Energy Prospectus

Why the World's Energy Shock Will Continue
WED, APR 13, 2022 - 11:20AM
By James J. Puplava, CFP®, CTS™, CES™, AIF®, CIS™, CFS™, CAS™, CSS™
President, Founder, Financial Sense® Wealth Management

Two days ago, OPEC warned the world could be facing the worst-ever oil supply shock and that it will be 'nearly impossible' to replace Russian oil. In the following article reprinted from May 2020, Financial Sense's Jim Puplava explained the difficulty OPEC nations face in producing more oil and why investors should position for a coming energy shock and much higher inflation. Note: when this article was first published in 2020, West Texas oil was trading around $20-30 per barrel and official inflation was 0.1%. As of today, West Texas oil is trading at $104 per barrel and headline inflation is now growing at 8.5% yoy.

“If you look at the top 20 companies of the world, 19 of them are still brick and mortar companies. What I am saying is that if you have a car manufacturer or an oil and gas manufacturer, you won’t get supply over the Net.”
–Anil Ambani

“Always expect the unexpected. The oil and gas industry is terrible at predicting anything. Always have a back-up plan.”
–David Dixon

The Perfect Energy Storm
https://www.financialsense.com/blog/202 ... l-continue

Quotes at the end

“Control oil and you control nations; control food and you control the people.”
Henry Kissinger

“The best business in the world is a well run oil company. The second best business in the world is a badly run oil company.”
“I’ve always tried to turn every disaster into an opportunity.”
“The way to make money is to buy when blood is running in the streets.”
John D. Rockefeller

>The best business in the world is a well run oil company. The second best business in the world is a badly run oil company.”
I love that line.

Let me augment it

The best energy company in a rising commodity environment is a unhedged one.
The second best business in the world is one with crappy hedges!


I'm coming at this not from a reported quarterly PL impacts. I'm coming at this at management should do everything under their control to maximize profits and thus net realized prices rec'd for their product. Hedging at 2.50 to protect 2.50 of downside risk and paying 4.75 to settle the crap hedges should get someone fired, imho.

We saw this coming for at least a year. Every quarter, these guys have 1 billion writes offs. Why can't they see it. They work in the industry.

I'm not against hedges. I'm against how they hedge. Buying puts gives you down side protection and you still get 100 % of the upside.

So, some of these guys gave up all the upside for nothing but crap coverage on the downside

I agree with most of what you wrote. Just remember that many of the companies, especially small-caps, are required to hedge by their lenders. Also, several companies in our model portfolios are alive today because of their hedging programs. AR is a perfect example.

Fraser, FYI, Sandridge Energy ($SD) does not hedge their gas production, if you're interested.