Talking Point #1: How much should we worry about the possibility of stalling or even falling production growth in North America for producers, drillers, midstream and downstream companies we own?
EG: Ironically, I think falling US production would be a huge positive for most of the upstream (producers) and services companies we recommend.
That’s because the cornerstone of the bear case for oil is that US oil production will continue to accelerate even with WTI in the $50/bbl range, overwhelming Saudi and OPEC-plus production cuts.
I believe the view the world faces a near-chronic oversupply of crude is the main reason why some of our favorites like Schlumberger (NYSE: SLB), WPX Energy (NYSE: WPX), Occidental Petroleum (NYSE: OXY) and Marathon Oil (NYSE: MRO) have continued to trade at depressed valuations despite growing evidence they’re in a position to see significant growth in free cash flow over the next few years. Investors have been slow to embrace changing narratives in the energy patch.
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Elliott and Roger on Feb. 27, 2020
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