There were some good comments on the OS stocks by Coxe on the call this week:
Message 22206445
"I did a conference call this morning with clients in Switzerland and it was about this question of oil sands and about the SEC ruling. And I’m just updating you on this, which is to say, that nothing has happened. The SEC is still interested but that they have not yet come down with any kind of ruling. I don’t believe it can be deferred forever, if for nothing else than the fact of one big statement which Lord Browne of BP recently, that he surveyed all the transfers lately of oil and gas production and exploration rights that were at a level that would attract his magisterial attention, over the last two years, and the buyer was state-owned oil companies, China and India.
And so what we’ve got here, is the power is ebbing away from the private sector to the state-owned sector. And what you cannot have then, from the standpoint of US oil companies, is the absurd situation that the existing SEC rules discriminate against US buyers as against Chinese competitors to buy those same assets in the ground and Alberta has made it clear that it’s quite prepared to deal with China, it’s a free market environment. If the Chinese are prepared to pay up and they aren’t hamstrung by bureaucratic regulations, so what?
I just can’t believe that the SEC is going to let this situation continue forever, but when I started telling you about this, and this is now for a year, it was on the basis that I just thought that the oil sands stocks were going to hugely outperform the rest of the oil stocks on the basis of potential strategic buyers coming in.
Well, of course the move that we’ve had in the last year in the oil sands stocks without an SEC decision has meant that we were right for the wrong reasons. Because at this time last year Suncor was forty bucks and it’s seventy-seven and a half today. So, it’s hugely outperformed the rest of the oil group. And Canadian Oil Sands, year over year, similar kind of move going from seventy-six up to one fifty-seven.
Now you may say “Well, isn’t all this in these stocks?” No, I don’t believe that because, in effect, if I’m right, that the stocks are being priced off of having long-term reserves and we’ve got a better idea of what long-term reserves are worth as a result of the swing from backwardation to contango, and that those far out reserves are worth more than the spot. The only cheap oil there is now, is the spot. Everything else, everything else for which there’s a market price established to it, is more expensive.
And that means that reserves in the ground instead of the way they were valued two years ago, which is you took the spot price and discounted them, by whatever interest rate you wanted to use, now what you’ve got is that the price in the ground automatically covers the interest rates or whatever formula you want to use to value them and therefore they grow in value. So that you have, in effect, an underground annuity. Not bad!
And although I’m not suggesting that all oil portfolios be exclusively invested in this group, what I am saying is that over the last twelve months the stars have become more and more aligned with the concept that you bet on reserves, you don’t worry too much about near-term earnings, they’re going to be good anyway for this group. And that long-term oil reserves are a true form of power in a world where power is becoming more diffuse and difficult to figure out." |
