JotCast | 11/30/23 Capitalist Times Live Chat

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11/30/23 Capitalist Times Live Chat

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Wiley

6:12

Regarding HES: I saw something about Venezuela "invading" Guyana. I'm not sure what to think. If Venezuela took over the area wouldn't they be harder to deal with for HES, XOM and CNOOC?

Elliott Gue

6:12

There's some disputed territory between the two countries but I think an outright invasion of Guyana by Venezuela is unlikely, especially since Venezuela is seeking to ease tensions with the US so that they can sell oil into the US market where it can be refined. Second, these fields are all deepwater/offshore and so I don't think operations would be impacted by border squirmishes onshore. I think that sort of story is more media hype to catch eyeballs than reality.

Victor

6:16

Hello Elliott. It seems that SLB is seeing resistance around $53 and it's under its 200 day MA. What is your opinion on SLB in the next 3 to 6 months and 2024 overall?

Elliott Gue

6:16

Thanks for the question -- I covered SLB in a question just a few minutes ago. Basically there's support in the low $50s around the 200-day and another shelf in the lows to mid $40s.

I suspect the near term path of SLB will be a function of sentiment in the oil market. In my view oil has more upside than downside from here.

If oil/SLB were to break down I see the stock as a strong buy in that low to mid-$40 range as they're fundamentally in the cartbird's seat of the global energy markets.

Michael L.

6:16

Hi Elliott & Roger,

Thanks for your unmatched analysis over several decades.

Here’s a couple of questions for the chat tomorrow. Do you see any change to the futures curve, or anything else that would alter your DCF analysis for CHK and EQT? Also, is ETRW still on track to complete the MVP early next year?

Most importantly, where do you see these 3 companies in 12 months in terms of price?

Thanks for the monthly chats!

Roger Conrad

6:16

Thank you for contributing to this chat! Regarding Equitrans, as I noted answering a previous question, it does appear to be closing in on completing the Mountain Valley Pipeline. The latest news was in a Form 8-K filed with the SEC yesterday indicating only 10.4 miles of the 303-mile pipeline are yet to be laid. They have faced challenges getting experienced crews to finish the work, which is pretty much why they extended the construction date into Q1. But this latest progress report indicates they are closing in. And there's no question that MVP's capacity is going to be in heavy demand--with EQT locking up about 60% of it at last count. EQT is Equitrans' largest customer by far as its former midstream segment. And as I've indicated, I think a merger of those two companies makes a lot of sense.

Frank F.

6:22

Any experience with Texas Pacific Land (TPL). No debt, 900K Permian acres, royalty model. I've owned since $10/share and was wondering if it still has more to run or if I should cash-in and move on.
Thanks

Roger Conrad

6:22

It's not a company we've covered in the past--though congratulations are in order as the price of now almost $1,700. One could obviously increase their income significantly by selling and moving onto something else, since the yield is less than 1%--though that should be balanced by tax concerns. We obviously believe oil and gas are going to become a great deal more valuable in coming years as this energy price cycle unfolds. And that should mean what TPL owns will as well, though quarterly results are going to vary by a lot depending on where realized selling prices are and how much is drilled by third parties. But there are other royalty trusts that offer much higher yields--such as Black Stone Minerals (NYSE: BSM) on our High Yield Energy List in EIA.

Fred W.

6:32

Roger, a few short questions for you and Elliott:

-Has the latest mideast Political/War situation changed your outlook regarding oil/energy over the next few years and why?

-Do you foresee a near term (1 to 6 months) improvement for China’s economy and would that have a corresponding positive impact on oil prices going back up to near $100 per barrel?

-Considering oil’s latest price swings, do you think it is best to hold PXD until the merger with XOM takes place, or sell it now?

-What is you outlook for XOM after the PXD merger?

Thank you both for your continuing great advice and insights into the markets.

Elliott Gue

6:32

Thanks for the question and kind comments.

Generally, oil/energy markets tend to overreact to geopolitical headlines and then quickly reverse lower. We saw it with the attacks on Saudi infrastructure in 2019, we saw it with Russia/Ukraine last year and we saw it again with the Hamas attacks on Israel last month. I don't think there will be much of an impact on global supply. If anything, I'd say recent events have underlined the importance of energy security -- for example, Germany found out the hard way that relying on a single, less-than-friendly supplier for 70% of your natgas demand is a bad idea. This supports increased investment in energy supply chains -- LNG, nuclear and of course oil and gas to name a few.

2. To be honest I find the Chinese economy a bit inscrutable, but I would say that some of the indicators I follow like apparent oil demand look pretty solid, so at a minimum I would say weak Chinese demand is not a huge headwind. I don't think we'll see $100/bbl as a result though -- I think

Elliott Gue

6:32

$90 +/- will be the top of the range for WTI for a while because OPEC is still supporting the market and prices up there would encourage them to boost output. Finally, we're recommending holding PXD through the merger and accepting the shares of XOM. We still see XOM as the best major, and one of the only supermajors that invested in new production projects through the lean years -- the result is Guyana. Now with XOM/PXD you have a stake in the best plays in the world -- Guyana and the largest Permian asset. Low production costs, copious free cash flow. So we like XOM and we like XOM/PXD even more.

Michael C

6:33

Any thoughts on STR - Sitio Royalties Corp. ?

Roger Conrad

6:33

It's not one we've covered in the past. But it's basically the same story as with any publicly traded oil and gas royalty trust--dividend is going to vary with realized selling prices and volumes for what comes off its lands. This year it's down a lot, which contrasts with the YTD gain for our pick Black Stone Minerals. That indicates a lot more exposure to oil price volatility, as well as less production growth on its lands. I think both will go up in coming years but I'd rather own BSM--in part because it has more gas.

Victor

6:37

Hello Guys, OXY continues to trade sideways, what do you see here in the next few months? Thanks.

Elliott Gue

6:37

I think OXY is a solid company longer term and the deleveraging story remains intact -- particularly the transfer of value from debt to equity holders as it pays down its excess debt pile. I think the problem has been mainly a lack of upside catalysts in an environment of flattish oil prices. That's one reason we recommended trimming some I think it was late last year or early this year. A good holding longer-term, doing nothing wrong, but probably just treads water near-term absent an upside catalyst.

Alan R.

6:39

Hi Guys,
I know you have talked about covering Kodiak Gas (KGS) in the past and was curious if you have an opinion on them. I see them as a play on the shale from the services side and have recently announced increasing their dividend to ~8%. I appreciate any comments and thoughts you have.

Elliott Gue

6:39

I'd need to do a deeper dive into it. Generally compression is a pretty stable business if there are longer-term contracts in place. I will need to look into their assets more though to be able to give you a better take. I have a post it note on my screen to take a look.

Randy D

6:43

What are you thoughts on Devon Energy Corp (DVN) ? In January, the stock was trading for $65, and now it's around $45. Thanks

Elliott Gue

6:43

DVN is a good company we just think there are better names to buy now. The company produces a mix of oil and gas, but in my opinion their realizations on the gas side are challenged by resource location (West Texas). I'd much rather buy a gas focused name in the cheapest-to-produce gas field in the US (Marcellus) or the Louisiana Haynesville, which plugs right into the LNG export hub on the Gulf Coast. SO, EQT fits the former model and CHK the latter. On the oil side, DVN has good acreage, but we see better value elsewhere. DVN is fine longer term, but these are some reasons why we've focused elsewhere in then model portfolio.

Roger Conrad

6:43

Well that looks like all we have for this month. Out deepest thanks to everyone for participating today. As always, you've given us a lot of food for thought! Expect a link to the transcript of the complete Q&A in your mailbox tomorrow morning. If for some reason your question wasn't fully answered, please drop us a line at service@capitalisttimes.com. We'll look forward to chatting with all of you next month. Happy Holidays!

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