Tread Lightly In December’s Energy Markets

Lots of energy activity recently would look like opportunities anytime else during the year. But I warned you all in my last column about the trials of December investing – tax-loss selling, hedge fund managers looking to lock in profits, volatility without reason – and despite some weird action in some stocks that defy explanation, I’d still exercise caution instead of enthusiasm.

One example is Centennial Resources (CDEV), a long-term favorite, dropping from $21 to $19 on nothing that I can see – except a likely desire to book a big energy winner where there have been so few in 2017. If it were any other time of the year, I’d say this is a great opportunity to grab more. But in December, I always advise small moves and caution. (for myself, too). Don’t destroy the good work we’ve done in the last 4 months with a panicked move in the last 2 weeks of the year. You can take a little profit – sure. You can add a little to a position on a down tick. But no, don’t make a big move, either in putting massive capital to work, or taking enormous capital out. Not in December.

Tellurian (TELL) was another idea I floated several columns back – an alternative to look at besides Cheniere (LNG) to take advantage of LNG – one of the only natural gas opportunities I see in the next year. Obviously, I had no idea they were about to launch a secondary this week, which drops their share price, but also raises some questions I didn’t have two weeks ago. Tellurian is run by Charif Souki, the original leader of Cheniere. Souki doesn’t have an oil background, and his success with Cheniere was considered a lucky stroke by most in the energy world. I didn’t agree with that entirely, but I agree he has a tendency towards an aggressive, overleveraged posture that got him thrown out at Cheniere by their board. He’s clearly doing the same at Tellurian, as he has gone deep in debt acquiring his own NG source in the Haynesville and inking the Driftwood construction plan with Bechtel. Now, Souki is scouring the globe for a few LNG buyers/capital partners who’ll help fund their massive plans and take long-term contracts for LNG at fantastic discounts as their incentive for coming in. So far, I don’t think they’ve had any takers. But the structure made a lot of sense to me and I thought that there’d be dozens of (Japanese/Chinese) players with cash who’d jump at this.

The secondary offering however gives me momentary pause. It was probably necessary at some point anyway, but the timing is a bit frightening, and MAY inform Souki’s recent (lack of?) success in finding partner financing.

You could make a case for anything – buy, sell, hold. But if you didn’t buy TELL two weeks ago, I wouldn’t rush in today. If you did, I could make a case for both adding to the position or just calling it bad luck in a spec (it happens) and taking the hit and getting out. Even with a lot more work, I’ll likely not be sure what the right answer here is. But I know it’s December – so it’s probably worth waiting.

One last big energy story of the week was the $450m sale of the da Vinci Salvador Mundi.

Huh? How is that an energy story?

Well, the buyer was discovered to be our friend MbS – Mohammed bin Salman, the Crown Prince of Saudi Arabia. This, along with the Saudi decision to open up commercial movie theaters in the Kingdom for the first time in 35 years is the continuing energy story of the next several years: The fast motion of Saudi Arabia towards the West. And what will ultimately finance that fast motion away from Wahhabism and the fundamental Islamists? That’s right – a VERY high price for oil.

By Dan Dicker