Expanding oil production by drilling new fields has a long time horizon. Fracking fields in particular can stop and restart production very quickly (~weeks I believe?) but drilling new fields takes as I recall perhaps a year to do and a further 5 years to pay for itself.
In order for this to be a good investment, it’s not sufficient for oil companies to be briefly highlighted as being a good thing now—you need to be confident that they will remain viewed as a good thing 3-6 years from now. Yes, today, when a major fossil fuel exporter is invading other countries while trying to use its fossil fuel exports for leverage, many people are talking about how oil companies should increase production. These people were not talking about this last year, and it seems very plausible that three years from now when the latest news is about heat stroke deaths in India that the government and public will abruptly reverse their views.
If shareholders stand ready to punish those who can buy something low and sell it high, then A Fool and His Money need to soon be parted via changes in ownership. Can we call in some private equity? And further discard the EMH?
I’m not clear on why private equity would need to be involved, or on what you think this means about the EMH? Current oil company stocks seem to have gone up. A few numbers:
Since Feb 1 (I’m assuming an invasion was not broadly predicted then), the S&P 500 has gone from 4546.54 to 4543.06 (down 0.1%)
Since Feb 1, XOP (S&P Oil & Gas E&P ETF) has gone from 111.10 to 138.60 (up 24.8%)
So it’s clear that markets have in fact priced in a benefit to energy companies. You can imagine two possible scenarios here:
These higher prices are a short-term good effect for oil companies, but it won’t last. Myopic Western publics and governments will forget about this within a year and go back to trying to stomp on the Oil & Gas sector. O&G companies can make a bit more money in the short term, but expanding now is going to inevitably expose you to the wrath of ESG in 2024. Oil companies should just make what money they can and then resume winding down.
These higher prices are long-term good for oil companies, and will remain in effect. Oil companies should be expanding now in order to capitalize on this.
If the market is pricing in the first, you should expect to see little new growth, and the few companies that do have new growth being punished for it with lower stock prices. (I’ll take your word that this is in fact what we see, I don’t have O&G field numbers easily available).
If you disagree and think the second is accurate, then your best bet is not private equity but to buy stock in oil companies, particularly in whichever ones have most new growth/longest-term reserves available.
Re oil production:
Expanding oil production by drilling new fields has a long time horizon. Fracking fields in particular can stop and restart production very quickly (~weeks I believe?) but drilling new fields takes as I recall perhaps a year to do and a further 5 years to pay for itself.
In order for this to be a good investment, it’s not sufficient for oil companies to be briefly highlighted as being a good thing now—you need to be confident that they will remain viewed as a good thing 3-6 years from now. Yes, today, when a major fossil fuel exporter is invading other countries while trying to use its fossil fuel exports for leverage, many people are talking about how oil companies should increase production. These people were not talking about this last year, and it seems very plausible that three years from now when the latest news is about heat stroke deaths in India that the government and public will abruptly reverse their views.
I’m not clear on why private equity would need to be involved, or on what you think this means about the EMH? Current oil company stocks seem to have gone up. A few numbers:
Since Feb 1 (I’m assuming an invasion was not broadly predicted then), the S&P 500 has gone from 4546.54 to 4543.06 (down 0.1%)
Since Feb 1, XOP (S&P Oil & Gas E&P ETF) has gone from 111.10 to 138.60 (up 24.8%)
So it’s clear that markets have in fact priced in a benefit to energy companies. You can imagine two possible scenarios here:
These higher prices are a short-term good effect for oil companies, but it won’t last. Myopic Western publics and governments will forget about this within a year and go back to trying to stomp on the Oil & Gas sector. O&G companies can make a bit more money in the short term, but expanding now is going to inevitably expose you to the wrath of ESG in 2024. Oil companies should just make what money they can and then resume winding down.
These higher prices are long-term good for oil companies, and will remain in effect. Oil companies should be expanding now in order to capitalize on this.
If the market is pricing in the first, you should expect to see little new growth, and the few companies that do have new growth being punished for it with lower stock prices. (I’ll take your word that this is in fact what we see, I don’t have O&G field numbers easily available).
If you disagree and think the second is accurate, then your best bet is not private equity but to buy stock in oil companies, particularly in whichever ones have most new growth/longest-term reserves available.