So obviously O&G is getting absolutely wrecked right now because of the OPEC decision. I was wondering, since I'm not super informed about this space, what you all think about energy companies in the long-run? I'm thinking about buying an energy-sector ETF since I'm not sophisticated enough to pick a good company, but am I missing something here? My gut tells me it's a decent buying opportunity, but I don't want to make an investment based solely on feeling if I'm missing a long-term, fundamental issue with this sector.
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I'd be buying right now. Can't go wrong with a sector ETF. If you are going the company route, I'd focus on the Oil Field Services space (i.e., Schlumberger).
I'm curious on this front: why services? If oil goes lower or stays low, wouldn't the e&p's use the service companies less?
I don't really know the space but I fucking hate OFS as a shitty business. I could only see myself buying names which are more dependent on ongoing/maintenance projects rather than development, but were oversold on fear.
I looked at the space a few years ago and agree on the long term maintenance projects, but from what I recall (and my memory is a little fuzzy) getting the new build and big projects were where the bigger money was at, and the oil co's could basically halt a project at nearly any time and mothball it until prices came back up. So the service co could get screwed by spooling up people and equipment then get stuck with it if the the producer pressed the pause button. However I will say I was not looking at HAL or SLB, but smaller private companies and rolling up a few. The OFS's could get, and had, MSA's signed with e&p's that outlined the terms and prices but they weren't contracts guaranteeing any amount of work, and they could pull back at nearly any billing milestone if they saw fit, i.e. prices went down.
Definitely not an oil expert, but here is my go at it as I have dug into the issue a bit and want to get other's feedback or hear other opinions.
I have had similar thoughts, but several things are keeping me from pulling the trigger:
1.) I have concern that oil demand could be fairly inelastic... in that people's demand does not change drastically whether brent is at $65 or at $95. The situation we are in now, where there might be an extra one or two million barrels/day can throw off the market as that extra oil tries to find a home. 2.) If OPEC (and I don't want to assume I know this for sure) wants the market to balance itself out on the supply side first, things will take longer to bottom out. E&P capex isn't just going to stop overnight. This makes me want to wait for a better entry point (greedy, I know but I like to try to be not just right, but right right now if that makes sense). 3.) In regards to the above, if there is one thing I am convinced of personally, its that breakevens for U.S. shale are not as high as people think and plays are becoming more efficient by the day... Would like to hear others opinions on this as this thesis makes me think OPEC's decision Thursday was a poor one. Not sure why they wouldn't cut 1 million barrels or 2 million barrels and make 28MM x $90 instead of 30MM x $60 (where we will probably have to before supply really begins to correct the market). I don't buy the argument that they think they can "kill" U.S. shale as its not like the tech is going anywhere. Prices would have to level off and stay at wherever the marginal cost of supply is which is probably below current levels based on where the market is going. 4.) If we have any type of additional general macro-level capitulation, things could get a lot worse and I was never fully convinced of the whole QE thing which makes me just a bit uncertain about the "recovery" we have had 5.) Someone who knows more than me should discuss progress on the efficiency/renewable front in terms of displacing oil demand. I think the general consensus is that demand in the U.S. and EU are already not expected to grow due to gains in efficiency? Is there anything to say that continued improvement in tech could not significantly dampen oil demand in EM nations which are supposed to be the key future driver?
Despite all this, if brent goes to $60 I bet I start backing up the truck... but probably not on U.S. names...
I would wait and see where oil puts in a bottom and then make the investment.
Trying to pick a bottom is never easy and with the way oil sold off on Friday we could still be heading lower from here.
Yes. Bought some HAL and looking to add to my position. A sector etf may be the way to go
I have been buying HAL as well. I started buying about two weeks before the BHI acquisition press release as I thought the bottom for WTI was at about $75, but will continue to dollar cost average in to the position. Kicking myself because I almost bought BHI, but thought HAL was better fundamentally... Just an unlucky pick.
Not an energy guy, but my thought has been to own businesses whose value depends more on volume than on price. PBF Energy [owns 3 refineries] and especially the spin-off PBF Logistics - PBFX - [owns the rail and truck unloading facilities for PBF's refineries] are two things I've looked at. Both have traded mostly independently of the O&G sector as they should, but PBFX has gotten battered recently and both did on Friday.
Oil is rebounding big today. I might have to make a call on this sooner than I expected. I don't know if this means we're at a bottom or not, but the huge increase (3%) makes me think that it really was oversold on Friday.
I'm long XOP 3/4 and 1/4 OIH.. XOP from 53 average OIH from 37
Also long a shitload of Europe and EM stuff as well. Let's go contrarian
Saudi Arabia says they think oil will stabilize around $60 a barrel. Maybe this will give the energy investors some comfort and stop some of the volatility in this sector at the moment.
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