This week we present an update on "Where Are We In The Energy Cycle" with a focus on (1) sector profitability; (2) financing for traditional energy; and (3) the need to “extend the runway” by which companies can generate advantaged returns and shareholder distributions.

The ROCE cycle remains fundamentally healthy with 4Q2022 sector ROCE staying "above the regression line" so to speak despite falling oil prices since 2Q2022. A key objective for companies and investors will be to avoid the "ROCE quadrilateral of death" which is explained in the video.

Financing risk continues to increase as an expanding list of European financial and insurance firms declare they will no longer support new oil & gas developments. The demise of Credit Suisse we believe could accelerate the disappearance of European finance from traditional energy. In the United States, the regional banking crisis sparked by Silicon Valley Bank's failure raises uncertainty about U.S. regional banks in general, a key source of financing especially for smaller traditional energy firms.

Finally, we conclude with a discussion of how to think about the inherent need in a naturally depleting business to "extend the runway" by adding inventory, projects, or assets at a time investors absolutely want "no new spending" yet its still early in the CAPEX cycle and cost of capital is high and competition is low.

DISCLAIMER
My views are my own and not attributable to any current or past affiliation.

CREDITS
Intro & Outro music: Wolf Hoffman on Apple Music: Concerto for 2 Cellos in G Minor, Rv 531: I. Allegro Moderato.

This episode of SuperSpiked Videopods was edited and produced by Veriten Productions.