Black Swan Farming: Product Development Payoff Asymmetry

“[Certainty can] seem like a good idea, but actually lead us into trouble… The story here revolved primarily around the stochastic nature of product development… Succeeding in product development requires the discovery and exploitation of options where there is an asymmetry to the payoff function.” […]

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Watt’s Up With That: A Tale of Two Sigmoids

There are dozens of different mathematical constructions that yield bell-shaped curves. The “Hubbert” or “Peak Oil” curve is actually a special case of a class of s-shaped functions called sigmoids. While most sigmoid functions begin and end at different values, Hubbert’s curve is constrained to begin and end at zero by the formula and boundary conditions imposed that represent a perfect mathematical translation of Hubbert’s worldview. The curve reflects a battle between two competing forces or trends – one for growth and one for contraction – where the balance shifts between the two along the way. […]

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Article (Alberta Oil Magazine): The Best Little Oil Companies in Canada

Date of Source: 21 Oct 2016

Summary:
Fifteen years ago it was common knowledge that oil and gas production in North America was in terminal decline. After decades of exploration, all of the profitable onshore oil and gas in Canada and the U.S. had already been discovered… While the attention of the majors was elsewhere, close to home something happened. Small companies run by entrepreneurial management teams cracked the code on vast amounts of oil and gas located here in North America. […]

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Seeking Alpha: Imperial Oil — Levered Exposure To Oil Prices At A Fair Price

Image source: Imperial Oil Corp. Corporate Overview – Winter-Spring 2017. pg. 5

  • Imperial Oil Corp is a rationally integrated enterprise — assessing any given business segment in isolation ignores synergies which are especially important during the lower half of the commodities cycle.
  • The upstream business segment, by far the largest in terms of capital investment, is heavily exposed to Canadian oil sands projects which are marginal in the current commodity prices environment.
  • Yet, records profits from the downstream and chemical business segments demonstrate how they have benefited from cost advantaged feeds.
  • In the current commodity price environment, IMO’s common shares are likely fairly valued $22 to $32 per share; there is significant uncertainty in that estimate.
  • Given non-compelling valuation and risks, I do not hold the equity outright. However, I believe that call options may provide favorable risk-reward characteristics given their leverage to crude oil prices.

Read the full article on Seeking Alpha → 

Seeking Alpha: Cenovus’ Consolidation Offers Counter-Cyclical Upside

Source: CVE Corporation Presentation. Cenovus announces acquisition of Western Canadian assets. Pg 4. 29 Mar 2017. available: http://www.cenovus.com/invest/docs/2017/acquisition-western-canadian-assets-presentation.pdf

  • Cenovus’ expanded asset base, following the $C17.7 Bn acquisition from ConocoPhillips, will be largely of high quality and is expected to more than double 2017 production.
  • Its oil sands position is not terribly exciting in terms of growth, but it does promise commodity-price resilient cash flows which can be used to fund future growth.
  • The companies largely expanded position in the Canadian Deep Basin may be largely under-recognized as a leading foothold in what my be aptly called “The Permian in the North”.
  • Pre-acquisition, I posit that the current stock price of around $10 moderately undervalues the company and largely discounts potential commodity price driven and/or geological upside.
  • Given the dearth of apparent opportunity in the upstream oil and gas space, CVE is favorite yet long idea of 2017.

Read the full article on Seeking Alpha → 

DeSmog Blog’s Mission Statement Quashes Rational Skepticism

One can (correctly) argue that the foundations of the modern scientific inquiry are built on the foundations of rational skepticism. Contrary to some beliefs, science cannot “prove” anything. Rather, it is premised on the “refutation” of untruth. By eliminating all other possible explanations, the scientific method thereby accepts a theory as “truth”. All fields of inquiry which purport themselves to be scientific, but for which no theory is refutable, are not science.

So, what should we make of climate “consensus” promoters who deny the irrefutably of specific, unproven theories? Does this not contradict the basis of rational skepticism? For example, Jim Hoggan (a lawyer) and Brendan DeMelle (a writer) have this to say about those who question the “consensus truth” regarding ACC:

Unfortunately, a well-funded and highly organized public relations campaign is poisoning the climate change debate. Using tricks and stunts that unsavory PR firms invented for the tobacco lobby, energy-industry contrarians are trying to confuse the public, to forestall individual and political actions that might cut into exorbitant coal, oil and gas industry profits. DeSmogBlog is here to cry foul – to shine the light on techniques and tactics that reflect badly on the PR industry and are, ultimately, bad for the planet.

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Report: Commodities Demystified – A Guide to Trading and the Global Supply Chain

Date of Source: 2016

Summary:
Commodities trading – supply of the basic staples that are converted into the food we eat, the industrial goods we use, and the energy that fuels our transport and heats and lights our lives – is one of the oldest forms of economic activity, yet it is also one of the most widely misunderstood. At no time has this been truer than in the last 20 years, with the emergence of a group of specialist commodities trading and logistics firms operating in a wide range of complex markets […] 

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Axioms of Asset Valuation


My intent is that this post become a living document which houses my own personal magnum opus on asset valuation. Herein and throughout I will posit certain axioms of asset valuation that I believe to be relevant for distinguishing between a thing’s market versus true value. Upon review, one might (correctly) deduce that none of these axioms are my original ideas.
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AQR – Cliff’s Perspective: Fama on Momentum

Date of Source: 05 Feb 2016

Summary:
The long-term success of the momentum factor seems to be a challenge to many observers. People say things like “momentum only works among small stocks” or “momentum only works for going short, not long.” These comments, which appear to be aimed at casting doubt on the implementability of momentum, seem to be spoken about more than written. There’s a reason for that. When you run the numbers, these statements are just not close to true. We’ve disproven a whole gaggle of them here. But, like many misperceptions, once in the zeitgeist they remain hard to kill. […]

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Reblog: Grossly Distorted Prosperity — Surplus Energy Economics

Date of Source: 30 Oct 2016

Summary:
ECONOMIC DECELERATION – AND HOW TO MEASURE IT One of the quirks of economics is that, within GDP (gross domestic product), all output is included, irrespective of what it really adds to prosperity. GDP, like Oscar Wilde’s cynic, knows “the price of everything, but the value of nothing”. If government paid 100,000 people to dig […]

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