Author Topic: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.  (Read 236527 times)

SafetyinNumbers

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Another oil bull letter laying out the investment thesis:

https://www.islainvest.com/wp-content/uploads/2019/04/LTI_Q1_2019_Final.pdf

He does have a slightly negative view on WCS based off of IMO 2020 but I’m not sure how that ties in with all of the VZ barrels that are offline.

Also, I’m curious if anyone has looked at Arrow Exploration (AXL.V)? I imagine it won’t participate in the rally initially as there still seem to be some large holders who received the spin off from CNE.TO last year and haven’t quite sold it all. The stock is down over 70% from when it was spun in November and where insiders bought stock.

It looks very cheap on every valuation metric traditionally used like EV/BOE (~7k/boe) and EV/DACF (~1x) but has shareholders who can’t own it which has presented this opportunity. I also discovered that TD Waterhouse had it flagged from the spin so potential retail buyers have to call in to make an order and I can see a lot of people giving up if they have to wait on hold for 30 minutes to place an order on a microcap.

They expect to report Q4 results by April 30 (the deadline) and we should hear about the bank line then or soon after along with an operational update which could act as catalysts.
Top 5 positions: ELF GCM.NT/GCM.WT.B PIF EFR.DB TII.V


tombgrt

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Thanks for the post, SafetyinNumbers! No insights on AXL.V however.

Also seems like ATU.V didn't receive the memo yet. Still stuck at 0.46. Incredible!

SafetyinNumbers

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Thanks for the post, SafetyinNumbers! No insights on AXL.V however.

Also seems like ATU.V didn't receive the memo yet. Still stuck at 0.46. Incredible!

Looking at GMP’s latest comp sheet, they have ATU.V at 2x EV/EBITDA based on yesterday’s strip pricing. Tough to be a small cap these days.

The aforementioned AXL.V just announced it sold 5% of its production for about 40% of its market cap (75 boe/d for US$5m) and net debt is negligible.
Top 5 positions: ELF GCM.NT/GCM.WT.B PIF EFR.DB TII.V


SharperDingaan

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Interesting implied timeframes.
SAGD if you're long-term (after pipelines are built), service providers if you're medium term.

Seldom spoken of, is just how valuable that shut-in WCS actually is.
In todays evironment of excessive light oil, to raise margins the integrated majors need to raise their heavy/light oil mix. With VZ, Mexico, Brazil, and Iran out (or declining); there just isn't much to go round, almost all the spare capacity is in risky places (Kuwait, Iraq, SA, Russia, etc), and lots of folks are playing with matches. WCS isn't just new supply, it also materially diversifies the geo-political risk. And with a WCS basin second only to SA in size ......

Shut ins do not last forever.

SD

Joe689

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Four ships damaged by some sabotage attack in the ME.  Oil starts up 3%, ends down 1% for 4% move today.   US/CHINA trade risk > ME shipping risk.

SharperDingaan

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This isn't likely to last very long
https://globalnews.ca/news/5274129/saudi-arabia-drones-oil-infrastructure-attack/

Drones are the poor mans Tomahawk.
They can carry missiles/mines, are cheap, are hard to detect, do not have to come back, and can be launched from anywhere.
Simple matter to swarm a ship loading facilty, and wreck everyones day.

SD

sculpin

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From the commodity-cycle lows reached back in both 1970 and 2000, natural resource equities outperformed the broad stock market by five-fold over the following decade. Today, both commodity prices and natural resource-related equities have never been more depressed relative to the broad market.

http://blog.gorozen.com/blog/commodity-and-natural-resource-equities-undervalued-versus-broad-market

sculpin

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And now some comments from Oxford Energy which seem to sum up the current state of the crude markets:


Looking ahead into the second half of 2019, the oil market faces the key issue of how this divergence in expectations and the mixed signals from the physical and futures markets will eventually be resolved. If 2018 is a good guide, the price level will eventually increase to reflect the current tightness in the physical market.

In a way, this underlines the current bullish view that oil is ‘about to see a violent price spike’. Deep cuts from Saudi Arabia and supply disruptions from Iran and Venezuela saw OPEC output reach low levels of 30.2 mb/d in April 2019 (down from 32.3 mb/d in November 2018); contamination of the Druzhba pipeline is causing a decline in delivered crude from Russia ; deterioration in the geopolitical backdrop is increasing the risk of further output disruptions from Iran, Venezuela, and Libya; and the decline in rig activity and a slowdown in US shale production growth all point to a tighter supply picture.

The IEA’s warning that investment levels are falling short of what will be needed to meet global oil demand only provides further support for this thesis. – Oxford Energy

SafetyinNumbers

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And now some comments from Oxford Energy which seem to sum up the current state of the crude markets:


Looking ahead into the second half of 2019, the oil market faces the key issue of how this divergence in expectations and the mixed signals from the physical and futures markets will eventually be resolved. If 2018 is a good guide, the price level will eventually increase to reflect the current tightness in the physical market.

In a way, this underlines the current bullish view that oil is ‘about to see a violent price spike’. Deep cuts from Saudi Arabia and supply disruptions from Iran and Venezuela saw OPEC output reach low levels of 30.2 mb/d in April 2019 (down from 32.3 mb/d in November 2018); contamination of the Druzhba pipeline is causing a decline in delivered crude from Russia ; deterioration in the geopolitical backdrop is increasing the risk of further output disruptions from Iran, Venezuela, and Libya; and the decline in rig activity and a slowdown in US shale production growth all point to a tighter supply picture.

The IEA’s warning that investment levels are falling short of what will be needed to meet global oil demand only provides further support for this thesis. – Oxford Energy

Thanks Sculpin.

It seems like there is a disconnect from the macro traders who want to short oil and other commodities because they are worried about a recession or worse. I think that view is further amplified by quants which are driven by various models that take cues from various factors (interest rates, economic date etc..) that result in the same conclusions as the macro traders. On the other side, those who are exposed to physical markets and have built the supply/demand forecasts think we are heading to shortages in commodities like oil, copper, uranium etc....

It seems to me those exposed to physical markets are doing more work and have a better basis for their views but the macro and quants are much bigger players in the futures markets and that is driving near term moves.

It sure feels scary to be long a bunch of commodity stocks if we are heading into a recession because it's hard to forget how bad it was last time. This time it's hard to argue we have a lot of froth in commodity equities or commodity prices but there still aren't many managers willing to stick their necks out. It's too dangerous to underperform for most PMs.

Top 5 positions: ELF GCM.NT/GCM.WT.B PIF EFR.DB TII.V