Survival of the Fittest, page-47

Fundamentally, it has better quality and larger asset inventory for future growth, far better balance sheet and cashflow to be able to withstand a possible extended period of price weakness as well as possibly pick up some cheap asset if others become forced sellers, very low unit cost of production (c.AUD25 per barrel), and sound stable management. Technically, my entry was right on what appears to be a triple bottom (89-90c).

With all the volatility going on, this is a traders' market and I am certainly not one. So despite SXY gaining some 36% since I made the call while BPT has only gained 15%, my view remains that BPT will outperform over the medium term in an environment of 55-65 oil. Everyone is different with their investment objectives and risk tolerance. For me, it's all about risk reward and probabilities. I'll take the risk if the rewards and probabilities justify it

The issue with SXY is that it is probably nearing, or past, its peak production pending further new discoveries in the short term. Combine that with high unit cost, and their cashflow can turn negative rather quickly despite the options collar they have put in place for 6 months. I am actually surprised that they haven't hedged for longer timeframe given how much impact a persisting negative oil price will have on their cashflow and balance sheet. Maiden gas sale from Hornet is a excellent in providing an alternate source of income, but they will need a much larger domestic gas sale to offset their imminent decline in oil production.

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