Quote:
Originally Posted by bomber317
I would suggest not investing into O&G long term.
yes, all signs might point to oversold however the overall global sentiment is big shift away from O&G.
Institutional funds are now having mandates to not invest in O&G. Just overall less money into the sector.
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I have been underweight oil and gas for a long time, because of living in Calgary. However, mandates to not invest in O&G will make the returns better in the industry (and maybe a lot better) in the long run.
There have been two primary issues
1) commodity prices have been in a decade long bear market.
2) consistent funding of marginal projects plus cost over runs has meant business results have been mediocre
Too much drilling with cheap capital (mostly in the US) is the biggest cause of number 1.
So if institutional capital stops flowing into the space, and retail speculative capital is more interested in crypto/tech/weed/gold, there won't be much if any new capital for the industry.
That should mean less new supply, helping prices. But it will also drive down costs across the industry (land, services, etc) and mean that only actually profitable projects get green-lit. Both would be a big help.
The comparison to tobacco someone made above is apt. People will keep using oil and gas for a long time, so if valuations are low and future projects are profitable, that has the potential to cause strong long term returns.
The big oil companies probably have reasonable 5 year returns from here - they probably arent the next Apple, but they aren't the next GoPro either. And at its current valuation I'm definitely skeptical that Apple is the next apple - they need to find a pretty big market to justify that valuation with growth.