Touchstone Exploration Investors - TXP

Touchstone Exploration Investors - TXP

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Stock Name Stock Symbol Market Stock Type
Touchstone Exploration Inc TXP London Ordinary Share
  Price Change Price Change % Stock Price Last Trade
0.00 0.0% 72.50 08:00:00
Open Price Low Price High Price Close Price Previous Close
72.50 72.50 72.50 72.50
more quote information »
Industry Sector
OIL & GAS PRODUCERS

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Top Posts
Posted at 24/1/2023 12:00 by jungmana
Worth a watch for new investors;https://youtu.be/DFUk3GomQw8
Posted at 21/12/2022 10:01 by mount teide
Some great O&G industry factual analysis by Alex Kimani, a veteran finance writer, investor, engineer and researcher for Safehaven, a company dedicated to the Preservation of Capital.

Well worth a read, even the though much of the underlying thesis - the Great Transition from new economy into old economy investments triggered by the commencement of the third global commodity super-cycle in 50 years - may have been routinely promoted, argued and discussed at length by me in numerous posts over the past 3-4 years.

Why Buffett has been transiting from Banking into Energy stocks - 21 Dec 2022

'For decades, Berkshire Hathaway Chairman and CEO Warren Buffett maintained a pretty conservative approach to investing, favouring retail and banking stocks.

Big American banks have been Warren Buffett's favorite investment because they are part of the infrastructure of the country, a nation he continually bets on. As recently as late 2019, Berkshire had large stakes in four of the five biggest US banks, with Wells Fargo remaining Buffett’s top stock holding for three straight years through 2017.

But Buffett appears to have changed his investing ethos quite dramatically over the past couple of years, taking new multi-billion dollar stakes in energy and computer corporations while shunning the banking sector.

After the onset of the coronavirus pandemic in early 2020, Buffett unloaded Wells Fargo, JPMorgan, and Goldman Sachs on the cheap, despite many stocks in the sector becoming significantly cheaper to own.

"I like banks generally, I just didn't like the proportion we had compared to the possible risk if we got the bad results that so far we haven't gotten," Buffett told investors at last year’s shareholder meeting.

Various analysts have shared their takes on Buffett’s banking divestments.

"What this is telling you is, he thinks we need to batten down the hatches because we're looking at a long cycle of inflation and probably stagnation. Banks are very cyclical, and all indications are that we're in a high inflation, high rate environment for a while. What that typically means is that lending activity is going to be compressed and investment activity is going to be depressed," Phillip Phan, a professor at the Johns Hopkins Carey Business School, has told CNBC.

Despite rising interest rates this year, which typically boost banks because lending margins improve, the banking sector has been hammered: WFC is down 18.9% YTD, JPM has cratered 20.3% while GS has lost 12.9% on concerns that the US economy could stall as the Fed combats inflation with interest rate hikes.

Buffett has been doubling down on his energy investments while trimming his banking holdings despite oil and gas stocks being at multi-year high valuations.

To wit, the legendary investor has added new shares in red-hot E&P companies Occidental Petroleum Corp and Chevron Inc despite both currently trading at multi-year highs.

According to Berkshire’s latest filing, the company bought 118.3M OXY shares in multiple transactions bringing its stake in OXY to 136.4M shares, or 14.6% of its shares outstanding. Berkshire also owns OXY warrants granting the right to acquire some 83.9M additional common shares at about $59.62 each plus another 100,000 OXY preferred shares.

Earlier, Berkshire revealed that it purchased about 9.4 million shares of oil titan Chevron in the fourth quarter, boosting its stake to 38 million shares currently worth $6.2 billion.

OXY has doubled over the past 12 months, while CVX is up 40.9%, with both stocks trading near multi-year highs. But, obviously, Buffet thinks they still have plenty of upside judging by the huge positions opened by his investment conglomerate.

You can bet that Buffett will continue adding to his oil and gas positions in the coming year.

David Rosenberg, founder of independent research firm Rosenberg Research & Associates has outlined 5 key reasons why energy stocks remain a buy in 2023 despite oil prices failing to make any major gains over the past couple of months.

* 1. Favourable Valuations

Energy stocks remain cheap despite the huge runup. Not only has the sector widely outperformed the market, but companies within this sector remain relatively cheap, undervalued, and come with above-average projected earnings growth.

Rosenberg has analyzed PE ratios by energy stocks by looking at historical data since 1990 and found that, on average, the sector ranks in just its 27th percentile historically. In contrast, the S&P 500 sits in its 71st percentile despite the deep selloff that happened earlier in the year.

hTTps://d32r1sh890xpii.cloudfront.net/tinymce/2022-12/1671563137-o_1gkoeqikr1ud5nkq17p01psdvp88_large.jpg

Some of the cheapest oil and gas stocks right now include Ovintiv Inc with a PE ratio of 6.09, Civitas Resources @ 4.87, Enerplus Corporation @ 5.80, Occidental Petroleum Corporation @ 7.09 while Canadian Natural Resources Limited is trading at a P/E of 6.79.

* 2. Robust Earnings

Strong earnings by energy companies are a big reason why investors are still flocking to oil stocks.

Q3 earnings season is nearly over, but so far it’s shaping up to be better-than-feared. According to FactSet’s earnings insights, 94% of S&P 500 companies have reported Q3 2022 earnings, of which 69% have reported a positive EPS surprise and 71% have reported a positive revenue surprise.

The Energy sector has reported the highest earnings growth of all eleven sectors at 137.3% v 2.2% average by the S&P 500.

At the sub-industry level, all five sub-industries in the sector reported a year-over-year increase in earnings: Oil & Gas Refining & Marketing (302%), Integrated Oil & Gas (138%), Oil & Gas Exploration & Production (107%), Oil & Gas Equipment & Services (91%), and Oil & Gas Storage & Transportation (21%).

Energy is also the sector that has most companies beating Wall Street estimates at 81%. The positive revenue surprises reported by Marathon Petroleum ($47.2 billion vs. $35.8 billion), Exxon Mobil ($112.1 billion vs. $104.6 billion), Chevron ($66.6 billion vs. $57.4 billion), Valero Energy ($42.3 billion vs. $40.1billion), and Phillips 66 ($43.4 billion vs. $39.3 billion) were significant contributors to the increase in the revenue growth rate for the index since September 30.

Even better, the outlook for the energy sector remains bright. According to a recent Moody's research report, industry earnings will stabilize overall in 2023, though they will come in slightly below levels reached by recent peaks.

The analysts note that commodity prices have declined from very high levels earlier in 2022, but have predicted that prices are likely to remain cyclically strong through 2023. This, combined with modest growth in volumes, will support strong cash flow generation for oil and gas producers. Moody’s estimates that the U.S. energy sector’s EBITDA for 2022 will clock in at $$623B but fall to $585B in 2023.

The analysts say that low capex, rising uncertainty about the expansion of future supplies and high geopolitical risk premium will, however, continue to support cyclically high oil prices. Meanwhile, strong export demand for U.S. LNG will continue supporting high natural gas prices.

In other words, there simply aren’t better places for people investing in the US stock market to park their money if they are looking for serious earnings growth. Further, the outlook for the sector remains bright.

Whereas oil and gas prices have declined from recent highs, they are still much higher than they have been over the past couple of years hence the ongoing enthusiasm in the energy markets.

Indeed, the energy sector remains a huge Wall Street favorite, with the Zacks Oils and Energy sector being the top-ranked sector out of all 16 Zacks Ranked Sectors.

* 3. Strong Payouts to Shareholders

Over the past two years, US energy companies have changed their former playbook from using most of their cash flows for production growth to returning more cash to shareholders via dividends and buybacks.

Consequently, the combined dividend and buyback yield for the energy sector is now approaching 8%, which is high by historical standards. Rosenberg notes that similarly elevated levels occurred in 2020 and 2009, which preceded periods of strength. In comparison, the combined dividend and buyback yield for the S&P 500 is closer to five per cent, which makes for one of largest gaps in favor of the energy sector on record.

* 4. Low Inventories

Despite sluggish demand, U.S. inventory levels are at their lowest level since mid-2000 despite the Biden administration trying to lower prices by flooding markets with 180 million barrels of crude from the SPR. Rosenberg notes that other potential catalysts that could result in additional upward pressure on prices include Russian oil price cap, a further escalation in the Russia/Ukraine war and China pivoting away from its Zero COVID-19 policy.

* 5. Higher embedded “OPEC+ put”

Rosenberg makes a point that OPEC+ is now more comfortable with oil trading above $90 per barrel as opposed to the $60-$70 range they accepted in recent years. The energy expert says this is the case because the cartel is less concerned about losing market share to U.S. shale producers since the latter have prioritized payouts to shareholders instead of aggressive production growth.

The new stance by OPEC+ offer better visibility and predictability for oil prices while prices in the $90 per barrel range can sustain strong payouts via dividends and buybacks.

Given these factors coupled with fears that a recession might hit in the coming year, Buffett and the investing universe are going to struggle to find a more attractive sector to park their money in 2023.'

Posted at 19/12/2022 17:05 by swallowsflysouth
Sp100, generally i quite like your posts, and i do think best not to just have 'rose tinted' spectacles, such posters sometimes appear to have their own agenda. In many companies there have been difficulties over the last 3 years which may have been caused by circumstances outside of their control ie covid. This company has not dealt well with those difficulties or communicated well with their investors in recent years.

I was just picking up on your '. I know it seems ridiculous but I'd be selling right now if I had any left'.

I was somewhat 'tongue in cheek' in responding to your above remark as that remark to me came across from you as a somewhat 'tongue in cheek' off the cuff remark rather than a deliberate attempt to persuade investors to sell.

In any case investors need to be able to make their own decisions independently of others.
'rose

Posted at 08/12/2022 09:20 by jungmana
If he can get to 20,000 boepd in 2023 , all will be forgiven.I understand the frustration and anger of some investors at the placing but imo is unfair to bunch TXP with most of the dross on AIM.There was a similar frustration shown by some investors at the i3e 11p placing late last year but the share price went onto to 30p+ within 6 months. Imo we have an excellent entry price at this level for new investors. Have deposited 25% of my pot here yesterday. GLA
Posted at 06/12/2022 10:35 by dorset64
After being caught out for pumping the company & telling everyone to buy the share whilst actually selling his own shares behind the scenes elsewhere MT should most definitely be kept at arms length. He will kid you he never gets things wrong but we all do at times, and here he is below with just a couple snippets from this board alone:

Never trust anyone especially those that seek to shout the loudest.
=========================================================================

Mount Teide - 20 Aug 2021 - 13:25:38 - 21791 of 33918

....the business development performance of the company following commencement of the Ortoire exploration programme became nothing short of extraordinary.

.....based on the fundamentals, and regardless of the Royston result or any other exploration upside, the current valuation represents a fire sale bargain for those with an investment outlook horizon longer than the life cycle of a mayfly.
======================================================================
Mount Teide - 23 Aug 2021 - 16:56:29 - 21845 of 33918

With an expected 10-15 fold increase in production over the next 6-9 months (all high margin and fully funded) together with a similar size increase likely over the following 12 months(also from proven reserves), TXP will be a very much different company in terms of production and cash flow generation by this time next year.
======================================================================
Mount Teide - 18 Jun 2021 - 14:56:37 - 20354 of 33918
....haven't sold a share. While as frustrated as the next man at the delays in monetising the tremendous discoveries made to date, I retain full confidence in the management to deliver.
=====================================================================Mount Teide - 29 Apr 2021 - 13:41:49 - 19213 of 33918

Well researched investors interested in where the valuation could potentially be in 2-3 years, may very likely consider the current valuation as a buying opportunity.

In 25 years of investing, it seems that if there is one thing many investors lack more than anything else, it's patience.

There is an enormous amount of market research that shows a long-term mentality is required to be a successful investor. There is also a lot of evidence that shows detailed analysis/research is necessary to find the market's best opportunities.

My friends and I mainly use a system of investing called Scuttlebutt investing. This essentially means finding out as much about a business as possible through in-depth research, and by speaking to the management, in order to identify any competitive advantage or undervaluation opportunity - in order to reduce the risk of an investment.
========================================================
Mount Teide - 15 Apr 2021 - 12:22:19 - 18890 of 33919

Following the very disappointing Chinook test result which understandably shook the market, the TXP management allowed their credibility to be brought into question.

However, after a comprehensive review of research notes made over the last 18 months, I've come the conclusion that from the perspective of this long term investor, the ultra high impact Ortoire E&P story still remains highly compelling....and that patience - well beyond Paul Baay's naturally optimistic production development timelines - is likely to prove the long term investor's greatest ally with an investment in TXP.

As a consequence, I believe it's likely to be an investment mistake to let misconceptions or those with ulterior motives with how the management have handled Chinook cloud the judgement, particularly with regard to Ortoire's longer term prospects.......I've taken the view the management has the experience, expertise and humility to learn from Chinook and positively move on.

Posted at 13/10/2022 08:51 by buffythebuffoon
Some of us who are investors got in early, and with the clarity of vision that hindsight brings, we should have sold over 150p.

The problem with investing here is that the promised land has always been 6 months away.

Look at the share price now, just days after Coho going online.

Yes, there will be a bigger jump when Cascadura goes online, but then what in the days after, and then what after that, and when?

Preaching to people about whether investing is for them should only be done when they have the wisdom and perspective to do so. That doesn’t come with the enhanced knowledge that this age has brought, but the number of years you’ve been breathing.

Still it must be hard to do, as even one of our better investors talks about the fantastic return over a short time period in the share price of a company, yet appears to be a longer term investor.

I always cite SAVP/SAVE as an example of one of those who offered fantastic investment prospects. In my opinion they still do.

Have a look at the long term share price chart.

Those of us who have been breathing longer than the vast majority won’t keep doing so forever.

Buffy

Posted at 12/10/2022 09:50 by mount teide
Hi sp93 - 'Has he just kept updating the last digit since forecasting "2021" at the end of 2020.'

Malcy is in good company in that connection - as I would strongly suspect most of us who post here and have held throughout thought the exact same thing....."This time next year Rodney...."

Hindsight has an enviable reputation for making even the best of investors like Warren Buffett look stupid at times, never mind us mere mortals.

As an occasional reader of Malcy's column, in my experience he offers useful, mostly well argued comments on the merits of the company's he writes about - which investors should use as ideas or a starting point for deciding whether to carry out further investment case research of their own.

Haven't checked but suspect, that an investment in those companies will have generated a better return than most general market fund managers achieved over the last few years. My portfolio certainly has.

However, that probably says far more about the fact that most general market fund managers 'manage' their fund's returns to a performance level they can get away with, by transferring much of the additional capital growth generated to their own firms account though a variety of legal but entirely unethical means such as industrial scale stock churning to generate fees for their in-house brokers/trading arms, and loaning out stock to short their own clients investments!

AIMHO/DYOR

Posted at 07/7/2022 09:39 by mount teide
Retsius - dismayed but not altogether surprised considering the performance since the management commenced monetising the Ortoire discoveries.

As with TXP, the transaction volume across the O&G sector on this sector pullback has been very low relative to the scale of the valuation fall.

From a fundamentals perspective the industry is in such robust health, if you're an investor with a 3-5 year investment outlook, the data to concentrate on is that the O&G sector reported an all-time record level of FCF in Q4/2021 at an average of $73 oil. The rest is largely just background noise.

Market fear talk from so called O&G sector 'analysts' about the market today increasingly pricing in a global recession and $60 oil does not stand up well to critical examination.

Firstly, could they show me where the market priced in a global energy crisis, record energy pricing, a huge bounce back in oil demand post covid, the tightest global nat gas and oil supply situation for decades, and O&G equities generating circa 40% FCF yields? Because this is current reality, while a recession and $60 oil are according to Goldman Sachs' latest forecast just a 30% chance over the next year.

Stomach churning volatility is par for the course with modern markets - if you want to see real stomach churning volatility do some research on the global shipping market.

The BDI-Baltic Dry Index(cost to ship commodities as determined by the daily change in the spot charter rate for dry bulk carriers) dropped 98% peak to trough during the last commodity/shipping market cycle - every US quoted shipping company lost an average of 98% of its equity value. Many that filed for Chapter 11 Protection saw their shareholders equity completely wiped out.

Investors that bought the bottom in 2017, will have seen the BDI rise 18 fold to the most recent peak, which is still less than half that of the previous market cycle unadjusted for inflation.

As an investor with 3-5 year investment outlook, I am very comfortable with the performance of my investments across the O&G and shipping sectors over the last 5 years, and on the balance of probabilities based on an in depth analysis of the sector fundamentals, expect to be even more comfortable with where they're likely to be in another 3-5 years time.

Nowadays, far too many PI's seem to act and invest like short term traders. Regular circa 20% pullbacks are a characteristic of modern day equity investing, largely the result of the profusion of short term traders petrified of losing money who now infest these markets.

These are 'investors' the financial sector consider as sheep for the fleecing - so much so, they introduced leveraged investment products like spreadbetting and CFD's, to industrialise the process by bringing some technology and sophistication to the shearing process.


AIMHO/DYOR

Posted at 18/3/2022 16:57 by mount teide
Ama1: 'And while hedge funds - which have failed to outperform the market every year since 2010 when their "expert network" insider trading games blew up thanks to Steve Cohen - continue to dump and short energy names at every opportunity, Buffett is buying, and so - as usual - expect a major squeeze in the coming weeks as the latest hedge fund hotel trade blows up yet again'


Buffett Makes Big Bet On American Oil As Hedge Funds Liquidate Positions - Oilprice.com

'As we first noted on Monday in "Hedge Funds Liquidate Oil Positions At A Near-Record Pace Amid Extreme Volatility", and as Bloomberg writes today, "fund managers have shown signs of being cautious when it comes to energy stocks, the only major industry group in the S&P 500 with a positive return so far this year" and certainly today's best performing sector.

But that caution appears to be misplaced yet again (no surprise considering the "smart money" has been dead wrong about energy for the past two years), given the tectonic shift in the petroleum market caused by Russia’s invasion of Ukraine and the ensuing sanctions.

And while most 22-year-old portfolio managers have that deer in headlight looks when given the choice of buying XOM or AAPL, look no further than the Oracle of Omaha himself, who likes to get greedy when others are being too fearful: Warren Buffett’s Berkshire Hathaway disclosed that it raised its stake in Occidental Petroleum to 14.6% with purchases of 18.1 million more shares this week, according to a filing released late Wednesday.

Berkshire has drilled even deeper into Occidental’s stock as surging oil prices buoy the U.S. shale driller. A few weeks ago, Berkshire disclosed that it had built up a common stock investment in the oil giant in addition to its preferred stock holding, a little less than two years after Berkshire exited what was then a modest common stock holding in Occidental. Buffett told CNBC in March 2021 that he started buying the stock after one of Occidental’s earnings calls.

Occidental surged this month after Berkshire’s earlier investment and as the war in Ukraine drove oil prices higher. The company hiked its dividend 1,200% in February and has sought to cut debt by buying back some of its bonds. Even as Occidental benefits from higher prices, CEO Vicki Hollub warned that U.S. oil drillers can’t significantly expand production in the short term to fill the gap caused by sanctions on Russia, citing labor shortages and supply-chain challenges. Translation: oil prices will stay higher, leading to a windfall for drillers and E&P giants.

Berkshire initially built its preferred stake in the oil producer when it invested $10 billion to help finance Occidental’s Anadarko Petroleum Corp. acquisition in 2019.

As Bloomberg notes, after a decade of burning through profits in order to boost production in the shale patch, explorers have begun heeding investor demands for greater austerity. They’re expected to keep spending growth limited this year so they can boost free cash flow and return more to shareholders.

S&P 500 energy stocks are up 28% on the year, the only year-to- date gain among the 11 main industries in the index. Unlike long-term investors like Buffett, those large gains may have pushed some investors to book short-term profits and may be scaring new buyers from taking larger long-term positions, according to Bloomberg.

That's why despite the vast outperformance for the energy group, it appears to be the opposite of a crowded trade. as the latest FMS survey showed, Bank of America clients have been just small net buyers of energy stocks since the beginning of February when Russia-Ukraine tensions escalated, BofA analysts wrote in a recent note, and active funds are still ~30% underweight the sector.

To be sure, some investors are worried that oil - which in just the past two weeks tumbled from $140 to below $100 on Ukraine ceasefire optimism - will run up in price only to crash if the economy falters. As a historical comparison, TD Securities analyst Aaron Bilkoski looked at the 2007-2008 period. Back then, WTI went from the mid-$60-a-barrel range to almost $150, then back to below $40 during the financial crisis. Even if that type of scenario repeats itself, the analyst found that almost all exploration and production companies likely will have positive free cash flow this year and next year, and explains why so many local drillers are leery of boosting output. He added that current valuations are more attractive now than they were then.

For oil-service stocks, Benchmark analyst Subash Chandra believes the recent “pullback in oil prices is ultimately a positive as it reduces recession risk and should help focus attention on the tight market for oil services and equipment.”

Ironically, with President Joe Biden calling out energy companies over prices at the pump, oil in a steady range of $95 to $100/barrel could benefit energy companies overall by limiting attempts to tax windfall profits while also limiting demand destruction. Indeed, a stable price in the low $100s is the best possible outcome for the US energy industry which has optimized tremendously in the past decade, pulling breakeven prices to the low $40s according to some estimates. In a Mar. 11 note, Bank of America reiterated its overweight on the sector, citing inflation-protected yield, near-record low valuations, improving profile with ESG investors and energy companies’ prioritization of capital discipline above production as reasons to stay long.

And while hedge funds - which have failed to outperform the market every year since 2010 when their "expert network" insider trading games blew up thanks to Steve Cohen - continue to dump and short energy names at every opportunity, Buffett is buying, and so - as usual - expect a major squeeze in the coming weeks as the latest hedge fund hotel trade blows up yet again.

By Zerohedge.com'

Posted at 12/3/2022 22:03 by mount teide
The outstanding research below by G&R should be must reading for O&G investors - its provides an in depth analysis as to why oil and gas pricing is going to stay higher for longer during this decade and beyond, as the transition to renewables continues to accelerate.

Natural Resource Market research by Goehring & Rozencwajg.

THE DISTORTIONS OF CHEAP ENERGY - Feb 23 2022

"It would take 10 windmills – each 100 metres tall -- to replace the energy produced in a single Permian oil well."

"Our modeling suggests that declining (and cheap) energy prices have distorted and partially hidden the true costs of wind and solar over the last decade. Now that energy costs have surged, the true cost of installing and operating renewables are obvious. The relationship between energy input costs and the cost to produce renewable electricity is based upon our propriety research. We have not seen this argument laid out anywhere before, but the more we study the issues the more we’re convinced we are correct."

Introduction

'We are making one of the largest mal-investments ever—possibly only rivaled by the one made by banks in mortgage-backed securities 15 years ago that ultimately produced the 2008 global banking crisis and financial panic.

Over the last decade billions of dollars have been diverted from traditional energy invest- ment to so-called “transition technologies,” notably wind, solar, and lithium-ion- powered electric vehicles. These technologies represent the worst of all possible worlds: not only do they generate inferior economic returns, but they are unable to address our carbon reduction needs.

The analysis here is some of the most important work we have done in our 30-plus years of
energy investing. It builds on several previous letters in which we discussed the energy efficiency of various renewable technologies and how those renewables unfavorably compare to hydrocarbon-produced energy.

Please consider what we are about to discuss with an open mind; our conclusions are original, contrarian, and extremely important, as they are likely to result in massive unintended consequences, some of which have already emerged and are painfully obvious. For example, we believe the huge investments made in renewables over the last decade are responsible for the energy crisis that is gripping Europe today. Only a month ago natural gas prices in Europe hit $50 /mmbtu—or $300 per barrels in oil terms.

Investment crazes and major bear market bottoms are often caused by a single faulty assump- tion. In the early 1980s, stocks traded at decades-low valuations because everyone was convinced inflation was an intractable problem. The next four decades proved otherwise. In the late 1990s, stocks reached record high valuations as investors assumed traditional financial analysis was no longer important.

During the global financial crisis, the hyper-financialization of residential real estate was based upon the belief that housing prices could only rise. Once prices fell, the embedded leverage in the system became painfully evident to everyone.

Over the past decade, investments in “green” energy have dramatically surged in popularity. In 2020 alone, $700 bn was allocated to ESG-friendly investments. We believe that much of that investment is driven by faulty and poorly understood assumptions. Investors incor- rectly believe that adoptions of new technologies have been the driving force in lowering the cost of renewable power. But what if we you told you that almost all the drop in renewable energy costs over the last decade came not from advances in technology but from lower energy prices?

Just like cheap capital (in the form of low interest rates) leads to malinvestment in the financial world, cheap energy has now led to malinvestment in new technologies that are energy inefficient.

Before we can properly assess the impact of cheap energy on renewable power generating costs over the past decade, we must appreciate the energy crisis currently unfolding. We first wrote about the coming energy crisis in our 2Q2020 letter – a controversial call given oil prices had modestly recovered after having turned negative for the first time in history. However, within a year, the energy crisis was upon us and it’s now rapidly intensifying. Energy prices went from the lowest level in human history (oil trading at less than zero) to the highest level in human history (Asian imported LNG and European natural gas prices hitting $50 per mmbtu or $300 per oil-equivalent barrel) in a mere 18 months. The relentless energy price advance has forced industrial capacity curtailment in China and Europe, notably in energy intensive sectors like fertilizer production which we discuss in the Agriculture section.

How did things change so quickly? While many people point to COVID-related disrup- tions, the truth is that the current energy crisis has been a decade in the making. For many years, demand has been much stronger than anyone cares to admit. We have long discussed our S-Curve model: once a country reaches a certain level of real per-capita GDP (around $2,000), energy demand begins to move sharply higher before plateauing once again around $20,000 per-capita GDP. Prior to this century, approximately 700 mm people were going through this period of accelerating energy demand at any given moment. In the early 2000s, this number surged and has continued to grow ever since. We now estimate over 4 bn people (50% of the world’s population) is in or nearing the middle part of their S-Curve develop- ment. This resulted in much higher-than-expected energy demand almost every year since 2003.

At the same time, investors have starved the energy industry of capital. US E&P capital spending peaked in 2014 at $140 billion and has fallen ever since. Even before COVID-19, E&P companies were spending half the 2014 peak – approximately $70 bn. During the pandemic, companies slashed spending even more, eventually falling to $30 bn in 2020 – the lowest reading in decades and 80% below the peak.

Energy is a fundamentally cyclical business, driven in large part by a carefully choreographed capital spending cycle. Tight energy markets cause prices to rally. Companies generate super- normal profits and attract investor capital. The market rewards growth, incentivizing compa- nies to use their new-found capital to drill more wells. Supply begins to grow and eventually exceeds demand. The cycle reverses itself as energy prices fall, corporate profitability collapses, stock prices decline, and capital flees the industry. Over time, depletion takes hold yet again, supply ratchets relentlessly lower, and the cycle repeat itself.

At present, the normal market/investment cycle is being hindered by outside forces that didn’t exist previously. The emergence of climate concerns and related ESG has forced capital to flow out of the traditional hydrocarbon based energy and into renewables.

After the 2020 massive COVID-related demand shock, the market by second half of 2020 slipped into deficit. Over the last 18 months, global oil inventories are at their lowest reading in 20 years. Oil prices have rallied to $90 (the highest level in eight years) while LNG reached $50 per mmbtu (an all-time high) and both oil and gas markets are backwardated (when future prices are below spot prices) signifying significant physical tightness.

Energy stocks rallied sharply and were the best performing sector of the market last year.
The market has clearly signaled the need for more investment in upstream production. However, capital spending budgets during this cycle have hardly budged.........

Read the main body and conclusion of the research here: hTTps://f.hubspotusercontent40.net/hubfs/4043042/Content%20Offers/2021.Q4%20Commentary/2021.Q4%20GR%20Market%20Commentary.pdf

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