Gamehost Inc T.GH

I'd like your opinion on the following scenario

[Thelongview]

I'm interested in your opinion on the price of oil over the next 20+ years. The very long term: 20 - 30 years and even longer.

What would you guess the probability that oil remains "permanently" high over many decades (with the exception for the years during the odd recession) based on the scenario that is outlined below. I'll define high as being $80 or more for WTI.

First know these facts:
1) 40% of oil use is from every day, non transportation living and therefore demand is based on population size. Population will grow by 2 billion people (United Nations estimate) over next 25 years. The bulk of the population growth will be from poor countries and not using oil currently (or very little).

2) 60% of oil use is transportation related but will take anywhere from 1 to 2 decades to make a dent in oil demand depending on whether it is for cars or trucks or airplanes and then demand will come down slowly once it reaches the tipping point. Currently there are 1.2 - 1.3 billion internal combustion cars to displace and this will take time to be replaced by electric vehicles. Also, there must be enough fueling stations to service billions of EV's. This takes time - decades.

A possible scenario I see and the one I ask your probability estimate of occuring is the following:
Oil companies know that oil demand will eventually fall and don't want to increase production in any meaningful way (I'm not talking about the current oil situation or the one over the next few years. I'm talking the very long-term of 20+ years) and cause an oil glut. No country or company wants to oversupply the market if you are constantly told your "demise is coming".

Oil companies, as a result of being flush with cash start to buy other oil companies (while also paying dividends and buying back stock) as they see this as a good use of funds, due to oil stocks being very cheap as a result of people not wanting to be associated with fossil fuels in any meaningful way and not bidding up oil stock prices. Some investors want to own these stocks but the average person does not want to be associated with them and be stigmatized.

Over time, these merger and acquisitions will lead to fewer oil companies remaining and those surviving companies will be much larger and have lower break even prices (although those break even prices will slowly rise as demand continues to fall). These fewer but larger oil companies lower production levels to take into account reduced demand and to maintain a high $80 oil price. Even though they sell less oil, their lower break even prices (relative to pre M&A) and high oil selling price of $80 results in increased profitability.

Over time M&A really picks up and it is now M&A mania resulting in a very small number of oil companies remaining but highly profitable ones These remaining companies start to buy back their stock as there are few takeover targets remaining and so even if profitability starts to fall (due to less oil being sold and incresing break even prices), it increases on a per share basis. If companies don't buy back their stock then astronomical dividends are paid to shareholders.

What would you estimate the chances of this happening?

Ignore any possibility of diversification in the above scenario.

I would be interested in hearing any comments you may have.

I'll be tuning back on Monday.

[nukester]

My $0.02 Some additional items to consider: 1. Dollar Destruction (Inflation) 2. Marginal cost of production. 3. Peak supply 4. Oil returned for oil invested in oil production. Looking back historically oil prices tend to correlate fairly well with global GDP. Correlate as in 0.8 ish.  Not really rocket science, oil is a primary input to all economies.  This relationship has existed

[Thelongview]

Nukester, I appreciate your time and thought process. I agree with your reasoning and your conclusions.  My own thought process is that I feel, but can't prove as only time will tell, is that oil consumption in the developing world will increase for a longer period of time but nobody really knows the future. What I'm trying to figure out is if there will be a massive consolidation

[nukester]

TheLongView, I admire your attempts to look further then the crowd into future M&A in the fossil fuel sector.  Seems a bit like forecasting climate change from my limited point of view, lots of moving pieces, and very few people objectively seeking truth.  I hope you are well rewarded for your efforts.  I very much enjoy the topic, but I have little experience in divining M&

[Thelongview]

Thank you again Nukester for taking the time to express your views. I really enjoyed reading about how you came to invest in oil. I totally agree with you that oil and gas stocks are still very cheap. It is true that you don't need to know the end game for oil to make money but it's a subject I'm interested in. How an industry will look 20 - 30 years down the road fascinate me. 

[malx1]

Case for $80 oil post-covid   Could discuss oil and natural gas for hours with this group. Won't make me any more accurate. We are roping wild mustangs. Here's the thing. We can make assumptions about the future price of these Finite fuel sources until TheBridge's cows come home. Life ALWAYS seems to get in the way. This sector goes through gluts and

[Thelongview]

Thank you for you contribution Malx1. It is a well though out position. I am sure all of the board appreciates your contribution.

[malx1]

It's more off the cuff. We can be reasonable and logical but we know stock markets and commodity markets don't cooperate with our views. You are on the right track with everything. $80 oil base case works. Canada just became a much more important trading partner with US after European conflict. We are out of the penalty box.  Ready to tap-in some rebounds.

[Thelongview]

I have this funny story to share and I just remembered it because I put AAPL in my previous post. This goes back to the year 1999 or 2000. I looked at Apple stock. The company was down and out at the time and it looked like it could go under. My recollection is that it was trading for about $10 a share. It had a net cash position of about $7.50 per share (at least that is my recollection of it

[malx1]

Don't feel bad. I had some BTE from RRX merger.  During pandemic I exited at very low price.  Too afraid of their debt levels combined with extended economic lockdowns. I'm not as brave as Nukester!! I'm a field mouse! The rest is history. Risk tolerance.  We learn what we can tolerate during the worst of times. At least with GH I only have to worry about Kasking

[nukester]

Malx calling me brave reminded me of the old story about the Fire truck that responded to a 5 alarm blaze.   According to eyewitness accounts, it was the biggest fire the city had ever seen. The flames were visible for miles, every available pumper and ladder crew in the city was on scene, more assets were en route from within the county, but communications had been lost between the various

[cpeczek]

pre-ipod I think you made the most sensible move. Could have went belly up and valuations at that time were insane on tech stocks.

[cpeczek]

Since oil prices are largely controlled by artificial supply constraints through OPEC coordinating their pricing there is a lot of geopolitical issues that could emerge and lower the price of oil.  Right now there is 3 large oil producers under severe Western sanctions: Russia, Iran and Venezuela. If the three were to thaw relations with the West it could lead to a huge new supply of oil on

[Thelongview]

Cpeczek, thank you for taking the time to express your views. I appreciate it. When trying to get to the "truth" its best to consider a large number of opinions as everybody has a different angle from which they view a subject. Views are not only formed by facts but by emotional factors as we all have a certain bias. In seeking the "truth" or "accurate view" it's

[cpeczek]

The way I interpreted your initial question is "is it an absolute given that oil prices will remain elevated for the next 20 years?" In which case I would say no, because a few authoritarian states control the price of oil by limiting supply and as we have seen with Russia lately often act outside their best economic interest for ideological reasons.  I think everyone here agrees

[Thelongview]

Thanks again for the additional input Cpeczek. It is appreciated. I agree that SU and CNQ will likely remain standing. I started buying into the sector just before I started buying GH. In fact it was my study of the oil and gas industry that led me to buy GH. I settled on 4 Canadian players and each one for a specific reason: ARX, CPG, MEG, SU. I know everybody hates SU because of all of the

[Thelongview]

I should clarify my last statement shown below: While the whole world agrees we will reach peak demand at some point - I've seen estimates of 2025 - 2035 - my view is that the supply side will dictate the price of oil and not the demand side and the whole industry has a vested interest in keeping supply limited. I would expect fewer players but more profitable players.  My

[malx1]

Fear of peak demand coupled will be the cause of peak supply. I will join in on this discussion tomorrow. 

[Thelongview]

Really looking forward to you chiming in on the subject!