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is now the time to invest in oil stocks?

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Deal Expert
Jan 27, 2006
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CDNPatriot wrote: What he said was that gas was too risky for him where warmer than anticipated weather considerably impacts share prices.
Yep basically gas is geo-locked to a geography due to the lack of LNG facilities that would allow export across geographies hence localized weather is a factor.

What Nuttal didn't foresee was the European gas crisis causing some level of localization to be turned on its ear and the spike in speculation. I expect continued strength coming into the Winter especially once that LNG terminal comes back on line.
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Jul 30, 2012
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charliebrown wrote: Don’t forget that some oil & gas names now have minimal (AAV, ERF) or zero debt (PXT).
I've actually pointed to fundamentals the "best ever" since my investing / trading history in O&G... but Institutional/trader money(s) doesn't care. I look more to dividend sustainability now and with lower debt levels and "stable" WTI ($75+), I feel more confident owning the Sector for dividends/dividend growth than some others.
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Jan 18, 2022
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DealRNothing wrote: Keep in mind Oil trades predominately in the "paper" market (vs physical) so Sentiment (recession fears) is a key driver despite tight inventory levels and modest production growth (traders took it down on upcoming OPEC 100K boepd quota raise for Sept). I've been long disappointed by the Capital Gains growth in the Sector despite being early on the outlook with triple digit gains.

I've long said, Institutional investors even with $120+ were snubbing the Sector and share buybacks were of no consequence to improved share prices. Investors should focus on dividends (yield and growth) as long as Oil remains $75+ as O&G has produced some of the highest dividend growth rates of any sector over the last 12+ months.
I think there's a lot of misguided sentiment that believes that once this magical $100+/barrel window of opportunity soon closes, O&G companies will go back to the dark days of being debt riddled and unprofitable but in fact they'll be much healthier than they were pre-Covid, and Oil was at about $60 at that time.
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SU had a record second quarter. 3.99 billion net earned and that gets us shareholders...........more share buybacks!

SU really knows how to blow it.
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In the second quarter of 2022, Suncor continued to deliver on its strategy of growing shareholder returns, returning record value to its shareholders of approximately $3.2 billion, through approximately $2.6 billion in share repurchases and the payment of $657 million of dividends. Both the dividend per common share and the rate of common share repurchases during the quarter are the highest in the company's history. As at August 2, 2022, since the start of the year, the company has repurchased approximately $3.9 billion of Suncor's common shares, representing approximately 88.5 million common shares at an average share price of $44.40 per common share, or the equivalent of 6.1% of its common shares as at December 31, 2021.
https://stockhouse.com/news/press-relea ... 22-results
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Aug 17, 2008
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SU described their results as a "record" 4 times, just on page 1 of the PR.
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Jul 22, 2015
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I don't follow SU but just went through their earnings to see if they are worth adding or replacing instead of IMO... the answer was nope lol.
Seems like they are in a restructuring phase, their production guidance was updated to a lower amount, even if it's not much.

Not sure why they don't bring down their debt instead of all these share buybacks.
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Aug 2, 2015
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You clearly did not read carefully.
They have a 5 year significant debt reduction plan and they overachieved their timelines by about 3 years, projecting now to get to the 2025 target by 2H 2022.
Their results are very good. They are swimming in cash. They will achieve the share count reduction of 10% this year, while aggressively reducing debt.
Production was reduced slightly due to maintenance.
The current strategy is to route 75% of free cash flow to shareholder via share buyback and dividend and 25% to debt reduction until meeting the 9bil goal. Then 100% will go back to the shareholders.
They clearly think the stock is undervalued based on the massive buyback.
MoneyHypeMike wrote: I don't follow SU but just went through their earnings to see if they are worth adding or replacing instead of IMO... the answer was nope lol.
Seems like they are in a restructuring phase, their production guidance was updated to a lower amount, even if it's not much.

Not sure why they don't bring down their debt instead of all these share buybacks.
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causation wrote: You clearly did not read carefully.
They have a 5 year significant debt reduction plan and they overachieved their timelines by about 3 years, projecting now to get to the 2025 target by 2H 2022.
Their results are very good. They are swimming in cash. They will achieve the share count reduction of 10% this year, while aggressively reducing debt.
Production was reduced slightly due to maintenance.
The current strategy is to route 75% of free cash flow to shareholder via share buyback and dividend and 25% to debt reduction until meeting the 9bil goal. Then 100% will go back to the shareholders.
They clearly think the stock is undervalued based on the massive buyback.
I read the report, I didn't say their results were bad, just that I wouldn't switch from IMO to SU or consider adding them.
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Mar 12, 2017
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1Ogiku2 wrote: SU had a record second quarter. 3.99 billion net earned and that gets us shareholders...........more share buybacks!

SU really knows how to blow it.
I rather have dividends, but buybacks aren't negative. It should increase the value of the stock through EPS and with less shares, you can probably increase the dividend by more eventually.

I sold SU at 50 and I bought back half a position pre-earnings. I thought it was worth a shot, but yeah, this probably won't move the needle short term.
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Nov 26, 2005
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1Ogiku2 wrote: SU had a record second quarter. 3.99 billion net earned and that gets us shareholders...........more share buybacks!

SU really knows how to blow it.
Buyback is good when shares are so cheap. Energy corps should max out buyback when their FCF yield is above 10%, or 12% or whatever, pick a number, and switch to special dividend when FCF yield is under.
Dividend is giving a cut to Trudeau, no thanks, best to avoid until shares are priced right.
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Dec 21, 2005
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DealRNothing wrote: Keep in mind Oil trades predominately in the "paper" market (vs physical) so Sentiment (recession fears) is a key driver despite tight inventory levels and modest production growth (traders took it down on upcoming OPEC 100K boepd quota raise for Sept). I've been long disappointed by the Capital Gains growth in the Sector despite being early on the outlook with triple digit gains.

I've long said, Institutional investors even with $120+ were snubbing the Sector and share buybacks were of no consequence to improved share prices. Investors should focus on dividends (yield and growth) as long as Oil remains $75+ as O&G has produced some of the highest dividend growth rates of any sector over the last 12+ months.
One fund is buying CNQ:
https://baskinwealth.com/blog/why-we-ar ... l-company/
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Jul 30, 2012
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DealRNothing wrote:

Keep in mind Oil trades predominately in the "paper" market (vs physical) so Sentiment (recession fears) is a key driver despite tight inventory levels and modest production growth (traders took it down on upcoming OPEC 100K boepd quota raise for Sept). I've been long disappointed by the Capital Gains growth in the Sector despite being early on the outlook with triple digit gains.

I've long said, Institutional investors even with $120+ were snubbing the Sector and share buybacks were of no consequence to improved share prices. Investors should focus on dividends (yield and growth) as long as Oil remains $75+ as O&G has produced some of the highest dividend growth rates of any sector over the last 12+ months.
"Snubbing the sector" doesn't mean "No buying". The blog simply refers to attractive Fundamentals of CNQ which I have said about the Sector generally for several months (years) now. BTW a small shop like Baskin won't move the needle,Winking Face.

The question remains (and I think EN at Ninepoint questions as well), is why stocks are trading at 50>60% of long term (20Y+) average Fundamental valuations (CNQ in this camp BTW) at a WTI/NG prices significantly above Median. If Institutions were truly looking at Valuations, O&G stocks (in most cases) would be 50>60% higher today/months ago and Sector fund weights would be higher. Companies remain solid at $75+ WTI, but stock prices are underwhelming. Look at SU today... While in line with estimates, Fundamentals are solid and the share price languishes despite billions spent on buybacks. Unfortunately, the pattern continues regardless how much stock these companies are buying. Share buybacks continue to be a poor use of shareholder capital and should be returned in dividends or specials.
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Jan 27, 2006
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DealRNothing wrote: "Snubbing the sector" doesn't mean "No buying". The blog simply refers to attractive Fundamentals of CNQ which I have said about the Sector generally for several months (years) now. BTW a small shop like Baskin won't move the needle,Winking Face.

The question remains (and I think EN at Ninepoint questions as well), is why stocks are trading at 50>60% of long term (20Y+) average Fundamental valuations (CNQ in this camp BTW) at a WTI/NG prices significantly above Median. If Institutions were truly looking at Valuations, O&G stocks (in most cases) would be 50>60% higher today/months ago and Sector fund weights would be higher. Companies remain solid at $75+ WTI, but stock prices are underwhelming. Look at SU today... While in line with estimates, Fundamentals are solid and the share price languishes despite billions spent on buybacks. Unfortunately, the pattern continues regardless how much stock these companies are buying. Share buybacks continue to be a poor use of shareholder capital and should be returned in dividends or specials.
The above question is exactly why I don't believe in a completely efficient market. As I mentioned much earlier on RFD, even model-based analysts will contradict their own models when it comes to oil and gas as those analysts don't 'believe' what the models are telling them. And that non-belief is what creates inefficient markets - ie you throw human emotions and 'gut feelings' into the mix.

Human emotions and 'gut feelings' will typically take another stronger emotion to change - greed. Nuttal has said, and I agree with him, that the companies need to do BIG dividend increases with huge buybacks in order to get the attention of these institutions so that they will take a second look at the sector and do some re-rating.
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Jul 30, 2012
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DealRNothing wrote:

"Snubbing the sector" doesn't mean "No buying". The blog simply refers to attractive Fundamentals of CNQ which I have said about the Sector generally for several months (years) now. BTW a small shop like Baskin won't move the needle,Winking Face.

The question remains (and I think EN at Ninepoint questions as well), is why stocks are trading at 50>60% of long term (20Y+) average Fundamental valuations (CNQ in this camp BTW) at a WTI/NG prices significantly above Median. If Institutions were truly looking at Valuations, O&G stocks (in most cases) would be 50>60% higher today/months ago and Sector fund weights would be higher. Companies remain solid at $75+ WTI, but stock prices are underwhelming. Look at SU today... While in line with estimates, Fundamentals are solid and the share price languishes despite billions spent on buybacks. Unfortunately, the pattern continues regardless how much stock these companies are buying. Share buybacks continue to be a poor use of shareholder capital and should be returned in dividends or specials.
craftsman wrote: The above question is exactly why I don't believe in a completely efficient market. As I mentioned much earlier on RFD, even model-based analysts will contradict their own models when it comes to oil and gas as those analysts don't 'believe' what the models are telling them. And that non-belief is what creates inefficient markets - ie you throw human emotions and 'gut feelings' into the mix.

Human emotions and 'gut feelings' will typically take another stronger emotion to change - greed. Nuttal has said, and I agree with him, that the companies need to do BIG dividend increases with huge buybacks in order to get the attention of these institutions so that they will take a second look at the sector and do some re-rating.
I don't "buy into" the notion that share buybacks are a "return to shareholders" as that would require positive momentum in share prices to validate (that hasn't happened to the extent it "should" have). What I will say is if most O&G companies had directed share buyback monies to dividends and/or specials, Annualized yields would be well in excess of +8% for most ("income" above inflation), and that would/would have forced Income, Balanced, & High dividend mandates funds/etfs to make O&G's a greater part of their Sector weightings (which would have moved share prices higher - no share buybacks needed - valuations already well below long term averages).
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Aug 2, 2015
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DealRNothing wrote: I don't "buy into" the notion that share buybacks are a "return to shareholders" as that would require positive momentum in share prices to validate (that hasn't happened to the extent it "should" have). What I will say is if most O&G companies had directed share buyback monies to dividends and/or specials, Annualized yields would be well in excess of +8% for most ("income" above inflation), and that would/would have forced Income, Balanced, & High dividend mandates funds/etfs to make O&G's a greater part of their Sector weightings (which would have moved share prices higher - no share buybacks needed - valuations already well below long term averages).
This argument is a hypothetical one of cause. You may continue this line of thinking and conclude that companies should not invest in themselves at all since to validate their investements were correct it would require "positive momentum" as well. However, it is impossible to validate a future outcome without following through on something first.

Companies think long term (at least they should and the good ones do). There are only so many ways to grow as company. Usually growing involves reinvesting profits. Situations may occur where companies cannot find ways anymore to reinvest profits at an attractive ROI and attractive risk profile. Once that situation happens the company needs to decide what to do best with this money. Some of the common options are usually pay off debt, repurchase stock for cancellation and pay dividend.

Dividends are by far the least attractive for any company. The reason is simple - money is given away and it does not make the company any better; also it is the least tax effective way to benefit the shareholders. Debt repayment reduces risk and potentially adds flexibility to a point, but practically no company operates without a certain leverage since leverage actually amplifies profitability, optimizes taxation etc. Share buybacks are more tax efficient then dividends, plus they also add flexibility since they reduce future dividend obligations. Of cause, a disciplined approach has to be taken with share buybacks too, just like with any other financial decision a business has to make.

To say that you'd rather take a larger dividend than buybacks is absolutely fine, we all have opinions, but a logical conclusion to this statement is that you do not trust the ability of people running the business to make sound monetary decisions for the business. If this is the case then should you not perhaps reconsider investing in the company at all and find a better partner to do business(invest) with?
Last edited by causation on Aug 5th, 2022 4:17 pm, edited 2 times in total.
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Big Oil Is Paying Out Years of Dividends in One Day

The energy industry right now is a “broken ATM spewing out cash and there aren’t enough people around to pick it up,” said Rafi Tahmazian, a senior portfolio manager at Canadian investment firm Canoe Financial.

Bloomberg article link
Bloomberg article link
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Gingercookie wrote: Big Oil Is Paying Out Years of Dividends in One Day

The energy industry right now is a “broken ATM spewing out cash and there aren’t enough people around to pick it up,” said Rafi Tahmazian, a senior portfolio manager at Canadian investment firm Canoe Financial.

Bloomberg article link
Bloomberg article link
[waves hands in the air]

I'll take more!
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DealRNothing wrote: I don't "buy into" the notion that share buybacks are a "return to shareholders" as that would require positive momentum in share prices to validate (that hasn't happened to the extent it "should" have). What I will say is if most O&G companies had directed share buyback monies to dividends and/or specials, Annualized yields would be well in excess of +8% for most ("income" above inflation), and that would/would have forced Income, Balanced, & High dividend mandates funds/etfs to make O&G's a greater part of their Sector weightings (which would have moved share prices higher - no share buybacks needed - valuations already well below long term averages).
To a certain extent, I agree with you.

However, I think of share buyback as a roundabout way of returning funds to shareholders and getting to that yield amount of well above +8%. By buying back shares when prices are perceived to be cheap, the company is lowering the number of shares out on the market where a dividend is paid. As such, the amount of money allocated to each share is higher due to the lower share count and in turn if there is no or little positive momentum in share prices, the yield would go up. If the company did not buy back those shares, the yield would be lower as the same amount of dividend money would be spread over more shares.

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