Valuentum Exclusive Analysis for the Discerning Investor

Symbol Keyword

Mar 22, 2020

Our Reports on Stocks in the Oil & Gas - Majors Industry
We've reallocated our resources to optimize our energy coverage.

Mar 20, 2020

Stress in the Oil & Gas Industry Grows as Major Energy Exporters Hunker Down
Image Shown: WTI is down almost 61% over the past year as raw energy resources prices were decimated by the news that OPEC and non-OPEC members couldn’t reach another production curtailment deal in early-March 2020. Upstream capital expenditures are coming down aggressively in the US shale patch and elsewhere, and just as importantly, even the bigger firms are throwing in the towel and scaling back their ambitions. Exxon Mobil has recently pledged to make material cuts to its capital expenditure budget, while Chevron is considering such a move, as are others. It will take a lot more than that to stabilize raw energy resources pricing given the demand destruction caused by the ongoing COVID-19 pandemic, with many households in major demand regions (namely the US and Europe) now “cocooning” in their homes to wait out the crisis. That’s on top of an expected surge in oil supplies from OPEC and non-OPEC nations, with an eye towards Saudi Arabia, the UAE, and Russia. We caution our members to not catch a falling knife here.

Mar 11, 2020

Worst in Energy Not Over, Stay Away from Leveraged Enterprises, Seeds of Financial Crisis Sown?
Image Shown: The energy and banking markets continue to be experiencing pain. Since we removed the Energy Select Sector SPDR (XLE) and Financial Select Sector SPDR (XLF) from the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio, the XLE has fallen more than 50% and the XLF has fallen 13%, while the SPY has held up roughly 2%. We continue to believe staying away from energy and financials/banks will be a source of significant alpha.These are challenging times. The oil price swoon has complicated an already-dire situation with COVID-19. We’re seeing cracks in the credit markets, and the European banking system is far from healthy. The US banks may face knock-on impacts from energy loan defaults and hold significant counter-party risk from their European brethren, which have breached post-Lehman lows. We’re doubtful any fiscal stimulus will stave off this crisis, and it may just set up the markets for the next leg down, if Congress ends up in a stalemate. We will continue to keep our members informed on the state of global energy markets as more information becomes available, but we think avoiding energy and banks/financials will continue to be a source of alpha. We removed the XLE and XLF from the newsletter portfolios in August of last year. We’re reiterating our 2,350-2,750 target range on the S&P 500.

Mar 9, 2020

Oil Markets Get Decimated
Image Shown: Oil prices have been decimated year-to-date. The outlook for independent upstream names has become dire. In an industry that’s generated little to no free cash flow since 2010, and instead has relied heavily on capital markets to stay afloat; for all the hype surrounding surging US production of raw energy resources there hasn’t been much shareholder value creation to show for it. Consumers and certain US states have been big winners, sure, but equity holders and now potentially credit holders have largely taken it on the chin. We will continue following the space for our members going forward, and please note there’s a very good reason we removed the Energy Select Sector SPDR ETF from our newsletter portfolios back in August 2019 (link here), the outlook for the energy space (particularly oil & gas) was lackluster at the time and has since become dire.

Mar 3, 2020

Covering Oil Markets Ahead of the Upcoming OPEC/OPEC+ Meetings
Image Source: Exxon Mobil Corporation – 2019 IR Presentation. On March 5, the Organization of Petroleum Exporting Countries (‘OPEC’) is holding an “extraordinary” meeting in Vienna, Austria, which will be followed up by a ministerial meeting between OPEC and non-OPEC members the next day. The group had already agreed to cut oil supplies by an additional 0.5 million barrels of per day (‘bpd’) back in December 2019 through an agreement that would last through March 2020 (that was on top of an existing deal to keep 1.2 million bpd off of the market which runs through the end of March 2020 as well). As part of that deal, Saudi Arabia offered to “voluntarily” reduce supplies by an additional 0.4 million bpd; however, that hasn’t been enough to prop up oil prices (even though ~1.7-2.1 million bpd of oil supplies are effectively removing removed from the market at 100% compliance). As of this writing, the internationally-oriented May 2020 Brent contracts are trading near $52 per barrel, down from the high $60s level seen at the end of 2019. The US-oriented WTI contracts haven’t fared any better, and April 2020 deliveries are trading near $47 per barrel as of this writing.

Jan 31, 2020

Coronavirus May Trigger Long-Anticipated Global Recession
Image: Wuhan New Coronavirus. This was the catalyst that nobody was expecting, a novel coronavirus that nobody had in their economic models. We think global economic activity is slowing as we speak, and the spread of the virus may only accelerate in mainland China and elsewhere. Investors should keep a level head and perhaps think about adding protection to their portfolios before it becomes too expensive.

Jan 29, 2020

The Great Guyanese Oil Boom
Image Shown: A drill ship floating in open waters. Image Source: Exxon Mobil Corporation – 2019 IR Presentation. Guyana’s economy of ~780,000 people is about to experience the oil boom bonanza of a lifetime, even in the relatively subdued oil price environment Exxon Mobil is currently operating in, as substantial royalties and taxes are set to fill the government’s coffers. That will allow for major public investments in healthcare, education, infrastructure, and so much more. Given the relatively small size of Guyana’s population, there will be a lot of new funds to go around. For Exxon Mobil and its partners, turning ~750,000 barrels of gross daily crude oil production capacity online by 2025 would be quite the achievement. In less than five years, the consortium went from hitting it big on the exploration side to reaching first-oil, and in ten years, the group plans on turning Guyana into one of the world’s largest oil exporters on a net basis. However, please keep in mind that big projects like these are contending with material mature field declines across Exxon Mobil’s upstream portfolio. Guyana is just part of the puzzle for Exxon Mobil.

Jan 23, 2020

Why Natural Gas Prices are So Low and Will Likely Remain So for Some Time
Image Source: Cabot Oil & Gas Corporation – November 2019 IR Presentation. Domestic natural gas strip prices in the US are trading at rock bottom levels as of this writing, and we expect the pain will only continue. There are many reasons why natural gas prices in the US are quite low right now including surging associated production (gas supplies produced alongside oil, condensate, and natural gas liquids) from unconventional upstream plays where natural gas is viewed more so as a nuisance than a marketable product given the liquids-oriented economics of those plays, surging non-associated production (natural gas supplies are the only product) out of Appalachia over the past decade (the growth in natural gas production in Pennsylvania, Ohio, and West Virginia has been astounding due to the Marcellus and Utica shale plays), and the lack of the kind of serious weather-related demand this winter season (such as a very cold winter in North America, especially in the Midwest and East Coast) that can quickly drain flush storage facilities.

Jan 8, 2020

Update: US and Iran Now De-escalating Tensions
On January 7, Iran retaliated against the US for the killing of Iranian major general Qasem Soleimani (leader of a group that the US has deemed a terror threat under the Trump administration) less than a week earlier by firing missiles from Iranian soil at bases in Iraq that contain US, Iraqi, and coalition troops. The Iranian government aggressively publicized the attack by providing Iranian media outlets with footage of missiles leaving Iran that were targeted towards Iraq. Fortunately, no US, Iraqi, or coalition casualties were reported. We are very thankful that nobody was hurt as a result of the Iranian missile strike.

Jan 7, 2020

Middle East Tensions on the Rise
Early Friday (Arabian Standard Time) on January 3 (the strike was carried out late Thursday evening Eastern Standard Time), under the orders of President Trump, the US took out major general Qasem Soleimani who was the leader of Iran’s Quds military group within the Islamic Revolutionary Guard Corps (‘IRGC’). Please note the US designated the IRGC as a Foreign Terrorist Organization in April 2019, and that the justification for the strike was due to there being an immediate threat to US lives (namely soldiers and contractors stationed in the Middle East), according to the Pentagon. It’s important to note that the strike occurred on Iraqi soil. The Quds force is known to be Iran’s extraterritorial military outfit, an elite group thought to be deeply involved in ongoing wars in Syria (undergoing a civil war), Yemen (undergoing a civil war), and Iraq (ostensibly fighting the remnants of the ISIS terror group). Qasem Soleimani was in Iraq when the US took him out with an airstrike, along with others such as Abu Mahdi al-Muhandis, who was the deputy chief of the Popular Mobilization Units (‘PMF’) which is an umbrella group for various militias active in Iraq that have extensive ties with Iran. Abu Mahdi al-Muhandis was thought to be an adviser of Qasem Soleimani.