand? Seems I've already read of huge push back from environmentalists regarding the process given the words "natural gas".
Does it really make sense to say developing countries will implement unconventional energy (wind, solar) to reduce reliance on foreign imports if the panels/windmills really only have a,say, 15 year life? (And then they have to import replacements?). China maybe being the exception?
Thanks, Arjun. I have recently been poking around in the academic literature on Energy Return on Invested energy. The implication appears to me that any poor country who wants to maximize the rate of increase of wealth should, if they can, be burning coal to make power.
While I completely agree with your comment that peak oil is not anywhere in the near future, have you seen Doomberg’s recent comments regarding the idea that there is far more available oil at reasonable prices than currently considered? Very compelling argument and potentially detrimental to share prices of the sector
It seems to me that the explosion of PE backed midstream followed PE upstream as a means of diversifying risk. As the upstream industry consolidates into a few mega companies, they have the financial firepower to build out their own midstream. Could we be near the end of PE midstream investments?
The passage that strikes me is "For countries that are short (i.e., do not have) oil and gas resources, we see a strong motivation to diversify into new energies areas and limit dependence on imported oil and natural gas. It is not "energy transition due to climate concerns" that we think will motivate the development of new energies; it is instead the traditional drivers of ensuring energy abundance, affordability, and geopolitical security that will drive individual countries to develop and implement a broad array of energy sources and technologies beyond traditional oil, natural gas, and coal." The is the most hopeful (actually the only really hopeful) outlook I have read on the Energy Transition. If we wait for the 7-9 billion people on earth to start worrying about climate change . . . well welcome to Venus. Selling the Energy Transition as the surest road to energy abundance, affordability, and security looks like a much better strategy.
Great summary Arjun. 12 billion market cap DINO (HF Sinclair) is a good example of counter cyclical investment. HollyFrontier used the funds from suspending the dividend after 2020 to buy a refinery that supplies Seattle from Shell for a fraction of replacement cost and then bought the Sinclair brand, refineries and pipelines. The dividend was resumed in 2022 and the company is following the buyback playbook of the Big 3 refiners. Since the Holding family that previously owned Sinclair is a ready seller of stock, DINO has been able to buy back huge amounts of stock without spiking the stock price... yet. They also purchased the rest of the midstream HEP they didn't own helping to reduce the cyclicality of earnings and simplify analysis of the company. DINO trades for a lower P/S ratio (0.35) than the Big-3 yet should probably trade for a higher P/S ratio now that midstream, Sinclair retail, and lubricants (Sonneborn) are a significant share of revenue.
To your point about renewables, they have converted two Wyoming Refineries to Renewable Diesel. Previously it has been hard to source cheap enough inputs to generate profits on Renewable Diesel. The recent announcement that the Bingham Copper mine near Salt Lake City will use Sinclair's Renewable Diesel should help provide a local buyer of Renewable Diesel so it doesn't have to be sent via train to California or BC.
Great Comments! Recently listened to a " Doomberg " podcast with Adam Taggart, Thoughtful Money,
He says that we as a world are swimming in oil and gas now, and will be for the forseeable future.
(Geopolitical issues could cause issues with higher spikes). Just wondered if you have listened and if you have any thoughts.
last year he mostly had an opposite view.
This is an excellent summary which gives the reader much to ponder and research. In a piece like this, I seem to latch on to a given phrase/concept. To wit:
"however, the best areas for un-subsidized profitability are not yet clear to us"
As an investor, it's hard to avoid an attraction to sectors or companies which seem to be the recipient of boatloads of government giveaways. In that regard, do you have any opinion on an entity such as NPWR? Anyone claiming "Clean, Reliable, Low-Cost Energy" (front and center on the website) would seem to fit the bill as a worthy recipient. But does CCUS survive and thrive without a helping hand? Seems I've already read of huge push back from environmentalists regarding the process given the words "natural gas".
Any thoughts?
Always value your Saturday morning posts. Great information again today.
Arjun,
Thanks, as always.
Does it really make sense to say developing countries will implement unconventional energy (wind, solar) to reduce reliance on foreign imports if the panels/windmills really only have a,say, 15 year life? (And then they have to import replacements?). China maybe being the exception?
Thanks, Arjun. I have recently been poking around in the academic literature on Energy Return on Invested energy. The implication appears to me that any poor country who wants to maximize the rate of increase of wealth should, if they can, be burning coal to make power.