Oil expert: The cash flow of the oil industry will soar in the future.

A Bull's Financial News: Jody Chudley, a well-known oil analyst, recently wrote in DailyReckoning that soaring cash flow, increasing dividends and stock repurchase? These characteristics are the secret of successful investment.

However, in the next few years, there is an amazing industry that can provide these three services for investors.

Chudleigh said, "Can you guess which one I'm talking about? Believe it or not, I'm talking about oil! "

The data shows that the cash flow of major oil companies was strong in 20 17, and its cash flow will further soar from 20 18.

As for the reason, Chudleigh said that this is because as a whole, the cash flow generated by these companies at the price of $60 per barrel will far exceed the level of oil at 100.

The best thing for investors is that the share prices of these companies do not reflect these facts at present.

Like every commodity industry, this is a cyclical industry. For "Big Oil", the next three years will be the best period of this cycle.

Now tell me why. Why do oil producers think that $60 per barrel is better than $0/00 per barrel? !

Why do oil producers prefer $60 to 100?

Chudleigh said there are three reasons! Specifically:

First, large-scale projects have finally started to operate!

Everyone believes that $0/00 per barrel/kloc will become the new normal. During the period from 2065,438+065,438+0 to 2065,438+03, the number of large-scale projects approved in the history of the oil industry was the largest.

These large-scale oil projects need tens of billions of dollars and take several years to complete.

These projects are now in production, and when they are completed, the oil giants will eventually get billions of dollars in cash flow from them.

Second, the cost inflation caused by the oil boom has subsided!

For example, in the gold rush, you might prefer to sell pickaxes and shovels rather than dig for gold.

Similarly, during the product boom, when you sell supplies and services, you can charge high prices.

So is the oil market. When the oil price reaches $0/00 per barrel, the service competition is extremely fierce and the cost is out of control.

Nowadays, the cost of these services is greatly reduced due to the greatly reduced level of activities. This has greatly reduced the funds used by oil giants for development.

Let's give another ideal example: consider that the daily rate of offshore semi-submersible drilling platforms has increased from 400,000 dollars per day in 20 14 years to less than 0.5 million dollars per day today. If we combine this reduction with the massive layoffs of the oil giants themselves, we will find that the total cash outflow has been greatly reduced.

Third, backwardness limits capital investment!

The oil futures market is currently in a seriously backward state, which means that the price of oil futures contracts is lower than today's oil market price.

This makes it impossible for oil companies to hedge their future production, and in order to increase the certainty of future cash flow, oil producers usually want to hedge a large part of their future production.

Therefore, with the decrease of hedging (and the uncertainty of future cash flow), the company is unwilling to bear huge capital expenditure.

This will have a further positive impact on today's service cost and contribute to future oil prices, because it will reduce future production.

Cash flow is not reflected in the stock price.

Chudleigh said that the increase in future cash flow is not reflected in the share price of oil producers. Although the stock market has performed well in the past five years, the share prices of oil giants have made no progress.

For example, Chevron, Royal Dutch Shell, Total, Exxon and ConocoPhillips, all share prices have remained basically unchanged in the past five years!

Finally, oil experts said that the market will definitely not price the sharp increase in free cash flow that these enterprises are about to see.

Chudleigh said, "We don't need to choose a stock to take advantage of this opportunity. We can spread the risk by owning a basket of oil. "

This will not only allow investors to benefit from the upcoming cash flow surge, but also allow investors to get some very good dividend income in the process.

(Copyright: This article was compiled by Niu Yi Finance and Economics Wang Hailin, please be sure to indicate the source! )