|March 8, 2022|
Interesting Cross Roads Oil & Gas
Everything you read about oil and gas and international events is just plain wrong. At the same time, it can take quite a while before the reality of what is happening plays itself out in the world’s financial markets. Germany as an example allowed itself to become completely dependent upon the importation of energy from a Russian dictatorship. It now finds itself in a position of being a slave to the Russian leadership. They closed down every nuclear reactor in Germany in deference to the German people who thought they wanted clean energy.
We have been to Germany. We have seen thousands upon thousands of wind turbines decorating the countryside and territories surrounding the world-famous Autobahn Highway system, the predecessor to our own fabulous Eisenhower Interstate Highway System. The intellectuals in Germany and the US made it politically incorrect to use fossil fuels. Now they also pay the price for the error of their ways, and who shall suffer but the middle class for buying into it.
These are the successor intellectuals of those in the 1930s who preached disarmament in England, France, and the United States and did so successfully, while Hitler and Germany rearmed to the teeth and then led successful unopposed invasions into Czechoslovakia, the Rhineland, and Poland. It took fifty million lives throughout the world to stop that kind of appeasement.
Now we are faced with more stupidity from those who preach the abandonment of fossil fuels and the massive deployment of solar, and wind energy sources. We are decades away from that kind of thinking being actualized but the intellectuals haven’t thought it through. Even Elon Musk who is the world’s foremost proponent of electric cars preached this week going full blast with the introduction of safe nuclear energy via modern reactors to bridge the gap between now and 40 years from now when solar and wind will be more effective or maybe the dream of every physicist, FUSION power will come into economic being.
It takes throughout history about 4 decades to make a massive power conversion from one source to another. One of the big stumbling blocks is the fact that you have installed right now about $10 trillion worth of power generators and a grid that relies upon fossil fuels. Unfortunately, we have a President who is not listening to the right people that can think this through with him. And so we have ourselves sitting right at the edges of a shooting war between Putin and the brave people of Ukraine. All the intellectuals thought it would never happen.
Now having laid this out for you, our responsibility to you is how do we make money off the environment, we are in. Here’s how in a nutshell. Somebody who isn’t braindead is going to have to realize that the pipeline furnishing gas from Russia to Germany is 100% totally unreliable from this point into the future forevermore. At any time it can be turned off at either end. At any time, it can be destroyed by terrorism or either side of the pipeline. It runs through Ukraine by the way, a squad of soldiers could destroy it.
We thought about this years ago when bin Laden was alive. Why didn’t he attack the Saudi pipelines? He would put all of us on gas lines in the United States. He never did. He did not want to escalate the war on terrorism to that extent. Even bin Laden had his limits. The same applies to the German – Russian Gas pipelines.
So the Germans thought they could satisfy their energy needs by wind, solar, and a geopolitically motivated pipeline, and now they stupid grins all over their faces. What’s going to happen is that our country is right now flooded with natural gas and it costs less than 20% of what the Germans are paying for their natural gas to Russia. The Germans are going to have to basically disengage from that Russian pipeline over whatever period of time and move towards American natural gas and creating nuclear reactors all over again. If not, they will become economic slaves to the Russians and the world just changed forever, so that’s not going to happen.
Russia has just changed the map of the entire world in ways that will prove to be fantastic for America the Superpower. Russia has united the free world behind America and NATO. No single American could have done this better than what has happened. It will prove to be a gift. Trump desperately wanted NATO to dramatically increase its defense budget. Trump did not and could not get it done. Russia got it done for him, an unintended consequence of being at war with Ukraine.
What we have to do now as investors get more involved with natural gas stocks. They are going to have stock market runs that will go on for perhaps years. They certainly don’t seem to be able to go down in value with what is looming in front of us. We already own one such stock on our list.
Antero Resources (symbol AR)
We recommended at $17.22 a short while ago, now selling at $26.05. What a quick run and guess what, it’s going higher. Natural Gas is going higher. American natural gas is going higher. How can Germany pay 5 times for natural gas compared to what we pay for it, and natural gas in this country not go higher? We are going to flood Germany and Europe with natural gas, it’s that simple and gas companies are going to make a killing.
Antero Resources (AR) benefits from its position as the country’s second-largest producer of natural gas liquids like propane and butane, whose prices have risen sharply in the past year.
In addition to its leverage to U.S. gas-price strength, the NGLs are a unique earnings driver for Antero. They have a 25% projected free-cash-flow yield this year, one of the highest in the sector. The company is 50% hedged on its gas for this year and a little for 2023. We still rate it a buy think it is still going to run from here.
EQT whose symbol is EQT.
EQT shares have underperformed because the company hedged the bulk of its 2021 output and 65% of its 2022 output at well below current prices. The good news is that it is just 40% hedged for 2023. The shares at about $25 have a projected free-cash-flow yield of nearly 20% this year and over 25% in 2023. It recently began a 50-cent annual dividend for a 2% yield.
This shouldn’t trade [at $25] with a 25% free-cash-flow yield with an improving balance sheet and bad hedges rolling off in 2023, the stock could trade at $35 right now and therefore, it should be heading there very quickly as investors notice. Next idea is
Tourmaline Oil (TRMLF)
Despite its name, Tourmaline Oil (TRMLF) is the largest natural-gas producer in Canada. The U.S.-listed shares trade around $40 and carry a yield of 4% between the base and special dividend. The company has low debt and expects over $2 billion of free cash flow this year. It is a top pick of some of the smartest natural gas players in the country. We have a price target that equates to about $60 on U.S. shares.
Even with the recent rally, U.S. gas is just a quarter of the cost of oil on an energy-equivalent basis. With global demand poised to grow, investors should tap into the sector.
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