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While I agree a number of OPEC countries are already faltering in their ability to fill their shares of the monthly 400kpd production increases, others have more ability to do so such as SA, Russia, Iraq, Libya et al. Never mind that US production is increasing again (almost 1 million barrels per day over the past year) and Exxon is making great strides to get to 1 million barrels per day or more in Guyana (albeit a 5 year program to get there). I see US production adding potentially another 500-1000 kpd of production by the end of 2022 if prices remain in the $60-80 range. Supply is not as constrained as you make it out to be but I agree there will be limitations depending on how demand increases play out.

With some short term aberrations, I see the supply/demand balance remaining reasonably close, close enough to likely keep prices in the $60-80 range over the course of 2022 and beyond. We will see some continued growth in XEG prices and for select O&G companies, but I don't see XEG ever returning to its ~$20 peak back in 2014. XEG in the $15 range may be the best it can do over the next few years.

Agree. Once we are past Omnicron I see a big surge in demand especially in the travel industry. People want to break the covid chain and get back to travelling and reconnecting.

 

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Nice job. 20% yield on cost and 5X gains.

And I still can't believe that I sold the NVA.TO shares that I bought at $0.80 because I got impatient as it was not moving. Now trading at $7, ouch.

I just see a lot of great opportunities in this sector. I have a number of USA plays as well. I have SU, Enerplus, Baytex, Cenovus, Diamondback, Arch , Whitecap and Conoco-Phillips . If we run into a inflationary cycle this sector will do very well. I believe for an intregrated I think Cenovus has the best upside . SU on a metric basis is selling at a higher price .

 

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Just about any o and gas stock has had an outstanding run. I bought some Suncor to fill out a basket of 8 energy stocks. I have three US oil stocks. If oil is going up as some suggestion having a strong position in a stock with deep position in the Perminian basis is a no brainer.

 

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I personally like CNQ over XEG.
I like it over its peers as well: SU CVE IMO.
Bigger dividend, better management, better performance.
I'm surprised there isn't more interest in CNQ here.

CNQ is a much more of a upstream oil business and it has strong position in other non-oilsand production.. Suncor has a much bigger footprint with downstream operations. Same with CVE. CNQ I believe has done better in stock performance. I figure the real laggard in the three is CVE and if there is a catch up phase CVE will do very well.

 

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So you know all that, but the rest of the market doesn't? I don't understand why you guys think that investment banks and hedge funds can't do the same analysis you're doing.

Don't you think prices would already reflect all this? Or are a handful of guys on a random internet forum the only ones that figured it out. Better buy XEG before the rest of the world figures it out!

@doctrine for any of the things you mentioned to be bullish, would require that the rest of the market does not see this yet, or isn't as smart as you.

My guess is that all of this is priced in, as are other risks that perhaps don't occur to you. Put it all together and I'm sure XEG is fairly valued based on all the information known today including the thesis you outlined, as are most liquid securities on earth. So what you are really buying is a speculative gamble about other exogenous forces or other unpredictable chaotic forces that cannot be accurately predicted.

The climate change crowd has forced many pension funds, institutional investors, banks and other large entities into policies of not investing in fossil fuels.

 

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Yesterday was the day. BTE almost got me there all by itself.

I call fossil fuels energy the hypocrisy trade. Most everyone agrees that we have a problem with rising temperatures due to GHGs, but talk is cheap: almost nobody actually wants to personally do much about it. Tag the energy companies with the responsibility and carry on with life at 130kmh on 400 series highways, continue to lust after 4000SF houses, and fly out twice annually on vacations.

I have about 12k of BTE. my investing motivation was its position in the Clearwater area. It seems to be very oil rich deposit which has been recently discovered. and is highly productive. I own about 20k of Tamarack Valley for the same reason. BTE is making a great comeback and is looking like a promising operation.

 

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Oil is basically the same price today as it was in 2011-2013

Pretty impressive for a supposed super-high inflation period, and wartime. If it stays like this, I wouldn't be too concerned about serious inflation.

At $85 a barrel most of the oil producers are selling at less than three times cash flow. The traditional fair value was 5 times cash flow. I am in no panic and there is a very large pent up demand for travel in all modes.

 

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There are far too many wild cards to make energy pricing and thus oil stock prices predictable. The best the companies can do is to take a stab at a longer term stable oil price and invest relative to that price point. Any near term boost is gravy and needed in reserve to take care of unexpected lows. Oil could easily be $70 at the end of 2022 as it is over $100. An abrupt recession may be coming given inflation and the need to stomp it out. By 4Q22, oil demand may be back to <95 million barrels per day, at which point, there will be excess production capacity, even with 0 exports from Russia.

Companies would be nuts to assume the current windfall continues for 2+ years, which is the kind of payout time needed to justify drilling investments (6-9 months from a standing start to a well being on production plus 1-1.5 years of production for payout). And that is just for conventional O&G and perhaps shale oil wells. Nothing to do with larger development projects which must look at much longer time horizons..

Agreed it is very cyclical. I won't hold my oil and gas stocks for the long term. I will probably be exiting during the summer during the period of peak demand. Many analysts are saying companies are reluctant to spend on increasing production and capex. For one thing financing is a bigger challenge now and international players and investors have pulled the plug on Canada.. When oil stocks are selling for 2 and 1/2 cash flow I don't think they are close to being fully priced.

 

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And yet for the trailing year, our domestic XEG is up 79% whereas XLE (US and multinationals) are up only 49%

And for the last 2 years, XEG is up 373% while XLE is up 195%

Looks like Canadian energy equities are outperforming the world. How can that be happening if investors have "abandoned" Canada? If that were the case, wouldn't you expect XEG to underperform?

Interesting. Must be a lot of retail investors driving this vehicle. With all the ESG restrictions on investing institutional investing should have been impaired. Encana one of Canada's largest energy companies moved their head office to Denver and with a focus on the USA.. Enbridge bought a major USA pipeline operation and has basically decided to cease trying to invest in Canadian pipeline infrastructure. Total, Shell, the Norwegian Fund have all sold their interests in Canadian operations. Imperial Oil is the only one that is still here unless I am missing something. Share activity and capex aren't necessarily the same. Is there any big expansion in production in the oil sands or any of the other major oil formations in western Canada? What oil and gas companies are giving guidance on a significant big increase in capex? I am not sure comparing US energy ETFs with Canadian ETFs tells the story. The choice of stocks in much wider and diverse in the USA .Things like defence, tech, big Pharma are sectors much bigger and deeper then in Canada. Commodities and financials take up a much larger percentage of the TSE then the US S&P 500. They are different markets .

 

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I think we've had a situation where XEG (oil and commodity stocks in general) are benefiting not only from the oil rally, but also from a broad shift among equity portfolio managers to get out of growth and more into value.

Energy and commodity stocks tend to be value stocks so as large institutional managers see the writing on the wall that "growth" is toast, they buy into value --> energy.

I think that's currently a theme, so it's a dual benefit from an oil rally + value rally. I'm getting my piece of the action through the Canadian index, which is also value-heavy.

I feel bad for the CMF investors who have shunned Canadian equities due to previous periods of weakness. So many people got caught up in that insane US (tech & growth) rally of the last few years, and I kept seeing posts about how the Canadian index sucks, isn't worth investing in, etc. Many people were chasing returns with the US index and abandoned or under-weighted Canada to "maximize their returns". Oops.

Partially correct. I own Diamondback , Enerplus and Connoco on the US exchangesand they have performed very well. There are many value plays in the US markets and they have some great defensive sectors that are limited in Canada. Big Pharma and managed healthcare are two such sectors. For any stock picker you won't find more choice then the US market. I wouldn't be quick to reject the big techs like Amazon, Google, Microsoft ,Apple . They are still showing extraordinary growth and they are sitting on a giant sized pile of cash. Market psychology has put them temporarily out of favour . A few more quarters of blowout numbers can change that in a hurry.

 

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This commodity bull could have a lot longer to run than usual due to Russian sanctions and the length of this bull will depend on how long and how determined the sanctions will run and be effective. In the meantime, demand destruction will accelerate and the level at which it will occur will depend on both pricing strength and how long it is perceived pricing strength will remain. It will also depend on how quickly EVs can come to market due to supply chain issues. Once EV momentum is in running, there will be no going back.

We will also see more electrification in space heating, e.g. heat pumps. Some jurisdictions will incentivize rate of space heat conversions with things like tax holidays on heat pumps and higher sales taxes on gas heating equipment (and continued carbon tax increases). It was always my intent to replace our 22 year old medium efficiency gas furnace with a high efficiency gas furnace in a few years but that will most likely no longer be the case. A high efficiency heat pump will most likely be the replacement regardless of what happens with Nat Gas pricing.

Investors in the O&G sector in particular will need to stay on top of their investments and know when to get off the train, and not to blow their brains out like those that did so in the 2015-2020 period. The turning point will likely be quite sudden as it was in 2015.

Peace in the Ukraine would be a headwind . Lifting of restrictions in China would be a positive. Resumption of travel would be a plus. It looks like demand will be well ahead of supply for the time being. A recession would put a big dent in demand. Expanded Capex and production is another potential headwind. What am I missing? It is clearly a cyclical trade and getting out at the right time is important.

 

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Hate to bragg but I can't resist. Diamondback [Fang]. It reported today it is paying a very generous discretionary dividend and a regular dividend. The combined dividend is 8%. It has a strong position in the Permian basin and its costs are extremely low. They have a strong balance sheet and have been buying back shares and paying down debt. They have much better access to the major refiners then most other producers. They were up close to 8% today. I have a small position in Suncor. I have much larger positions in Fang, Enerplus, Cernovus and ARC and feel much better about their future prospects.

 

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Anyone got thoughts on the drillers and oil service stocks? Would think there are untapped areas which could be exploited . People say the industry isn't interested in capex for a host of reasons. $100 oil and $8 gas must be awful tempting . Tamarack and Baytex have been drilling in the Clearwater basin with great results. If one does move in this direction which is the best prospect? Halliburton ,Ensign , Precision, Calfrac?

 

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I am not sure how long it will be before the drillers start to see some attention. The last time oil was at record prices the industry was punching holes everywhere. I think there is still some uncertainty over supply constraints for frac materials. Also a lot of the labour left during the down turn. For now, energy companies are happy to make the easy money before seeking higher cost supply. I think you are correct that the next opportunity is with this part of the sector. If I were to make this play I would look to the companies that supply these operations and than the companies themselves.

You raise good points. I heard that a big constraint on increasing production in the Permian was a big shortage of oil field workers and pipes. Even if companies wanted to increase production there are a number of limiting constraints.

 

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Nice results for SU, dividend restored to just above 2020 levels.

I've looked for a variety of oil services stocks. My problem is typically they are either still losing money or barely breaking even, and/or have a lot of debt, and/or do not trade at a sufficient discount to justify the valuation. TCW, for example, making some money and debt free, but trades at 2 times book, yikes. They are all under margin/inflationary pressures too. I just think there needs to be more consolidation in the space because they are still willing to work for a loss.

So sticking with the oil and natural gas stocks for now.

I believe Ensign had a very strong quarter. It is pretty well run by Murray Edwards. The basic problem is finding the workers and the pipe do do more drilling.

 

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The better run commodity companies don't raise dividend payouts too far for good reason. Large payouts become unmanageable during downturns (and it is inevitable another downturn is on the horizon somewhere) and a cut is a major bleed relative to the same amount in dividend increase. It is human nature for a cut to feel twice as bad as a caress. Only idiot companies like the Crescent Points of the industry act irresponsibly with pseudo ponzi schemes.

SU is much better off continuing to buyback shares and pay off even more debt. It is a no brainer increasing EPS.

I own an American producer with the symbol Fang. They pay out discretionary dividends when things are going well. They paid one for 4% this past quarter in addition to their regular dividend. Buying back stock or making one time dividend payments make more sense for cyclical stocks.

 

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Another example of how dysfunctional the market is these days. Despite good numbers SU traded down 1.25% today. They probably missed the estimates by 2 cents. AS long as oil stays above $75 these companies will have great earnings and cash flow. At $90 or 100 cash flow can be over 30% of the stock valuation. Will be curious what the price for oil will be come July and August. I haven't noticed any drop in traffic in Calgary .

 

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When will this wild ride end ?

When supply and demand are in reasonable balance. I don't think that will be happening for quite awhile. OPEC can't produce much more oil, Canadian and US energy companies are reluctant to invest more capital to find new production, summer is the high demand season and the elegant in the room is China. If China lifts its lockdowns we will see an upsurge in demand. At some point we might see demand destruction but I don't see yet in any major way.

 

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My portfolio has been 90% oil and gas stocks for the past 2 months. If one appreciates the macro economic trends being in the right sectors is a rewarded strategy. I have started taking positions in companies that provide the materials for the coming EV change over. If you get in the right stocks in this area that should be like catching fish in a rain barrel. I think I up over 10% over the past three days on Enerplus and Whitecap. I have a big position on Enerplus. I like the research that RBC does on oil and gas . Enerplus was one stock they put on their top global stock portfolio. I have 6 or 7 others but Enerplus is my favourite. In this market I like the straight producers over the integrated companies.

 

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Curious, do you mean 90% of your overall (total) investments in everything? Or do you also have things like bonds.

90% of my stocks in a 70/30 portfolio .