Oil Outlook Review

23 November 2019

Dear Fellow Investor,

Some of you have asked me about my oil outlook. I am neutral with an upside bias based on my view that there will be some trade war resolution  A trade war resolution will boost Asian markets and be positive for oil companies.

We hold Dialog for our managed accounts which is an integrated oil company based in Johor. That means Dialog is exposed to upstream, midstream and downstream activities.  

Dialog is effected by crude oil prices but not to the same extent as most other oil companies.  The reason is that they own tank terminals for oil storage.  Their tanks are in Pengeran, a deep water terminal in Johor.  The location is strategic because they handle cargos from the Straits of Malaka, the second busiest oil passageway in the world compared with the Gulf of Hormuz. and are able to easily handle Asian demand.

Asian oil demand is steadily increasing and Dialog is centrally located in close proximity to Japan, Singapore,  Thailand, China, Indonesia and India.

These storage tanks provide residual income not dependent on the oil price. Demand for storage continues to increase and they have plans to expand their tank farm. They have long term leases established with several oil majors such as Exxon, BP, Petronas etc.

Stable income also comes  from the plant service team which provides a wide range of maintenance, shutdown, turnaround and specialist services for the refineries, petrochemical, gas and chemical plants.

On a negative note, revenue per share has been declining for the last 3 years, and on the positive side margin has been expanding. The debt level is acceptable. PE is 34  is on the high side but cash flows are healthy and should support this valuation.

Expect range trading next week. Hong Kong elections are tomorrow and if they are peaceful that could be a positive for Asian markets. 

Invest well and grow your wealth,
Bill   

Critter of the week

 Abandoned giraffe becomes good friends with watchdog at animal shelter (and no, it’s not a tall story!)

• Jazz the nine-day-old giraffe arrived at The Rhino Orphanage after a farmer discovered him struggling  in wild.

• Resident watchdog Hunter, a young Belgian Malinois, quickly began to care for the baby, befriending him.

• Keepers will reintroduce Jazz into the wild when he's ready, but for now he remains Hunter's cuddle buddy