2022 Energy Investment Theme Ideas: 🧵⬇️
#1: Quality vs Beta
Beta had "a year" last year with a big re-rate in commodity prices. Unless you are in the $150 WTI camp; 2022 is probably a "good but flat" price deck so rate of change is all about FCF capture.
#1: Quality vs Beta
Beta had "a year" last year with a big re-rate in commodity prices. Unless you are in the $150 WTI camp; 2022 is probably a "good but flat" price deck so rate of change is all about FCF capture.
https://twitter.com/JamieHeard5/status/1432379645190619142?s=20
#2 E&P & Royalty vs Pipes
In a lower growth world you are getting a much better return on capital proposition in E&P and Royalty than infrastructure company's that have high leverage and a decelerating dividend growth profile.
In a lower growth world you are getting a much better return on capital proposition in E&P and Royalty than infrastructure company's that have high leverage and a decelerating dividend growth profile.
https://twitter.com/JamieHeard5/status/1463974442124468226?s=20
#3 Inventory
Consolidation was accretive at the low part of the commodity cycle. It can be accretive at the top of the cycle but a lot harder + there will be strips where the deal doesn't make sense
Own those that don't need to backfill locs at any cost
Consolidation was accretive at the low part of the commodity cycle. It can be accretive at the top of the cycle but a lot harder + there will be strips where the deal doesn't make sense
Own those that don't need to backfill locs at any cost
https://twitter.com/JamieHeard5/status/1466892749290962947?s=20
#4 If inflation matters, size matters
Energy companies are only inflation protected if they have a lot of flowing boe's already under the belt. A smaller co pursuing growth is going to really feel the efficiency and capex pain of an inflating and tight supply chain.
Energy companies are only inflation protected if they have a lot of flowing boe's already under the belt. A smaller co pursuing growth is going to really feel the efficiency and capex pain of an inflating and tight supply chain.
#5 Margin of Safety Matters
The incremental investor to Energy is a generalist investor who has the luxury of just owning "the best of each please" as the whole sector offers great returns. Part of "best" is margin of safety.
The incremental investor to Energy is a generalist investor who has the luxury of just owning "the best of each please" as the whole sector offers great returns. Part of "best" is margin of safety.
https://twitter.com/JamieHeard5/status/1458883864265252865?s=20
#6 What's the beta trade left?
Perhaps offshore drilling. My conviction lags a bit here as NOC/IOC/Major capex programs were a bit more conservative than I was expecting on exploration. The last wave of NOCAR is maybe a 2023 catalyst?
Perhaps offshore drilling. My conviction lags a bit here as NOC/IOC/Major capex programs were a bit more conservative than I was expecting on exploration. The last wave of NOCAR is maybe a 2023 catalyst?
https://twitter.com/JamieHeard5/status/1461771647577247746?s=20
#7 Gas bulls go from short term to long term
Expect a minimum of 4 new LNG FID's next year for mid 2020's onstream taking mid decade demand up just as inventory stresses start to emerge putting a bid in resource value. Acquisitions ensue.
Expect a minimum of 4 new LNG FID's next year for mid 2020's onstream taking mid decade demand up just as inventory stresses start to emerge putting a bid in resource value. Acquisitions ensue.
https://twitter.com/JamieHeard5/status/1443577188939284490?s=20
#8 FCF yield becomes cash on cash yield. More and more E&Ps shift from paying off debt to handing cash to shareholders. "Wall of Cash" is a 2022 reality vs many years of promise
That mid teens FCF yield feels extra real when it its driving a dividend or buyback vs debt repayment
That mid teens FCF yield feels extra real when it its driving a dividend or buyback vs debt repayment
#9 Nat Gas --> ESG haven
Surging supply costs and reliability crises are really putting the grind on perf of renewable stocks, yet ESG AUM growing exponentially.
Nat gas becoming the transition fuel of choice and enterprising PMs need both ESG + P&L
Surging supply costs and reliability crises are really putting the grind on perf of renewable stocks, yet ESG AUM growing exponentially.
Nat gas becoming the transition fuel of choice and enterprising PMs need both ESG + P&L
https://twitter.com/EQTCorp/status/1470408199719292938?s=20
L/O Generalist playbook?
Big high margin gas: $TOU $CTRA (inv?)
Big high margin oil: $CNQ $EOG $HES
Growth Royalty: $TPZ, $FRU? $MNRL?
Last chance Beta: $VAL $RIG
Specialist SMID (value, takeout, or re-rate thesis) $ARX $OVV $PIPE $HWX $PDCE $CHK $CVE $MEG $DVN + more I'm sure
Big high margin gas: $TOU $CTRA (inv?)
Big high margin oil: $CNQ $EOG $HES
Growth Royalty: $TPZ, $FRU? $MNRL?
Last chance Beta: $VAL $RIG
Specialist SMID (value, takeout, or re-rate thesis) $ARX $OVV $PIPE $HWX $PDCE $CHK $CVE $MEG $DVN + more I'm sure
Timing? YE entrance feels very compelling for a couple of reasons.
(1) PM gross down over as they have locked in 2021 returns
(2) Peak CPI + central bank narratives redrives value trade as tech rolls
(3) Peak Omnicom in 1-2 months. Covid wave peaks have been good entrances.
(1) PM gross down over as they have locked in 2021 returns
(2) Peak CPI + central bank narratives redrives value trade as tech rolls
(3) Peak Omnicom in 1-2 months. Covid wave peaks have been good entrances.
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