If you’ve got a core energy stock portfolio like me, you’re mostly deployed right now, waiting for the continued re-balancing of the oil market that even the IEA now says will complete in 2018.
But, I never tire of trying to find further investments that come up opportunistically. This last week, I thought I perhaps saw one in Apache energy (APA).
Now, a few thoughts – first on the state of U.S. E+P’s in general and then on Apache specifically:
U.S. exploration and production companies have been following what I termed a ‘lemmings strategy’, following each other in lockstep as they walked down a self-destructive path over the last several years. First, as the oil bust began in 2014 and through most of 2015, they changed little in their practice, assuming a very fast turnaround in oil prices and spending at pre-2014 levels. All at once, E+P’s realized that perhaps the oil markets weren’t just taking a break from $100+ per barrel prices and there was a unison slamming on of the air brakes as E+P’s slashed their capex budgets for the following years – some dropping their capex as much as 70%.
This of course helped the top line of outgoing spending, but did little for the oil markets at large; production guidelines remained on track as if the oil bust was still a temporary vapor, about to dissipate at any moment. Indeed, almost all independent oil companies increased production guidance for 2016…