Ahh. I like, then, Raymond James approach to calculating which companies can return 100% of their enterprise value by 2030 - just in case there is an END.
Excellent way of putting it: "In a nutshell, the inherent decline rate of supply is almost certainly higher than any conceivable decline rate in structural (i.e., assuming future trend global GDP growth) oil demand." Eventually if/when they need to transition companies can just stop/reduce CAPEX and let the natural decline rates take care of themselves. But anything like this on a large scale is going to be decades away at least, wouldn't you say?
Arjun, doesn't this "M&A is inevitable" idea depend on timeframe? In the long run (> 5 years), you're right, but in the medium term (< 5 years) many companies can continue to pursue "maintenance mode" where they drill enough to keep production flat then use the FCF to pay down debt, buyback stock, and pay out dividends. Obviously they need to continue to add acreage to maintain future drilling locations even in maintenance mode. This strategy might start to look like "blowdown mode" eventually, but that could be several years out. I'm not saying this is what they should do, rather what they could do. I'm a huge fan of M&A in the E&P sector. The R&M sector could be a good template for the E&P sector in that regard.
Thanks for another excellent weekly column. I was not an oil and gas investor until March 2020. Occidental Petroleum got heavily punished in late March 2020. At the time, I thought OXY could be a good opportunity but I worried too much about its debt to take any position. This personal experience leads to my curiosity on your view about the acquisition of Anadarko by OXY 1999.. Given what you know now, how do you rate the acquisition : good, average or bad ? Would an absence of the Covid-19 pandemic change your rating ?
Ahh. I like, then, Raymond James approach to calculating which companies can return 100% of their enterprise value by 2030 - just in case there is an END.
Excellent way of putting it: "In a nutshell, the inherent decline rate of supply is almost certainly higher than any conceivable decline rate in structural (i.e., assuming future trend global GDP growth) oil demand." Eventually if/when they need to transition companies can just stop/reduce CAPEX and let the natural decline rates take care of themselves. But anything like this on a large scale is going to be decades away at least, wouldn't you say?
Another great post. Must read for serious investors (energy or otherwise) and curious minds alike imo. Thank you sir!
Arjun, doesn't this "M&A is inevitable" idea depend on timeframe? In the long run (> 5 years), you're right, but in the medium term (< 5 years) many companies can continue to pursue "maintenance mode" where they drill enough to keep production flat then use the FCF to pay down debt, buyback stock, and pay out dividends. Obviously they need to continue to add acreage to maintain future drilling locations even in maintenance mode. This strategy might start to look like "blowdown mode" eventually, but that could be several years out. I'm not saying this is what they should do, rather what they could do. I'm a huge fan of M&A in the E&P sector. The R&M sector could be a good template for the E&P sector in that regard.
Hi Arjun:
Thanks for another excellent weekly column. I was not an oil and gas investor until March 2020. Occidental Petroleum got heavily punished in late March 2020. At the time, I thought OXY could be a good opportunity but I worried too much about its debt to take any position. This personal experience leads to my curiosity on your view about the acquisition of Anadarko by OXY 1999.. Given what you know now, how do you rate the acquisition : good, average or bad ? Would an absence of the Covid-19 pandemic change your rating ?