MEG: Great ExpectationsAs I read some of the posts here, I wonder just what some people are expecting for a rate of return.
Like 1000% in 2 years is not good enough? Nice, but there is a lot more room to run.
Compare MEG to most other companies in the stock market. Here is a company, almost debt free, with decades of reserves, requiring only ongoing maintenance capital to operate, that has stated they will soon return 100% of cash flow to investors through buybacks, and dividends. All this at the basement bargain price of about 3.5x FCF, with the current sub $100 oil price reprieve due to recession fears.
In terms of the longer term oil outlook, the US has only about 68 Billion bbls of proven oil reserves remaining. They are currently producing oil at the rate of about 16 million bpd, including gas condensates. Simple math says they can sustain this rate for only 11.5 years. Even if they were to magically transition to a low carbon fuel economy in this short time, their demand for petroleum that goes into everything else will exceed their supply by a wide margin.
The world will becomes polarized and countries will be forced to pick sides due to Chinese and Russian aggression. It will become an East vs West scramble for energy. US oil shale is now flat, and is starting it's final terminal decline with higher well costs, supply problems, inflation, the exhaustion of first tier deposits, all aggravated by permitting restrictions and a high risk of capital investment loss in this poor energy policy environment.
The US relies on imports anyway, as WTI is too light and sweet to use for their existing refinery feedstock in the quantities they produce, so it is exported. WTI exports will decline, causing other regions to compete and drive up oil prices worldwide by sourcing oil elsewhere. Emerging market and non OECD countries oil demand will increase, eliminating savings made by driving EVs, of which is only 12% of the entire light duty vehicle segment is only 12% of oil consumption.
ICE vehicle use will peak around 2038 led by non OECD countries, and by 2050, we will have another BILLION vehicles on the roads.
The nearest available reliable source of oil for the US is Canada, and as global oil prices rise as supply drops, their focus will turn north. The share values of companies with decades of reserves like MEG will rise due to this massive valuation dislocaton, and be rerated. Their stocks will rise relevant to their new critical role as America's new continental SPR.
Until then, let them drain the SPR, let them try to save themselves with an energy transition.
I'm long MEG holding 100,000 shares, among many other Canadian oils. I can wait and watch as this plays out.