Monday Night Links

• The court holds for the foregoing reasons that IEEPA does not authorize any of the Worldwide, Retaliatory, or Trafficking Tariff Orders. The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by IEEPA to regulate importation by means of tariffs. The Trafficking Tariffs fail because they do not deal with the threats set forth in those orders. This conclusion entitles Plaintiffs to judgment as a matter of law; as the court further finds no genuine dispute as to any material fact, summary judgment will enter against the United States. The challenged Tariff Orders will be vacated and their operation permanently enjoined. [United States Court of International Trade]
• The combination of ultra-conservative Christians and left-leaning university types living in close proximity has turned Moscow into an on-the-nose symbol of life in a divided America: On the five-block stretch of shops that makes up Moscow’s downtown, a slew of kirker-owned businesses stand side-by-side with organic food co-ops and coffee shops displaying Pride flags and Black Lives Matter signs in their windows. On the Sunday morning of my visit, the kirker who offered to drive me to church gently ribbed me after I asked him to pick me up at one of the liberal-aligned coffee shops downtown. I had no choice, I protested. All the kirker-owned ones were closed for the sabbath. [Politico]
• “I’m as French as you are” is the phrase that provokes this reflection. Indeed, on more than one occasion Camus says he has heard an immigrant claim to be “more French” than him. But, as he says, “If this lady is right, being French is nothing: it’s a pure mockery, a failed joke turned sour, a stamp on an administrative document.” While Camus can be blunt, his thinking can also be subtle—certainly nuanced. He concedes things that no outright racist or sectarian ever would. He allows, for instance, that a person can join a people because he cares for their language, literature, way of life, and more. But he contends that on the collective level, “Peoples who remain peoples cannot join other peoples. They can only conquer.” [The New Criterion]
• Ron Chernow’s new biography of Mark Twain is enormous, bland and remote — it squats over Twain’s career like a McMansion. Chernow, who has previously written lives of financial titans, war heroes and founding fathers, misses the man William Faulkner called “the father of American literature” almost entirely. He demonstrates little feeling for the deeper and least domesticated regions of Twain’s art, or for the literary context of his era. His book is an endurance test, one that skimps on the things that formed Twain and made him the most lucid, profound, unpredictable and irascibly witty American of his time. Hardy will be the souls who tour this air-conditioned edifice all the way through and glimpse the exit sign. [NY Times]
• The central model here is the gravity model of trade which in simplest terms predicts the amount of trade between two places as proportional to the economic “mass” of the two places (e.g their population or GDP) and inversely proportional to the distance between them, echoing Newtonian gravity. Usually, the gravity equation takes the distances and masses of countries or cities as an input and outputs a prediction of trade between them. The authors of this paper flip this around. They have some data on the amount of trade between cities, as well as the location of some known cities, and they use this to back out what the size and location of all the other cities is likely to be. They take two steps to estimate the locations of lost cities using their model. First, they use the trade between cities with known locations to estimate the distance elasticity of trade, i.e how much does trade decrease as the distance between two cities increases. Then, they try to fit the model’s predictions over the shares of trades between each city pair in the network to the observed data by choosing different latitudes, longitudes, and productivities for each city. [Maxwell Tabarrok]
• Vitamin K2, specifically MK-7, activates special proteins, allowing the body to properly utilize calcium. Two of these proteins are osteocalcin (OC) and MGP. The former attracts calcium to where it is needed most, namely into bones and teeth; the latter keeps calcium away from where it is not needed, namely soft tissues. [NattoPharma ASA]
• None of that has lifted the price of timber, which never recovered from the 2007 housing bust. Logs for softwood lumber averaged $22.50 a ton across the South last summer, the least since 1992, according to TimberMart-South, a pricing service affiliated with the University of Georgia’s forestry school. “If you put inflation on it, it’s really sad,” said Mr. Hopkins, the Georgia timber grower. Adjusted for inflation, prices for the logs used to make lumber are at their lowest in more than 50 years. [WSJ]
• In my last post a couple of days ago (May 28), I was critical of the blizzard of injunctions issued by the courts against seemingly every policy change that President Trump seeks to implement.  I went so far as to call this the “opposite of democracy.”  But I also noted that there are instances where judicial restraints on the executive are legitimate, most notably where the statute on which the President relies to implement a sweeping policy does not in fact grant him the authority he claims.  Thus, on finding a lack of grant of authority in the statutes cited, the Supreme Court had reined in President Biden when he sought to implement policies forgiving student loans and banning fossil fuel power plants. I ended that article by asking whether President Trump’s actions with regard to imposition of tariffs may fall into the same category of overreach as Biden’s student loan and power plant gambits. [Francis Menton]

Thursday Night Links

• The Treasury Department will stop putting new pennies into circulation by early next year. Afterward, there won’t be enough pennies to use in everyday cash transactions, and businesses will need to start rounding up or down to the nearest 5 cents, the Treasury said in a statement. [WSJ]
• While the load-carrying capacity of a theoretical airship increases linearly with its length in calm air, once an airship grows to span bodies of air moving in different directions, the thickness of the airframe required to withstand discrete gusts grows at the 10/9 power. That suggests that above a certain size, the load-carrying capacity of an airship no longer increases but rather decreases with scale, since the airship structure has to be made heavier to survive the wind loads it will encounter. [Orca Sciences]
  
• In a net-zero world, we’ll lose the lowest-cost sulfuric acid we use to produce phosphate fertilizer. But other sulfur sources will pick up the slack long before other acids are used or a direct approaches to sulfur recycling become economical. [Orca Sciences]
• Given that all contrails represent ~2% of global warming, this indicates that ~1% of global warming is addressable today at under $1/tCO2eq. I don't know of any other climate intervention with such a low upfront cost and such a high probability of success. So why aren’t all airlines doing this yet? You’d think convincing airlines to avoid contrails would be easy. It’d cost them about $5 per flight to cut their climate roughly in half, vastly cheaper than any low-carbon fuel. But no airline has yet committed to it. A pessimistic take is that contrails are a ‘sincerity test’ for the world’s willingness to engage in the most cost-effective climate action, and the world is flunking so far. [Orca Sciences]
• Over a 30- to 40-year life, the energy a typical transformer dissipates as heat can cost close to five times its purchase price. Upgrading to a higher-grade core alloy—or simply right-sizing the unit—would save customers billions of dollars per year. Yet many U.S. utilities still order the cheapest devices that meet federal minimum standards, and virtually none adopt the higher-performing devices common in other countries. Why? Because ratemaking rules let them pass those losses straight through to customers and penalize them for spending that doesn’t add capacity directly. [Orca Sciences]
• Crushed rock down to a few millimeters costs $2-$3 per raw ton of rock. Course grinding down to 30 microns with ball mills costs $7-$11 per raw ton of rock. Fine grinding to ~10 microns with a stirred mill or similar technology is $12-$15/raw ton. [Orca Sciences]
• Because liquid fuels are pricey on an energy basis, synthetic fuels using dirt-cheap solar or wind could be economical. $60 per barrel of oil equates to ~$35/MWh. New solar is under $30/MWh today. Assuming a conversion efficiency of around 33%, the breakeven to make fuels would be ~$12/MWh. [Austin Vernon]
• Decentralized energy generation through solar panels paired with battery storage limits how high rates can go. Customers can defect if going off-grid or adding solar becomes cheaper. In places like California, where households pay ~$0.25/kWh, many can save money by adding a solar plus storage system. The cheaper solar and batteries get, the more competition utilities face. [Austin Vernon]
• Some processes need a lot of heat at very high temperatures (1000+ Celcius). They might be less sensitive about maintaining a specific temperature or be so large that thermal mass moderates any swings. In these cases building a furnace directly into the process makes sense. Blast furnaces in integrated steel plants and kilns in cement manufacturing are classic cases. Coal has the dominant market share in these applications. [Austin Vernon]
• Many environmental groups have already begun to protest solar and wind farms. Ground-mount solar is the industrialization of the solar PV ecosystem. Solar was OK when it was expensive because it would decrease energy usage. Technology that paves the ground and makes $10/MWh electricity attainable, driving demand up, is not what Greenpeace had in mind. [Austin Vernon]
• Modern chemical facilities usually have continuous processes, meaning each plant produces a constant amount of product rather than lumpy batches. The benefits are very similar to the Toyota Production System (they are independent discoveries of the same principles). There is no inventory accumulation within the process, equipment is optimally sized, product velocity through the equipment is high, steady-state conditions reduce variation in product quality, and there is a relentless focus on reliability because any single failure can trip the plant offline. The move to continuous processes happened naturally because many reactions will not go to completion in a batch reactor. Continuously fed reactors allow for the separation of the product and recycling of the reactant. Chemical engineering doesn't have the same dogma as Toyota because these other benefits were an accident. It is left as "continuous is better" in school. So you'll see a plant with perfect one-piece flow and incredible quality sending its product to giant tank farms or warehouses where there might be months worth of inventory! [Austin Vernon]
• Consider the light metals in the top right quadrant in the electrochemistry figure. Al and Mg both have far higher strength/weight ratios than steel; they resist corrosion much better; their production is already electrified; and their ores are arguably easier to find– Al is the most common metal in the earth’s crust, Mg is extractable directly from seawater. Both metals are more expensive than Fe today, primarily because they take much more energy to produce. But in a world with cheaper clean electricity – the world we need if we want to decarbonize steel production anyway—in the future we want, we should expect more use of Al and Mg, and much less use of steel. [Orca Sciences]
• There’s a big push out there to make steel electrically (molten oxide electrolysis, aqueous electrolysis, H2 direct reduction etc). But here Sam shows that at the renewable energy $/kWhr price that makes electro-steel work economically, the world might start switching to aluminum as a structural material. Aluminum is electrified already, comes from a more plentiful ore, has a better strength/weight ratio, and suffers from less corrosion (corrosion of steel costs us >1% of global GDP!). Currently, Al production emissions are nearly five times those of steel. But if you grant the conditions that would make electro-steel viable (i.e. near-free renewable electrons) and believe Alcoa’s claims regarding the near-term viability of carbon-free anodes, then Al prices (currently ~$2000/t, 2/3 of which is electricity for the carbon-free process) will sink towards the steel price (currently ~$1000/t, mostly ore and process cost). [Orca Sciences] 
• The same transformation has happened in almost every corner of our material lives. It has been happening for thousands of years and in every material category. Over time people have switched from mud to brick to cement, from wood to plastics to fiberglass to carbon fiber, from copper to bronze to steel to titanium, from leather to cotton to nylon, from smallholder to factory farms, from heaps of coal to thin wafers of solar PV, from vacuum tubes to specks of semiconductor, from highways to runways to Zoom. Energy intensity increases, materials get stronger and lighter, machines pack more power into smaller spaces. A signature element of modernity is how we’ve moved from materially-centered ways of doing things to energy-centered ways of doing things. Some people call this trend ‘dematerialization’. But that’s misleading. The world today may be made relatively less of stuff, but for various growth and demographic and Jevons reasons overall there’s way more stuff than ever. So I think it’s best to think of it as our world being made more and more out of energy. [Orca Sciences]

Monday Night Links

• Arbitrageurs implicitly assume that the world is full of people who are rational, but imperfectly so, and that the big money is in keeping the expressions of their views that take place through financial markets roughly in line with one another—taken too seriously, it's a form of nihilistic optimism that every important problem will be figured out by somebody else, but that they won't perfect the last few details of their approach before moving on to the next thing. Startups often assume that the world is missing a critically important big idea, and that only they can bring it to fruition. It's a form of realist pessimism holding that nobody else will pick whatever the low-hanging fruit happens to be. At the same time, believing that there are secrets left in the world and low-hanging fruit left to pick is a form of optimism in itself. [The Diff]
• I really hate to be "that guy" (i.e., the jerk that goes around correcting people on spelling and grammar and word usage and such) and I do apologize but... Please note that "Episcopalian" is not an adjective, it is a noun. It always only refers to a person who is a member of that denomination. The adjective is "Episcopal." Some examples: "John and Mary are both lifelong Episcopalians, so their wedding took place in the Episcopal church on the town green." "The Episcopal prayer book is called 'The Book of Common Prayer.' Many Episcopalians turn to it for solace in times of sorrow." "I went to an Episcopal school, where Episcopal chapel services were held on a weekly basis. Most, but certainly not all, of the students there were Episcopalians." [Salt Water New England]
• The film has become a cult classic for its crisp dialogue, lucid fatalism, and fine detail. It bubbles back up in moments of market stress, and the past few weeks have provided a steady supply of oxygen. It hit TikTok during the 2023 collapse of Silicon Valley Bank, boosted by an explainer on the All In Pod. Close to a million people have watched it in unlicensed 30-second installments. There is, of course, an Irons meme generator. And it is invariably how a certain breed of Wall Streeter — just young enough not to have had their careers tarnished by 2008, but to feel like they had missed out on a great war — answers when asked what their favorite movie is. (Nos. 2 and 3 are Michael Clayton, which stars George Clooney as a corporate fixer, and, for reasons passing understanding, Master and Commander, Russell Crowe’s Napoleon-era high seas drama.) [Semafor]
• Fundamental to our approach to energy markets at RBN is a view that natural gas, crude oil and NGLs have become much more interdependent than in the days before shale. What happens in gas impacts NGLs, which influences crude oil, which loops back to the natural gas market. There was a time when you could live out your career in the gas business, or the NGL business, or the crude business and get by with knowing very little about the other hydrocarbon markets. Those days are gone forever. For example, today’s gas prices make no sense unless you understand the economics associated with NGLs and associated gas production. Production of condensates from crude wells directly compete with natural gasoline, the highest margin NGL for gas processors. Natural gasoline prices are being boosted by its use as a diluent for Canadian bitumen crude oil. Low prices for ethane result in rejection of ethane molecules back into the natural gas tailgate stream of gas processing plants. These examples and many more typify today’s highly integrated liquids and gas hydrocarbons markets. [RBN Energy]
• The strong physical trading liquidity at Cushing attracted paper traders, allowing market participants to hedge their physical business and bet on the market via the WTI Light Sweet Crude Oil futures contract (contract symbol: CL) on the New York Mercantile Exchange (NYMEX). This contract, which launched more than 40 years ago, became important in the domestic market and internationally. In 2008, NYMEX was acquired by the Chicago Mercantile Exchange (CME), which currently manages the CL contract. CL remains the world’s most liquid crude oil contract. While this contract was initially supplied with WTI directly from West Texas, it did not exclude crude oil that originated elsewhere but met the contract standards. [NYMEX Leads the Way on WTI Futures Contracts, But There's Room for More]
• As in our report on midstream M&A in 2022-23, many of the midstream deals announced in 2024 and early 2025 involved the acquisition of companies with extensive holdings in the Permian, which is by far the U.S.’s top crude oil production area and also a major supplier of natural gas and NGLs. Rising Permian production over the past few years spurred a massive buildout of midstream infrastructure — including gathering systems (for crude, associated gas and produced water), gas processing plants, takeaway pipelines (for crude, natural gas and NGLs), storage facilities, fractionators, and export terminals. While a significant portion of that midstream development was undertaken by large publicly held companies or master limited partnerships (MLPs), many other vital projects were developed by privately held midstream companies backed by private equity. In the post-COVID era, with many publicly held companies looking to gain further scale and scope — and many private-equity-backed midstream companies looking to cash in on their well-timed, well-planned developments — it could be argued that conditions for large-scale midstream M&A have never been better. [Combination of the Two - A New Drill Down Report on Consolidation in the Midstream Sector]
• In a Drill Down Report in late 2023, we described the NGL networks owned and operated by the four large midstream companies (Enterprise Products Partners, Energy Transfer, Targa Resources and Phillips 66) that currently provide wellhead-to-water services — everything from gas processing plants in the Permian and other plays to long-haul NGL pipelines to the Gulf Coast to fractionation plants (almost all of them in Mont Belvieu) and export terminals for purity NGL products. As we said then, “That start-to-finish management of the NGL stream provides a number of important benefits — chief among them, the ability to operate with extraordinary efficiency, collect fees from shippers each step of the way, and feed pipelines, fractionators, storage and export terminals along the network’s value chain.” [At Last - New NGL Pipes, Fracs and LPG Export Terminal Give MPLX, ONEOK What They've Wanted]
• Give me the money that's been spent in wars and I will clear up every acre of land in the world that ought to be cleared, drain every marsh, subdue every desert, fertilize every mountain and hill, and convert the whole earth into a continuous series of fruitful fields, verdant meadows, beautiful villas, hamlets, towns, cities, standing along smooth and comfortable highways and canals, or in the midst of luxuriant and fruitful orchards, vineyards, and gardens, full of fruits and flowers, redolent with all that pleases the eye and regales the senses of man. [CBS]

Suncor Energy Inc. (SU) - Q1 2025

The recent Suncor earnings calls have been a delight to read. (Lesson: always invest in companies with CEOs named Rich?) Here are some highlights from the latest quarter (Q1 2025) earnings call:

• In 1954, a gentleman named Roger Bannister, the world’s first four-minute milers and records are meant to be broken, and that is exactly what Suncor teams continue to do break records. Total cost, OS&G $3.3 billion, down $143 million or 4.2% in absolute dollars versus the first quarter of last year despite higher production and throughput across the board. 3% to 4% higher absolute volumes, 4% lower absolute costs operating leverage achieved with a culture and a mindset that every barrel and every dollar matter.
• The mine is supported by a fleet of 70 to 75 Caterpillar 797 400-ton haul trucks. Historically, we’ve loaded each truck to 93% of capacity or 370 tons per truck. Alex’s team has increased its load factor to over 100% now, a full 10% increase, 30 to 40 more tons of productive ore on each and every truck, achieved through shovel operator best practices and load sensing technology, the impact, lower unit costs, higher productivity equal to 73 400-ton trucks.
• I personally pulled out my stop watch on my phone and time loading operations, four scoops, 404 tons in one and a half minutes, folks, that’s fast
• I think it’s worth noting that when comparing quarter-over-quarter Q1 2025 to Q1 24 despite a 7% decline in WTI an average 24% decline in New York Harbor and Chicago 211 cracks, you see that our AFFO per share is the same and our free fund flow per share is actually 6% higher.
• Winners always want the ball when the game is on the line.
• The only thing I unconditionally love are my kids and my grandkids. Everybody else has to earn their seat at the table.

The current market capitalization of SU (at a $34.31 share price) is $42 billion and its enterprise value is $50 billion. (Net debt of $5.4 billion plus other liabilities.) Suncor returned approximately $1.08 billion of value to shareholders in the quarter with $540 million in share repurchases and $508 million in dividends, for a shareholder yield of 10.3% on the current market capitalization. 

The number of shares outstanding is down 4.2% year-over-year. They bought back 5 million shares in April. They were doing 4.5 million/mo in Q1.

Suncor's adjusted cash from operations, excluding change in non-cash working capital, was $2.19 billion, compared with $2.28 billion a year earlier. Capital expenditure was $824 million compared with $944 million. The resulting free cash flow for the quarter was $1.37 billion (compared with $1.34 billion), which is an 11% yield (annualized) on the enterprise value.

Capital expenditure was down 13% while upstream production was up 2%, year-over-year. 

This was in an environment of $71.40/bbl WTI vs $76.95 a year earlier. Luckily, the differential between WCS and WTI fell from $19.35/bbl a year ago to $12.65 in the first quarter. 

It is obviously not good that WTI has dropped to $60/bbl. Suncor produces about ~310 million barrels of oil a year so a ~$10/bbl hit to crude costs us $3 billion annually assuming that differentials and refining margins remain the same. (Crack spreads are currently higher than last quarter.) That's a huge chunk of our cash flow. It amounts to $2.44 per Suncor share. Trump's trade war is costing us real money!

Thursday Night Links

• The proposal I have outlined is – for now – a carefully estimated thought experiment drawn from existing data, not an empirical report on costs from the front lines of a hundred-gigatonne-a-year sequestration megaproject. It is not unreasonable for readers to regard some of my numbers as a little rough around the edges. But even if energy costs are off by a factor of two, the conclusion seems inescapable: one promising, comparably cheap, and relatively easy pathway to reversing global warming and returning to the cooler, more stable world of the second millennium is by deploying Earth’s natural sequestration process at industrial scale, using technology we already have, at a cost that might feasibly clock in at less than one percent of the world’s GDP. [Works in Progress] 
• Their political hero’s trade adviser kept attacking what the county’s business guru called their “golden goose,” and no one knew how to quell the clash between two of the most beloved brands in Spartanburg. Around here, it’s like watching Santa Claus kick the Easter Bunny. Or Uncle Sam stomp an apple pie, nay, strudel. “This is Trump country,” said Eddie Tallon, a retired Republican lawmaker in South Carolina’s conservative Upstate, “but we love BMW.” In the days since White House aide Peter Navarro publicly bashed the German carmaker credited with resuscitating the local economy, GOP leaders here have faced an awkward dilemma: How do they defend the foreign firms propelling South Carolina’s growth against a ruthlessly America First president? [The Washington Post]
• Republican Sen. Rand Paul left a lunch meeting with U.S. Trade Representative Jamieson Greer this week feeling thoroughly unimpressed — not only with the administration’s strategy, but also with his own colleagues. “Most of it was Republican senators congratulating him, wishing him well as the industrial czar and pleading for exemptions to the tariffs for their people,” Paul told NOTUS afterward. “It reminded me of a meeting on industrial policy in the Soviet Union, where you have to be nice to the czar because if you’re nice to the czar, they’ll bequeath upon you exceptions to the iron fist,” he said. [NOTUS]
• "We are pleased to report the best quarter in ICE’s history, highlighted by record revenues, record operating income and earnings per share growth. Amidst a backdrop of continued geopolitical and macroeconomic uncertainty, our first quarter performance reflects the quality of our all-weather business model and the value of our markets, technology and data services. Looking to the balance of the year and beyond, ICE's diverse platform is well positioned to serve our customers, generate growth and create value for our stockholders." [Intercontinental Exchange, Inc.]
• I live in Washington and have friends who are heavily involved in the horse world in Middleburg and Upperville, as well as in Baltimore County, and I agree you see plenty of Subarus amongst the truly old old money wasp folks, and Volkwagon station wagons. I also spend a lot of time in Thomasville, Georgia, the quail hunting capital of the country, and amongst my friends- all boarding school educated old money folks, with historic in town houses, and plantations in the country, almost all have a Subaru Outback. How else can you maneuver the dirt and gravel drives in the country? Anyone who drives a Mercedes or BMW suv is identified as a yuppie, with no place in the country. [Salt Water New England]
• In this paper, I provide a descriptive analysis of religious worship attendance using geodata from smartphones for over 2 million Americans in 2019. I establish several key findings. First, 73% of people step into a religious place of worship at least once during the year on the primary day of worship (e.g. Sundays for most Christian churches). However, only 5% of Americans attend services “weekly”, far fewer than the ~22% who report to do so in surveys. The number of occasional vs. frequent attenders varies substantially by religion. I estimate that approximately 45M Americans attend worship services in a typical week of the year, but with large changes around Holidays (e.g. Easter). [Devin Pope] 
• When considering the effects of bank regulation on community banks, we should ask ourselves why so much financial activity has moved out of the regulated banking system. For example, the shift of mortgage lending to nonbanks has undercut an important line of business for community banks. It is clear this shift out of the banking system is to some degree driven by regulation—and in particular by outdated capital requirements on some exposures that are well in excess of the latest evidence on the actual risk of those exposures. [Treasury Secretary Scott Bessent]

Tuesday Night Links

• Few of today’s populists bemoan the declining reliance on agriculture jobs, but the phenomenon is the same as what’s seen in manufacturing. In both cases, people can produce more than in the past with less workers. Blame technology, not trade—and don’t fall for the populist nostalgia trap. It also turns out that those service jobs were not lower paying jobs, and that manufacturing jobs, in general, didn’t reliably provide higher income. (Even when they did pay more, they didn’t pay much more.) [Cato Institute]
• If you’re going to try and mount an intellectual defense of Trump’s tariff policies — instead of just screaming out memes, pointing fingers, and trying to distract people by talking about immigration instead — this is basically how you have to do it. Nothing good is coming of Trump’s tariffs right now, so if you’re going to defend them, you basically have to argue that they represent short term pain for long term gain. In this case, the long-term “gain” is economic self-sufficiency and a bonanza of factory jobs. Formally speaking, you can’t prove that this is wrong, except by waiting a bunch of years and then observing that reindustrialization didn’t happen. There are no hard and fast economic laws of the Universe; we have a lot of theories, but economies are complex beasts, and the past is an imperfect guide to the future. I can’t completely rule out the possibility that Trump’s tariffs will cause a vast crop of steel factories and shoe factories and semiconductor factories to spring up from the American topsoil like mushrooms after the rain. And yet when we look at what’s actually happening to American manufacturing in real time, it doesn’t look anything at all like the beginning of the reindustrialization that Cass imagines. [Noah Smith]
• Economists that seriously study the issue generally find that falling manufacturing employment doesn’t have much to do with corporate management, and surprisingly, it doesn’t even have that much to do with trade (although a few dissent on this latter point). Instead, 80% - 90% of the decline can be traced to higher manufacturing productivity combined with stagnant demand, the same thing that reduced employment in agriculture in a previous generation. This is why the decline in manufacturing employment dates all the way back to WWII: greater manufacturing efficiency generally translates to lower manufacturing employment, because there is some upper limit on the number of cars and light bulbs we want to consume. We take the dividends from more efficient manufacturing and redeploy it to deliver services, especially in education and health care. [MD&A]
  
• When you invest in a company, you are really buying two assets: Their current business, and the unique knowledge they have about adjacent businesses, which they can monetize by investing the firm’s capital. […] One reason successful investors emphasize the quality of the management team, particularly among growth companies and companies in fast changing markets, is that their ability to allocate capital and win in other fields is crucial to the outcome of an investment. A DCF of an existing business is inadequate to analyze the outcome in a fast changing field where yesterday’s assets are becoming obsolete, but the leading players have a huge head start on building the more durable assets of tomorrow. [MD&A]
• Zell realized that his replacement cost framework would apply to all long-lived capital investments, not just real estate. In the mid-1980s, his firm bought a fleet of railcars, which were then trading at half of replacement cost, following a construction boom a few years before. Same model, same bet, same result. In 1992 he flipped his railcar fleet to GE for a huge profit. This is not to say that Zell’s fortune can be entirely attributed to simply buying quality assets trading at a discount to replacement cost. Zell was a savvy operator and a talented dealmaker who boosted his returns through leverage and clever structuring. But at the same time, throughout his career, this was Zell’s big shtick: “to look for opportunities in places where others were ignoring the rules of supply and demand”. [MD&A]
• I would conclude that successful startups end up getting into venture investing because their early success and the economics of their industry creates a unique set of incentives whereby it just so happens they will sometimes achieve the best outcome by investing in companies that build complements. It cannot be overlooked also that early success allows a startup to raise a lot of cash, which makes it easier to get into a venture strategy. It certainly does not imply that most startups would be more successful if they started a venture capital arm. Indeed, this strategy mostly compounds the advantages of startups that are very successful in the first place, but we would not expect it to turn a struggling startup into a market leader. [MD&A]

PrairieSky Q1 2025

PrairieSky Royalty announced earnings (financials, MD&A, presentation) for the first quarter of 2025. Some highlights:

Oil royalty production volumes averaged a record 13,502 barrels per day, a 3% increase over Q1 2024.

Funds from operations totaled $85.8 million or $0.36 per share, an increase of 3% over Q1 2024 primarily due to increased oil royalty revenue with higher oil royalty production volumes combined with narrowed oil price differentials.
 
Realized oil pricing averaged $83.16 per barrel, an increase of 8% over Q1 2024, as the 7% decrease in average WTI crude oil benchmark pricing was more than offset by narrowed light and heavy oil price differentials and a weaker Canadian dollar relative to the US dollar. 

Purchased and cancelled 3,415,900 common shares under the Company's normal course issuer bid ("NCIB") for $90.0 million.

Completed acquisitions of both producing and non-producing royalty interests for $63.6 million. 

PrairieSky generated cash from operations of $65.5 million, they spent $46 million on acquisitions, $66 million on share repurchase, $43 million on dividends, and borrowed $90 million on their bank loan. (They took net debt from $110 million the prior quarter to $195 million.) Interest rate on the loan is floating, currently 5.9%.

The market capitalization is $4 billion so the CFO/EV yield is 6.6%.