Short term trading leads to long term losses
Understanding how value is created would help energy investors get it right
Energy is fundamental to human progress. Energy is in short supply worldwide. Energy demand will grow as the third world industrializes. Fossil fuels are the only cheap and reliable source of energy for mankind’s needs. Climate change theories based on claims that CO2 causes catastrophic climate change are nonsense.
Accepting these immutable truths will help investors accumulate wealth. Denying them will punish investors.
Short term traders like to think they can time oil & gas markets. Some make money, most lose.
Value is created in oil & gas industries by building valuable reserves developed to point of qualifying as “proven or probable” based on independent reserve engineering reports requried in Canada under NI 53-101 securities laws and ignoring shareholders demands for decisions that affect short term trading prices (like buybacks, dividends that imperil balance sheet strength, or production increases in soft commodity markets).
A few companies get it right and have created many millionaires. Exxon (XOM) is a great example over the past four decades.
Canadian Natural Resources (CNQ) is another, this time Canadian. Now Canada’s largest oil & gas company, long term investors have earned a staggering 413,444% on their investment since the company went public in May 1976.
If your goal is to accumulate wealth rather than make a few bucks on a trade and brag about it at cocktail parties while not admitting your losses, you buy well-managed energy companies with long reserves when they are out of favor (that is, when commodity prices are low and short term investors are running for cover) and keep those holdings for long periods.
Some management teams just don’t get it. Many investors just don’t get it. I have little sympathy for either.
Today, natural gas is out of favor since the price of gas is local (not really a world commodity owing to transportation constraints) and El Nino brought us a warm winter in 2023. Serious money can be made over the long term by owning the companies with long reserves that are, for the time being, undervalued. Most natural gas stocks fill the bill. The companies that I see as having the most potential (not the greatest gains short term but the best risk/reward profile for the next few decades) are:
Tourmaline Oil - the Canadian leader of “pure gas” companies
Chesapeake Energy - the legacy of Aubrey McLenden’s visionary investments
Birchcliff Energy - unhedged with deep reserves
There are a lot of other names, large and small, that will benefit in the long term from growing worldwide demand for natural gas. You don’t need to own them all, just choose wisely. Peyto, Crew, Bonterra Energy, Advantage, NuVista, ARC Resources, and EQT are among the better names.
For oil & gas in total, it is hard to see fault in Exxon, CNQ, Suncor, or Cenovus despite their recent run up in share prices. All are well-run, have long reserves, and benefit from competent management.
Hold 6 out of 13. Will revisit the list. Much appreciated. No pure midstream names here…. Are you averse to them?
I would add Total to the list. I hold long term positions in Exxon, CNQ, Birchcliff, and Chesapeake as well. Equinor is another I hold, largest gas supplier to Europe, but they have stumbled over wind projects in the USA. So I would be less inclined to recommend them as their renewable focus is a drain on an otherwise profitable O&G business.