Summary
- Rising global demand for oil and a gradual green transition mean we may be in the early stages of the next oil and gas supercycle.
- Energy equities are undervalued despite the ongoing rally, so substantial upside to oil and gas equities may exist.
Introduction
Business has never been better for oil and gas producers. Profits are booming, commodity prices are rising, and growth at any cost has shifted to investor-friendly debt paydown, share repurchases, and dividend increases.
It does not hurt that the fundamental outlook for oil and gas remains strong. The confluence of uneconomic ESG mandates (which are reducing investment and future supply), years of underinvestment in oilfield services, and low oil and DUC inventories has led to structural supply deficits that may take years to resolve. With rising global demand and a green transition that will take decades to achieve, we may be in the early stages of the next supercycle for oil and gas producers.
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