Thanks Arjun. I'm wondering why companies would want to or care about changing their shareholder base, particularly if they are not needing capital. You mentioned a few times about them wanting investors flooding back in, but every share is always owned by someone, investors in aggregate have not gone anywhere. What use would it be for these companies to promote themselves and try and change the owners? And would it not be directly against our interest as investors? Don't we want to be able to purchase equity in these companies for less in relation to their future earnings than more and want purchases made by these same companies with the same logic. You passionately argue for them to promote themselves but this is in direct contradiction to our desires unless you are just looking for a quick re rating of stock prices... A serious investor would want to let sleeping dogs lie and have the information arbitrage stay open, not argue for it to slam closed.
Kiwirob, you are of course 100% correct that if one believes a company (or sector) has a bright outlook, you would much prefer buying shares when out of favor, etc. By extension, lets say as a company you think some new area is highly prospect (e.g., Permian Basin in 2000s was very out of favor). You of course want to invest before its recognized.
We are trying to help companies think through a different issue. What are the circumstances that bring investors back. Some companies, especially mid- and smaller-sized ones do need public investors to want to invest in their shares if they are to raise capital for expansion. All CEOs/ management teams are motivated to have their shares outperform and increase in value for compensation. Existing shareholders of course want their shares to rise/outperform.
Do I think companies are purposely downplaying future oil demand in order to keep the sector out of favor so that they can expand in some manner? I really don't think so though an interesting question you raise. I suspect many companies are aiming for what i might call "politically correct long-term oil demand" views.
Thank you Arjun for another cogent analysis of where we are in the cycle! The consensus bearish view of E&P companies despite them offering solid returns at low 60s WTI is why I'm very long energy (mostly Canadian oil sands majors). Fingers crossed our out of consensus view turns out right :)
Two thoughts Arjun (after a nice fall colours walk - no indoor doom-scrolling allowed!):
(1) Re: speaking up for one's company and the future of the energy industry - here in Ontario and B.C. (the Western provinces have a different culture) O&G companies have become almost politically unacceptable, you couldn't possibly say at a public social event that you're an investor in the O&G sector because culturally oil = carbon = climate disaster, that's the thinking. Even pushing back on peak demand would be seen as cheerleading for climate change, I've seen some of the majors here advertising that they create jobs and reduce inflation but I think it's not the right approach, it just sidesteps the main accusation that they're destroying the planet. Privately I've spoken to investors who are knowledgeable, but in regular social life there's a heavy price to pay for being associated with O&G industry (again, AB, MB, SK Western provinces have a more balanced and informed public attitude).
(2) That said, what do you think the rough balance is between narratives about the industry, and actual earnings? I'd say you think that it's something like 80/20 in favour of earnings, the public narratives don't count for much when it comes to earnings, share prices, corporate strategy etc.
Remember to touch leaves when the fall colours get down south.
Hi Investor, On the first comment, 100% hear you in terms of general public. But at the end of the day, i don't think anyone in public has any view on "peak oil demand" etc. So those kind of macro views are always for a combination of investors and policy makers. And I am not saying they don't necessarily believe what they are projecting, but I do think there is an element of responding to political pressure and trying to stay onsides with some broad group of politicians/policy makers...i.e., the numbers flow with the political winds. On #2, I am in the 90%/10% camp on earnings vs narratives. I say that in the sense that if major oils are calling for peak deamnd (vs say the IEA or climate activists), then I don't blame investors for believing them. Hope that 2nd answer makes sense.
Thanks Arjun. I'm wondering why companies would want to or care about changing their shareholder base, particularly if they are not needing capital. You mentioned a few times about them wanting investors flooding back in, but every share is always owned by someone, investors in aggregate have not gone anywhere. What use would it be for these companies to promote themselves and try and change the owners? And would it not be directly against our interest as investors? Don't we want to be able to purchase equity in these companies for less in relation to their future earnings than more and want purchases made by these same companies with the same logic. You passionately argue for them to promote themselves but this is in direct contradiction to our desires unless you are just looking for a quick re rating of stock prices... A serious investor would want to let sleeping dogs lie and have the information arbitrage stay open, not argue for it to slam closed.
Kiwirob, you are of course 100% correct that if one believes a company (or sector) has a bright outlook, you would much prefer buying shares when out of favor, etc. By extension, lets say as a company you think some new area is highly prospect (e.g., Permian Basin in 2000s was very out of favor). You of course want to invest before its recognized.
We are trying to help companies think through a different issue. What are the circumstances that bring investors back. Some companies, especially mid- and smaller-sized ones do need public investors to want to invest in their shares if they are to raise capital for expansion. All CEOs/ management teams are motivated to have their shares outperform and increase in value for compensation. Existing shareholders of course want their shares to rise/outperform.
Do I think companies are purposely downplaying future oil demand in order to keep the sector out of favor so that they can expand in some manner? I really don't think so though an interesting question you raise. I suspect many companies are aiming for what i might call "politically correct long-term oil demand" views.
Thank you Arjun for another cogent analysis of where we are in the cycle! The consensus bearish view of E&P companies despite them offering solid returns at low 60s WTI is why I'm very long energy (mostly Canadian oil sands majors). Fingers crossed our out of consensus view turns out right :)
thank you @dropka!
Two thoughts Arjun (after a nice fall colours walk - no indoor doom-scrolling allowed!):
(1) Re: speaking up for one's company and the future of the energy industry - here in Ontario and B.C. (the Western provinces have a different culture) O&G companies have become almost politically unacceptable, you couldn't possibly say at a public social event that you're an investor in the O&G sector because culturally oil = carbon = climate disaster, that's the thinking. Even pushing back on peak demand would be seen as cheerleading for climate change, I've seen some of the majors here advertising that they create jobs and reduce inflation but I think it's not the right approach, it just sidesteps the main accusation that they're destroying the planet. Privately I've spoken to investors who are knowledgeable, but in regular social life there's a heavy price to pay for being associated with O&G industry (again, AB, MB, SK Western provinces have a more balanced and informed public attitude).
(2) That said, what do you think the rough balance is between narratives about the industry, and actual earnings? I'd say you think that it's something like 80/20 in favour of earnings, the public narratives don't count for much when it comes to earnings, share prices, corporate strategy etc.
Remember to touch leaves when the fall colours get down south.
Hi Investor, On the first comment, 100% hear you in terms of general public. But at the end of the day, i don't think anyone in public has any view on "peak oil demand" etc. So those kind of macro views are always for a combination of investors and policy makers. And I am not saying they don't necessarily believe what they are projecting, but I do think there is an element of responding to political pressure and trying to stay onsides with some broad group of politicians/policy makers...i.e., the numbers flow with the political winds. On #2, I am in the 90%/10% camp on earnings vs narratives. I say that in the sense that if major oils are calling for peak deamnd (vs say the IEA or climate activists), then I don't blame investors for believing them. Hope that 2nd answer makes sense.