"use rates went down with them and many of the smaller drillers went under leaving bills for pipeline use unpaid.'
Rates are tied to price... a good source of leverage for investors... but, yours suggests big declines in flows occur... when reality is that people mostly don't quit driving to the store or heating their homes because of a market crash. There is a lot more resilience in demand than many seem to expect... even in not all energy use being similarly fungible.
Risk is also not uniformly distributed... so picking opportunities (and timing) rather than buying blindly ?
Pipeline use gets paid for... Small producers don't hold the checkbook. The flow of product is from upstream to downstream... the flow of money is from downstream to upstream... gatherers pay producers...
Bills not being paid... isn't about use... but about pipe being built out to enable future flows... driving large costs up front before there is a flow. The economy WAS booming in early 2020... the growth not inordinate risk taking... But, events happen. Those costs in growth are typically shared... but the capacities to share costs are not equally impacted by market events. Smaller guys have larger risks and realize them more profoundly... larger guys might suffer delays... but projects worth doing tend to get done... as ownership changes regulate the pace... the cost of delay paid by time value of money and discounts in the little guys losing theirs.
Mid-streamers not alone in realizing those sorts of risks... as Oxy similarly realizing risks in digesting acquisitions that looked more problematic in March 2020 than in January ?
Value vs timing and events... give universal truths in the market: most buyers want perfection... and "want" to buy low but will not ? Value investors the opposite of momentum traders... focus on buying low at big discounts to value... and focus on parsing those risks already realized by others... that being the definition of the ability to buy low... also requiring actually buying... when others are selling in a panic. The component of emotion in the market, and its ebbs and flows... requires developing discipline, to recognize it, and then not be controlled by its tendency to drive herd behavior in fear and greed. First, that means not buying when others panic buy... Second, it requires "wait for it"... that giving a massive reduction in risk tied to not owning a risk before it is realized (in a big surprise to others)... and also not holding risk just for the participation trophy. Third, buying low means knowing what a bottom looks like... what others behavior at a bottom looks like... and timing buys at the lows, when almost no one else is thinking buying makes a lick of sense... Fourth, in the opposite, holding from the bottom... being patient with the pick... but selling when everyone is buying near enough the peak... that it qualifies as "sell high".
I traded a bit last Feb-March... doubled the pile in leveraged ETF trades in stocks, then in gold, silver, oil and nat gas... as volatility paid for making correct bets... but, then, held two stocks... GTE and OMP... into February this year.
Mid-streamers are just another business... to buy low and sell high while parsing risks and timing correctly to minimize - not risk - but risk that YOU realize... Then, risk is leverage on winning trades... not persistent in applying leverage against you in holding onto losing trades, or into losing markets ?
Conquering the market's emotional "opposite land" to buy low isn't difficult conceptually. But most people are unaware of how little reason controls their choices relative to fear and greed... or how dependent they are in following the herd in conditioning their expectations... and even what poor decisions they make in choosing which herd to follow. They even see in charts what they want to see... or not what is there.
Future value in pipelines depends on sustaining that sort of growth that might fail in a crisis... to enable growing flows from new wells as old ones dry up. Which doesn't mean there aren't burbles in the financing of new wells and new pipe when disruption occurs... which is the definition of opportunity for investors looking to buy low... as assets are put into distress. Knowing that... enables sorting the issues at the market bottom, and choosing those with better potential... when the market doesn't care about that potential at all.
I owned ZERO oil producers or pipelines prior to March 2020... and almost nothing but after April 2020... ?
What I do next re oil will depend on analysis of boom vs bust potential in the market and the economy... a boom driving oil prices higher... as the Covid recession wanes... stimulus round III $ hits... with super low rates and no inflation ? Or, if the wheels come off the market... I don't want to be one of those chasing after the lugs nuts... ?
The goal is not to "be a participant" and own risk and see it through... but to avoid risk... and win trades ?
"The highest market valuation EVER... higher than in 1929"... requires some serious justification to own it ?
If what you are looking for is a business with no risk... guess what... doesn't exist. The rest is timing... selling risk extant to others and buying risk realized from them... as the ebbs and flows in risks are a source of excess return... as well as a source of excess loss... requiring only that you pick better returns (at the right time... buying low) and avoid the losses...(by not holding into the teeth of a vicious bloodletting you could easily see coming) ?
Cash right now... the worst possible thing to own... except for everything else... |
