Intrinsic value of oil? Does it have cash flows? What discount rate?
So you're saying the oil futures curve is incorrect then? As it is showing lower prices long term.
What information do you have that the market doesn't?
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Cool an oil discussion. Finally something interesting.
Majors need $60 oil to pay for their operations, buy backs and dividends. I saw that on CNBC. For some, it could be as low as $45 USD I thought.
They're still making money hand over fist, therefore, above $70 USD. I'm think of extending my tilt to OIH. It's in a "down trend" so maybe I'll do nothing.
That's all I have to say on oil. I'll quietly back out...
Yes the oil produces cashflow to the owners of the oil field based on the market value (expectations) at the time.
Just like the inanimate building owned by OCA produces cash flows dependent on the market value of the buildings at the time of sale, resale etc.
And my expectations of longer term oil prices could be way off. I am not the one harping on here about how my view is the only view and everyone else is wrong.
Hi Snoopy, really interesting post here and to be honest, i'm struggling to fully digest it, but would it be possible for you to expand on it especially wrt the following?;
Quote:
So greatly expanding your whole asset base with the float, -while possibly having to shore it up later with a share issue discounted to the float enhanced net asset value-
That is for sure an interesting perspective, and i'll admit i've never thought about it in the context you are suggesting. To answer your question, instinctively I would have much more faith in the pricing system of oil being fairly close to intrinsic value based on it being a commodity with reasonably known supply and demand data? I would have less faith in a listed company price being bang on to intrinsic value, based on the range of different complexities involved with any given company(more unknowns?, more moving balls?), and my impression (rightly or wrongly) is that retail investors are not investing in oil as compared to listed companies?.
I think the two are probably closer than you think.
Oil prices have a lot of moving parts given the commodity underpins our entire existence.
Establishing what oil is ‘worth’ at any given moment is fairly complex I would say.
And with regards to intrinsic value - I suggest that the market cap is within cooee for MOST companies MOST of the time.
I acknowledge there are examples where this does not hold true. But it is a reasonable gauge of a business value (plus or minus) most of the time.
Perhaps OCA is the minority case where the market has just ‘clearly’ got it way wrong.
Perhaps it isn’t.
We must be open to the possibility that the market has priced it correctly given what is known today (which informs everyone’s expectations which ultimately establishes the price).