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R48...outlook on ENERGY SECTOR

 

I have been following the energy space CLOSELY for the last 52 years.

In year 2008, my portfolio was 42% Energy (thanks M* XRAY Tool), and energy was the LAST space to go down in price during that bear market time.  Energy was a goodly reason I could retire early.  But I have been exiting in last five years, and in January sold lots more...and Feb...and finally exited a toehold in market downturn.  (Note most of us still own some Energy as it is owned by tons of mutual funds, such as S&P500 index fund)

In last half decade...fracking was developed and has been coming on strong...TOO STRONG.  The business model was for small companies to borrow lots (junk bonds), frack and deliver to market, and pay junk bond interest.  Trouble is, they cannot stop producing, or they go bankrupt.  For awhile, production kept exceeding industry yearly estimates.

The frackers simply brought too much to market.  The usual thing is Saudi drops prices way down,and such edge players go bankrupt.  This was done a couple years ago, but IMO oil not down far enough (usually $10/barrel historically, every decade) nor long enough.  So this time, Saudi is flooding market and seems oil will be down enough, and long enough, to put a lot of frackers  (and others) out of business.  In Jan I had lunch with poster richardsok, and stated IMO , with COVID, Saudi should INCREASE PRODUCTION (not decrease) to drive out the frackers.  To my surprise , they and Russia did.  So I endorse the Saudi move.

But while companies go bankrupt, the oil does not.  So Exxon types swoop in buying up broken companies, getting the oil, and MOVING IT INTO RESERVES.  THEY DON'T PRODUCE IT.  Expect next year to be full of this activity.

Then we have the ESG Movement...long story.  Share ownership heavily discouraged by even financial guru policies.

To me, oil is not a supply/demand problem.  It is a production/demand problem.  Surely, if every company brought to production all its reserves, oil would flood the world.  Now we have a demand collapse due COVID, albeit will pass sometime.  I disagree with article that this will take years to resolve.  Production is cut by simply turning off a valve.  Can be stopped tomorrow.

There is an old saying in Texas: "Rich is not defined by who discovered and produced oil; Rich are those who own it, after the collapse!)

Another saying: Everything at a price.  So I will keep closely watching oil, and likely will be back in.  Why?  Because until COVID19, the world DEMAND for oil was still rising!!  Oil will continue in use for many, many decades.  Cigarette companies went through the same experience.  For them, EVEN THOUGH CIGARETTE USE DECLINED IN USA, when their stock prices got low enough, the cig companies were great holdings.  Decades long total return, great.

During next year, Energy Co dividends will be cut; watch for all the bankruptcies.  But consider, the oil is always owned by someone.  Production will get below demand usage.  Oil prices return, if not go way up.  Companies start increasing dividends.  Energy stocks may zoom!  Or, as a minimum,  be a great dividend-paying holding for retirees...far better than 1%, 30 year US Treasury bonds.

What do others think about the Energy sector as an investment, or not, during the bear market, and recovery?

R48

 

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Re: R48...outlook on ENERGY SECTOR

So which major oil companies hold the dividends and don't cut …... XOM, CVX, other? Just asking for a guess, R48. The dividend stocks I hold or intend to purchase are T, VZ, DUK, SO, BMY, BCE, D, PPL and EMB.

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Re: R48...outlook on ENERGY SECTOR


@outandabout wrote:

So which major oil companies hold the dividends and don't cut …... XOM, CVX, other? Just asking for a guess, R48. The dividend stocks I hold or intend to purchase are T, VZ, DUK, SO, BMY, BCE, D, PPL and EMB.


Jim Cramer likes Chevron, CVX.  Seems very stable player.  Also difficult to see how XOM could not be a survivor...with a great dividend (reinstated if needed.)

I will likely play energy, if I do, on the upside, waiting until prices pass up through 100 or 150 day Moving Average.

So I will watch energy unfold during the bankruptcies.  See who the strongest players are...see who is buying the bankrupt firms for their oil.  That should be a good choice.

The thing I am trying to workout is whether or not to buy individual companies, as the best play, for recovery here.  I have not owned an individual stock in about 52 years!  Often tempted.  I may be changing my investing style.

R48

 

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Re: R48...outlook on ENERGY SECTOR

Just found: https://www.msn.com/en-us/money/topstocks/exxon-mobil-s-dividend-is-in-grave-danger-now/ar-BB11nsHE?...

 

https://www.msn.com/en-us/money/markets/here-s-why-chevron-stock-looks-ready-for-a-long-term-rebound...

"After conducting a stress test on Chevron, Morgan Stanley reported that the company has “very strong balance sheet(s)” that can withstand $30 per barrel oil in the second quarter and $36-$40 per barrel oil in the second half of the year.
Chevron, whose dividend yield is now over 7%, may have to cut its dividend soon. But its yield will probably remain over 3%, given the strength of its balance sheet. A yield of that level is very attractive in our extremely low interest environment."

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Re: R48...outlook on ENERGY SECTOR


@retiredat48 wrote:

 

I have been following the energy space CLOSELY for the last 52 years.

In year 2008, my portfolio was 42% Energy (thanks M* XRAY Tool), and energy was the LAST space to go down in price during that bear market time.  Energy was a goodly reason I could retire early.  But I have been exiting in last five years, and in January sold lots more...and Feb...and finally exited a toehold in market downturn.  (Note most of us still own some Energy as it is owned by tons of mutual funds, such as S&P500 index fund)

In last half decade...fracking was developed and has been coming on strong...TOO STRONG.  The business model was for small companies to borrow lots (junk bonds), frack and deliver to market, and pay junk bond interest.  Trouble is, they cannot stop producing, or they go bankrupt.  For awhile, production kept exceeding industry yearly estimates.

The frackers simply brought too much to market.  The usual thing is Saudi drops prices way down,and such edge players go bankrupt.  This was done a couple years ago, but IMO oil not down far enough (usually $10/barrel historically, every decade) nor long enough.  So this time, Saudi is flooding market and seems oil will be down enough, and long enough, to put a lot of frackers  (and others) out of business.  In Jan I had lunch with poster richardsok, and stated IMO , with COVID, Saudi should INCREASE PRODUCTION (not decrease) to drive out the frackers.  To my surprise , they and Russia did.  So I endorse the Saudi move.

But while companies go bankrupt, the oil does not.  So Exxon types swoop in buying up broken companies, getting the oil, and MOVING IT INTO RESERVES.  THEY DON'T PRODUCE IT.  Expect next year to be full of this activity.

Then we have the ESG Movement...long story.  Share ownership heavily discouraged by even financial guru policies.

To me, oil is not a supply/demand problem.  It is a production/demand problem.  Surely, if every company brought to production all its reserves, oil would flood the world.  Now we have a demand collapse due COVID, albeit will pass sometime.  I disagree with article that this will take years to resolve.  Production is cut by simply turning off a valve.  Can be stopped tomorrow.

There is an old saying in Texas: "Rich is not defined by who discovered and produced oil; Rich are those who own it, after the collapse!)

Another saying: Everything at a price.  So I will keep closely watching oil, and likely will be back in.  Why?  Because until COVID19, the world DEMAND for oil was still rising!!  Oil will continue in use for many, many decades.  Cigarette companies went through the same experience.  For them, EVEN THOUGH CIGARETTE USE DECLINED IN USA, when their stock prices got low enough, the cig companies were great holdings.  Decades long total return, great.

During next year, Energy Co dividends will be cut; watch for all the bankruptcies.  But consider, the oil is always owned by someone.  Production will get below demand usage.  Oil prices return, if not go way up.  Companies start increasing dividends.  Energy stocks may zoom!  Or, as a minimum,  be a great dividend-paying holding for retirees...far better than 1%, 30 year US Treasury bonds.

R48

 


SA tried to wipe out the frackers 3 years ago and failed because fracking co found ways to produce oil more cheaply.  Today fracking is done inexpensively using electric pumps instead of Diesel engines. Electric pumps can be moved easily from one site to another with little cost. Trump also helped by eliminating regulations that increased cost of production because he saw the benefit of US energy independence with lower cost gasoline.  Those frackers who file for bankruptcy will be bought up cheaply by other producers who will lump their oil. US as the consumer of 20% of the global Daily oil produced benefits from cheap oil which increases GDP. Entire energy sector in US is only 6,5% of our GDP. US is also the largest oil producer pumping 13M barrels a day of which 3M is exported .Russia the #2 producer only pumps 11M a day.

SA cannot keep price oil below 30 because it needs for oil to be at least 60 to pay for their reform programs. Oil is 87% of SA revenue and 42% of its GDP. Russia gets 60% of its revenue and 30% of GDP from oil. Neither country benefits from cheap oil. The bet is that SA and Russia will come to an agreement at the next OPEC meeting in June.

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Re: R48...outlook on ENERGY SECTOR

@outandabout  Thanks for the links, both articles were interesting.  I've owned XOM twice in the past, and I'm trying to like them now, what with the collapse in share price.  But I keep reading and hearing things that gives me pause.  On the other hand, CVX seems to be better positioned, and if I were to buy one of the oil and gas majors, CVX would be the one.

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Re: R48...outlook on ENERGY SECTOR


@mlott1 wrote:

@outandabout  Thanks for the links, both articles were interesting.  I've owned XOM twice in the past, and I'm trying to like them now, what with the collapse in share price.  But I keep reading and hearing things that gives me pause.  On the other hand, CVX seems to be better positioned, and if I were to buy one of the oil and gas majors, CVX would be the one.

Regardless of where CVX is priced in the coming months a dividend cut would surely send the stock down. As the article suggest there likely will be a div cut. Just my thinking, mIott1.

"Chevron, whose dividend yield is now over 7%, may have to cut its dividend soon. But its yield will probably remain over 3%, given the strength of its balance sheet. A yield of that level is very attractive in our extremely low interest environment.""


 

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Re: R48...outlook on ENERGY SECTOR


@mlott1 wrote:

@outandabout  Thanks for the links, both articles were interesting.  I've owned XOM twice in the past, and I'm trying to like them now, what with the collapse in share price.  But I keep reading and hearing things that gives me pause.  On the other hand, CVX seems to be better positioned, and if I were to buy one of the oil and gas majors, CVX would be the one.


Same here. I have a limit order at 45. CVX tested close to 51.60 last week. 

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Re: R48...outlook on ENERGY SECTOR

Thank you for this thread. I am curious what people think of MLPs, particularly CEFs. Many (most?all?) have fallen like crazy. Is there any speculative play one would suggest or are you wont touch them with a 10 ft pole?

 

Thank you.

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Re: R48...outlook on ENERGY SECTOR


@perplexed45 wrote:

Thank you for this thread. I am curious what people think of MLPs, particularly CEFs. Many (most?all?) have fallen like crazy. Is there any speculative play one would suggest or are you wont touch them with a 10 ft pole?

 

Thank you.



Hi perplexed.

For last decade I have invested in MLPs...via C-corps who own like 35 MLPs each.

Fortunately I sold one at a higher price a few years ago.  The second I sold at a down price (but overall gain in total return due high dividends) couple years ago, at the severe price break due KMI situation.

The third , NTG, (mostly gas pipelines), I still hold.  I suspect even with considering the dividends I received with an about 9% yield, I am now at a loss in this ntg position.  Fortunately, I have not averaged down!  It is a small part of my portfolio.

However, mlps have been a huge drain on my time trying to assess fundamentals.  And there are a host of unanswered new things.  Even though it seems simple...pipelines being toll roads carrying oil/gas to others, what happens when the buyers of oil or gas do not need any? what happens when the company drilling for oil (gas is a byproduct of same) stops, due market conditions.? Or declares bankruptcy?  What happens when the producers of oil/gas demand the mlps cut toll road prices?

Clearly expect dividends to be cut if not eliminated for now.

These unknowns will get answered and shake out.  No need to speculate or predict.

So for me, I wait...I suggest no-one try to catch the bottom.  DO NOT AVERAGE DOWN.  Rather wait until fund/MLP prices stabilize at the bottom and begin moving up.  Get in an uptrend.  this is best observed by following a 100 day Moving Average for any MLP , fund or company.  If price gets above, then consider a buy if so inclined.  But suggest let the businesses consolidate and resolve these issues, including oil price issue.

Getting into an uptrend could take awhile.  My estimate is 9 months to 15 months from now...maybe.

MLP space may become either a speculative, or retiree yield play, for me in the future...but not now.

Glad to discuss.

R48

 

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Re: R48...outlook on ENERGY SECTOR

R48,

 

Thank you for your useful insights and comments, as always. Funny you mentioned NTG, I did get suck into it a bit on Friday. We shall see how it goes. Most likely a stupid idea on my part. 

 

Best regards.

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Re: R48...outlook on ENERGY SECTOR


@perplexed45 wrote:

Thank you for this thread. I am curious what people think of MLPs, particularly CEFs. Many (most?all?) have fallen like crazy. Is there any speculative play one would suggest or are you wont touch them with a 10 ft pole?

I suggest you stay FAR away unless you really know the sector and risk. My only MPL play could be EPD. Good luck.


 

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Re: R48...outlook on ENERGY SECTOR

Hi RM,

Why only EPD and why not MMP also?  Your insight would be appreciated.  A

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Re: R48...outlook on ENERGY SECTOR

Where now, R48, as both XOM and CVX are well off their 52 week lows of late March? 

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Re: R48...outlook on ENERGY SECTOR

Most oil stocks are down 15-20% from their June highs.  If I am not over-allocated to them, I would buy some.

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Re: R48...outlook on ENERGY SECTOR

@retiredat48: I am sympathetic to your views.  

But I am gun-shy on energy and currently out.  The closest I have to energy exposure is the midstream exposure D & DUK possess through the likes of the Atlantic Coast Pipeline.  Even that seems likely to be fought tooth and nail by the environmental crowd.

Just to play devil's advocate, assume a Biden win and a Democratic Sweep in the Senate.  What then?  What about the prospects for a big carbon tax, rejoining the Paris Climate Confab, the Green New Deal, and AOC as Secretary of Energy?

No concerns?

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Re: R48...outlook on ENERGY SECTOR

take my word - Biden is NOT going to win and no clean sweep.

Biggest threat is from Elon Musk to energy sector if his 'million' mile battery pans out.

We will see lots of commercial trucks, if not commuter vehicles cars and SUVs - moving in that direction.

Elon Musk has proven wrong for a long time but some failures along the way, no one will be 100% successful.

 

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Re: R48...outlook on ENERGY SECTOR

Bizman:

 Biden is no shoe in but neither is President Trump at this point in time [IMHO]. The news stations, newspapers, and internet are doing a good job at showing President Trump's current deficiency's [as well as wearing the facemark or not] and keep pushing the problems. With the conservative stations not broadcasting to their base [like the Democrats] they are not getting a opposing view. It appears that the media is currently pushing any new problem that occurs daily that will just make the election a "toss up" [like the previous election with Hillary]. Should Biden win [which is always a possibility in our changing times], and the House/Senate go democratic, then the energy sector will continue to be out of favor for some time [going forward].  With that said....

 The energy sector, according to my [sole] analysis, is currently out of favor [Shale industry collapsing] and is considered "dead money" at the current time. Many of us, I am sure, have "some securities" in the energy sector on our "Watch List" and ready to pull the levers on them if/when the opportunity [and economy] presents itself....

 Disclosure: Currently some of us have only 2% of portfolio [with a single security investment] invested in the "Energy Sector"....
One single opinion of the many I am sure....

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Re: R48...outlook on ENERGY SECTOR

I followed the energy sector for a long time, and frequently invested at little in it, here and there.  Things have changed so dramatically in the last few years that I don't understand it at all any more, so I am out.  The only buying I'll be doing is if one of my mutual funds has investments in the sector.  

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Re: R48...outlook on ENERGY SECTOR

Holy Cow!  Look at this headline for a lazy Sunday from the WSJ!

Companies Cancel Atlantic Coast Pipeline After Years of Delays

https://www.wsj.com/articles/companies-cancel-atlantic-coast-pipeline-after-years-of-delays-11593975...

Berkshire and BAM are apparently involved in a deal with Dominion to buy much/most of its midstream business.  Be interesting to see what this does to the dividend.

Makes you wonder if another pipeline will ever be built in the US, other than perhaps in Texas.  What about Line 3 in Minnesota for Enbridge.  Not sorry I'm not involved there.

Edited to add:

They (Dominion) will rebase their dividend and plan paying approximately $2.50 in 2021, compared to my previous forward estimate of $3.76 annually.  This works out to a roughly 33.5% cut.  Though they do expect dividend growth to pick up to 6% or so.

No word from Duke yet.

Truly nothing is safe or sacred these days, it seems.

https://news.dominionenergy.com/2020-07-05-Dominion-Energy-Agrees-to-Sell-Gas-Transmission-Storage-A...

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