Following HitecVision´s lead - not a smart move

HitecVision may be the most successful Buyout (Private Equity) player within the energy space the last 20 years. It therefore seemed reasonable to take a closer look at their first ever public none controlling financial plays implemented in November of last year.

Hitec bought a 10 % stake in Prosafe and a 10 % stake in Kvearner. Post evaluating the two companies based on my own criteria, while being highly biased due to Hitec´s investment I placed my bets. The stocks have performed horrifically, with Prosafe experiencing cancelled contracts and Kvaerner being mentioned in a potential corruption case (I am 99.9 % certain that Kvaerner does not have anything to do with corruption, however such things tend to be bearish for stock prices).

Prosafe is actually one of the worst performing Norwegian stocks since I invested alongside Hitec. Luckily I exited my position before it got to bad as Prosafe is a sinking ship in need of financial restructuring. I exited Kvaerner yesterday and reallocated my capital to the E&P company Hess Corp. I have learned my lesson and will not listen to anyone but myself when making up my mind regarding positions in the market going forward. You live and you learn. Luckily I always diversify my holdings, thus the lesson was worth the pain.

Links to my previous blog entries regarding Prosafe and Kvaerner:
Oeistein Helle: HitecVision is picking up public stocks as financial plays
Oeistein Helle: Following HitecVision's lead - part 2

How it feels like to be a Prosafe investor:

Disclosure: I am no longer long Prosafe and Kvaerner.

I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Oil will move to USD 100 within a couple of years. Get on board the gravy train!

If you want to beat the market and book some portfolio alpha you should be overweight E&P companies for one simple reason: Oil is currently trading significantly below its marginal replacement cost of USD 65 - 75 per barrel. If you are a long-term investor this is all you need to know in order to pick up E&P companies such as PJSC Lukoil and Hess Corp on the cheap. Oil will make a move to USD 100 per barrel within a reasonable timeframe (a couple of years) due to the fact that the oil market always over or undershoots its target significantly. The oil price equilibrium target is USD 65 - 75 per barrel vs. the current price of USD 40 per barrel.

I know you could make an attempt on timing your market entry by studying fundamental factors such as inventory levels, the futures curve shape, # of operating rigs and slowdowns in production, however all you need to know at this point is that oil is trading significantly below its marginal replacement cost. All the other stuff mentioned will just make your trigger finger tremble and you will miss out on the opportunity.

I have made this point a couple of times before: 

Oeistein Helle: Stein´s law makes me 99 % certain that the oil price will bounce back in the mid- to long-term

Breakeven oil prices and the marginal cost of oil:

Source: EOG Resources, Inc. 

Disclosure: I am long PJSC Lukoil and Hess Corp.

I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it. I have no business relationship with any company whose stock is mentioned in this article.