I feel like Bush 41, advising to ‘stay the course’ as the oil markets continue to roil. We’re on the right track, identifying and investing in independent U.S. exploration and production companies for the long haul in our first phase of this recovery from the “great oil bust II”.
I’ve been fairly surprised myself at how spookily prescient I turned out to be in my book “Shale Boom, Shale Bust”, written almost a year ago. The progression of oil prices and the concurrent changes happening to U.S. oil producers have followed the script almost perfectly. We isolated several scarily overleveraged oil companies back in the spring of 2015 that we thought were in danger of not making it to the next oil boom and we’ve seen many of these names indeed declare Chapter 11 – the latest being Halcon Resources (HK), but including Goodrich Petroleum, Linn Energy, Ultra Petroleum and Penn Virginia.
We also isolated those independent E+P’s that had solid acreage that wasn’t being overexploited and balance sheets that could stand a long term of oil prices that remained under $50 a barrel. In being diligent on accumulating these, even as oil prices swooned below $30 a barrel, we’ve accumulated a core holding of oil companies that are destined to return terrific gains over the next several years; names like EOG Resources (EOG), Cimarex Energy (XEC), Hess (HES) and Anadarko Energy (APC).
The next stage…