The personal note on Petrobras, Suncor, and Hess as recovery plays from 2009-2010 is particularly insightful. Suncor represented the exact thesis you discuss - an undervalued base busines with long-duration reserves that benefited from the commodity price recovery without the governance risks that plagued Petrobras. The parallel to today's market is striking: oil sands producers like Suncor are again trading at depressed valuations despite having restructured cost bases and disciplined capital allocation that should perform well even at a profitability trough. The key difference now is these companies learned from past cycles and prioritize returns over growth.
Really appreciate the transparency about being wrong on Petrobras - that kind of intellectual honesty is rare. Your point about thesis drift is crucial for any investor to understand. The comparison between CROCI today vs 2016/2020 troughs is well taken, especially given the structural changes in capital discipline across the sector. I'm curious how you think about Suncor specifically in this context - they've had operational challenges recently but seem to have finally gotten Fort Hills running efficiently. The 10% CROCI at this point in the cycle does feel like a real improvment in minimum acceptable returns compared to past downturns. The disconnect between earnings weight and market cap weight in energy does seem like it will eventually close, particularly if the "oil glut" narrative proves as wrong as you suggest.
The personal reflections on Murphy Oil and Petrobras calls are incredibly valuable for understanding analytical discipline. Your point about the Petrobras thesis drift - where government take increased but you tried to rationalize it rather than acknowledge the deterioration - resonates strongly. On the Suncor mention: fascinating that it was one of your 2009-2010 "horses" alongside Petrobras and Hess. The integrated oil sands model was clearly under-valued coming out of GFC given the long-life, low-decline reserves. Would be intrested to hear your current view on Canadian integrated producers versus shale given the shift to capital discipline and return-focused mandates you discuss in the article.
Musing: If I had access to large, complete data sets, I would regress North American o&g E&P as well as integrated company exploration and development capital budgets on not just oil prices, spot and future, but in particular various measures of volatility.
I suspect but cannot show that Saudi Arabia-lead OPEC+ is deliberately using enhanced benchmark oil price volatility to discourage US tight oil and global offshore oil exploration capital budgets from growing.
I strongly suspect that this tool is as important to OPEC+ as restoring production cuts in order to clarify actual production capacity.
I personally believe that market share is far less important of a goal than maximizing the long-term NPV of existing reserves and future production. Changes in market share are more of a consequence than a goal. Market power is derived more from the ability, especially the perceived ability of OPEC+ to effectively cooperate and make short-term sacrifices for long horizon gains.
Erik, i think you've nailed it and lines up with my view. "Super Vol" ultimately benefits OPEC as it keeps E&Ps/majors on the sidelines. Long-term NPV matters more than "market share". I don't view this as a market share price war but more what you are outlining. Not sure that can be proven analytically, however.
My underlying assumption is that the technocrats working for OPEC+, the Saudis and Russia are all well aware of these issues and that market power is very much a moving target.
i think politics influence all these macro forecasts...as the politics shift, so does the analysis. They are Paris/Europe-based so there's that as well...
indeed! That said, it has been pointed out by some that the demise of these "net zero alliances" does not mean the death of trying to restrict capital flows to oil & gas sectors and we need to be ready for different versions of these groups.
Arjun, I appreciate the analysis of being wrong. Part of why I enjoy investing is that it involves politics and economics but also if so an analyst decides to walk the stoic, intellectually honest path (as you do here), then you can actively seek out reality-based metrics to benchmark your performance to, and you can admit when you have been wrong and try to figure out how to correct it. The thing that drives me insane about ideologues is that they usually inhabit spheres like politics or academics where there are almost no ways to get any reality-based feedback, and so their fields breed cultures of dogmatism, self-reinforcing delusions, and religious beliefs completely insulated from any kind of reality check. Their fields never evolve beyond warring ideological tribes fighting one another about rival dogmas (energy is afflicted with this too of course). The sign of a good analyst is the progressive evolution in their thinking over time as they refine their craft through trial and error, large progress over a few years as they learn and develop; with the ideologues you can read their books from 30 years ago and basically they haven't evolved at all, they're stuck just reiterating their core dogmas. Anyway, cheers from the fall wonderland of Muskoka!
Investor, these are great points and observations. One of my standard lines in my talks with boards/managements and at industry events is that "I bring an equity analyst's mindset" to energy macro and policy which means I am just trying to make the right call and will adjust as needed! I am not wed to a particular outcome. You are spot on when it comes to academia, which I find sad and perplexing, and of course politics. I have a lot of scientists in my family and the challenge there is many are tied into academia and while classically they would be more like "equity analysts" (just with a much higher IQ!), we have seen "The Science" unfortunately become a thing.
No kidding! In my previous career as a scientist, I saw this even in scientific fields where reality based checks are possible but require clear thinking. Humans are tribal and emotional creatures first, and rational ones only with effort.
As to your point about learning and developing, I was particularly struck across the GFC when various business people and consumers were getting what they did not deserve. Every commentator from any tribe always said that they were right all along and did not even reconsider their views in light of some very shocking developments.
Thanks, Arjun. Thesis drift is a killer, isn't it? When to sell? Hard to say.
I've seen some analysts ride a drifting thesis to substantially total losses. I've avoided that for the past 5 years but had one really bad event before that. Aspiring to avoid that now.
Good point Paul. I learned to be brutally honest with myself and whenever I get the feeling that my thesis is drifting and I'm starting to rationalize how I got into this position, it's better to take a hard look in the mirror, tell myself I messed up, and change direction. So much less painful in the long run! Of course, I learned this the hard way LOL.
Thank you Paul. Thesis drift, or worse, being arrogant about thesis drift...is an absolute killer. Though from a credibility standpoint, pretending you weren't totally calling for something else and have now adjusted may be worse!
Very much appreciated Andy! I will say that one doesn't have to be truly humble. The cynical angle would be that in America, people respond well to "I'm sorry" and "I apologize". Everyone loves a comeback story. I don't get why people stick with denial or lack of accountability.
Just for amusing context, I have a nice position in MUR😎 And in line with your confession, also some PBR. My thesis on MUR (and APA) is much like your initial MUR take. Good undervalued base with upside not widely recognized. As an investor, I can wait a bit and not have to explain too much, which is easier on my ego. Your one billion/seven billion base case allows me to rest somewhat easy. As they say in Brazil, muito obrigado
The personal note on Petrobras, Suncor, and Hess as recovery plays from 2009-2010 is particularly insightful. Suncor represented the exact thesis you discuss - an undervalued base busines with long-duration reserves that benefited from the commodity price recovery without the governance risks that plagued Petrobras. The parallel to today's market is striking: oil sands producers like Suncor are again trading at depressed valuations despite having restructured cost bases and disciplined capital allocation that should perform well even at a profitability trough. The key difference now is these companies learned from past cycles and prioritize returns over growth.
Really appreciate the transparency about being wrong on Petrobras - that kind of intellectual honesty is rare. Your point about thesis drift is crucial for any investor to understand. The comparison between CROCI today vs 2016/2020 troughs is well taken, especially given the structural changes in capital discipline across the sector. I'm curious how you think about Suncor specifically in this context - they've had operational challenges recently but seem to have finally gotten Fort Hills running efficiently. The 10% CROCI at this point in the cycle does feel like a real improvment in minimum acceptable returns compared to past downturns. The disconnect between earnings weight and market cap weight in energy does seem like it will eventually close, particularly if the "oil glut" narrative proves as wrong as you suggest.
thank you Robots and Chips...very much appreciate your comment.
The personal reflections on Murphy Oil and Petrobras calls are incredibly valuable for understanding analytical discipline. Your point about the Petrobras thesis drift - where government take increased but you tried to rationalize it rather than acknowledge the deterioration - resonates strongly. On the Suncor mention: fascinating that it was one of your 2009-2010 "horses" alongside Petrobras and Hess. The integrated oil sands model was clearly under-valued coming out of GFC given the long-life, low-decline reserves. Would be intrested to hear your current view on Canadian integrated producers versus shale given the shift to capital discipline and return-focused mandates you discuss in the article.
Big fans of Canada in general. we are going to need that oil.
Musing: If I had access to large, complete data sets, I would regress North American o&g E&P as well as integrated company exploration and development capital budgets on not just oil prices, spot and future, but in particular various measures of volatility.
I suspect but cannot show that Saudi Arabia-lead OPEC+ is deliberately using enhanced benchmark oil price volatility to discourage US tight oil and global offshore oil exploration capital budgets from growing.
I strongly suspect that this tool is as important to OPEC+ as restoring production cuts in order to clarify actual production capacity.
I personally believe that market share is far less important of a goal than maximizing the long-term NPV of existing reserves and future production. Changes in market share are more of a consequence than a goal. Market power is derived more from the ability, especially the perceived ability of OPEC+ to effectively cooperate and make short-term sacrifices for long horizon gains.
Erik, i think you've nailed it and lines up with my view. "Super Vol" ultimately benefits OPEC as it keeps E&Ps/majors on the sidelines. Long-term NPV matters more than "market share". I don't view this as a market share price war but more what you are outlining. Not sure that can be proven analytically, however.
My underlying assumption is that the technocrats working for OPEC+, the Saudis and Russia are all well aware of these issues and that market power is very much a moving target.
It is sad to watch how the IEA analysis and forecasts were unduly influenced by climate change hysteria.
i think politics influence all these macro forecasts...as the politics shift, so does the analysis. They are Paris/Europe-based so there's that as well...
Arjun,
You have been very vocal on Glasgow Net-Zero Banking Alliance. I am sure that you are very happy with the final outcome of the alliance.
https://www.bloomberg.com/news/articles/2025-10-03/bank-climate-group-formally-winds-down-after-wall-street-exodus
indeed! That said, it has been pointed out by some that the demise of these "net zero alliances" does not mean the death of trying to restrict capital flows to oil & gas sectors and we need to be ready for different versions of these groups.
Arjun, I appreciate the analysis of being wrong. Part of why I enjoy investing is that it involves politics and economics but also if so an analyst decides to walk the stoic, intellectually honest path (as you do here), then you can actively seek out reality-based metrics to benchmark your performance to, and you can admit when you have been wrong and try to figure out how to correct it. The thing that drives me insane about ideologues is that they usually inhabit spheres like politics or academics where there are almost no ways to get any reality-based feedback, and so their fields breed cultures of dogmatism, self-reinforcing delusions, and religious beliefs completely insulated from any kind of reality check. Their fields never evolve beyond warring ideological tribes fighting one another about rival dogmas (energy is afflicted with this too of course). The sign of a good analyst is the progressive evolution in their thinking over time as they refine their craft through trial and error, large progress over a few years as they learn and develop; with the ideologues you can read their books from 30 years ago and basically they haven't evolved at all, they're stuck just reiterating their core dogmas. Anyway, cheers from the fall wonderland of Muskoka!
Investor, these are great points and observations. One of my standard lines in my talks with boards/managements and at industry events is that "I bring an equity analyst's mindset" to energy macro and policy which means I am just trying to make the right call and will adjust as needed! I am not wed to a particular outcome. You are spot on when it comes to academia, which I find sad and perplexing, and of course politics. I have a lot of scientists in my family and the challenge there is many are tied into academia and while classically they would be more like "equity analysts" (just with a much higher IQ!), we have seen "The Science" unfortunately become a thing.
No kidding! In my previous career as a scientist, I saw this even in scientific fields where reality based checks are possible but require clear thinking. Humans are tribal and emotional creatures first, and rational ones only with effort.
As to your point about learning and developing, I was particularly struck across the GFC when various business people and consumers were getting what they did not deserve. Every commentator from any tribe always said that they were right all along and did not even reconsider their views in light of some very shocking developments.
Thanks, Arjun. Thesis drift is a killer, isn't it? When to sell? Hard to say.
I've seen some analysts ride a drifting thesis to substantially total losses. I've avoided that for the past 5 years but had one really bad event before that. Aspiring to avoid that now.
Good point Paul. I learned to be brutally honest with myself and whenever I get the feeling that my thesis is drifting and I'm starting to rationalize how I got into this position, it's better to take a hard look in the mirror, tell myself I messed up, and change direction. So much less painful in the long run! Of course, I learned this the hard way LOL.
Ah yes!
How do you make good decisions and avoid mistakes? Experience.
How to you gain experience? Making mistakes.
Thank you Paul. Thesis drift, or worse, being arrogant about thesis drift...is an absolute killer. Though from a credibility standpoint, pretending you weren't totally calling for something else and have now adjusted may be worse!
Arjun, Thank you for a very revealing level of self-awareness that most would avoid at all costs, even in private.
Very much appreciated Andy! I will say that one doesn't have to be truly humble. The cynical angle would be that in America, people respond well to "I'm sorry" and "I apologize". Everyone loves a comeback story. I don't get why people stick with denial or lack of accountability.
Just for amusing context, I have a nice position in MUR😎 And in line with your confession, also some PBR. My thesis on MUR (and APA) is much like your initial MUR take. Good undervalued base with upside not widely recognized. As an investor, I can wait a bit and not have to explain too much, which is easier on my ego. Your one billion/seven billion base case allows me to rest somewhat easy. As they say in Brazil, muito obrigado