Chasing Lemmings 5/11/17
Last week’s “Lemmings” blog letter, which I hope you didn’t miss, gives a great opportunity for a follow-up this week – with the avalanche of 1st quarter reports flooding in from US independent E+P’s.
In general, the story from each of them is exactly the same, although the differences, when there are some, are critical for knowing where to invest in the energy space.
For one thing, each of them is hugely ahead of where they were in revenues compared to last year.
Well, DUH….. Oil was trading an average of about $25 lower in the first quarter of 2016 compared to this year.
Each of them is also clearly committed to increasing production in 2017.
This is another ‘stop the presses’ announcement – we’ve seen that this is precisely the “Lemmings behavior” that is putting a cap on oil prices and pushing them all over the cliff together.
As shareholders, neither of these insights is helpful for stock prices. US oil companies are now reliant upon continuing OPEC cuts to make them even marginally profitable.
The crowing you’re hearing from oil CEOs on conference calls, thumbing their noses at OPEC at their own resourcefulness is backward bragging: unless oil rallies strongly through OPEC discipline, we’ll have increasing production for many of these undisciplined operators at thin or even negative margins.
Let’s look at some of these geniuses:
Anadarko – still losing money at $50 oil, and in line for another negligence battle in Colorado
Devon – still tethered to Natural Gas
Noble – DJ Basin focus and Leviathan are the keys for them.
Apache – Will Alpine High pay off?
NOW READ THIS – from Edward Morse at Citibank, who makes the alternative case of reduced CAPEX ultimately causing a supply shortage. If you know me, you know I do not agree with this analysis, but Ed Morse is someone you must read and take seriously.
Of course if you want my more optimistic analysis of the mid and long-term views on oil, and the companies that are actually equipped to make it past these dog days of $45-53 oil to actually make a profit and move the needle (upwards) in our portfolios, you’re going to have to join me for my interactive webinar.
The next one has not yet been definitively scheduled but will either be on Monday, May 22nd or Memorial Day May 29th. Either way, it will begin at 4PM. Sign up today and reserve your spot!