I enjoyed your article. However, with all due respect (huge fan of your blog, first time commenting), I think that you should give some energy management teams a bit more credit. I think that if you checked out the transcripts on FANG / EOG, you'd see a really concerted focus on basing capital allocation decisions on through-cycle pricin…
I enjoyed your article. However, with all due respect (huge fan of your blog, first time commenting), I think that you should give some energy management teams a bit more credit. I think that if you checked out the transcripts on FANG / EOG, you'd see a really concerted focus on basing capital allocation decisions on through-cycle pricing (rather than spot or strip) and being highly focused on shareholder returns.
I appreciate the point on hedging. I think part of it is that for producers in the US, it is clearly exceptionally difficult to raise production (see HAL's recent earnings call, where they say, paraphrasing, "We're sold out" for the rest of the year), and I think that the supply-side of the energy equation is fairly favorable right now, and I would guess that they are simply reflecting that perspective in their hedging policies.
I'm a big fan of the mineral royalty plays (VNOM, KRP, STR, MNRL), some of which engage in hedging at current prices, and I think they're a pretty interesting group to look at if you have a value-oriented focus in energy. I think they're a uniquely situated set of companies that are really well-positioned to benefit from inflation and productivity growth in US energy. Plus, you're still getting a teens FCF yield.
Also, if I was making one pick in energy, I'd emphasize pipelines, even if pricing is a little rich right now...
I enjoyed your article. However, with all due respect (huge fan of your blog, first time commenting), I think that you should give some energy management teams a bit more credit. I think that if you checked out the transcripts on FANG / EOG, you'd see a really concerted focus on basing capital allocation decisions on through-cycle pricing (rather than spot or strip) and being highly focused on shareholder returns.
I appreciate the point on hedging. I think part of it is that for producers in the US, it is clearly exceptionally difficult to raise production (see HAL's recent earnings call, where they say, paraphrasing, "We're sold out" for the rest of the year), and I think that the supply-side of the energy equation is fairly favorable right now, and I would guess that they are simply reflecting that perspective in their hedging policies.
I'm a big fan of the mineral royalty plays (VNOM, KRP, STR, MNRL), some of which engage in hedging at current prices, and I think they're a pretty interesting group to look at if you have a value-oriented focus in energy. I think they're a uniquely situated set of companies that are really well-positioned to benefit from inflation and productivity growth in US energy. Plus, you're still getting a teens FCF yield.
Also, if I was making one pick in energy, I'd emphasize pipelines, even if pricing is a little rich right now...