The second stock in which we hope to add to the Independent Stock Analysis Portfolio is Cabot Oil & Gas. Cabot (COG) has 100% of it’s production as natural gas and is the lowest cost producer in the lowest cost basin. The combination of management’s prudence and being a low cost producer has Cabot sporting the rare strong balance sheet in the industry; that is, Cabot is not drowning in debt payments, dependent on capital markets to roll over coming due maturity’s while managing the business for such external factors, nor considering selling crown jewel royalty’s to survive as are competitors.
Obviously a potential investor needs a view on the fourteen year bear market in natural gas to consider investing in the industry. Our perspective at ISA is that the United States and the rest of the world became addicted to natural gas over that last decade, that natural gas in an outstanding product, cleaner than oil and coal, abundant, safe and affordable.
At present natural gas is priced below a price where the industry can hold production. For natural gas investors an endearing feature of the market is the high natural decline rate of production: An oversupplied market can be alleviated quickly by underinvestment.
The stretched industry balance sheets and final end to the seemingly never ending increase in associated gas production appear to have reached a resolution while production is finally rolling over. But wait! The depressed industry still needs to reconcile this warm winter, ISA’s bearish macro outlook and now the coronavirus trigger.
The rise in U.S. natural gas production was remarkable enough to crush the global LNG market. Significant slowing non U.S. economy’s have in some foreign nations have ground to a halt with the coronavirus. LNG loads have been rejected. The tankers have begun to be used as floating storage.
ISA expects one more significant down leg in the industry this spring shoulder season into the summer perhaps creating a generational buying opportunity. Purchasing outstanding business’s at excellent value and then holding tight creates massive wealth. That’s the plan, we’ll see if it works. After much time examining the industry and other industry players, Cabot is our horse. Do your own due diligence.
Meanwhile, we are content with the ISA Portfolio being 100% invested in PHYS; Gold as cash.
Will the Cyprus surprise be akin the Bear Stearns collapse five years ago? Continue reading
October US natural gas production was an all-time high: EIA. Continue reading
Futures are higher as China Exports Accelerate With Credit in Recovery Boost: Economy (Bloomberg). A re-acceleration of Chinese growth Continue reading
Understanding the Oil Cycle at Investing Daily. Continue reading
The energy piece of the economic puzzle has morphed over the last several years. From a macro economic perspective, energy does not appear to be a headwind. Energy is providing a sustainable economic competitive advantage in the U.S.
Perhaps the energy secular bull market has past, and investors instead will have only cyclical conditions with which to contend going forward. Let 24 diverse links help tell the story:
Saudi oil Minister Al-Naimi: “everybody now is happy with where the prices are. Nobody is complaining about high prices or low prices.” (Arab News) Sounds like relatively stable oil prices near today’s price deck could be the norm…
E&P capex in 2013 is set to be flat in North America, but rise 7% globally in a sustained rise dependent upon today’s oil price. AOL Energy Continue reading
Oil Market Going Through ‘Violent’ Structural Change: IEA at CNBC:
“…the shift of oil demand from the West to the East is now rapidly accelerating” and “refining margins have become more volatile.” Continue reading
S&P 500 Energy & Materials relative Continue reading
“There is a danger if OPEC doesn’t do anything that prices may collapse” at the Financial Post.
“…the report predicts about a 1 mb/d drop in U.S. oil consumption by 2020 and a 5 mb/d drop by 2035 relative to current levels.” Econbrowser Continue reading
Oil as an Exhaustible Resource by James Hamilton, which dovetails with the ISA idea worldwide oil production is on an undulating plateau, the shape of which will be determined by price. Continue reading
“The US is growing its oil output more than the entire increase in demand for the rest of the world,” said Continue reading
In NG Calls a reader asked some good questions. My cleaned up response: Continue reading
I trust members used the weekend to get caught up on the heavy reading presented at Independent Stock Analysis. In honor of cyber Monday, consider subscribing for $100 a year. Now we’re back at it as we continue to examine our thesis. Continue reading
Today the investor can waste time watching ‘business news’ being reported from the mall, or you can spend 15 minutes with Independent Stock Analysis: Continue reading