"We had a record year in 2022," Sheffield said on the call."We returned $8B of it back to the investors in regard to both dividends and buybacks… [so] no change at all."
Further, Smead said an incoming recession could wipe out profits in other industries, leaving investors to flock to the oil industry. Many Wall Street economists are forecasting a recession in 2023, and a Fed's model based on the Treasury yield curve puts theat 57%. Sticky inflation numbers for January seemed to convince investors that the Fed will keep rates higher for longer, meaning higher risk for a downturn.
"If Sheffield is correct on oil prices and the inverted yield curve has its usual effect on the economy, oil and gas profits could become one of the only games in town, like last year," Smead said."This attitude toward shareholder friendliness is very economic. Nothing could be better than producing addictive fossil fuel energy at higher and higher prices for the next decade.
"We believe that a huge valuation spread, as represented by enterprise value/debt-adjusted cash flow, exists between mid-cap/large-cap oil companies and the mega-caps like Exxon and Chevron," Smead said. Smead shared five examples of these more undervalued firms he's betting on.
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