Valuentum Exclusive Analysis for the Discerning Investor

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Aug 14, 2020

Our Thoughts on Chevron Buying Noble Energy
Image Shown: An overview of Chevron Corporation’s all-stock acquisition of Noble Energy Inc that was announced in July 2020. Image Source: Chevron Corporation – July 2020 Noble Energy Acquisition Presentation. On July 20, Chevron Corp announced it was acquiring Noble Energy through a $5.0 billion all-stock transaction, or $13.0 billion when factoring in net debt and the book value of non-controlling interests. Shareholders of Noble Energy will receive approximately 0.12 share of Chevron for each share of Noble Energy. At the time the deal was announced, shareholders of NBL were receiving a ~12% premium based on the ten-day average closing stock prices. Chevron intends to issue ~58 million shares to cover the deal, keeping in mind the firm had approximately 1.85 billion shares outstanding on a weighted-average diluted basis as of the second quarter of 2020. The deal is expected to close during the fourth quarter of this year and is forecasted to generate $0.3 billion in annualized run-rate cost synergies one year after closing.

Aug 13, 2020

Berkshire Hathaway Recovering Lost Ground
Image Shown: Shares of Berkshire Hathaway Inc Class B started to recover some of their lost ground in early-July, and the company’s second quarter earnings report has kept the momentum going in the right direction. On August 8, Berkshire Hathaway reported second quarter 2020 earnings that beat consensus top- and bottom-line estimates. Due to the impressive recovery in US equity markets since bottoming in late-March, Berkshire Hathaway’s investment portfolio put up tremendous performance last quarter, though its first quarter performance was harrowing. We include Berkshire Hathaway Class B as a holding in our Best Ideas Newsletter portfolio.

Jul 30, 2020

Excerpt from ‘Value Trap’ 2nd Edition: MPT Sounds a Lot Like "Empty"
The second edition of President of Investment Research Brian Nelson's book 'Value Trap' will be released in the coming weeks. Here is a short excerpt to whet your appetite.

Jul 6, 2020

Berkshire Hathaway Expands Its Bet on North American Natural Gas
Image Shown: A look at the Cove Point LNG export facility in Maryland, one of half a dozen that are currently operational in the US. Image Source: Dominion Energy Inc – February/March 2018 Fixed Income Investor Meetings Presentation. On July 5, Berkshire Hathaway Energy, a majority-owned subsidiary of Berkshire Hathaway Inc, announced it was acquiring natural gas pipeline and storage assets along with an equity stake in a liquified natural gas (‘LNG’) export facility in Maryland from Dominion Energy Inc. This deal is valued at $9.7 billion by enterprise value and is expected to close by the fourth quarter of 2020. We continue to like Berkshire Hathaway in the Best Ideas Newsletter portfolio.

Jul 6, 2020

Interview with Valuentum’s Callum Turcan
Callum Turcan helps head up Valuentum’s research product and is co-editor of the company’s newsletters. We sat down with Callum to get his thoughts on new developments in the market and economy. Let’s kick things off with his thoughts on the recent Berkshire/Dominion deal.

Jun 16, 2020

Exxon Mobil Puts on a Brave Face
Image Source: Exxon Mobil Corporation – November 2019 Guyana IR Presentation. Near-term oil prices and most importantly, the oil price futures curve, have improved materially since just a couple of months ago when it looked like the sky was falling. For the first time ever, WTI turned negative in April 2020 for physical deliveries due May 2020 of light sweet oil to Cushing, Oklahoma, as storage options were limited (and arguably, many speculators had jumped into the market not fully aware of the risks they were taking on). Exxon Mobil Corp has seen its share price recover considerably since the drop, though we caution that management’s commitment to the dividend will prove a hard task if things do not improve materially in the short-term. As of this writing, near-term futures for WTI and its international counterpart Brent are trading near $40 per barrel. In the face of COVID-19, low raw energy resource prices (Exxon Mobil’s upstream operations form its largest single business segment), and subdued demand for refined petroleum and petrochemical products (from gasoline to plastics) have significantly weakened Exxon Mobil’s cash flow profile. The ongoing coronavirus (‘COVID-19’) pandemic has shaken energy markets to their core in ways we have not seen ever before. Shares of XOM yield ~7.4% as of this writing. We give Exxon Mobil a Dividend Cushion ratio at 0.2, though its Dividend Safety rating is “GOOD” given the company’s ability to tap capital markets, especially debt markets as the oil giant carries high quality “A-rated” investment grade credit ratings. There is a limit to how much debt Exxon Mobil can take on to cover its dividend obligations, however, which we will cover in greater detail in this article.

Jun 11, 2020

5 Years Later – #ThrowbackThursday on MLPs
Since Valuentum warned against the significant risks of the MLP business model June 11, 2015, on a price basis, the Alerian MLP ETF has fallen by more than 65%, while the S&P 500 has surged nearly 50%. There have been dozens and dozens of explicit (or phantom) MLP distribution cuts since we released our thesis 5 years ago to this day, and many MLPs have subsequently simplified their business models, rolling up into C-corps, as we predicted.

Apr 20, 2020

Our Reports on Stocks in the Oil & Gas Pipeline Industry
Image Shown: Valuentum's thesis on MLPs prior to their collapse in mid-2015. We've reallocated our resources to optimize our energy coverage.

Apr 13, 2020

Historic Oil Deal Reached
Image Source: Chevron Corporation - March 2020 Security Analyst Meeting Presentation. Over the Easter holiday weekend, members from the Organization of Petroleum Exporting Countries (‘OPEC’), non-OPEC members that are part of the OPEC+ group (countries that in the recent past have joined forces with OPEC to curtail global oil supplies in a formal manner), and non-OPEC members outside of the OPEC+ group such as Brazil, Canada, and the United States came to an agreement to cut their collective oil output by north of 10 million barrels per day. Global oil and other raw energy resource prices have been simply demolished year-to-date due to a combination of demand destruction from the ongoing coronavirus (‘COVID-19’) pandemic and the emergence of a price war between Saudi Arabia and Russia. Please note that oil demand destruction due to the “cocooning” of households (and the related drop off in refined petroleum product demand from automobiles, airplanes, etc.) may be as high as 35 million barrels per day according to some analysts, an enormous figure that’s resulting in major stockpile buildups all over the world. Other analysts don’t necessarily see the level of demand destruction as that high (projections are being updated constantly); however, they are still calling for a drop off in demand that’s in the ten(s) of millions of oil barrels per day range (at least in the short-term, depending on how long the pandemic lasts). Even if this agreement is effectively implemented, that won’t result in oil prices (and other raw energy resource prices) returning to pre-COVID-19 levels in the short/medium-term, in our view, but will make emerging from this pandemic an easier task given that global oil storage capacity is nearing its limit. As of this writing on April 13, oil prices are trading up modestly but are still down by well over 50% year-to-date.

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.