KAR (ASX) Strap in. Lift off.

Originally posted by Andyrooo: ↑

"Buffett, a world-renowned bargain hunter who specializes in spotting undervalued stocks, likely decided that Occidental's shares were too cheap to resist"
Jeez, someone tell him to look at KAR then.

He saw Occidental paid US$12b for 170kbpd Crown and the US$1b in FCF for CY24. He liked it.

KAR is looking at producing 13mbpa for FY/CY24, which is effectively just over 35kbpd.

KAR is valued at A$1.6b plus A$448m (US$300m debt @67c) plus A$298m (US$200m+ Petrobras deferred acquisition liability @67c) which is A$2.346b (including debt). Though at 31Dec23 Cash may total over A$300m, so EV of just over A$2b.

We were looking at FCF of over A$1b for FY/CY24 but Brazil production has fallen by over 10% due to misfiring wells. Even still, FCF of A$800m looks a gimme and an EV to EBITDA of 2.5.

When I invested almost a year ago, we were lookng at an EV to EBITDA of less than 1.5 ... and impending dividends. Still, the life of KAR's total resources now is such, that it justifies a much higher P/E. I'd bet on a dividend being paid in CY24. Whether its 31Mar or 30Sep is the question.

Who Dat has a lot of exploration potential. Crown is uncertain/not disclosed.

Still, I wonder whats going on there. We sell production there at MARS US grade but there appears to have been an absence of sales of that grade since early November when the Louisiana (GoM) oil spill occurred:

Problemo? It's been 43 days now.

Despite a fall of 25% in active Oil rigs YOY in the US shale industry, they are producing record amounts of Oil. They must have invented some tech breakthrough. Is it temporary? Buffett is betting it isn't.

Certainly, the Occidental deal has scale on its side justifying a premium but that aside, it still makes KAR look undervalued. In terms of Oil output, Buffett paid 10.6x per MMbbl (US$12b is A$18b @67c for 170kbpd) whereas KAR is valued at 5.7x (A$2b for 35kbpd) .

There is a lot of exploration potential in the Who Dat deal. I doubt it equates the same with Occidental's purchase of Crown ... but I don't know. Shale is relatively high cost as well. Both Brazil and GoM are low cost/high margin.

I'm not saying I'm right, I'm just putting it out there for discussion. Hopefully someone with a clue will correct me ... if I'm wrong.

There is no way I want to rely on just dumb luck when making an investment ... nor will Warren Buffett.

While Buffett sold down some of his Chevron holding in CY23, we can at least take comfort that he still considers Oil an appropriate investment with his increased holding in Occidental.

Expand

"Despite a fall of 25% in active Oil rigs YOY in the US shale industry, they are producing record amounts of Oil. They must have invented some tech breakthrough. Is it temporary?"

I was just hearing how the USA revised energy production statistics this year to include natural gas liquids. Its not so much an extra million plus barrels of Oil produced ... but a recategorisation. The Oil production capacity is just not as strong as it appears on paper.

@2m:

The Biden government just revises definitions. Recession, labour force participation, genders, etc. and now even oil production.

Europe's in recession. Germany (the EU's main economy) has seen PPI fall off a cliff since ? blew up the Nordstream pipeline, causing the greatest climate damaging event in human history. Germany's cost of energy skyrocketed, as it was forced to import so much of its energy needs from the USA.

The USA is in recession BUT for Government spending keeping official stats positive. That's about to change.

All human activity is underpinned by its cost of energy. A fundamental change occurred in around the late 2000teens:

Oil demand has already taken a hit, the question is how much more in 2024 and 25? History shows:

Oh wait, the USA still has an Ace up its sleeve:

Syria, Ukraine, Gaza, China, Venezuela. Bloody Hell, mate. Literally.