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Even Boone Pickens is falling out of love with oil

Even Boone Pickens is falling out of love with oil thumbnail

Venerable oil baron Boone Pickens is giving up on oil — sort of.

Less than 18 months ago, his fund launched an exchange-traded fund tracking stocks of companies expected to benefit from any increase in Brent crude oil prices. But soon, BOON — the ticker of the NYSE Pickens Oil Response ETF — will be no more. Instead, it will be relaunched as RENW, offering exposure to stocks benefiting from the transition to toward “a low-carbon economy.”

BOON’s most obvious problem was that it hadn’t really lived up to its ticker as far as investors are concerned. Underperforming the Brent oil price by about 7 percentage points since launch isn’t catastrophic. Worse perhaps is the fact that the ETF didn’t really partake in last fall’s oil rally (less than half its holdings are classified as “energy” companies). Still, that shielded it somewhat from the subsequent crash, unlike more heavily exposed E&P funds.

Move past the symbolism, and there’s a simpler tale here.

Not too long ago, the E&P sector had a shortage of oil and a trove of trust. Today, those positions are entirely reversed. Buoyed by the peak oil scare of the prior decade, investors funded a drilling spree, including in U.S. tight-oil basins. The result is a languid oil market barely able to rouse itself even when conflict threatens in the Persian Gulf. Return on that investment bled away to bad bets, cost-inflation and, all too often, fattened pay and perks in the c-suite. Meanwhile, Big Tech (among other sectors) competes successfully for investors’ interest. Less than a decade ago, pundits speculated on the meaning of Apple Inc.’s market cap tentatively overtaking Exxon Mobil Corp. to be the biggest in the world. Now, it is just normal that Exxon isn’t even in the top 10 (it is 13th right now).

Despite oil prices more than doubling since the trough of early 2016, energy’s weight in the S&P 500 Index has actually slipped further, from more than 6% then to an all-time low of about 4.8% today.

That relationship between energy’s weight and the oil price over the long term reveals a sobering trend for the industry.

For most of the two decades leading up to 2000, the relationship was pretty stable, as oil prices fell in real terms from the spike of 1979, and the sector’s relative value drifted down with it. That changed as the supercycle took hold after 1998. Oil equities rallied strongly — the sector more than tripled by mid-2008 — though not as much as the underlying commodity. That makes sense, as cyclical rallies, even daubed with the motto of “peak oil,” aren’t expected to last forever, and cost inflation within the business was becoming quite evident by 2006.

The real oil price demanded to support the sector’s place in the index has kicked into overdrive this decade. That is also partly a reflection of the underlying commodity, as rallies since 2014 have faded quickly amid excess supply.

But it’s also due to that shortage of trust. Investors have been conditioned to expect energy firms to allocate any windfall from rising oil prices to drilling budgets, M&A or executive pay, with precious little making its way back to shareholders. Also, unlike in the early 2000s, they now worry more about “peak demand” and climate change (hence, RENW’s imminent emergence from BOON’s chrysalis). So it takes a lot of dollars per barrel to persuade them there will be some left over for distributions.

That is changing as some companies, particularly at the bigger end of the scale, have adopted strategies prioritizing payouts explicitly. The deficit is large, however.

For example, ConocoPhillips has been the exemplar of putting returns over growth in the past few years.

However, its stock actually traded down on Tuesday morning after reporting capital expenditure came in about $200 million above expectations in the second quarter — despite twinning that with a $500 million bump to share buybacks.

Yet Conoco’s playbook remains sensible. If energy stocks are proving unresponsive to oil then, like Boone Pickens, it’s time for a radical change of approach.

tulsa world

12 Comments on "Even Boone Pickens is falling out of love with oil"

  1. Robert Inget on Sun, 4th Aug 2019 10:22 am 

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  2. Duncan Idaho on Sun, 4th Aug 2019 10:53 am 

    “— least of all a racist failed businessman and television-huckster son of a slumlord from Queens and an immigrant from Scotland — .”
    Comrades, this is what we are “working” with.
    Late stage capitalism was never going to be fun.

  3. Davy on Sun, 4th Aug 2019 3:48 pm 

    Once, twice, three times I’m a lady…..

  4. Antius on Sun, 4th Aug 2019 7:00 pm 

    France appears to be facing demographic apocalypse and partition into islamic states and residual European areas. It is depressing to have to live through the final collapse of western civilization.

    ‘Macron also knows what former President François Hollande said after serving his term as president: “France is on the verge of partition”.

    Macron knows that the partition of France already exists. Most Arabs and Africans live in no-go zones, apart from the rest of the population, where they accept the presence of non-Arabs and non-Africans less and less. They do not definethemselves as French, except when they say that France will belong to them. Reports show that most seem filled with a deep rejection of France and Western civilization. An increasing number seem to place their religion above their citizenship; many seem radicalized and ready to fight.

    Macron seems not to want to fight. Instead, he has chosen to appease them. He is single-mindedly pursuing his plans to institutionalize Islam in France. Three months ago, the Muslim Association for Islam of France (AMIF) was created. One branch will handle the cultural expansion of Islam and take charge of “the fight against anti-Muslim racism”. Another branch will be responsible for programs that train imams and build mosques. This autumn, a “Council of Imams of France” will be established. The main leaders of the AMIF are (or were until recently) membersof the Muslim Brotherhood, a movement designated as a terrorist organization in Egypt, Bahrain, Syria, Russia, Saudi Arabia and the United Arab Emirates — but not in France.

    Macron is aware of the demographic data. They show that the Muslim population in France will grow significantly in the coming years. (The economist Charles Gave wrote recently that by 2057, France will have a Muslim majority). Macron can see that it will soon be impossible for anyone to be elected President without relying on the Muslim vote, so he acts accordingly’

  5. makati1 on Sun, 4th Aug 2019 7:38 pm 

    By 2057, it will not matter, Antius. The world will be in heavy extinction mode. France may not even be livable. Why be concerned about something ~38 years in the future? No one has a clue what it will really be like then. Only guesses.

  6. Davy on Sun, 4th Aug 2019 8:54 pm 

    Whether or not you dumbasses agree I am REAL and GREEN and DEEP (and when I say DEEP I mean DEEP) and ADAPTATIVE.

    Just cause I operate central air conditioning units DOES NOT disqualify me.

    Get it? Got it? Good.

  7. Cloggie on Mon, 5th Aug 2019 1:25 am 

    France appears to be facing demographic apocalypse and partition into islamic states and residual European areas. It is depressing to have to live through the final collapse of western civilization.

    Too pessimistic, the only thing that is going to collapse is the old liberal order, that is the 1945 Anglo-Zionist imposed order.

    A European Renaissance will occur on the dead bodies of the European and American left and media freaks on the very moment a serious uprising occurs in the US and we in Europe finally get rid of the Americans, that is the Uncle Schmull’s but boys.

    France can be reconquered by the rest of Europe (incl Russia) in a matter of a few weeks (the Germans defeated the British and French in merely 6 weeks), just like the Serbs had Kosovo 100% cleansed of Muslims within 48 hours. Until the US Muslim air force intervened. But these f* ZOG-Americans are now facing CW2 themselves, with millions of them getting killed and will “erase themselves from the page of time” (©Saddam), well at least as a “super power”.

    How did Agatha Christie put it again?

    “And Then There Were None”

    Could be applied to France and the rest of North-West Europe.

    From the first moment on when gruesome pictures from CW2 come in, in Europe, the old 1968 leftist order is dead in the water, when it becomes clear for everybody to see where this media-promoted “diversity” is leading to (namely genocide) and the great anti-leftist clean-up will commence, just like happened in the 1989-1991 Soviet bloc, only with much more violence… because of the “diversity”, that you can’t abolish with the stroke of a pen, like you can with a useless commie economic system.

    Europe will see it’s own XXL “St. Bartholomew’s Day massacre”:

    Once that has happened we (PBM) can turn our attention to North-America and fight with the insurgents to create a new republic, in a reverse fashion of how globalist Anglos fought together with the Stalinists in Spain against Spanish nationalists.

    But globalism and Anglos are now thoroughly over.

    Expect China to take advantage of the collapsing US and rake in Australia and New Zealand on the cheap, which is good for Europe, as it keeps the Chinese away from Euro-Siberia, for the moment, and we have time to pacify and split up North-America and set up a new, European-led white alliance that is strong enough to contain the new Chinese super power.

    Post-Brexit England can make itself useful to invade Canada and set up an empire-lite, as a junior side-show within Eurosphere. The real white power will lie in PBM.

    Mega-out are liberalism, multicult, humanism, Christianity, racism-howling, oh and jews and are going to be replaced by Roman values, with strong people up and weak people under and not the other way around like in the current kosher libtard order.

    War is next, everywhere in the former West that is going to be replaced by Boreas, The North.

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  9. Kenz300 on Sun, 11th Aug 2019 7:59 pm 

    Fossil fuels are a bad investment idea for people and the planet.

    Wind and solar along with battery storage are the future.

    Don’t invest in the past. Invest in the future.

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