Thursday, October 28, 2021

Thursday Morning Links

  • “We are running at net-zero type capex levels, whilst at the same time demand is not following the net-zero trajectory,” said Martijn Rats, an oil strategist at the bank. “Demand will be above 100 million barrels a day for the rest of the 2020s, but on the supply side we’re not going to produce that with current investment levels.” [Bloomberg]
  • [Note: only a few forms of Zinc work for this. You want acetate if possible, gluconate if not, and it needs to be a lozenge, not something you swallow. Zinc works by physically coating your throat to prevent infection, it’s not a nutrient in this case. You need much more than you think to achieve the effect, the brand I use barely fits in my tiny mouth.] Some risk factors for illness in general are “being around a lot of people”, “poor sleep” and “poor diet”. These factors compound: being around people who have been around a lot of people, or who have poor sleep or diet, is worse than being around a lot of well-rested, well-fed hermits. Travel often involves all of these things, especially by air and especially for large gatherings like conferences and weddings (people driving to camp in the wilderness: you are off the hook). [LW]
  • PrairieSky’s royalty production revenue increased to $76.0 million in Q3 2021, our second highest quarter since inception in 2014. The growth in revenue was due primarily to strong commodity prices for all products, resulting in a 17% increase in funds from operations over Q2 2021 and a 75% increase over Q3 2020. During the quarter, PrairieSky completed acquisitions totalling $190.1 million, including the previously announced 5.0% gross overriding royalty agreement in the core of the Clearwater oil play in the Marten Hills area of Alberta. On August 25, 2021, PrairieSky also completed the acquisition of 138,000 acres of Fee Land and 125,000 acres of GORR Interests in Central Alberta adding approximately 200 BOE per day of royalty production (74% liquids) for total cash consideration of $34.8 million, before adjustments. Both acquisitions were financed using PrairieSky’s credit facility which was subsequently increased to $425 million and now incorporates sustainability-linked performance criteria. Net debt at September 30, 2021 totaled $187.7 million, which assuming current strip pricing, could be repaid within a year. [Prairie Sky]
  • No one is helpless. People can take action right now to fight this. Start exercising, hard. Aerobic capacity starts to improve almost immediately, and within a week you will have built a real buffer that could save your life. Second, if overweight start losing weight by eating much less food. All weight loss, regardless of the type of diet, involves burning body fat and putting the body into ketosis at least for part of the day, which boosts immune function. [Louisiana]
  • A firmly fixed pattern of settlement, of which the rectangular surveys and the traditional quarter-section of land were only outward manifestations, though in some ways determining ones, began to meet on the Great Plains conditions that could not be stretched or lopped to fit Procrustes' bed. A mode of life that despite varying soils and a transition from woods to prairies had been essentially uniform from the east coast through Kentucky and Ohio and on to the Missouri or slightly beyond, met in the West increasingly varied topography, climate, altitudes, crops, opportunities, problems. The Middle West, geographically and socially and economically, was simple; the West was complex. Instead of the gentle roll of the great valley there were high plains, great mountain ranges, alkali valleys, dead lake bottoms, alluvial benchlands. Instead of trees or oak openings there were grasslands, badlands, timbered mountains, rain forests and rain-shadow deserts, climates that ran the scale from Vermont to the Sahara. And more important than all the variety which was hostile to a too-rigid traditional pattern was one overmastering unity, the unity of drouth. With local and minor exceptions, the lands beyond the 100th meridian received less than twenty inches of annual rainfall, and twenty inches was the minimum for unaided agriculture. That one simple fact was to be, and is still to be, more fecund of social and economic and institutional change in the West than all the acts of all the Presidents and Congresses from the Louisiana Purchase to the present. [Wallace Stegner]
  • Our third quarter performance fell within our expectations with sales growth of 11% in our core business despite facing the headwind of COVID-related consumption and other benefits we experienced in the prior year period," said Larry Wexler, President and CEO, Turning Point Brands. "Zig-Zag had another robust quarter driven by our strategic initiatives and growth within our Canadian business. Stoker’s saw double-digit growth in our Moist Snuff Tobacco (MST) business which drove growth in the overall segment. Regarding capital deployment, we continued to repurchase our shares during the quarter and today announced an increased share repurchase authorization. We also maintain a strong balance sheet to pursue a healthy pipeline of investment opportunities. Overall, we remain optimistic about the growth prospects in our core business. NewGen managed through a disruptive environment due to the uncertainty surrounding the PMTA process. We are encouraged by the FDA’s decision to reconsider and place back into review our application for our proprietary vapor products. I am confident that we submitted a robust application and look forward to engaging with the FDA in its review. We will manage through near-term disruptions and limited visibility in the vape distribution business resulting from the PMTA process and logistical transitions driven by the PACT Act. [Turning Point Brands]
  • If you start with a large population of unhappy young people who want to play life-changing zero-sum games, combine that with limitations on legal gambling, and add in a massive economic collapse which only makes their lives worse, you're going to get a big wave of illegal ponzi schemes cropping up. Canada and the US also have problems with inequality and poverty, albeit not as extreme as Nigeria. Our economies have also been hit by the biggest shock in decades. But unlike Nigeria, Canada and the US have well-developed capital markets. So when desperate Canadians and Americans look for long shot life-changing bets, they needn't limit themselves to traditional gambles like lotteries, casinos, or online poker. Online brokerages like Robin Hood and Wealthsimple make it easy for us to make hundred-to-one bets in options markets or leverage up on Tesla or GameStop stock. [jpkoning]
  • The official series shows steady growth of real GDP for the years since 2000 except during the recession years of 2008 and 2009. In contrast, Williams’ series shows negative growth for every year except 2004. Many observers find it hard to believe that real output has been falling almost constantly for the past fifteen years, especially in view of the fact that total hours worked have increased slightly over the period. However, it would be nice to have some independent data, not tainted by inflation estimates, against which we could crosscheck the real GDP numbers. During the Great Depression and earlier, before the concept of real GDP was invented, policymakers used to resort to purely physical indexes of output to gauge the strength of the economy—things like boxcar loadings and steel output. We can do the same. The next chart shows three such indicators: the number of new cars sold annually, an index of ton-miles of freight transportation, and an index of kilowatt hours of electricity generated. All three show positive growth on average since 2000 (3.8 percent for autos, 1.4 percent for freight transportation, and 1.1 percent for electricity). It is hard to believe such growth would have been possible during a period when real GDP was falling at an average rate of 2 percent per year, as it has according to the ShadowStats series. Why would people be buying more and more cars if their incomes were falling? Why would railroads and barges be hauling more and more tons of freight if mines and factories were producing less and less output? Why would kWh of electricity per dollar of real GDP be rising by 3 percent per year despite the widespread adoption of more efficient lighting, more efficient electric motors, and more efficient buildings? The physical output indexes are much more plausible if we accept the official GDP series: A rise in car sales roughly in line with the growth of real incomes, freight transportation lagging real GDP somewhat because service sectors are growing faster than goods-producing sectors, and electricity output growing but lagging real GDP because of more efficient technology. [Ed Dolan]
  • Decentralized technologies like Bitcoin, Dogecoin, and Ethereum are useful. But here's my modifier. These curious technologies are only inherently useful to a small group consisting of hobbyists, outsiders, and criminals. It's in the nature of a hobbyist to seek out complex and obscure things (such as decentralization, rare stamps, or ham radio) and consume it in abnormally large quantities. As for outsiders, they may get cut off from centralized service providers because they are engaged in legal but unfashionable activities. They need a decentralized alternative that can't censor them. Finally, criminals are drawn to places where they can operate unimpeded. Decentralized technologies are perfect for that. For mainstream audiences, however, decentralized services are without value. Regular folks don't have a hobbyist's sensibilities for abstruseness, nor do they have the outsider's problem of being cut off from mainstream technologies, nor do they engage in criminal behavior. [jpkoning]
  • The number of cigarettes that the largest cigarette companies in the United States sold to wholesalers and retailers nationwide increased from 202.9 billion in 2019 to 203.7 billion in 2020, according to the most recent Federal Trade Commission Cigarette Report. This represents the first time annual cigarette sales have increased in 20 years. According to the 2020 Smokeless Tobacco Report, smokeless tobacco sales increased from 126.0 million pounds in 2019 to 126.9 million pounds in 2020. The revenue from those sales rose from $4.53 billion in 2019 to $4.82 billion in 2020. For the first time, the Commission is reporting sales of nicotine lozenges or nicotine pouches not containing tobacco. In 2020, the companies sold 140.7 million units of such products in the United States, for $420.5 million. [FTC]
  • About two short tons (1.8t) of oil sands are required to produce one barrel (1⁄8 short ton) of oil. Originally, roughly 75% of the bitumen was recovered from the sand. However, recent enhancements to this method include Tailings Oil Recovery (TOR) units which recover oil from the tailings, Diluent Recovery Units to recover naphtha from the froth, inclined plate settlers (IPS) and disc centrifuges. These allow the extraction plants to recover well over 90% of the bitumen in the sand. [wiki]
  • For the third quarter, Suncor's cash from operations (excluding changes in working capital) was $2.1 billion and its capital expenditures were $990 million, for free cash flow of $1.2 billion. That's just for the quarter: annualized that would be $4.8 billion. They have another metric that they call "discretionary free funds flow," which was $1.2 billion for the quarter as well. So no wonder they are buying back stock aggressively. You will also notice that in the third quarter they returned 83% of free cash flow to shareholders through dividends and buybacks. The FCF yield on the current enterprise value is 10% at a lower oil price than today. That provides room, even if oil prices were to retrace from here, to pay a 5.6% dividend ($1.36 US on $24.18 share price) and buy back significant amounts of stock, i.e. 4.4% of the market cap annually if the share price and earnings stay at this level. Keep in mind that WTI oil in the third quarter averaged $71 and WCS crude sold at an average $13.6/bbl discount to this. Crude oil is now $10 higher (low $80s) and the differential is about $16/bbl, for a crude oil realization that's about $7.5 higher. [CBS]

1 comment:

Stagflationary Mark said...

From your link:

Brief replies that cast doubt on some of more extreme claims made by ShadowStats fans don’t seem to have much effect.

My standard brief reply:

ShadowStats still charges $175 per year for a subscription. Same price it’s been for more than a decade.