|AS OF JANUARY 27, 2020|
|Pulse Oil||TSX-V: PUL|
Producers who structured financing or other aspects of their business on the expectation of 2008-2014 era high prices are vulnerable under a set of conditions which “threaten the profitability and in some cases even the survival of O&G companies”.
Capital Binge Hangover
Oil and Gas attracted a breathtaking $850 Billion capital flow between 2009 and 2013 accounting for 27% of all new capital in this period. Output grew; prices collapsed and lots of that capital investment vaporized. “The market shaved $1.6 Trillion from the sectors market capitalization in the last six months of 2014.” Investors hate losing money and always over react with excessive pessimism. That’s right now. (online source – Following the Capital Trail in Oil and Gas John England, Gregory Bean and Anshu Mittal – April, 2015 Deloitte University Press)
Where Does Pulse Fit In?
The big guys realize the capital binge hangover is creating new acquisition opportunities, but they are focused on material acquisitions – floundering juniors are of no interest to these guys. Pulse recognizes a window of opportunity that will last a few years to acquire smaller scale assets at financially distressed prices. Once acquired, Pulse is confident it can create value quickly; lower costs and a lead time measured in months (not years) means Pulse can be in the pipeline, snapping up market share before the majors can get a plan out of the boardroom.
“The Oil Paradox” (Nobody likes oil. Everybody likes money.)
In popular imagination “combustion is on the way out”. But as any parking lot will tell you, time lines for significant consumption decline are decades away – not years. Reality check is that fossil fuels are the worlds #1 energy source and demand continues to climb.
That said, producers (and their investors) with hugely capitalized mega projects that need either high prices or a really long payback have got to be at least worried about renewables beginning to nibble at global demand .
But in the short term, oil and gas producers who can operate efficiently will continue to play a critical role in our world’s energy picture – and continue to generate healthy profits. At Pulse we believe a more pragmatic approach to the Renewable Blues is to lessen the dependence on the “dirtier hydrocarbons – coal and heavy oil” and increase our dependence on the “cleaner hydrocarbons – light oil and natural gas”. We can reduce our GHG emissions drastically, in a planned conversion that is actually possible – without turning off the taps. Let’s lower our global GHG impact quickly, buy some time, so that in decades to come, perhaps a more viable energy conversion can occur in our world.
In the current moment big oil majors face a good sized headwind of woes that makes them less than a sweet spot for new investment capital –impacting the viability/timing of pricey new mega supplies. Nobody likes big oil. But the world loves oil. Demand for oil and gas keeps rising. Eventually current trends will flip the price cycle – guaranteed. Another crazy profitable period
Investors know that today’s troubled Oil and Gas is for some an opportunity. The question is – how to best take advantage of it? Drew and Garth are the perfect guides through the jungles of outlier energy and resources investment. They’re the guys who’ve done it already – build an agile mid sized new oil production machine and captured the value of it at the right moment. They have experience and a proven method. They have the evaluation skills. They have the management savvy. That’s why the small, safely located –profitable right now – producers being acquired by Drew and Garth are going to make even more money from the combination of potentially higher prices and the proven track record Drew and Garth have of extracting value from neglected assets. Plus they’ll be ripe for acquisition by majors when the winds of price and capital flow flip. Where else would you want your money to be in today’s oil market?