Yet, enormous environmental, social and governance, or ESG, pressures on companies to decarbonize, combined with investors’ demand for oil companies to return capital back to them rather than use it for drilling, suggests that meaningful supply growth going forward is massively challenged. And it comes at a time when OPEC is set to exhaust its spare capacity in the next year.
Years of oil trading well below the fiscal break-even levels of the world’s major oil producing nations forced them to underinvest in new productive capacity, allowing for the prioritization of social spending so as to not violate the social contract with their populace and risk regime change. The result? The likely exhaustion of all of OPEC’s spare capacity by the end of 2022.Article content
Quarterly, variable dividends all but ensure that “discipline is the new normal,” lest a CEO willingly risk being fired from their $10+-million per-day job by trying to take away a highly attractive 12 per cent-plus new source of income from investors. So how can one maximize the profit potential from what should be a minimum four to six-year bull cycle, and how much upside potential remains in energy stocks?
I’m most excited about smaller Canadian oil companies given their depressed valuations, with those that I follow trading at an average enterprise value to cashflow multiple of only 2.9 times, compared to a historical level of seven to nine times.Article content
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