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Major producer troubles create perfect storm for higher oil prices, says top RBC analyst - YouTube
Channel: CNBC Television
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one top analyst sees major producer
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troubles driving oil prices even higher
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scott hanold is rbc's managing director
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of exploration and production research
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tip ranks the scott is one of the top
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three most accurate analysts got some
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smaller cat picks for us here and by the
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way rbc had a conference i was at a
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conference today it was their conference
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and yesterday you had former opec
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secretary general speak with our friend
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lee mccroft and muhammad barkindo said
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something that caught my eye i mean he
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he looked glum in terms of he said
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there's no spare capacity maybe a couple
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million barrels globally which sounds
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like a lot but it's not he seemed
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more serious than i've seen him in more
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than 10 years and i've known him for 10
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years what's your macro takeaway from
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that and your confidence generally yeah
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i mean you you said that surprised you
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and i'll tell you what it surprised all
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of us it surprised the investors there
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and it surprised the corporates we had
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you know roughly 100 corporate execs
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from big energy companies they were all
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shocked at what he said and and look
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i'll tell you this is that i think it's
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you know to the point that you made
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investors i think now are going to have
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to start believing higher oil prices are
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are here to stay at least for you know
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some duration um when we look at the
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macro big picture is that u.s
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exploration production companies are not
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ramping up production and not because
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they don't want to there's logistical
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supply train chain constraints out there
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they're real they're in the energy patch
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and you couple that with service cost
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increase
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nobody's running out there and trying to
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get too active right now and they can't
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if they wanted to so you know any kind
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of material growth i mean we're looking
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at you know maybe the back half of 23 at
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this point so we think fundamentals you
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know warrant 100 oil for a while and and
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to guy's point and answer sort of guy's
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sort of question that he that he posed
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let's say oil falls let's say oil goes
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back down to 100 bucks a barrel okay or
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stays at 120 for the next two years does
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that mean the stocks stay or fall or can
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the stocks like rocc california
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resources crc you like can they keep
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going up even if oil does not
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yeah and i think they can but i think it
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becomes a little bit more tactical at
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this point right if you look at the last
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nine to 12 months it's all been large
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cap leadership right the big names have
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been leading the charge and the small
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caps have been left behind so we do
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think when you look at free cash flow
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yields that are now reaching 25 30
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percent for the small cap group there
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could be a move to the small cap names
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and we like our occ ranger oil is as
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well as crc and the small cap group
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right now that look very very cheap
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so brian just said this that exxon mobil
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going back to mega caps here okay it
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literally has gained a hundred percent
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in the last year or really from last
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summer or so that's 200 billion dollars
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in market cap is right back at those
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2014 highs in 2014 the fed was doing the
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same thing they're doing right now
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they're trying to normalize interest
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rate policies so we had the dollar rally
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and that was the top in crude and we saw
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it come down and then we had plenty of
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growth scares throughout what's
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different this time well you know why is
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it because every recession as you just
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said has been preceded by a move like
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this in oil and i know we can come up
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with a million reasons what's going on
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in europe and china coming back along
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but i just don't see it happening too
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differently right now yeah and i'm
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probably the last person to ask is it
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could be different this time because i'm
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always like it's never different it's
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always the same but this time is
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different because if you go back
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historically
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oil and gas companies didn't make money
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they didn't make cash flow right you
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have high oil prices costs are high you
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spend a lot of money you burn cash that
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was going to say scott can i correct you
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they didn't not just make money they
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literally threw a pile of money into a
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fire threw gas on it lit it on fire not
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the large integrated that's not true i
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mean these are 10 years they burn
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through investor capital that's why
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right i mean nobody
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i was going to say something i should
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give zay something anymore i think some
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some of the larger more integrated
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companies globally we had better
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discipline not some of the smaller um
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the exploration production focused
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companies but now these these companies
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are producing a lot of free cash flow i
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mean it's it's it's almost ridiculous
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like when you talk about 25 to 30 free
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cash flow yield think about that you
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have 100 oil that means a company
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effectively you know can can give you
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the value of the entire company in four
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years
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back in just cash yeah but that's
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assuming that crude stays here and so
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again going back to why it's not
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different is that you know crude is
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literally gonna it's gonna make this
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move everyone's convinced it's going to
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150 so it's going to go to 150 and then
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it's going to crash the global economy
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and the demand is going to fall off and
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then it's going to come in and all these
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people piling into exxon mobil up 100 of
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the year the 450 billion dollar market
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cap at all-time highs are going to look
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back and be like oh my goodness that was
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the mother of all triple tops head and
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shoulders whatever you want i mean like
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it's just the way it's going to be i
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don't mean to sound so certain about it
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but i think piling into these names
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right now doesn't make a whole lot of
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sense talking about your oih and guy
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just talked about it slob hal baker make
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up about 50 of the weight of that look
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at a log chart over 20 years you see
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it's breaking out above that downtrend
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there's probably a case to be made there
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if there's going to be greater
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investment but i don't see it as far as
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the large integrators are concerned yeah
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it's a volatile sector and i'll give you
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there will be opportunities to step you
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know the companies will pull back that's
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when i think you got to step up but
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fundamentally there is storm still more
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value um you know i think that's that's
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a reality because in the prior spikes in
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price we had like when we saw 150 back
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in 2008 that was a spike and it came
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down pretty pretty quick after that
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right because the dance point i mean
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well housing contributed yeah subprime
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crisis
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but
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for the last four whatever recessions
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were preceded by higher energy costs so
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i think
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that's the worry how long does it stay
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high but we're looking at names like
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rocc and crc i think we got to be
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tactical we got to look at some smid
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caps that have been left behind um and
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those are where i'd want to put my uh
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next dollars good stuff scott anil rbc
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thanks for by the way thanks for having
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cbc your conference absolutely we
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appreciate it either next year just do
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it in like miami or
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[Laughter]
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boston or houston anyway all right let's
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trade this here i mean pete okay so i
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think to dan's point okay and dan can
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speak for himself but i think to his
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point
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it's that do we crack we're getting
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signs of weakness retailers whatever you
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know we did on worldwide exchange the
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other day the strategist point you get
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the rule of ten when mortgage rates and
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gas prices add up to more than ten it
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tends to proceed or maybe cause a
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recession we're there now five on
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mortgages five plus on on gas are you
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worried that this will cause or crash or
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slow down
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in the us and global economies
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absolutely i i think that's got to be a
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concern how could it not be but you know
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the the one thing i'd like to point out
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to you guys when everybody wants to go
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to these other different areas whether
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it's the oih or whatever the xle or
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something i would always encourage you
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to look at the xop now
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the reason i say that is the the the
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exploration companies these have been
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absolutely ripping and it's not just
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something that just started guys if you
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look at the xop take a look at that
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chart you can put that up against any of
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the other energy charts and you're going
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to see a huge outperformance why is that
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because those are the beta names within
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energy those are the high two three four
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fives i mean it's absolutely crazy the
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diamondbacks of the world the
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accidentals of the world all of those so
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you know yeah i think you've got to also
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be very selective on where do you want
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to be and and you have to understand to
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dan's point at some point this will slow
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down or stop and then we'll see this all
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pull back you've got to be very very
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tactical and very smart and very
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disciplined because that day will come
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we have no idea when that day comes but
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i'll tell you what these names have
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absolutely been performing to almost
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perfection to the upside and as great as
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chevron's been as great as exxon's been
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take a look at some of those other names
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yeah well perfection is a tough word
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you
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