Coxe Advisors

[mkarpoff]

Dan, thanks for the link to Coxe. If one were to believe his conclusions, and they certainly do make sense, then there is little or no reason to be holding any energy stocks right now. I read somewhere this week that Saudi Arabia and the emirates have enough financial reserves to keep oil at $40 for 15 years before they, themselves start feeling the pinch. That is not to say they would do that, but clearly they are trying to inflict as much economic pain as possible on Russia and Iran. That they are putting a major hurt to our oil industry seems simply to be the cherry on the sundae. Given this set of facts, is it time to completely reconsider the energy investment thesis?
I know that the EPG is not only a business for you, but a labor of love, but most of us have taken a major beating the last couple of months, and the idea of sitting with dead money or worse for the foreseeable future is quite disheartening. What do you think?
By the way, Coxe's mutual fund is given only two stars by Morningstar, so perhaps they are not so prescient, but the broadcast sure sounded like it was on the money.

[dan_s]

IMO Saudi Arabia will achieve their goal of bringing Russia and Iran to their knees within six months. Russia is already "on the ropes". I think the low prices last until the next OPEC meeting in June at the latest. We may see an emergency meeting of OPEC in Q1. The low oil prices are killing over half of the OPEC members. Crude oil is the most important commodity on the planet. It cannot stay below F&D costs for long or production will start to decline. Only a global recession will cause demand to decline and I sure don't see that happening.

One thing to note in the Coxe interview is that low fuel prices are a major stimulus to the global economy. This will increase demand for refined products.

Once all of the E&P companies announce reduced capital programs for 2015 we should see EIA and IEA reduce their supply forecasts and start talking about supply shortages as early as 2016. We are sowing the seeds of the next "Energy Crisis" today.

IMO the Sweet 16 is grossly oversold. There is a lot of money on the sidelines waiting to jump back in. 15 of 16 were up big today on high volume today even though oil was down slightly. An E&P company is worth the net present value of future cash flows less debt. Unless you believe oil prices are going to stay low for many years, these stocks are grossly oversold. Plus, 4th quarter results are going to be much better than most people think. Seems no one is looking at production mix or hedges.

Take a look at TLM. We may see more takeovers, which is also bullish for the sector. Proven reserves are very cheap on Wall Street and a lot of the large-caps are definitely looking at our model portfolio companies. I lead a team at Hess that did this, so I know the drill.

Oil may go lower, but it is definitely getting close to a bottom. Any move to the upside brings in a lot more buyers.