In investing, there’s a patience factor that can’t be overstressed. We showed that kind of patience in the Spring of this year, as we loaded up on solid US independent E+P players like EOG Resources (EOG), Cimarex (XEC), Anadarko (APC), Hess (HES) and Continental (CLR) – all of which have paid fantastic dividends.
But there is a moment, even as we’re counting winners, where we have to find the right moments to add to winning positions and even cut back on them, waiting for another value moment. I believe we’ve reached such a moment now. As I look over the entire energy sector today, I find an increasing enthusiasm that is representing itself in oil stocks – an enthusiasm that was lacking when we originally bought stocks in April and May, but is telling me currently to wait – or even find other sub-sectors to focus on.
This week at the Asia-Pacific Petroleum conference, all but one of the 15 senior traders polled expected oil to remain between $40 and $60 for the next twelve months. They pointed out the increase in supply from Iran and Iraq as forces keeping prices low, but in my mind the most important point has been the very unexpected resilience of US independent oil producers to adjust to low prices. This has been the most surprising to me, as US producers have managed to continually retain financing in cash negative conditions for so long and even in many cases to produce oil while in bankruptcy.
The hopes for…