Warren Buffett Bets Big as Canada Abandons Capitalism

This post Warren Buffett Bets Big as Canada Abandons Capitalism appeared first on Daily Reckoning.

In a shocking turn of events, the Canadian Province of Alberta abandoned free market capitalism in December of 2018.

This was a story we were on top of as events unfolded.

Following the lead of dictators and oppressive regimes around the world, Alberta announced the enactment of mandatory production cuts for large oil producers operating in the province.

Keep in mind that Alberta is the Canadian equivalent to Texas. Cowboy hats and pickup trucks are everywhere. And Albertans don’t like the government sticking its nose in their business.

The most conservative of all people can be found in the Alberta oil patch. These folks are true entrepreneurs and detest government intervention.

As you might expect, the response to these government mandated production cuts in the Alberta oil patch were overwhelmingly… positive.

Wait, what?

Desperate Times Call for Desperate Measures

Prior to the Alberta Government’s oil patch intervention, Canadian Heavy Oil was selling for $50 per barrel less than West Texas Intermediate, the benchmark American oil blend.

Canadian producers were getting not much more than $10 per barrel for their crude. The industry was losing billions and billions of dollars and the Alberta Government was too because of lower royalty fees that were assessed on production revenue.

The reason for the pricing difference was simple:

Alberta’s oil is landlocked. Being landlocked means that the province needs to ship its oil through pipelines that run through other provinces and American states.

As you are likely aware, these days getting major pipelines built has been virtually impossible. The political left and environmental groups keep putting up roadblock after roadblock.

With all pipelines out of Alberta already full and the resulting glut of oil only forecasted to get worse, prices in the region plummeted.

That’s when the Alberta Government took action to deal with the problem.

With the benefit of hindsight, it looks like a great decision.

Immediately after the production cuts were announced, Canadian Heavy Oil prices went on a tear, now having tripled since December.

It has truly been a spectacular reaction by the market.

suncor's dividend

As I said, we were on top of this story back in early December, the moment after the production cuts were announced. I pegged Alberta producer Canadian Natural Resources (CNQ) as a way to profit from the opportunity we saw in improving Canadian heavy oil pricing.

I still like Canadian Natural shares today.

Interestingly, it turns out that I wasn’t the only one who saw a rebound in Canadian oil pricing as an opportunity in December.

Last week a certain “Oracle of Omaha” revealed that he had opened up a big new position in another Alberta oil producer during the fourth quarter of 2018…

Warren Buffett Bought Suncor and You Can Too!

During the fourth quarter of 2018, Warren Buffett’s conglomerate Berkshire Hathaway purchased more than $300 million in shares of integrated Canadian oil producer Suncor Energy Inc. (SU).

You don’t have to look any further than the chart below to understand what the appeal of Suncor is for Buffett.

suncor's dividend

Today, an investor can lock in a 3.9 percent yield by buying shares of Suncor. That yield is nice, but think of what that yield might turn into five years from now.

That’s because Suncor does an incredible job of growing that dividend.

In 2002, Suncor’s quarterly dividend was $0.01 per share. Today that quarterly dividend is $0.316 per share — a 31.6 times increase!

Just from 2010 until now, Suncor’s dividend has quadrupled. And guess what folks… oil prices are lower today than they were in 2010!

That kind of dividend growth with oil prices falling is amazing and speaks to the quality of Suncor’s assets.

This company is a cash flowing monster. Exactly the kind of free cash flow machine that Warren Buffett loves to own.

The big reason Suncor is able to return so much money to investors lies in the fact that Suncor’s existing base of oil reserves is already large enough to last for the next 36 years. That means that this company already has all of the oil it needs so it doesn’t need spend money and resources on finding more.

Complimenting Suncor’s massive reserve base is the fact that the company’s production has a miniscule decline rate of just 1 percent per year.1 That means that not only does the company not need to spend money finding oil, it also doesn’t need to spend much money offsetting year on year production declines.

For context, consider that a typical shale oil producer battles annual decline rates of more than 30 percent. That means that a shale producer must drill enough wells to replace 30 percent of production every year just to keep production flat!

These are expenses that Suncor — with its 1 percent decline rate — doesn’t have. So instead of spending that cash, Suncor can return that cash to shareholders.

With a rapidly growing 3.9% dividend yield, a 36-year reserve life and a 1 percent production decline rate, I believe Suncor is perfect addition to any diversified portfolio.

Just like Mr. Buffett!

Here’s to looking through the windshield,

Jody Chudley

Jody Chudley
Financial Analyst, The Daily Edge
EdgeFeedback@AgoraFinancial.com

1 Suncor Energy Inc. Investor Relations

The post Warren Buffett Bets Big as Canada Abandons Capitalism appeared first on Daily Reckoning.

Chris Kimble – Kimble Charting Solutions – Mon 18 Feb, 2019

US Markets Might Be Looking Stronger Than You Think

Chris Kimble, Founder of Kimble Charting Solutions joins me to shares some US market chats that support the argument for general strength. Looking at the Advance/Decline lines for the S&P, NYSE, and Dow there are new highs being formed. This says that a broader number of stocks are leading this recovery, which is bullish. He also gives a quick mention to the oil market.

All the charts we discuss are posted below for reference.

Click here to visit Chris’s site. Link will open in a new window.

Josef Schachter – Energy Analyst – Fri 15 Feb, 2019

Energy Update – Breaking Down The OPEC and EIA Reports

Josef Schachter, Founder of the Schachter Energy Report has quickly become my go to for independent analysis on the energy sector and the underlying stocks. I bring him back on today to breakdown the OPEC and EIA reports that were released this week. With OPEC cutting production this is bullish for the oil price however some of the data in the EIA report had to temper that bullishness.

Click here to visit Josef’s site and consider signing up for his newsletter if you are an investor in the energy sector.

Teck misses Q4 profit estimates on lower copper, zinc and oil prices

Teck Resources (TSX:TECK.A | TECK.B)(NYSE:TCK), Canada’s largest diversified miner, posted Wednesday quarterly profits below estimates, due mainly to weak prices for heavy crude and base metals.

The Vancouver-based miner, the world’s second-biggest exporter of steel-making coal, recorded negative pricing adjustments, charges related to write-down in inventory and an operating loss at its Fort Hills oil sands mine during the last three months of 2018.

The company had warned that its fourth-quarter profit may be lower than expected because of disappointing business at its energy unit and also as its Trail Operations, which produces refined zinc and lead, faced ongoing supply interruptions from third-party providers.

Revenue, however, increased by 2.9% to C$3.25 billion (about $2.46B) in the quarter, up from a $3.16 billion in the 2017 fourth quarter, as lower base metal prices were offset by higher prices for steelmaking coal and new contributions from oil sands production.

The post Teck misses Q4 profit estimates on lower copper, zinc and oil prices appeared first on MINING.com.

Chris Vermeulen – The Technical Traders – Tue 5 Feb, 2019

Natural Gas & Crude Oil – A Trading Strategy and Economic Barometer

Chris Vermeulen, Fonder of The Technical Traders joins me to share his thoughts on the set up in natural gas and crude oil. Short term opportunities are present but Chris outlines a longer term picture that is more bearish.

Click here to visit The Technical Traders website.

Teck Resources flags fourth-quarter profit coming below estimates

Teck Resources (TSX:TECK.A | TECK.B)(NYSE:TCK), Canada’s largest diversified miner, announced late on Thursday it expected fourth-quarter profit to be significantly below estimates, due mainly to the low price of Canadian oil at the end of 2018, issues at its operations in Trail, B.C., and a decline in commodity prices.

The Vancouver-based mining giant said all those factors combines plus inventory valuations, would reduce its earnings for the period  by C$0.30 per share , while earnings before interest, tax, depreciation and amortization (EBITDA) will be down by C$195 million (about $148m).

Low price of Canadian oil at the end of 2018, issues at its operations in Trail, B.C., and a decline in commodity prices weighed in the miner's Q4 results.

Teck says it expects a loss of 15 cents per share in its energy business unit due to the low price for Western Canadian Select oil, which dropped from $29.80 per barrel in early October to a low of $6.42 in late November, before ending the year at $24.66.

Canadian oil has climbed this year helped by mandatory production limits by the Alberta government and is now more than $40 per barrel.

The miner’s Trail Operations, in turn, faced ongoing supply interruptions from some traditional third-party suppliers in the three months to the end of December, it said.  As a result, the company expects a loss of 5 cents per share, which adds to a charge of 10 cents per share due to weak commodity prices in the fourth quarter.

The company will record pre-tax inventory write-downs totalling C$80 million (about $61m) due to a decline in commodity prices during the fourth quarter, it added.

Teck had reported lower-than-expected third-quarter earnings, hit by declining commodity prices and higher costs. Full financial results will be announced on Feb. 13.

The post Teck Resources flags fourth-quarter profit coming below estimates appeared first on MINING.com.

Sean Brodrick – Tue 29 Jan, 2019

A Wide Range Of Sectors To Consider For Your Portfolio

Sean Brodrick, editor of the Wealth Super-Cycle newsletter over at Weiss Group shares some of the sectors he is adding or watching closely for his newsletter. While still reading off a bearish playbook for US equities there are opportunities in some sectors we look at daily.

Sean Brodrick – Portfolio Management

Click here to follow Sean on Twitter.

Exclusive KE Report Commentary – Tue 29 Jan, 2019

The Comprehensive Oil Update You Were All Requesting

Over the last couple weeks I have received a number of emails and saw the comments asking for more updates on the oil/energy sector. That got me to reach out to Joseph Schachter, Founder of The Schachter Energy Report. We discuss when in 2019 he thinks that the oil sector will start running higher and even shares some stocks that he thinks will be the best picks.

Joseph Schachter – Energy Sector Update

Click here to visit The Schachter Energy Report website and rad over some of his free content.

Chris Vermeulen – The Technical Traders – Tue 22 Jan, 2019

Oil and Commodities Considering Money Flows

Chris Vermeulen, Founder of The Technical Traders shares his thoughts on the oil market and general commodities. We consider the USD chart and a time frame for when the dollar could top and metals finally start an uptrend.

Click here to visit The Technical Traders website.

IEA sees oil demand growth defying economic slowdown for now

Global oil demand remains on course to be stronger this year than in 2018 as a boost from lower fuel prices counters slowing economic activity, according to the International Energy Agency. “We have seen prices fall very significantly since the peak at the beginning of October, and that is providing some relief to consumers,” Neil Atkinson, head of the IEA’s oil industry and markets division, said in a Bloomberg television interview on Friday. Still, in its monthly report the agency acknowledged “the mood music in the global economy is not very cheerful” and the outlook could change.