Eric Nuttall: There's a great opportunity to buy energy companies with long-dated reserves

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The energy industry has entered a golden era of windfall profits and enormous dividend potential

Energy ignorance, defined as the lack of knowledge of how oil is used and the likely time frame for alternatives to displace it, has warped the market’s sense of what barrels of oil to be produced years into the future should be worth.

Oil, we are told by some notable tech gurus, just like whale oil and the buggy whip before it, is set for near-term obsolescence as the world transitions and decarbonizes. Or is it? What generational opportunity is energy ignorance creating? In my opinion, there is an extremely attractive opportunity in buying energy companies with long-dated reserves. What do I mean by this?

Using US$80 West Texas Intermediate, a discount of more than US$10 to the current price, the average energy company could buy back all its outstanding shares and pay off all its debt with just five years of free cash flow.

 

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