[AltaRed]

My view is that Canada will NOT produce higher volumes of oil than it did at its peak of about 4.5 million barrels per day in 2019. Currently oil production is in the range of 3-6-3.8 million barrels per day. Canadian Oil Production

Getting back to 4.5 million barrels per day will happen only if global oil demand climbs back to the range of 100 million barrels per day and prices improve. If demand falls off to 80 million barrels of oil per day by 2030, then Canada will be hard pressed to find a home for more than about 4 million barrels of oil per day and prices will likely never exceed $60-70 ever again for any sustained period. More importantly, if prices become range bound, there isn't enough margin in oil prices to fund incremental volume growth anyway.

My take is SU, like CNQ, are efficient operators and their asset base will make them survivors over the competition for the long haul. But I doubt whether there is enough cash flow growth (volume and crude price) to ever bring them back to 2014/2015 glory. Global oil demand and pricing just isn't there long term.to replicate that. So think about them being range bound at circa $30-$40 long term with short overrun/underrun periods due to supply/demand disruptions.

I think natural gas is in a somewhat better spot. It is the natural fuel for peaking power (for solar and wind) and along with renewables, the replacement for coal fired generation. LNG demand will remain steady, if not strong. Canada will get a piece of that action, as per the West Coast LNG project. I doubt there is economics though to do more. There are many cheap LNG supply sources around the globe.

I think TRP and ENB will thus hold their own but the days of volume growth and thus shipping toll revenue, whether oil or gas transportation, is going to remain approximately flat (once ENB's Line 3 replacement is completed and Coastal Gas for the LNG project is done). I don't see much new pipeline growth opportunities in the USA either. So, without branching out in a significant way into renewables, I don't think there is much growth left. I do think though they will continue to generate cash flows from existing operations for decades to come and their stock prices will become range bound (like Bell has become) for a long time.

Added:
Q1 I intend to hold ENB and TRP indefinitely (20 years time horizon) but could dump them within 10 years if electrification of land transportation really gains momentum. I don't hold producers out of principle as I don't like commodity stocks.

Q2 My time horizon is 20 years. I think I would hold them that long as long as they find ways to improve efficiencies and continue to hold, or slowly grow, EPS. Buying back shares would also help retain EPS but that would be a sign of ultimately shrinking the corporations slowly over time.

Bonus addition: At my stage of life (early 70s), as long as my holdings give me a 5-6% total return, and if that is mostly all dividends in the case of these specific stocks, that is okay with me.

 

[doctrine]

There are scenarios where oil demand falls but oil prices rise. There is such a capital under-investment occurring that there will be a supply crisis in 2-3 years even if demand stays depressed right where it is today, which is a very unlikely scenario. If companies invest any windfalls in buybacks especially, they can buy back their shares at rates exceeding any divestment, making investor sentiment less relevant to their stock prices.

The other impact of oil volumes no longer rising is that pipeline operators will likely trend towards consolidation. This would make smaller infrastructure owners very attractive targets. Look at telecom in Canada over the last 10-20 years - most of the smaller companies have been bought out, and those buyouts have been at very attractive prices.

So as such I hold the biggest companies, the SU/CNQs, and also IPL. I am out of ENB and TRP but if IPL was bought out I would probably shift those assets into them.

 

[MrBlackhill]

I hope you bought O&G on Monday, there were so many buy signals for quick money, but I didn't have time to catch on them as I just came back from vacation... Sigh.

 

[robfordlives]

Care to share what some of those buy signals were? Do you see this as a short term blip or meaningful long term move up

 

[MrBlackhill]

Care to share what some of those buy signals were? Do you see this as a short term blip or meaningful long term move up

This is just my two cents. This is the pattern I'm seeing with hindsight. I didn't do these trades, I'm not swing trading at the moment and I was in vacation during most of September.

On a 4H chart, analysing XEG and Crude Oil with MACD, RSI and Momentum.

• May 15th, oil rising, RSI rising from mid-level, MACD cross over, buy at 4.75
• May 22th, RSI decreasing, MACD about to cross under, sell at 5.07 (+6.7% in 7 days)
• June 2nd, oil rising, RSI rising from mid-level, MACD cross over, buy at 5.12
• June 5th, RSI too high, sell at 5.92 (+15.6% in 3 days)
• July 10th, RSI rising from mid-level, MACD cross over, buy at 4.74
• July 16th, RSI decreasing, MACD decreasing, sell at 4.98 (+5% in 6 days)
• August 4th, oil rising, RSI rising from low, MACD cross over, buy at 5.01
• August 12th, RSI decreasing, MACD decreasing, momentum decreasing, sell at 5.51 (+10% in 8 days)
• September 15th, oil rising, RSI rising from low, MACD cross over, buy at 4.58
• September 18th, RSI decreasing, MACD decreasing, low momentum, sell at 4.61 (+0.65% in 3 days)
• October 5th, oil recovery rise, RSI rising from low, MACD cross over and also all confirmed by 1D chart, buy at 4.14
• Currently at 4.48 which is +8.2% in 3 days, take huge profits because RSI is high or risk to hold until more sell signals in 1-3 days (potential profits from May 15th to October 8th : +55%)

 

[MrBlackhill]

Just read this article (in French) in LaPresse.

Translated by DeepL

The sale of new gasoline-powered vehicles will be banned in Quebec as of 2035, Environment Minister Benoit Charette revealed in an interview with La Presse. A "big move" to force the shift to electric cars and reduce greenhouse gas (GHG) emissions.

As of 2035, in Quebec, it will no longer be possible to buy gas-powered vehicles [in the new market]. It will have to be fully electric or plug-in hybrid vehicles.

It targets all "personal use" vehicles: the small compact such as the sport utility vehicle (SUV) and pickup truck. Vehicles that are used for commercial and industrial purposes are excluded.

In the United States, California has just decided to ban it as of 2035, a major announcement coming from the country's most populous state. "This is the most effective action our state can take to combat climate change," Democratic Governor Gavin Newsom said in September.

In Europe, France and England have set the ban for 2040; it will be as early as 2025 in Norway.

Québec | La vente de véhicules à essence interdite dès 2035

La vente de véhicules neufs à essence sera interdite au Québec dès 2035, révèle le ministre de l’Environnement, Benoit Charette, dans une entrevue accordée à La Presse. Un « grand coup » pour forcer le virage vers l’auto électrique et réduire les émissions de gaz à effet de serre (GES).

lp.ca

(Found a version in English : Quebec | The sale of gasoline vehicles banned from 2035 - The Canadian)

 

[AltaRed]

The BP Oil Outlook is worthy of a read (the oil sector specifically) to put all this into context. Start with the definitions of the three scenarios and move on to the oil link. In the context of what is being stated as policy objectives in parts of Europe, California, Quebec and BC, but not necessarily in much of the world, I suspect the most realistic scenario is somewhere between Business As Usual (BAU) and Rapid Transition (Rapid), so in the order of 60-70 million barrels per day range by 2050....from about 95 million barrels per day today.

 

[doctrine]

Probably, a company like BP is uninvestible given their strategy. I say this because the company has no moat or particular skillset that enables them to produce and distribute electricity more effectively than the competition. There is already more than enough companies delivering such equipment and at the very least, they are at least a decade behind if not more. So, they will divest their high quality assets obtained over a century of operations at a cyclical low and buy into industries with far lower (or negative) ROEs with far more competition where they have no competitive advantages at a cyclical high where they are nearly bubble-priced.

What could possibly go wrong? It's like coming up with a plan in 2015 that you are selling all your gold bullion and mines at a cyclical low only to invest it fully in Bitcoin in 2017 at the peak of the market along with all of the cryptocurrency mining equipment you can find and expecting this to be a viable strategy that rewards shareholders.

Here is an alternate strategy - stop growing, shut down highest cost assets, reduce your costs, wait for prices to recover, eliminate your debt, and start buying back your shares at an ROE an order of magnitude higher than investing in solar and wind power. If your shares recover, consider alternate deployment of your capital at that time. Protect your moat. This is a proven model in a shrinking market that is achievable if you have structural and cost advantages.

 

[AltaRed]

Here is an alternate strategy - stop growing, shut down highest cost assets, reduce your costs, wait for prices to recover, eliminate your debt, and start buying back your shares at an ROE an order of magnitude higher than investing in solar and wind power. If your shares recover, consider alternate deployment of your capital at that time. Protect your moat. This is a proven model in a shrinking market that is achievable if you have structural and cost advantages.

Absolutely! BP failed once already with their Beyond Green campaign. This is another one that will most likely destroy shareholder value, not necessarily because they shouldn't invest in renewables, but they need to do it in a low risk way, e.g. team up with BEPC or AQN (as lead) in a joint venture that knows what they are doing. In the meantime, re-position their own O&G assets by strengthening the best of them and shedding the high cost ones (the 80/20 rule).

There was a time in the '80s where all the multi-national oil companies diversified considerably after the oil busts of '83 and '86. Companies bought department store chains, packaging companies, etc, in a failed attempt to diversify. They all ended up taking a bath on these and selling them for cents on the dollar.

 

[Money172375]

I bought ENB, IPL, TRP, SU over the past few years for dividend income. I have a very long time horizon but am worried about the long term prospects of oil. I admittedly bought them for yield and name recognition.

I’m trying to better understand oil producers vs. Pipeline Cos. Do they face the same risks?
I feel like natural gas producers and movers aren’t as risky vs straight oil producers.

basically...which of these companies would you be worried about in 10+ years?

do the AQN, FTS, BIP, EMA face similar risks?

 

[doctrine]

I personally would be more bullish on oil producers than oil pipelines. In a world of peak oil demand, there are scenarios where supply drops faster and oil remains profitable, especially for low cost and low debt producers. But volume reduction will have long term impacts on pipelines. There may still be opportunities, but there are basically no pipelines with low leverage and they will need to account for the very high debt - ENB has some ~$60-80? billion in debt versus a $16-17B at Suncor. Even 10-20 year take or pay contracts eventually roll over. They are still okay though but I would be more comfortable if they took the time to drop their debt, maybe by even as much as half. I think the days of high dividend growth pipelines are going away and these high 7-8% yields may be around for a while.

 

[MrBlackhill]

Currently a good time to hold beaten down Of&G stocks for their recovery.

I have two of these stocks. One soared +70% during November and the other soared +50%. I more than doubled my money since I bought them. I plan to dump them maybe around next summer or once they get around 80% of their pre-COVID level.

Meanwhile, I also have a clean energy stock which soared +20% in November. I plan to hold that one for long. That one is up +180% YTD. I'm personally up +77% since I bought it at the end of April.

 

[doctrine]

No names? I'll name the ones that are going to the moon now - Suncor and CNQ. Suncor is up a mere 55% in 6 weeks and can go another 100% just to get back to January prices. CNQ is up nearly 200% from March when I bought shares. My smaller cap pick is ERF, which is up 50% as well in 6 weeks and has 200% potential upside; as a low debt company, they will be one of the first to start share buybacks.

Suncor and CNQ are making big money at oil prices today and will be heavily buying back their shares next year. Both are very likely to see $40+ prices in 2021 as there is a high probability of WTI hitting $50 soon and could easily see $60 by next summer.

The next few years could see a severe oil supply crunch as there are almost no major projects left anywhere in the world. A world where major oil companies like the BPs are reducing production by 40% over 10 years, it is entirely plausible to think $100 oil could be back in 2-3 years. There won't be any new supply and prices will have to rise high enough to curb demand.

 

[MrBlackhill]

No names?

I've made contrarian moves on smaller names. I bought SCL at $1.80 and OVV at $8.40.

Should have sold SCL in June when it soared over 175% only 5 days after I bought it, but at that time I had about 2 months of experience investing, ha. I didn't know what to expect next. I'm still a novice. All of my experience as a novice playing around is "documented" here : MrBlackhill's reckless fun and struggles

Both are very likely to see $40+ prices in 2021 as there is a high probability of WTI hitting $50 soon and could easily see $60 by next summer.

That's what I'm hoping for and that's why I'm currently excepting to sell and take my profits in mid-2021.

it is entirely plausible to think $100 oil could be back in 2-3 years.

As a beginner, I'm not ready yet to bet on this. If I end up being more confident in that forecast, I'd surely hold my shares a bit longer.

 

[hboy54]

Many investors won't touch energy on principle. Too easy to get burned. I am currently crispy both on current holdings and less so on a lifetime energy experience. Problem is you then miss buying at 1/10 to 1/50th the 6 year high a commodity which is arguably the second most useful thing on the planet after water, and approximate returns like the following since March:

BTE 3X
PEY 3X
OVV 6X
SU 1.5 X

I don't need a return to 3 figure oil. I expect even WTI starting with a 5 will drive me to break even.

 

[AltaRed]

The next few years could see a severe oil supply crunch as there are almost no major projects left anywhere in the world. A world where major oil companies like the BPs are reducing production by 40% over 10 years, it is entirely plausible to think $100 oil could be back in 2-3 years. There won't be any new supply and prices will have to rise high enough to curb demand.

I am not quite as bullish as some of the O&G pundits are. There is tremendous surplus productive capacity in the system. Upwards of 10-15 million barrels per day. OPEC+ alone has curtailed almost 8 million barrels per day and that does not count the war ravaged under performing volumes from Iraq and Libya, never mind the sanctions against Iran. Even if demand recovers another 5 million barrels per day post-pandemic, and 5-7%/yr natural declines, there is slack in the system. Never mind quite a bit of re-investment happening under the radar in SA, in Kazakhstan, Guyana, etc.

I do think there will be 'firming' of oil prices 3 years out, but I don't see any $100 spikes on the horizon. About the time there is the potential for a supply crunch, global oil demand will be starting to fall off constraining growth.

 

[doctrine]

True, the more aggressive price closing in on $100 would require two things - a sustained demand move back above 100 million boe/d, and oil majors and shale producers holding onto their commitments to reduce capital expenditures as much as they have advertised in their long term plans. If both those start to occur, watch out 3 years out. Oil prices will be firmly in the hands of OPEC.

Of course, prices even now are healthy and companies like WCP (no shares) have indicated discipline still. There is hope. ERF is my small cap pick and it was the top performer on the entire TSX today. And I think is still a double at $50 (almost there) and a triple at least if oil goes to $60, which many analysts project by the end of next year.

 

[AltaRed]

A reasonable thing would be oil firming up in the $60-70 range. That would be bordering on more than enough for oil companies to start blowing their brains out again on volume growth rather than being disciplined on netback improvement.

 

[robfordlives]

Well the last nail in the coffin today from Trudeau. Carbon tax to increase 7 fold and gas will rise 40 cents per litre and nat gas about $6per Gj. This industry is done....amazing this news was released end of day Friday, almost like noone would see it. Oh well

 

[AltaRed]

Well the last nail in the coffin today from Trudeau. Carbon tax to increase 7 fold and gas will rise 40 cents per litre and nat gas about $6per Gj. This industry is done....amazing this news was released end of day Friday, almost like noone would see it. Oh well

Clearly will put Canada at an economic disadvantage but when did ideologists with an abundance of wealth care about economics? It won't hurt the robust part of the O&G industry, the ones with healthy margins for whatever reason (investing discipline, quality of resource, etc) but it will wipe out the fringe players. After all, the rest of the world still demands O&G and so exports will continue. Norway's O&G production sector is heavily taxed but the ones with good assets continue to be successful.