Don't have access to Barrons but is that quote correct? CNQ (Canadian Natural resources) has a market cap of over $60BILLION according to most online quotes. Everything else seems right.
As for your comments, I do agree (slightly). It helps if the company has long-lived assets and doesn't have to make acquisitions (which means they probably have less leverage in the business). SU is another oil sands company I was looking at a few months ago that fits the characteristic you describe.
Personally, I search for oil and gas E&Ps purely from a balance sheet perspective(low pb and high(er) debt/equity). What are their (adjusted) proven reserves against the market cap? That's what I look for first - and then I try to work out their break-even oil price. Usually, it's provided somewhere by management which helps to put you on the right track. If it's obvious that if oil prices drop to $60/bbl and the company can continue to have profitable operations, return cash to shareholders and delever (if necessary), then I'm interested. In most cases, these "cheap" balance sheets have significant leverage and, currently, oil prices are sliding so these companies are getting hit the most.
I think oil companies are one of the easier industries to use rough forecasts because you are given a lot of the important information. The total oil reserves, the average annual production rates, and the current oil prices. And operating costs are quite similar YoY. Whether you think oil prices increase over the next decade or stay the same or decline, it obviously affects your result.
Obviously, if we have another pandemic-like situation where oil prices crash, it's very difficult. But the odds of that happening are low. Not low enough to be ignored but low enough to be slightly greedy. With all of the geopolitical tension in the world, oil doesn't make a bad hedge for that reason alone!
Management transactions is also a little "cheat" I use if I'm lazy. That's how I found CRGY (both the CEO and CFO have been accumulating steadily over the last two years).
Worth pointing out that shale oil (the likes of OXY, DVN etc) isn't long lived (once drilling has begun) and they have to make constant acquisitions/divestitures to keep their long-term future stable. That involves raising funds and leveraging their equity when the opportunity is correct. And it works unbelievably well if oil prices remain high/increase over the longer-term. That's my understanding of Buffett's bet, anyway.
Best,
Harsh Vyas |
