Jeremy McCrea, CFA
@JeremyMcCreaCFA
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Energy is now 5% of the S&P 500. Although this is below the 11% weighting in 2014, the move above 5% now likely forces many more U.S. institutional investors to put Oil & Gas on the radar. This also likely leads to some spill-over capital into CDN Oil & Gas
#WTI
#oilandgas
#OOTT
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With WTI breaking below $70, something to keep in mind: This is the Dallas Fed Survey, asking US E&Ps what their Break-Even oil price is in their two top plays. Last year it was $62. Assuming 10% inflation, we're likely closer to $68 and close to where prices are now.
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How popular are Oil & Gas stocks? We track how often a CDN Oil & Gas ticker gets typed in Bloomberg, relative to other TSX names. For contrarian investors, the sentiment (and search interest) is the lowest we’ve had on record (Oct '20). This explains the low valuations today and
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How indicative is the WTI strip as it relates to future oil prices? We show the past 10 years and how often the strip fails to foresee future demand strength and/or future supply challenges - something to consider with oil up 17% alone this week
#oilandgas
#oott
#alberta
#OPEC
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Energy is now 6% of the S&P 500. From a low of 2%, this move higher likely forces many more institutional investors to put Oil & Gas on the radar and look down-market to play catch-up. This also likely leads to some spill-over capital into CDN Oil & Gas
#investing
#OOTT
#oilgas
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Looks like Oil & Gas operators could get hooked after seeing more production results from the Fishbone drilling design. After 220 days, this method has produced ~55% more oil than the offsetting multi-lateral well (with seemingly lower decline rates in month 7, as well). This
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Trade secret: Analysts typically keep their oil price outlook close to the strip. To start Q2 now, this is one of the largest gaps on record ($97 vs $70 WTI). With many updates likely this week, watch for big revisions coming to ratings/targets and free cashflow for E&Ps
#oott
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As WTI prices move lower, it’s worth a reminder that leverage in the energy sector has never been better. Something to consider in terms of downside for share prices today vs. years past
#OOTT
#oil
#investing
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Thread: Why has Oil & Gas been so volatile? Since 2018, the majority of all CDN E&P buying has come from high-turnover funds. Thus any WTI weakness had them rushing to the exits. Encouragingly, low-turnover funds have become the main buyer in 3Q
More energy inst. buying trends:
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Oil & Gas production in Canada is up 21% since 2012, while Scope 1 emissions have fallen 24% – showing there can be a balance between growth and environmental stewardship. As industry health improves, emission intensity should fall further as the sector strives for net zero
#cake
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With the start of the school year, there's a noticeable decline in CDN university enrolment for Petroleum Engineers - now down 67% since 2014. As fewer grads enter the field, and retirements picks up, it's another factor that will limit long term oil supply growth
#oott
#WTI
Part of the LT labour force challenge is a younger generation that is seemingly avoiding Oil & Gas while an older generation makes up a higher portion. With in-the-money stock options finally vesting after 3-yrs (standard length), we would expect more retirements to come in 2023
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WTI prices have dropped on global recession fears. But have we seen a slow-down in non-OECD oil consumption? Short answer is no but importantly, the bias for revisions have actually been upward as well (+1% YTD for 2023) – signaling perhaps the EIA is seeing better oil
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The Energy weighting in now 17% of the TSX - up from 10% last fall (and 2nd largest sector in Canada). Implications? Institutional investors may still be underweight Oil & Gas but can no longer ignore the sector entirely. It's why we're talking to more 'generalists' lately
#OOTT
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How low can you go? We highlight the valuation of the Canadian Oil & Gas sector since 2013. Despite one of the best profitability outlooks today, low leverage, and increasing returns to shareholders, valuations remain near record lows
#oilandgas
#oott
#investing
#energy
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For years, CDN Oil & Gas struggled to attract the attention of int’l investors. In a come-back story that combines high profits, balance sheet strength & top ESG scores, the TSX Energy Index continues to outperform its global peers. This momentum looks to stay as more int’l
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Buy signal for oil stocks? Algo-style investment funds are programmed to chase revisions, especially cashflow changes. In Oil & Gas, Analysts typically chase the strip and for the last year, those revisions have been downward — until today.
With WTI strip back above consensus
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From the bottom to the top, the Energy Sector's Free Cash Flow Yield has seen a remarkable shift upward recently (to 9.9%), as profitability improves with rising WTI prices. Vs. other S&P 500 sectors, it’s an industry that likely grabs increased investor attention: More 1/3
#oil
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More buying for oil stocks coming?
In Oil & Gas, Analysts typically chase the strip and will make the largest oil price adjustments with Quarter Ends. Algo-style investment funds are programmed to chase street revisions, especially when they see cashflow changes.
With WTI
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Despite WTI selling down, Canadian Par (MSW) light oil prices are holding in, thanks to a weak CDN dollar and low WTI differential. At C$107/bbl today, this is still 50% higher than average price seen over the last 7 years
#oott
,
#investing
#CrudeOil
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How have CDN Oil & Gas netbacks changed? A lot. With AECO, FX, and WTI differentials all improving, Cdn operators look to be seeing some of the best cash netbacks in years
#OOTT
#investing
#Alberta
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How low are CDN Oil & Gas valuations? Despite one of the better profitability outlooks today, low leverage, cyclical lows in commodity prices (especially natural gas), and increasing returns to shareholders, valuations still remain near historical lows
#oott
#investing
#tsx
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Thread: 3 charts showing the tightness in the crude oil physical market:
North Dakota Bakken Premiums nearly back to all-time highs. This is just not the front month but the 12 month curve, now trading at just under $3/bbl. We see this in other U.S. oil basins as well
#OOTT
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While U.S. oil production is back to record highs, the Eagle Ford continues to decline and is now 20% below its peak oil rate at 1.15 mln b/d. Typically, we would see decline rates slow concurrently; however, we are seeing the opposite, with decline rates actually rising
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For those that missed it (because there was no press release), ARC ($ARX) signs LNG agreement with Corpus Christie for 140 mmcf/d at JKM pricing (i..e.: US$25/mcf today)
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Here today, gone tomorrow – would be the theme for public CDN Oil & Gas names over the last decade - with the number of listed companies down 68% since 2011. That said, with consolidation, we are now back to 30 companies over $1 bln in Mcap. Who’s next to be consolidated?
#oott
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And just like that, Energy's weighting in the TSX Composite hit a new high for 2023 at 18% (and up from 16.9% last month). With CDN Par Oil prices firmly above C$110/bbl, generalist investors likely can't ignore this momentum. For the S&P500, Energy is... (1/2)
#OOTT
#investing
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Even with lower oil prices today, the S&P500 Energy Index ‘Free Cash Flow Yield’ still trades meaningfully above other sectors. As we start to see a floor in commodity prices, it’s an industry that likely grabs increased investor attention, especially if these higher interest
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There are many reasons why Insiders sell; but only one reason they buy. And despite plenty of volatility with WTI / NYMEX prices, mgmt insiders continued to pick up Oil & Gas stocks in Nov/Dec. This should give investors confidence heading into 2024
#OOTT
#investing
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How indicative is the NYMEX natural gas strip? Despite spot natgas prices collapsing in recent days, the strip remains above $4.00/mcf (and what still appears to be a structural shift from the past 7 years). Global LNG putting in a floor?
#oilandgas
#OOTT
#energy
#naturalgas
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The fastest growing oil play in Canada has been the Clearwater, thanks to the advancement of multi-lateral wells. But that may be changing. Operators are increasingly applying multi-laterals in other heavy oil formations, with 684 wells now licensed since 2019. With the areal
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That escalated quickly... Yesterday's Alberta crown land sale saw two sections sell for $3.1 mln in the SW Montney region of the play. That's double the price from the Aug 9th sale (which was the largest since Oct 2017), where parcels sold at $1.4 mln/section (for a total bonus
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Could we see a NYMEX natural gas price spike this winter? The U.S. just might not be able to rely on 'cheap' Canada natgas imports w/ western CDN storage near record lows (at only 71% full).
A thread on CDN natural gas dynamics
#AECO
#oilandgas
#LNG
#alberta
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Thread (1/5) Why have Oil & Gas stocks been so volatile? Since 2019, nearly all buying of CDN midcap E&Ps has come from high-turnover funds. Thus the first sign of WTI weakness had them rush to the exits. Encouragingly, low-turnover funds were the main buyer in 2Q buying $1.4 bln
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And just like that, CDN Heavy Oil Differentials (WCS) are nearly back to normal – now at $16.40/bbl (vs. $15/bbl avg). Russian Ural oil cuts, SPR releases ending, more DRA's and with a number of other factors, heavy oil producers should be seeing a good rebound in cashflow for 2Q
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Looking for multiple expansion in the Oil & Gas sector? There’s a valuation gap today vs historical levels, but this gap is more prevalent with premium names. Overall, expect multiples to expand on these higher quality names first before we see multiple expansion elsewhere
#oott
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NYMEX natural gas prices have recently slumped, but could this reverse? The U.S. has relied on ~5.5 bcf/d of 'cheap' Canadian natgas imports but that may soon end
With W. CDN natgas storage at record lows now (only 64% full), the AECO / NYMEX diff is nearly gone.
A thread:
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What's leading to Oil & Gas volatility? A considerable part could be attributable to Portfolio Managers being forced to sell their energy investments, as unprecedented net mutual fund redemptions continue (at $7.7 bln for Sep; $41 bln YTD) - A thread
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What's leading to Oil & Gas sector volatility? Perhaps not fundamentals but more so Portfolio Managers being forced to sell their energy investments as they face unprecedented net mutual fund redemptions - a record at $12.1 bln for October 2023 (dating back 2010) - A Thread
#OOTT
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Despite WTI making new 2023 highs (and up 9% since Aug 1), we find Energy Tickers aren't being searched on Bloomberg anymore today vs. back on Aug 1. Shows that many generalists are still on the sidelines and that the rally may have more room to go
#OOTT
#oil
#energy
#investing
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It seems more and more, the market perception might be changing on the Permian’s growth outlook (based on our calls with inst’ investors). Although Permian crude volumes are hitting new highs still (left chart), production per rig is down 33% from peak levels (right chart). It's
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The EIA came out with their 2024 Oil Demand Forecast. Is it reasonable? Where are there biases? We highlight past monthly outlooks and the revisions made over the past 10 years. Overall, there looks to be a bias upward over time (when excluding recessions fears)
#oilandgas
#oott
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The Frobisher formation in Saskatchewan is a top quartile oil play w/ well payouts at <6 mths. Discoveries at Steelman recently have brought another shift change with some wells at 300+ bls/d, putting payouts at 10 weeks. For $1.4 mln cost, the play looks to stay quite profitable
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Type "Oil Price" in google and the first website is . Their amount of daily traffic is likely a good proxy of interest by retail investors toward the energy sector (notice the spikes during Covid and Ukraine). Last week saw interest pick up again, putting
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1/ What's leading to Oil & Gas volatility? Still unlikely fundamentals but Portfolio Managers being forced into selling oil & gas investments as they meet unprecedented net mutual fund redemptions in October again (at -$6.5 bln & 4th highest on record)
#OOTT
#investing
#crudeoil
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How popular are Oil & Gas stocks? We track how often a CDN Oil & Gas ticker gets typed in Bloomberg, relative to other TSX names. Despite the Energy index up 16% since July 1, the search interest has not moved up, suggesting large money managers have likely not participated in
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The Permian has seen unrelentless oil growth, reaching new highs for 2023 and a partial reason for lower WTI prices. The past six months however, that growth has started to plateau, even while decline rates move higher - Something investors will likely consider more through 2024
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Time to fuel up your portfolio? Energy headed into the new year at 5% of the S&P 500. The recent sell-off likely gives many inst. investors an entry point now or at least put Oil & Gas on the radar and not miss out on another year
#investing
#OOTT
#oilandgas
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Some discussions this week related to the renewable energy transition and WTI prices moving lower. As a reminder, oil, natural gas and coal based energy consumption (from non-OECD countries) has grown 2x faster than hydro/ renewables since 2012 (+47 EJ vs. +24 EJ)
#OOTT
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What does it take to be institutionally relevant in CDN Oil & Gas? Overall, the number of funds that would invest / look at a $5 bln name is 4.5x more than a company at $1 bln - something to consider for E&Ps looking at M&A and consolidation in the energy sector
#oott
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For investors who think Oil & Gas is a crowded trade, here is cumulative inflows into the TSX Capped Energy Index (vs. the TSX Composite Index). Despite strong performance of energy stocks, cumulative net inflows into the $XEG has been stagnant at only $0.4 bln since last year
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Oil & Gas is back again with 22% of CDN companies searched on Bloomberg Terminals being in the energy sector (vs. 18% avg). Last time we witnessed such search interest was June 2022 when oil prices hit $120. This heightened interest today, especially with WTI still at $80 is
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The risk factor with energy investments continues to drop. The combined loan book by Canada's 6 big banks shows a 92% decrease in impaired loans to Oil & Gas (to $230 mln). What are the additional implications? -a thread
#oott
#energy
#oilandgas
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Remarkable stat from Sayer Energy Advisors - Total capital raised for CDN oil and gas fell 75% in 2022 to $2.7 bln (vs $10.8 bln in 2021) & the lowest amount since Sayer began stats in1994. Equity raises were only $1.0 bln. Overall, shows the health/cashflow of the sector
#oott
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Price Roll-back on Steel! Oil & gas drill casing costs continue to fall this week, and now have dropped 50% since January (and back to mid 2021 levels). As we start to see 2024 capex guidance numbers out later this month, there is growing potential for lower costs / better FCF
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Looking for buy-in? Insider purchases for mid-cap Oil & Gas reached one of the highest levels in March at $11 mln. These spikes generally mark good entry points for energy investors, when looking back at history.
The attached insider report looks at further themes including
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With OPEC production cuts & an end to SPR releases, there’s likely to be less heavy oil on the global market. This should reverse the wide WCS differential seen since May and back to a normal range at ~$12/bbl. The price impact on WTI should be even more impactful for WCS
#OOTT
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The EIA has generally underestimated oil production growth. But now? They seem to be overestimating global oil volumes, constantly revising levels lower each month. If high WTI prices were expected to encourage more production, we're actually seeing the opposite world-wide
#oott
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TSX Energy weighting broke above 14% last week - up from 10% last fall. This now puts Energy as the 2nd largest sector in Canada.
Implications? We've had many institutional investors say to us recently that they can no longer be underweight Oil & Gas for another year $XEG
#OOTT
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Current WTI price = Current Inventory. Future WTI prices / Oil stocks are more influenced by expected changes in this inventory. In the past, the EIA has missed important junctures and over-estimated builds during drawdowns. Feb outlook now shows a rolling-over & bias lower
#OOTT
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And just like that, Canadian priced light oil (MSW) is back to $115/bbl, thanks to a weak CDN dollar and a low WTI differential still. This is 60% higher than average price seen over the last 7 years.
#oott
,
#investing
#CrudeOil
#oilandgas
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With Q1 CDN big bank results, there’s been a remarkable drop in lending to Oil & Gas operators – down 54% since 1Q20. Despite a drop in commodity prices recently (especially natural gas), operators haven’t needed to take on any more leverage - A thread
#OOTT
#energy
#oilandgas
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How indicative is the WTI strip as it relates to future oil prices (and potential shocks)? Since 2010, the strip often fails to foresee sudden demand strength and/or future supply challenges - something to consider with the backwardation, implied shortages and higher oil price
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A pretty astonishing Alberta Crown Land sale today with 2 ‘Montney’ sections selling for $4.3 mln each. This is one of the highest prices paid in recent memory for the last decade. Seems like someone might have bigger plans for the area with $8.6 mln now spent for just 2 sections
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NYMEX natgas has been hit hard by a warm winter...but how warm has it actually been? In terms of Heating Degree days, we're ~15% below average (or just 1 St Dev). It shows the precariousness of storage and possible price volatility. And potential for prices to go the other way to
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With more Oil & Gas companies bumping dividend rates, how has the payout changed for the energy sector? Most dividend payouts are still below 30% of cashflow and generally back to long-term averages (which included many years of much lower yields)
#OOTT
#investing
#TSX
#WTI
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Bullish on Natural Gas? Short interest on natural gas stocks are now reversing after reaching highs similar to Covid levels. That’s a lot of bent up buying power as speculation starts to fade as fundamentals for natural gas improve
#natgas
#investing
#LNG
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In Oil & Gas, Analysts typically chase the strip and make larger oil price updates at quarter end. Algo-style funds are programmed to chase street revisions, especially when they see cashflow changes - something to consider over the next couple weeks with WTI strip now at $71
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Capitulation? Trading of the TSX Energy Index suggests so with the 10th largest volume day (since '15). We highlight other days when volume/trade were excessive and the XEG had fallen 5%+. Looking back, those days typically marked low points when looking out one month later
#oott
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Out with the old, in with the new way Oil & Gas companies operate. The TSX Energy Index prior 2-year performance is a testament that by maintaining discipline and good fundamentals, this will drive investors back to the sector. Watch for 2023 to be a three-peat
#oilandgas
#OOTT
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A look-back: As new policy is debated at COP28, a reminder of the ‘450 Scenario’ from 2011 [limit CO2 to 450 PPM], which would have put global oil demand at 87 ml b/d by 2024, and if left unchecked, would lead to oil growth to 96 mln b/d by 2024. At 103 mln b/d today, we’re 7%
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Thread ½: Trade secret: Analysts keep their commodity forecasts close to strip and we’re back to one of the largest gaps on record. NYMEX is a full 45% higher than forecasts (at $7.65 vs $5.30/mcf). Watch for big revisions to come to cashflow, targets and rating for natgas names.
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5 companies now control 75% of BC natural gas supply...of which two have signed 'well priced' LNG deals into the gulf. With LNG Canada Phase 1 still short ~0.7 bcf/d, options in securing ‘cheaper’ natgas in BC are becoming increasingly limited. Expect more M&A to come
#NYMEX
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Noteworthy performance! Energy's representation in the S&P 500 has risen to 4.3% (from 4.1% in June) - and stood out as one of the few sectors that saw a weighting increase. Considering the move in WTI above $80/bbl, seems like there is more to go. For Canada...
#Oil
$SPX
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With COP28 officially underway, it’s worth noting that global energy demand has grown at 1.5%/y since COP15 (in Copenhagen in 2009).
Of that, energy derived from fossil fuels has grown at 1.2%/y, essentially responsible for 80% of this growth
#OOtt
#oil
#naturalgas
#coal
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Looks like the fishbone drilling design is the latest catch of the day! After multi-lateral wells, operators might be reeling in more efficient drilling concepts for 2023. It’s a first in Canada w/35 separate laterals into the Sparky. Stay-tuned for results
#oilandgas
#oil
#oott
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With NYMEX natural gas prices continuing to move higher, how much can the U.S. rely on 'cheap' Canadian natgas imports this winter? Maybe not as much w/ western CDN natgas storage at record lows (at only 75% full)
A thread on CDN natural gas dynamics
#AECO
#oilandgas
#LNG
#yyc
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What's leading to Oil & Gas stock volatility? A considerable part could be Portfolio Managers being forced to sell their energy investments, as they continue to face unprecedented net mutual fund redemptions (at $6.3 bln for August 2023) and $33 bln YTD - a thread
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Although the long-term trend in Oil & Gas valuation has been moving lower, 'premium names' have seen the largest drop. Overall, expect multiples to expand on these higher quality names first before we see multiple expansion elsewhere
#oott
#investing
#WTI
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