Genius,Arjun...A highly cogent,dispassionate analysis of the state of the industry coupled with a deep dive taste of your passion for family,friends and ,clearly,golf.Much appreciated,Sir!!
Thanks Arjun. So appreciate your balanced approach to this space.
I know that you never make any specific recommendations for specific companies.
But would love to know if you can point some of us very small investors towards a good free source of suggestions on ETFs that do a great job of asset allocation to this traditional energy space?
Or, do you think owning 3 - 5 of the international super-major would do the trick for those of us with long-term horizons?
Hi Derek. Thank you! etfdb.com is a website where you can look up ETFs. The main ones for traditional energy are XLE, XOP, and OIH. There are many more for MLPs, utilities, and clean energy as well. I personally invest in ETFs over individual names, but that is more due to various restrictions and compliance issues that come with individual stock ownership for various past and present affiliations of mine. One also needs to decide whether they want to try to trade the sector by timing buy/sell decisions or to buy either the ETFs or a basket of names (as you suggested) and take a 5-10 year view that the sector will over time do well. The latter again is my approach.
From another perspective, note that Japanese foreign policy increasingly includes openly warning Oz and other friendly producers to be wary of the geopolitical implications of cutting investment.
Arjun, is it possible that despite oil & gas companies reinvesting a fairly small part of their operating cash flows, global supply still grows more quickly than demand, leading to loosening S/D balance?
I like the diagram showing that capex divided by operating cash flow is still lower than at any point in the past 30 years. All else equal, this would lead us to think that supply will be tight in the future, supporting prices.
2. Whereas demand was growing by about 2% per year for most of the 1990s, 2000s and 2010s (with the exception of the GFC), I don’t think many analysts predict demand growth of more than 0.5 to 1.0 mmbpd per year in the near future. We therefore don’t need as much investment.
3. Looking ahead, Petrobras has released a very aggressive 5-year capex plan. Javier Blas has described Exxon’s and Chevron’s 2024 capex guidance as “running a bit too hot”: http://twitter.com/JavierBlas/statuses/1732433192395649455.
Are you proposing that companies continue investing in low cost projects even in the face of potential supply loosening?
Tian Wen, The main reasons I have stuck with "Super Vol" rather than "super cycle" is due to (1) near term GDP uncertainty in US, EU, China, and (2) still waiting for evidence of shale supply growth slowing excluding rig count (i.e., maturity). The other items that has hurt this past year is continued recovery in Iran volumes, which in effect offsets the increase in spare capacity in Saudi from cuts. If my long-term demand views are correct (i.e., continued growth for the forseeable future, and would agree that +/- 1 mn b/d per year is a reasonable base case), we will need a new CAPEX cycle...but for time being, shale growth + a handful of other areas is indeed about matching demand growth. Leading to Super Vol rather than super cycle.
Apparently this post is only for those who know what ROCE is. I've never heard of it and have no idea what you're talking about. "ROCE Regime" - is that a country? At first I thought maybe ROCE was Return on Capital Invested? But no, that would be ROCI... I just skimmed the rest hoping to find a clue, but never did catch on
I've gotten away from having a "definitions" section in these posts...need to add back. I really dislike when research/posts use acronyms/jargon without ever defining. Working full time again is probably morphing these posts to be geared a bit more for Veriten's client base as opposed to broader public. Thanks for reminder.
thank you Ed for your thoughtful comment. It's an excellent point that iit s not a "conspiracy" in that the goals are publicly stated..and 100% they are entitled to their opinion and it is legal. I am probably guilty of reacting to comments from John Kerry and others at COP28. I should probably call them out specifically rather than generically use language that unnecessarily detracts from the broader message.
thank you Matt. Midstream is definitely an area I want to spend more time on 2024. you are correct that in general it can be lower, but more stable returns. But there is some variability depending on exposures (pipeline tarrifs which are stable vs NGL margins which are volatile, etc.).
Genius,Arjun...A highly cogent,dispassionate analysis of the state of the industry coupled with a deep dive taste of your passion for family,friends and ,clearly,golf.Much appreciated,Sir!!
thank you Charles!
Thanks Arjun. So appreciate your balanced approach to this space.
I know that you never make any specific recommendations for specific companies.
But would love to know if you can point some of us very small investors towards a good free source of suggestions on ETFs that do a great job of asset allocation to this traditional energy space?
Or, do you think owning 3 - 5 of the international super-major would do the trick for those of us with long-term horizons?
Hi Derek. Thank you! etfdb.com is a website where you can look up ETFs. The main ones for traditional energy are XLE, XOP, and OIH. There are many more for MLPs, utilities, and clean energy as well. I personally invest in ETFs over individual names, but that is more due to various restrictions and compliance issues that come with individual stock ownership for various past and present affiliations of mine. One also needs to decide whether they want to try to trade the sector by timing buy/sell decisions or to buy either the ETFs or a basket of names (as you suggested) and take a 5-10 year view that the sector will over time do well. The latter again is my approach.
Thanks Arjun! I’m familiar with the site you mentioned and will dig into it more.
And yes I definitely have a 5+ year hold horizon.
Keep up the great work!
From another perspective, note that Japanese foreign policy increasingly includes openly warning Oz and other friendly producers to be wary of the geopolitical implications of cutting investment.
excellent point Andrew.
Arjun, is it possible that despite oil & gas companies reinvesting a fairly small part of their operating cash flows, global supply still grows more quickly than demand, leading to loosening S/D balance?
I like the diagram showing that capex divided by operating cash flow is still lower than at any point in the past 30 years. All else equal, this would lead us to think that supply will be tight in the future, supporting prices.
But I don’t think all else is equal:
1. US oil production growth has surprised to the upside this year: https://www.forbes.com/sites/rrapier/2023/10/08/doubters-beware-us-oil-production-is-setting-new-records/.
Some claim that this is in large part due to the EIA reclassifying NGLs: https://twitter.com/ericnuttall/status/1733160178852249723.
But others claim that shale operators are becoming much more efficient: http://twitter.com/ira_joseph/statuses/1732864421045645630.
2. Whereas demand was growing by about 2% per year for most of the 1990s, 2000s and 2010s (with the exception of the GFC), I don’t think many analysts predict demand growth of more than 0.5 to 1.0 mmbpd per year in the near future. We therefore don’t need as much investment.
3. Looking ahead, Petrobras has released a very aggressive 5-year capex plan. Javier Blas has described Exxon’s and Chevron’s 2024 capex guidance as “running a bit too hot”: http://twitter.com/JavierBlas/statuses/1732433192395649455.
Are you proposing that companies continue investing in low cost projects even in the face of potential supply loosening?
Tian Wen, The main reasons I have stuck with "Super Vol" rather than "super cycle" is due to (1) near term GDP uncertainty in US, EU, China, and (2) still waiting for evidence of shale supply growth slowing excluding rig count (i.e., maturity). The other items that has hurt this past year is continued recovery in Iran volumes, which in effect offsets the increase in spare capacity in Saudi from cuts. If my long-term demand views are correct (i.e., continued growth for the forseeable future, and would agree that +/- 1 mn b/d per year is a reasonable base case), we will need a new CAPEX cycle...but for time being, shale growth + a handful of other areas is indeed about matching demand growth. Leading to Super Vol rather than super cycle.
Yes, its possible. But the sharp drop in the DUC (drilled but uncompleted) wells was thought to have run its course, yet production continues to grow.
My Saturday morning is complete. Thank you Arjun. Your posts are very important and valuable for me. Happy Holidays my friend!
thank you Martin!
Apparently this post is only for those who know what ROCE is. I've never heard of it and have no idea what you're talking about. "ROCE Regime" - is that a country? At first I thought maybe ROCE was Return on Capital Invested? But no, that would be ROCI... I just skimmed the rest hoping to find a clue, but never did catch on
ROCE = Return on Capital Employed
For a definition of ROCE and a comparison to ROIC, see this article: https://einvestingforbeginners.com/roic-vs-roce-in-simple-terms/
Arjun has been discussing ROCE for many months now. You may want to check out: https://open.substack.com/pub/arjunmurti/p/20-roce-in-the-2020s-for-traditional
thank you Tian Wen. As Tian Wen notes, there is an extended section on right side of website that has all the prior ROCE notes.
Al, I believe he was discussing Return on Common Equity, a common benchmark of valuation for stocks
Thanks. This makes me feel stupid, even though I thought I was quite a sophisticated investor.
I've gotten away from having a "definitions" section in these posts...need to add back. I really dislike when research/posts use acronyms/jargon without ever defining. Working full time again is probably morphing these posts to be geared a bit more for Veriten's client base as opposed to broader public. Thanks for reminder.
Better to ask than not know
I'm shocked your Top 10 golf moments did not include a round at the fabled Bushwood Country Club.
thank you Ed for your thoughtful comment. It's an excellent point that iit s not a "conspiracy" in that the goals are publicly stated..and 100% they are entitled to their opinion and it is legal. I am probably guilty of reacting to comments from John Kerry and others at COP28. I should probably call them out specifically rather than generically use language that unnecessarily detracts from the broader message.
thank you Matt. Midstream is definitely an area I want to spend more time on 2024. you are correct that in general it can be lower, but more stable returns. But there is some variability depending on exposures (pipeline tarrifs which are stable vs NGL margins which are volatile, etc.).