Chevron - >>> Got $500? 1 Warren Buffett Stock to Buy Emphatically
By Reuben Gregg Brewer
Sep 22, 2023
Oil and natural gas are vital energy sources used the world over.
Despite a global push to increase the use of non-carbon energy sources, oil and natural gas will remain important for decades.
Financially strong Chevron will be there to provide it while paying an attractive dividend.
The world will need oil for decades, and Chevron is well positioned to provide it while rewarding investors with dividends along the way.
Warren Buffett's portfolio contains a number of energy companies, including both utilities and oil and natural gas production companies. It's an admission of the important role that energy plays in the modern world. If you are looking at Buffett's portfolio at Berkshire Hathaway (BRK.B -0.86%), one energy company that even conservative investors with as little as $500 might want to add to their portfolios is Chevron (CVX 0.66%). Here are some key reasons why.
1. Oil demand is not going away
According to the Energy Information Administration, the International Energy Agency, and OPEC, demand for carbon fuels will continue to be robust through at least 2050. The biggest shift will be a trend away from coal, the dirtiest of the major carbon fuels, and toward natural gas, the cleanest. Oil demand will be higher, too, but it will not grow as quickly as natural gas. All in, neither oil nor natural gas is going away, largely thanks to a still-growing world population.
With this backdrop, it is clear that oil and natural gas companies are going to be important providers of energy. Chevron is an integrated energy giant with a market cap of over $300 billion. It has been producing oil and natural gas for a very long time and has highly efficient operations. If there is a need for oil and/or natural gas, it is well positioned to produce the fuels.
2. Chevron is financially strong
There are a lot of energy companies in the world, however, even some very large ones that rival Chevron in scale. But one thing that separates Chevron from similar peers is its impressive financial strength. To put a number on that, Chevron's debt-to-equity ratio is roughly 0.14 times. That would be low for any company.
But Chevron's debt-to-equity ratio also happens to be the lowest in its direct peer group, as the chart above shows. This is important because oil and natural gas are commodities prone to dramatic and often swift price swings. Excessive debt reduces a company's strategic options when times get tough. Chevron, given its financial strength, has more choices during the inevitable industry downturns it will face. That's something conservative investors should greatly appreciate.
3. Chevron has a strong playbook
Just having choices isn't enough, however; a company has to show that it knows what to do. And Chevron did just that during the oil downturn spurred by the economic shutdowns used to slow the spread of the coronavirus in 2020.
As the graph above shows, when oil prices declined in 2020, crimping Chevron's earnings, it took on more debt and increased its leverage. That cash was used to keep the business going and to continue paying dividends to investors (more on this in a second). Just as important, when energy prices recovered, Chevron reduced leverage so it would be prepared for the next industry weak spot. So not only does Chevron have a strong financial foundation, but it has proven willing to use that strength when needed.
4. Chevron puts investors first
As noted, one of the things Chevron did during the last downturn was support its dividend. The company's earnings dipped into the red, so it could have easily justified a dividend cut. It did not, though, preferring instead to increase the dividend just like it has every year for over three decades. Through good energy markets and bad ones, Chevron has continued to increase its dividend annually. This is notable for a couple of reasons.
First, it shows that the company knows how to navigate a highly volatile industry. Second, and perhaps more importantly, it proves that the company places a high value on the needs and desires of its shareholders. There are other energy stocks out there, some with dividend policies that effectively rise and fall along with oil prices. However, the board of Chevron is well aware that conservative income investors buy its stock because they expect a consistent and slowly growing dividend. And that is what they have made sure shareholders get.
An all-around great energy stock for conservative income investors
There are other things to like about Chevron, like its growing production profile and the current guidance that it will continue to improve the returns on the capital it invests. It's also working to improve its own environmental footprint. Such things will ebb and flow over time.
The bigger picture is what Buffett generally looks at. And from that perspective, Chevron operated in an industry that is out of favor but will remain important for years. It has a large and financially strong business. It has proven it can use its financial strength to muddle through difficult times. And it continues to put investors first with a steadily increasing dividend. If that sounds like a good combination of traits, then you might just be channeling your inner Warren Buffett.
Here's how the energy sector fared in the 2008 and 2020 crashes, vrs the S+P 500, gold, silver, and the miners (approx figures) -
XLE - (60%)
CXV - (47%)
SPY - (52%)
GLD - (32%)
GDX - (73%)
SLV - (60%)
XLE - (63%)
CVX - (57%)
SPY - (35%)
GLD - (14%)
GDX - (50%)
SLV - (39%)
SIL - (53%)
The US still has those two gigantic untapped oil reserves in Alaska that were revealed in Lindsey Williams' book 'The Energy Non-Crisis'. Lindsey was there when the first discovery was made (Gull Island area), but it was never developed, and its existence was immediately classified by the govt and not made public. A 2nd massive reserve was then discovered nearby. Lindsey said each reserve is approx the size of the Saudi Arabian reserves, so they represents several centuries worth of oil.
Why they were kept secret and never developed is a complex question, but at the time (late 1970s) the US had only just established the Petrodollar system (following the collapse of Bretton Woods), and thus needed oil prices high to support global demand for the otherwise unbacked US dollar. Later, the US/West globalists decided upon the current 'electric everything' paradigm, and ultra cheap / abundant oil would work against that goal. And in addition, eliminating the use of oil / natural gas will also weaken the global influence of Russia, Saudi Arabia, etc. So, the US' massive reserves just sit there in the ground, untapped for the last ~ 50 years.
Meanwhile, the Russians found their ultra-deep Siberian oil (abiotic oil), and thus became the world's 2nd largest supplier. It turns out that most oil is not a 'fossil fuel' at all (derived from decaying organic matter), except for the relatively shallow oil deposits. Ultra deep drilling in Siberia revealed an almost endless supply of 'abiotic' oil, formed continuously by the high pressures and temperatures at those depths -
Abiotic oil - https://en.wikipedia.org/wiki/Abiogenic_petroleum_origin
>>> Growth stocks ‘highly overvalued’ but energy looks attractive, says strategist
by Ines Ferré·Senior Business Reporter
September 12, 2023
Energy stocks are looking attractive as investors rotate out of "crowded" growth trades, says one Wall Street strategist.
"The tech trade is still highly overvalued at this time" Lori Calvasina, RBC Capital Markets head of US equity strategy, told Yahoo Finance Live on Tuesday. "The leadership areas [stocks] are tired and need to take a break."
"I agree that longer term that's [growth trade] where you want to be from a fundamental perspective, but we've just got to go through a correction there," added Calvasina. "Money is going to rotate into these value oriented sectors, and I think energy is giving you one of the best alternatives."
Strategists expect the energy sector to outperform this quarter as oil is up around 29% since late June. On Tuesday, the S&P 500's Energy Select ETF (XLE) rose more than 2%, as technology stocks slid.
"We're starting to see energy do what tech was doing at the beginning of the year —exiting that downward revision cycle but it's still very early days," she added.
The Information Technology XLK ETF (XLK) which is up 40% year-to-date, still far ahead of XLE, up 6% since the start of the year.
Oppenheimer's chief investment strategist John Stoltzfus agrees oil's surge to 2023 highs brings a buying opportunity among equities.
"We find the S&P 500 energy sector looking increasingly attractive as policy makers in the US and abroad strive to contain inflation and manage economic growth," Stoltzfus wrote.
Oppenheimer also sees energy benefitting amid a US push towards infrastructure projects and chip manufacturing.
On Tuesday, West Texas Intermediate (CL=F) hovered just below $89 per barrel in midday trading. Brent crude futures (BZ=F) sat above $91 per barrel.
>>> Oil prices spike as Saudi Arabia, Russia extend 1.3 million barrel a day oil cut through December
by By JON GAMBRELL
DUBAI, United Arab Emirates (AP) — Saudi Arabia and Russia agreed Tuesday to extend their voluntary oil production cuts through the end of this year, trimming 1.3 million barrels of crude out of the global market and boosting energy prices.
The dual announcements from Riyadh and Moscow pushed benchmark Brent crude above $90 a barrel in trading Tuesday afternoon, a price unseen in the market since November.
The countries' moves could increase inflation and the cost for motorists at gasoline pumps. It also puts new pressure on Saudi Arabia's relationship with the United States, as President Joe Biden last year warned the kingdom there would be unspecified “consequences” for partnering with Russia on cuts as Moscow wages war on Ukraine.
Saudi Arabia's announcement, carried by the state-run Saudi Press Agency, said the country still would monitor the market and could take further action if necessary.
“This additional voluntary cut comes to reinforce the precautionary efforts made by OPEC+ countries with the aim of supporting the stability and balance of oil markets,” the Saudi Press Agency report said, citing an unnamed Energy Ministry official.
State-run Russian news agency Tass quoted Alexander Novak, Russia's deputy prime minister and former energy minister, as saying Moscow would continue its 300,000 barrel a day cut.
The decision “is aimed at strengthening the precautionary measures taken by OPEC+ countries in order to maintain stability and balance of oil markets,” Novak said.
Benchmark Brent crude traded Tuesday above $90 a barrel after the announcement. Brent had largely hovered between $75 and $85 a barrel since last October. A barrel of West Texas Intermediate, a benchmark for America, traded around $87 a barrel.
White House national security adviser Jake Sullivan declined to comment on the market impact of the decision, though he said U.S. officials had regular contact with the kingdom. He added that Biden would look to utilize “everything within his toolkit” to assist American consumers.
“The thing that we ultimately stand for is a stable, effective supply of energy to global markets, so that we can in fact deliver relief to consumers at the pump, and we do this in a way that is consistent with the energy transition over time,” Sullivan said.
Bob McNally, the founder and president of the Washington-based Rapidan Energy Group and a former White House energy adviser, said Saudi Arabia and Russia had “demonstrated their unity and resolve to proactively manage" the risk of oil prices potentially dropping in tougher economic conditions with their announcement Tuesday.
“Barring a sharp economic downturn, these supply cuts will drive deep deficits into global oil balances and should propel crude oil prices well above $90 per barrel,” McNally said.
The average gallon of regular unleaded gasoline in the U.S. stands at $3.81, according to AAA, just under the all-time high for Labor Day of $3.83 in 2012. However, gasoline demand typically drops for U.S. motorists after the holiday so it remains unclear what immediate effect this could have on the American market, AAA spokesman Andrew Gross said.
“I’m more concerned about what the rest of hurricane season may hold,” Gross told The Associated Press. “A big storm along the Gulf coast could move prices dramatically here.”
Hurricane Idalia just plowed through Florida and U.S. forecasters said Tuesday that Tropical Storm Lee in the Atlantic Ocean will become an “extremely dangerous” hurricane by Friday.
Meanwhile, higher gasoline prices can increase transportation costs and ultimately push the prices of goods even higher at a time when the U.S. and much of the world is already raising interest rates to combat inflation.
“The impact these cuts will have on inflation and economic policy in the West is hard to predict, but higher oil prices will only increase the likelihood of more fiscal tightening, especially in the U.S., to curtail inflation,” said Jorge Leon, a senior vice president at Rystad Energy.
The Saudi reduction, which began in July, comes as the other OPEC+ producers have agreed to extend earlier production cuts through next year.
A series of production cuts over the past year has failed to substantially boost prices amid weakened demand from China and tighter monetary policy aimed at combating inflation. But with international travel back up to nearly pre-pandemic levels, the demand for oil likely will continue to rise.
The Saudis are particularly keen to boost oil prices in order to fund Vision 2030, an ambitious plan to overhaul the kingdom’s economy, reduce its dependence on oil and to create jobs for a young population.
The plan includes several massive infrastructure projects, including the construction of a futuristic $500 billion city called Neom.
But Saudi Arabia also has to manage its relationship with Washington. Biden campaigned on a promise of making the kingdom's powerful Crown Prince Mohammed bin Salman a “pariah” over the 2018 killing of Washington Post columnist Jamal Khashoggi.
In recent months, tensions eased slightly as Biden's administration sought a deal with Riyadh for it to diplomatically recognize Israel.
But those talks include Saudi Arabia pushing for a nuclear cooperation deal that includes America allowing it to enrich uranium in the kingdom — something that worries nonproliferation experts, as spinning centrifuges open the door to a possible weapons program.
Prince Mohammed already has said the kingdom would pursue an atomic bomb if Iran had one, potentially creating a nuclear arms race in the region as Tehran’s program continues to advance closer to weapons-grade levels. Saudi Arabia and Iran reached a détente in recent months, though the region remains tense amid the wider tensions between Iran and the U.S.
Higher oil prices would also help Russian President Vladimir Putin fund his war on Ukraine. Western countries have used a price cap to try to cut into Moscow’s revenues. But those sanctions have seen Moscow be forced to sell its oil at a discount to countries like China and India.
>>> Enbridge Bets Big on US Gas With $9.4 Billion Dominion Deal
by Will Wade and Mark Chediak
September 5, 2023
(Bloomberg) -- Canadian pipeline operator Enbridge Inc. agreed to buy three utilities from Dominion Energy Inc. in a $9.4 billion deal to create North America’s largest natural gas provider.
The acquisition of the East Ohio Gas Co., Questar Gas Co. and Public Service Co. of North Carolina will double the Calgary-based company’s gas utility business, Enbridge said in a statement Tuesday.
The deal is a massive bet that gas will remain a transition fuel for the foreseeable future even as much of the world tries to phase out fossil fuels to fight climate change. While there’s a strong push to deploy more renewable energy, there’s also a growing recognition that the green transition will take time, ensuring gas will be in demand for years.
“The assets we are acquiring have long useful lives and natural gas utilities are ‘must-have’ infrastructure for providing safe, reliable and affordable energy,” Enbridge Chief Executive Officer Greg Ebel said in the statement.
The move comes as Enbridge, North America’s largest pipeline company, is pushing to position itself for the transition toward cleaner energy. The three companies it’s buying serve customers in Ohio, Utah, Wyoming and North Carolina, where revenue from utility bills is forecast to grow faster than the national average.
“They’re going for that very fixed cash flow,” Bloomberg Intelligence analyst Talon Custer said in an interview.
The transaction is valued at $14 billion including debt. It will be Enbridge’s largest since its acquisition of Spectra Energy Corp. for about $28 billion in 2017, according to data compiled by Bloomberg.
Enbridge shares fell 6.2% as of 9:09 p.m. in after-hours trading in New York while Dominion was 0.3% lower. To help finance the transaction, Enbridge said separately that it plans to raise C$4 billion ($2.9 billion) in a share sale underwritten by a group of institutions led by RBC Capital Markets and Morgan Stanley.
The deal to buy the companies, which serve 7 million homes and businesses across multiple states, will require approvals from regulators, including the Federal Trade Commission to ensure it doesn’t violate antitrust laws. Enbridge said it would start pushing forward to secure the approvals immediately. It expects the deal to close in 2024.
The transaction is also the latest to arise from Dominion’s corporate review launched by CEO Bob Blue late last year to reverse a slumping stock price. Dominion executives said they wanted to focus on the company’s growing electric utility business and pay down debt.
The deal with Enbridge comes nearly two months after the Richmond, Virginia-based Dominion agreed to sell a $3.3 billion stake in a Maryland liquefied natural gas export project to Berkshire Hathaway Energy.
Dominion said Tuesday the sale of its gas distribution utilities would help it improve the company’s funds from operations to debt ratio by 3.4%. Blue said the company will provide an update on its review during the fourth quarter.
Morgan Stanley and RBC were Enbridge’s financial advisers on the deal while Sullivan & Cromwell LLP and McCarthy Tétrault LLP were its legal advisers. Dominion’s financial advisers were Citigroup Inc. and Goldman Sachs Group Inc., and its legal adviser was McGuireWoods LLP.
The group of underwriters for the equity sale also includes BMO Capital Markets, CIBC Capital Markets, National Bank Financial Markets, Scotiabank, and TD Securities.
>>> Buffett Takes Control of US LNG Plant With $3.3 Billion Deal
by Ruth Liao
July 10, 2023
(Bloomberg) -- Berkshire Hathaway Energy agreed to buy Dominion Energy Inc.’s stake in a Maryland liquefied natural gas export project for $3.3 billion.
The deal will boost the company’s limited partnership ownership of the terminal to 75%, while a unit of Brookfield Infrastructure Partners holds the remaining 25%, Warren Buffett’s Berkshire said in a statement Monday.
Berkshire Hathaway Inc. first took a stake in the one-train export plant with an annual export capacity of 5.25 million tons in 2020.
The deal will give Berkshire control of one of just seven operational US facilities that can export LNG at a time when the fuel has assumed an increased economic and geopolitical significance. Natural gas prices surged in 2022 following the invasion of Ukraine, and US exports of the liquefied form of the fuel helped to sustain Western European economies after Russia cut supplies.
Cove Point LNG is contracted on a long-term basis to companies including Tokyo Gas Co. and Sumitomo Corp.
Dominion said in a separate statement that it will use the proceeds to repay debt. Dominion, which has been conducting a business review, has said it plans to host an investor day in the third quarter to give an updated strategic and financial outlook.
Vitesse Energy - >>> Warren Buffett's Bold Move: Acquiring a 10% Dividend Yield Stock
By Lee Samaha
May 27, 2023
The investment case for Vitesse Energy is based on its management team.
The company operates a flexible and conservative business model.
Hedging and diversifying its investments helps to reduce risk.
Berkshire Hathaway's acquisition of stock in a high-yield oil and gas company is attracting a lot of investor interests.
Warren Buffett's Berkshire Hathaway purchased just over 51,000 shares in oil and gas company Vitesse Energy (VTS -0.88%) in the first quarter. It's not a significant position for Berkshire -- the current value is just over $1.1 million. However, it is intriguing for retail investors who want to follow the oracle of Omaha into a stock currently yielding 9.5%. So let's look at Vitesse and why it might attract income-seeking investors.
A classic Warren Buffett stock
The stock has all the hallmarks of a Buffett value stock purchase. The key to this argument is as follows:
It's an investment decision that relies on Berkshire's confidence in an experienced management team. I'll return to this point in detail in a moment.
It's a shareholder-friendly company with management aiming to grow dividends over time and expecting to initially "pay quarterly cash dividends and dividend equivalents totaling approximately $66.0 million per fiscal year" -- equivalent to $2 per share.
Management diversifies risk in its business model, ensuring free-cash-flow generation is returned to investors in the form of buybacks and dividends.
It's a classic "value" investment because the downside is limited, while the upside is significant.
Introducing Vitesse Energy
The company is unusual in the oil and gas sector because it's not an owner/operator of assets. Instead, its management team, led by industry veteran Bob Gerrity as CEO, acquires interests in oil and gas assets (primarily in the Bakken oil field in North Dakota) operated by leading oil companies. Some of its better-known listed partners include Chord Energy, Civitas Resources, Hess, and to a lesser extent, Marathon Oil and ExxonMobil.
The company's risk management extends to diversifying its interests. As of March 2023, the company had interests in 6,475 productive wells "with an average working interest of 2.7% per working interest well," according to company presentations. In addition, management aims for a ratio of net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) of less than 1. Also, it uses hedging to reduce its exposure to the volatility of oil and gas prices.
The conservatively run balance sheet and hedging reduce the upside potential from higher oil and gas prices. Still, it also helps ensure a steady cash flow stream to support dividends. In addition, it means Vitesse can be in relatively better shape to deal with a downturn -- a significant plus because management can then go and use its cash flow to pick up working interests in oil and gas assets when prices are low.
Another advantage of not being an owner/operator of assets is that Vitesse is "burdened with various contractual arrangements with respect to minimum drilling obligations, and [the company] can avoid exploratory, upfront leasing and infrastructure costs customarily incurred by operators" according to its SEC filings.
Why the management team matters
Given the business model, it's clear that investing in Vitesse Energy means trusting in the management team to allocate capital wisely, manage risk accordingly, and have the skill to identify productive investments. It's relatively less of what could be crudely described as the typical oil-price-led investment in oil and gas assets. Hedging commodity price volatility is always going to be an imperfect science. For example, Vitesse doesn't hedge its natural gas (only responsible for 13% of revenue in the first quarter) production and has no plans to do so, and only 31% of its oil production is hedged to 2024.
That said, management retains the flexibility to hedge higher percentages of its oil production, which helps lower risk. That came through in the first-quarter results with average realized prices before hedging of $72.95 a barrel, compared to $74.02 after hedging.
It's clear that management's role is crucial, and it's worth looking into the key figure at Vitesse, namely Gerrity. He is the founder of Gerrity Oil & Gas Corporation, which merged with Snyder Oil assets to create Patina Oil in 1996, a company then acquired by Noble Energy in 2008. Gerrity would go on to found Vitesse Energy in 2014.
Gerrity and his management team have a demonstrable track record of success, and there's no doubt that Berkshire feels comfortable with the company's business model.
A stock to buy?
If you are looking for oil and gas exposure and a high-yield stock, and you trust what Berkshire sees in Vitesse's management, the stock offers an excellent option for investors. The fossil fuel sector isn't short of high-yield candidates, but Vitesse is one of the relatively lower-risk plays in the sector. As such, the stock is attractive for income-seeking investors.
>>> More Money Will Flow Into Solar Than Oil For The First Time
By Alex Kimani
May 28, 2023
According to Fatih Birol, the IEA’s executive director, solar investments are expected to attract over $1 billion a day in 2023.
Since the energy crisis hit two years ago, many of the world’s governments have doubled down on renewable energy since they view the sector as an ideal way to not only decarbonize but also achieve energy security.
Several oil producing hubs including Saudi Arabia and UAE are investing heavily in renewable energy as they try to diversify their economies.
The amount of capital investment flowing into the solar sector is poised to overtake the amount of investment going into oil production for the first time ever in 2023, the International Energy Association has reported.
According to Fatih Birol, the IEA’s executive director, solar investments are expected to attract over $1 billion a day in 2023 with over $1.7 trillion slated to flow clean energy technologies such as EVs, renewables and storage. Overall, global investment in energy is projected to hit ~$2.8 trillion in the current year.
Speaking to CNBC’s Arabile Gumede on Thursday, Birol said there was a “growing gap between the investment in fossil energy and investment [in] clean energy. Clean energy is moving fast--faster than many people realize. This is clear in the investment trends, where clean technologies are pulling away from fossil fuels. For every dollar invested in fossil fuels, about 1.7 dollars are now going into clean energy.”
Since the energy crisis hit two years ago, many of the world’s governments have doubled down on renewable energy since they view the sector as an ideal way to not only decarbonize but also achieve energy security. Further, several oil producing hubs including Saudi Arabia and UAE are investing heavily in renewable energy as they try to diversify their economies.
Cheaper than oil and gas
Another big reason why the clean energy sector is growing fast is due to the fact that after many decades, renewable energy is finally competitive with fossil fuels in electricity generation.
Last year, Energy Intelligence’s senior reporter Philippe Roos analyzed the cost of generating electricity, also known as levelized cost of energy (LCOE), of conventional and renewable forms of electricity generation in five regions: the U.S., Western Europe, Japan, the Mideast and developing Asia. The data, which also include break-even prices for oil, gas and coal in the Mideast and developing Asia, was based on Energy Intelligence’s proprietary LCOE model.
The EI study revealed that renewables had overtaken gas permanently on cost-effectiveness, with the race for lowest cost remaining mostly between solar photovoltaic (PV) and onshore wind. This trend rings true even in Japan, where the scarcity of real estate handicaps land-intensive renewables, onshore wind beats coal and PV displaces gas.
According to the LCOE report, “wind and PV generation costs remain lower than fossil fuel alternatives, especially with current high gas and coal prices”, and with supply chain issues troubling both sectors equally, renewable technologies are still the cheapest.
A possible exception to this trend later this year is natural gas since gas prices have fallen so dramatically over the past couple of months.
After hitting multi-decade highs shortly after Russia invaded Ukraine, natural gas prices in Europe have declined sharply with prices on course to drop by as much as 15% this week alone. Prices have now crashed 90% since the August 2022 record-high of over $322 (300 euros) per MWh with weak industrial demand and high inventories for this time of the year the main reasons.
In contrast, oil and coal prices remain well above their 5-year averages. With OPEC+ willing to go to great lengths to keep prices high and U.S. shale drillers unwilling or unable to rapidly ramp-up production, oil markets are likely to remain relatively tight at least in the medium term.
>>> Hedge Funds’ Ultra-Bearish Oil Bets Signal US Recession Angst
Non-commercial positions are near most bearish since 2011
By Devika Krishna Kumar and Chunzi Xu
May 20, 2023 at 9:00 AM EDT
Money managers that trade derivatives linked to oil and fuel prices are about as bearish as they’ve been in more than a decade, suggesting they’re braced for a recession that could cause contracts from crude to jet fuel to take another tumble.
The trading positions of non-commercial players such as hedge funds are near the most bearish levels since at least 2011 across a combination of all major oil contracts. And in bets that are perhaps most indicative of recession expectations, speculators’ combined views on diesel and gasoil — fuels that power the economy — are near the most bearish levels since early in the Covid-19 pandemic.
The gloom over the oil market this year has come from multiple directions, including expectations that the Federal Reserve’s rate hikes will provoke a contraction and China’s less-than-booming rebound from its Covid-19 restrictions. Add in the threat of a US default if politicians fail to raise the debt ceiling and the possibility that OPEC+ may not deliver all the output cuts they’ve pledged, and traders have no shortage of bear scenarios to choose from.
“It’s pretty remarkable to see this type of positioning,” Greg Sharenow, who manages a portfolio focused on energy and commodities at Pacific Investment Management Co., said in an interview...
Enbridge - >>> Buffett has loaded up Berkshire's portfolio on some oil stocks, but there aren't any midstream energy companies in the mix. His secret portfolio, though, is a different story. NEAM owns a tiny stake in midstream leader Enbridge (ENB).
That small position won't move the needle much at all for NEAM and certainly not for Berkshire. However, buying shares of Enbridge could potentially pay off for income investors. With a dividend yield of 6.73%, every $10,000 invested in the stock would make $673 in annual income.
Enbridge's dividend is arguably one of the safest in the energy sector. The company has increased its dividend for 28 consecutive years. Its cash flow also doesn't hinge on volatile oil prices. Nearly all (98%) of Enbridge's cash flow is either based on a cost-of-service model or contracted.
The stock could be ready for a big upswing this year. Enbridge is rapidly expanding into renewable energy, with several new projects in progress.
TC Energy - >>> TC Energy is one of the largest natural gas pipeline companies in North America. It has almost 58,000 miles of pipelines across the U.S., Mexico, and its home country, Canada. Its network delivers 25% of the continent's gas demand. The company also has a large liquids pipeline operation that moves Canadian oil to markets in the U.S. In addition, it has a power and storage business that includes a large-scale nuclear power plant in Canada.
TC Energy has an enormous backlog of expansion projects under construction to increase its natural gas pipeline operations and extend the life of its nuclear power plant. That should give it the means to continue increasing its dividend. TC Energy delivered its 21st consecutive annual dividend raise in 2021 and expects to increase it at a 3% to 5% annual rate in the future.
Enbridge - >>> Enbridge operates one of the biggest oil pipeline systems in the world. It transports 30% of the oil produced in North America. Enbridge also has an extensive natural gas pipeline system, a natural gas utility business, and renewable energy operations.
Enbridge’s pipeline operations generate stable cash flow backed by long-term contracts and government-regulated rates. That gives it the cash to pay a high-yield dividend while also investing to expand its energy infrastructure operations.
Enbridge has made significant investments in recent years on infrastructure geared toward cleaner energy. This includes natural gas pipelines, offshore wind energy in Europe, and hydrogen energy. These investments position Enbridge for the future of energy even as it remains vital to supporting the oil market’s current needs.
Chevron (CVX) - >>> Chevron is a leading global energy company. It boasts a globally integrated oil and gas business that includes exploration and production assets, refining capabilities, and a chemicals business. The company’s large scale and integrated operations help it weather the volatility in the energy sector.
Chevron uses the cash flows generated from its legacy oil and gas operations to pay a growing dividend, repurchase shares, and invest in the future. Chevron increased its dividend for the 35th straight year in 2022, which means it more than qualifies as a Dividend Aristocrat. It also plans to buy back between $5 billion and $15 billion of its stock each year.
Part of Chevron’s investment in the future is on reducing its carbon emissions. The company is investing in carbon capture and storage technology and green hydrogen. In addition, it acquired Renewable Energy Group in 2022 for $3.15 billion. The deal will accelerate Chevron’s ability to achieve its goal of expanding its renewable fuels production capacity to 100,000 barrels per day by 2030.
Overall, Chevron aims to supply the fuels for today’s economy while building toward the lower-carbon fuels it requires in the future. The balance makes it an ideal choice for investors seeking a way to invest in the energy transition from fossil fuels to cleaner alternatives.
>>> Saudi Arabia Is Open To Discuss Non-Dollar Oil Trade Settlements
By Charles Kennedy
Jan 17, 2023
Saudi Arabia, the world’s largest crude oil exporter, is open to discussing oil trade settlements in currencies other than the U.S. dollar.
Saudi Minister of Finance Al-Jadaan: “I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world,”.
During a visit to Saudi Arabia last month, Xi Jinping pledged to ramp up efforts to promote the use of the yuan in energy deals.
Saudi Arabia, the world’s largest crude oil exporter, is open to discussing oil trade settlements in currencies other than the U.S. dollar, Saudi Minister of Finance, Mohammed Al-Jadaan, told Bloomberg TV in an interview in Davos on Tuesday.
The Saudi signal that it could be open to talks about oil trade arranged in non-dollar currencies could be another threat to the current dominance of the U.S. dollar in global oil trade.
“There are no issues with discussing how we settle our trade arrangements, whether it is in the US dollar, whether it is the euro, whether it is the Saudi riyal,” Al-Jadaan told Bloomberg TV.
“I don’t think we are waving away or ruling out any discussion that will help improve the trade around the world,” the Saudi minister added.
The Saudi riyal has been pegged to the U.S. dollar for decades, while the Saudi oil exports continue to support the petrodollar system from the 1970s in which the world’s top oil exporter prices its crude in U.S. dollars.
However, Saudi Arabia is willing to deepen its strategic cooperation in oil trade with China, the world’s largest crude oil importer.
Last month, China and Saudi Arabia agreed to expand crude oil trade as they upgraded their relations to a strategic partnership during the visit of Chinese President Xi Jinping in the Saudi capital Riyadh.
China, for its part, plans to make its own currency, the yuan, more prominent in international oil trade.
During a visit to Saudi Arabia last month, Xi Jinping pledged to ramp up efforts to promote the use of the yuan in energy deals, suggesting at a summit in the Saudi capital that the Gulf Cooperation Council (GCC) countries should make full use of the Shanghai Petroleum and Natural Gas Exchange to carry out its trade settlements in yuan.
By Charles Kennedy for Oilprice.com
>>> Valaris Limited (VAL) provides offshore contract drilling services to the international oil and gas industry. The company owns an offshore drilling rig fleet of 56 rigs, which include 11 drillships, 4 dynamically positioned semisubmersible rigs, 1 moored semisubmersible rig, and 40 jackup rigs. It serves international, government-owned, and independent oil and gas companies in the Gulf of Mexico, the North Sea, the Middle East, West Africa, Australia, and Southeast Asia. The company was incorporated in 2009 and is based in Hamilton, Bermuda.