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Billionaire Names Oil Stocks He Calls “The Investment Opportunity Of My Career” – Forbes

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Texas Style: John Goff in the lobby of the glass-faced, 20-story McKinney & Olive office tower in Dallas, which his Crescent Real Estate built and still mana­ges. The lip-shaped sofa is by Cassina. 


John Goff sees huge gains for distressed frackers especially if they follow Big Tobacco’s playbook for declining businesses.


John Goff made his first fortune more than a decade ago, teaming up with his mentor, legendary investor Richard Rain­water, to buy up empty “see-through” office buildings for pennies on the dollar in the wake of the S&L crisis that began in the late 1980s. They went on to sell Crescent Real Estate for $6.5 billion at the 2007 peak and then scooped it up again a few years later at a discount amid the wreckage of the financial crisis. Goff, based in Fort Worth, Texas, is now chairman of $3.4 billion (assets) Crescent, and personally owns the Ritz-Carlton Hotel in Dallas and the Canyon Ranch spa chain founded in Tucson, Arizona. He still loves high-end real estate, but today he’s focused on what he calls “the single biggest opportunity of my business career”—oil. 

It’s a contrarian move, all right. Watch the financial headlines and you’d think the end of oil was nigh. Last April, oil prices went to less than zero for a day as crude in storage reached “tank tops.” America’s frackers have mothballed 60% of their drilling rigs in the past 18 months, while more than 100,000 have lost their jobs amid the bankruptcies of 46 producing companies—including the one-time shale champion of them all, Oklahoma City–based Chesapeake Energy. The plight of the American oil patch, Goff says, “is like real estate in the early ’90s. They had overbuilt, doubled the office space and were woefully overleveraged.” 

Back in 2008, when oil hit a record high of $147 a barrel (and Big Oil made up 15% of the S&P 500), all the talk was of Peak Oil supply. Today oil trades at $53 and makes up just 2% of the index—and market watchers are pushing the idea that we’ve already passed Peak Oil demand. Goff, 65, laughs at such forecasts. 

“Before the world does not need any more oil, we will suffer a shortage,” he predicts. The world may be burning nearly 10% less oil than the pre-pandemic 101 million barrels per day, but, he says, “don’t mistake Covid-related weakness for a secular shift.” Goff reasons that electric vehicles are still just a blip. “I think there’s tremendous pent-up [consumer] demand. People are really tired,” he says, adding that workers want to get back to their offices. “Oil and gas is going to come back with a vengeance.” Already, in Brazil, petroleum demand is above pre-coronavirus levels. 

So this vulture has been circling, fully convinced that with the right assets, capital structures and incentive plans, oil companies can thrive. “We’re buying reserves in the ground at a big discount,” Goff boasts. His primary platform is publicly traded Contango Oil & Gas, of which he owns 24%. Goff oversees the holding company as chairman; acolyte Wilkie Colyer Jr., 36, serves as CEO. In October 2019 they snapped up 160,000 acres of prime fracking land in Oklahoma and the Texas Panhandle for $23 million. About the same time, on the steps of an Oklahoma courthouse, they grabbed 315,000 acres from bankrupt White Star Petroleum (founded by the late wildcatter billionaire Aubrey McClendon) for $130 million. In November, they paid $58 million for 180,000 acres in Wyoming, Montana and Texas. Goff followed that up by merging Contango with another small oil company he controlled, Mid-Con Energy Partners. Assuming a conservative $45 per barrel, Contango is on track to generate in the neighborhood of $75 million in earnings (after capital spending and interest payments) in 2021, pumping roughly 25,000 barrels per day. So far, Wall Street hasn’t credited Goff’s bargain buying. Over the last 12 months Contango’s stock is down 34%, while the S&P oil-and-gas index is off only 20% and the broader market has surged 20%. 



Goff intends for Contango to keep growing. But unlike during the heyday of the shale boom a decade ago, when companies seemed to be drilling and fracking nearly every cow pasture in oil country, this growth will come from continuing to buy already developed cash-producing assets at what he calls “very, very attractive” prices. 

Indeed, Shale 2.0 has gotten religion about needing to “live within cash flow,” says Ben Dell, managing director at New York–based private equity outfit Kimmeridge Energy. He shares Goff’s enthusiasm for restrained growth. A Brit and former oil analyst at AllianceBernstein, Dell sees a “path to relevance” for America’s beleaguered shale frackers if they would just act more like the tobacco giants did a decade ago: Accept life in a declining industry, slash costs and ramp up returns of capital to shareholders. His favorite example is Altria Group, owner of the Marlboro brand, which despite cigarette smoking’s global peak in 2012, returned 250%, double that of the S&P 500, between 2010 and 2017. Key to Altria’s stock performance during that period was the return of more than $50 billion to shareholders via dividends and buybacks—an amount that exceeded the company’s entire enterprise value in 2010. “It was not a high-growth strategy that drove the outperformance,” Dell says. “Rather, it was the dramatic return of capital that forced investors to pay attention.” 

Which publicly traded frackers have the potential to follow suit? Valuation is important. The preferred metric in the oil patch is EV/Ebitda—a company’s enterprise value, consisting of market cap plus net debt, divided by earnings from operations before interest, taxes and non-cash expenses (such as ExxonMobil’s $20 billion writedown of reserve values in 2020). But no fracking operation is worth buying these days if it doesn’t own prime assets that can generate profits even at $45 a barrel. Among the best places to find such operations has been the Permian Basin of west Texas and southeastern New Mexico, where, thanks to the one-two combo of directional drilling and hydraulic fracturing, oil production exploded from 1 million barrels per day a decade ago to about 4 million today—more than that of most OPEC countries. 

Goff’s current Permian favorites include Chevron, which sits on some 2 million prime acres in the region and has a sterling balance sheet. The next best Permian portfolio, he says, is the newly merged powerhouse of ConocoPhillips and Concho Resources. He has also been a buyer in recent years of Texas Pacific Land Trust, which collects royalty payments from oil and gas produced from under its 900,000 Permian acres. Outside the Permian, Goff is an admirer of Canadian Natural Resources, a low-cost oil sands producer. And both he and Dell are fans of PDC Energy, which holds a dominant low-cost position in Colorado’s Wattenberg basin. 

Although Goff likes buying private deals via Contango, he insists that “the best opportunity is in the public market” (see table, above). He learned that lesson early from his years working with Rainwater, who, starting in the 1970s, helped Fort Worth’s Bass brothers turn a modest oil inheritance into a multibillion-dollar portfolio that at one point included 10% of Texaco, 5% of Marathon Oil and a controlling stake in the Walt Disney Company. 



Goff joined Rainwater Inc. in 1987 at age 31, fresh from a public accounting job with Peat Marwick. He describes the Fort Worth investment firm as a dealmaking hothouse where Rainwater would spend half the day with phones in each hand negotiating with multiple counterparties simultaneously. Soon Goff was building Rainwater’s real estate business and looking on as he bought T. Boone Pickens out of Mesa Petroleum in 1996, recapitalizing it as Pioneer Natural Resources. At the time, no one imagined that Pioneer, with 800,000 acres in the Permian, would become a champion of American frackers. 

Big Tobacco not only serves as a template for what oil companies can do right, but what they can do wrong. In 2018 Altria abandoned its focus on returning capital and spent $12.8 billion to acquire a third of vaping giant Juul Labs. Over the next two years, Altria wrote down that stake by two-thirds as federal investigations into Juul’s marketing to children ramped up. Meanwhile, Juul’s founders awarded a $2 billion special dividend to themselves and other pre-Altria employees. (Juul’s founders deny any wrongdoing.) 

Goff cautions that Big Oil could easily make a similar mistake. He points to BP, whose stock has declined by 35% since last February, when it declared its intention to reinvest into renewables rather than oil. Want to invest in renewable energy? Goff suggests Florida-based NextEra Energy, which operates America’s largest fleet of wind turbines and solar panels. 

Lest you think this real estate maven turned oilman is an old fogey, Goff marvels that his most successful investments in the past year (by percentage gain) have been in cryptocurrencies, especially bitcoin. 

But he can’t shake his preference for storing wealth in the ground and thinks the geology two miles under the Permian tumbleweeds is so rich with frackable layers of oil-bearing rock that owning acreage there (as well as in prime parts of Oklahoma and Wyoming) will be a solid hedge against the increasing likelihood of inflation, prompted by the Fed’s 72% expansion of the U.S. money supply over the past year. 

“This can go on for a prolonged period—printing money at a breakneck pace,” he says. “It’s frightening to me.”  

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How to spot fraudulent investment schemes; regulator sees surge of deception on social media – Times Colonist

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Fear of missing out on a good thing may be driving people to make poor decisions with their money, according to the B.C. Securities Commission.

The market regulator said new research suggests fear of missing out, or FOMO, may have investors, especially young ones, thinking social media is a good place to find investment opportunities and that failing to act immediately on a new investment might lead them to miss big wins.

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“Results of this new research are particularly concerning because we’ve seen a surge in potentially fraudulent schemes peddled on social media during the COVID-19 pandemic,” said Doug Muir, the commission’s director of enforcement. “We also know that fraudsters put pressure on people to act quickly. It’s important to gather as much reliable information about an investment as you can before putting your money into it, and to not rush into it.”

The commission surveyed more than 2,000 Canadians, including 1,000 B.C. residents to gauge how age and FOMO influence investment attitudes.

The study found the younger you are, the more FOMO you have, with half of B.C. residents between 18 and 34 admitting they experience it compared with just 19 per cent of adults 55 or older. Thirty-eight per cent of B.C. adults under 35, who said they experience FOMO, believed social media to be a good source of investment opportunity. And 41 per cent of those believed that if they don’t act immediately, they might miss a good investment.

The commission said a key sign of investment fraud is time constraint — that an opportunity is exclusive or available only to select people, while in reality most legitimate investments are available to anyone with the money to invest. Another warning sign is rushing would-be investors, telling them they must sign now to get in on the deal.

Muir said over the past year or so, they have started to focus on factors like FOMO that influence investors.

Muir said often investors feel pressured by a variety of factors like trust, panic to make up investment shortfalls, fear of missing out and embarrassment that they aren’t well educated when it comes to investing.

“Many are embarrassed about asking questions — they don’t want to admit they don’t understand and when they also have FOMO that can overwhelm reason,” he said.

To educate people about the risk of letting FOMO drive their investment decisions, the commission is launching a campaign called Hi, My Name is FOMO to explain the importance of doing research before investing and encouraging people to report suspected fraud to the B.C. Securities Commission.

In 2018, research by the commission found that fraud vulnerability is highest among younger people, particularly young women.

Muir said the commission has been very active over the past year dealing with an overall increase in fraud as a result of the pandemic.

“It’s not surprising, fraudsters pick up on the theme of the day,” he said. “Fraud hasn’t changed much, but the particular hook they use to get people changes.”

aduffy@timescolonist.com

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Bank of Canada’s next move to be tapering asset purchases: Reuters Poll

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By Mumal Rathore

BENGALURU (Reuters) – The Bank of Canada‘s next policy move will be to taper its asset purchase programme following a solid economic rebound and sustained growth later this year, according to a majority of economists in a Reuters Poll.

Despite renewed lockdowns in some provinces and expectations of a slowdown this quarter policymakers expect a recovery to be driven by a successful vaccine rollout, knock-on effects from a U.S. fiscal package and further gains in oil prices.

The consensus of the March 1-5 poll predicted the BoC would keep its key interest rate on hold at 0.25% through to the end of next year, unchanged from the previous poll.

While two of the top five Canadian banks predicted the central bank would hike rates as early as the second quarter next year, none of the 34 respondents expected any change at the bank’s next meeting on March 10.

More than 70% of poll participants, or 15 out of 21, who responded to an additional question, said the central bank would taper its asset purchases programme as its next move.

“The bank will look to re-calibrate its quantitative easing programme before moving on the overnight rate,” said Derek Holt, vice president of Capital Markets Economics at Scotiabank.

“If growth comes in stronger than expected, we could see a reduction in monetary support offered through the asset purchase programme.”

Despite the Canadian economy contracting 5.4% in 2020, its deepest annual drop on record, it ended 2020 on a brighter note and grew at a stronger-than-expected annualized rate of 9.6% last quarter.

The economy likely grew 0.5% in January, according to the latest Statistics Canada report despite being hit by a second wave of infections and containment measures.

“The Canadian economy soldiered through the second wave of restrictions much better than anticipated, supported by a big rebound in resource sector activity and a raging housing market,” said Douglas Porter, chief economist and managing director economics at BMO.

“Look for new growth drivers to kick into gear as the economy re-opens in stages through this year, leading to roughly 6% growth – a nice mirror image to last year’s deep dive. It’s not precisely a V-shaped recovery, but it’s very close.”

All 25 economists who answered another question agreed with the BoC’s assessment of a solid and sustainable economy in the second half of this year.

 

(Reporting by Mumal Rathore; Polling by Manjul Paul; Editing by Jonathan Cable and Edmund Blair)

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Comparing Luxury Investment Around the World – Visual Capitalist

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Do you enjoy the finer things in life? For many of the world’s wealthy individuals, acquiring luxury goods such as art, fine wine, and watches is a passion.

Unlike traditional investments in financial assets, luxury goods can be difficult to value if one does not have an appreciation for their form. A rare painting, for example, does not generate cash flows, meaning its value is truly in the eye of the beholder.

To gain some insight into the market for luxury goods, this infographic takes data from Knight Frank’s 2021 Wealth Report to compare the preferences of nine global regions.

Global Tastes in Luxury Goods

To rank the most popular luxury investments in 2020, Knight Frank surveyed over 600 private bankers, wealth advisors, and family offices. The following table summarizes their findings, as well as each category’s growth according to the Knight Frank Luxury Investment Index.

Global Average Ranking Category 10-year growth in asset values (%)
1 Art 71%
2 Classic cars 193%
3 Watches 89%
4 Wine 127%
5 Jewelry 67%
6 Rare whiskey 478%
7 Furniture 22%
8 Colored diamonds 39%
9 Coins 72%
10 Handbags 108%

Art was unmistakably the top category for 2020, ranking first in every geographic region except Africa and Asia, where it placed second instead. The global market for artwork was estimated to be worth $64 billion in 2019, and is often facilitated through auction houses such as Sotheby’s.

In terms of asset appreciation, rare whiskeys have climbed the most in value over the past 10 years. Connoisseurs of this spirit will be familiar with distilleries like The Macallan, whose rare bottles can sell for more than a million dollars.

Comparing Luxury Investment Between North America and Asia

Below, we’ve compared the rankings of Asia and North America to get a better idea of how preferences can vary.

The biggest differences here are watches, which ranked first in Asia but fourth in North America, and classic cars, which ranked second in North America but fifth in Asia. The remaining eight categories took similar spots across the two regions.

Rank Asia Popularity North America Popularity
1 Watches Art
2 Art Classic cars
3 Jewelry Wine
4 Wine Watches
5 Classic cars Jewelry
6 Rare whiskey Rare whiskey
7 Handbags Furniture
8 Furniture Handbags
9 Colored diamonds Coins (tied for 8th place)
10 Coins Colored diamonds

Asia’s stronger preference for watches was likely driven by Chinese consumers, who are now the biggest buyers of luxury watches globally. Demand throughout the COVID-19 pandemic proved resilient, with exports of Swiss watches to China increasing by 17.1% between January and November 2020.

Classic cars, on the other hand, may be more popular in North America due to the region’s longer automotive history. Two of America’s most iconic automakers, Ford and General Motors, have both been around for over a century!

The Biggest Sales of 2020

Here were some of the most extravagant and noteworthy luxury sales from 2020.

Art

Francis Bacon’s 1981 Triptych Inspired by the Oresteia of Aeschylus was sold by Sotheby’s for $84.6 million in June 2020. A triptych is an artwork that is divided into three sections but displayed as a single piece.

Other paintings by Francis Bacon have sold for even larger amounts. In 2013, Three Studies of Lucian Freud was sold by Christie’s auction house for $142 million.

Classic Cars

A 1932 Bugatti Type 55 Super Sport Roadster sold for $7.1 million in March 2020, making it one of the biggest classic car sales of the year.

Founded in 1909, Bugatti has produced some of the world’s most sought-after cars. The French brand was acquired by the Volkswagen Group in 1998, and since then, has released numerous special edition cars with price tags reaching well into the millions.

Handbags

An Hermès Himalaya Niloticus Crocodile Retourné Kelly 25 sold for $437,330 in November 2020, becoming the most expensive handbag ever sold at an auction. Founded in 1837, Hermès is commonly regarded as one of the world’s most prestigious makers of handbags.

COVID-19 Dampens Luxury Investment

When compared to 2019, total sales for Sotheby’s declined 16% in 2020, while Christie’s, another leading auction house, reported a 25% decline. Despite these decreases, executives remain optimistic.

“The art and luxury markets have proven to be incredibly resilient, and demand for quality across categories is unabated.”
– Charles Stewart, CEO, Sotheby’s

The industry has been largely successful in transitioning to online operations, with Sotheby’s reporting that 70% of its auctions in 2020 were held online, up from 30% in the previous year.

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