Subject: Re: Oil to Travel Same Path as Tobacco?
Like many of you, I have holdings in energy companies. Our holdings are Marathon Petroleum (refining), Occidental, Canadian National Resources and Suncor. We cannot live in a world without petroleum resources. I take that as a given and it is a major reason why I invested in these companies when they were cheap. What I am trying to get my head around is how the consequences of state governments taking these companies to court will eventually be for these companies, their customers and their shareholders.

What do you think? Will this be a replay of the tobacco settlement?


I doubt it.

Oil and gas companies are are selling a product which is now being recognized as harmful to the environment, although this is still controversial. But while it is hard to see any benefits to smoking (apart from the enjoyment it apparently gives people), even the most ardent opponents of oil and gas surely recognize that they provide a myriad of benefits, in electricity generation, heating, manufacturing, making plastic, making fertilize, making cement, etc. So I think that juries will not be nearly as sympathetic to these cases, and they will more often be overturned on appeal.

That said, the commodity called common sense seems to be a little harder to count on, in the last few years, so who knows?

As for the rest of your hypothesis, that societal opposition to oil and gas (and coal) use may actual protect incumbents' competitive position, I think this idea makes a lot of sense. In particular, if there is a lot less capital spent on exploration and production, there will inevitably be less output, and prices could go a lot higher. Tobacco and oil are similar in that demand tends to be fairly stable, but supply of tobacco is fairly stable from year to year, without substantial investments in production - this is not true of oil and gas, where it could take years of renewed investment in development to catch up with a gap between supply and demand. And it may be that oil and gas companies, while they are not allowed to collude to suppress supply, are aware of these dynamics and tacitly going along with it.

The Internation Energy Forum (IEF) says this:

The major constraint on near-term investment levels has shifted from capital availability to capital allocation. Oil and gas E&Ps are experiencing record profits. While companies prioritize returns to shareholders, share buybacks, and debt repayment, they still have ample free cash flow that could jump-start upstream investment. The question is now, will companies re-invest, and if so, where?
https://www.ief.org/focus/ief-...

As a citizen, I hope the industry spends enough capital to forestall a crisis in supply, but as an investor with 10% of my investments in oil and gas, I hope for the opposite.