1. Our favorite companies make tremendous amounts of FCF when oil is in the $80-$100+ range (for some companies this is true even at lower prices).

2. The FCF has recently been used to destroy the historical power of lending institutions to restrict company decisions. AKA – Debt has been reduced materially and could be reduced entirely if a company wanted to do that.

3. Many companies have begun to reduce share counts by buying their own stock. This both reduces the overall cost of future dividends and increases future EPS by changing the denominator.

4. Some companies have announced modest dividends, holding back on much larger dividends until either debt purchase goals or share repurchase goals have been addressed.

5. No overall demand destruction has been witnessed. Inventories continue to decline including the “strategic” petroleum reserve. Refineries are operating at near capacity levels.

6. 2Q22 results will be extremely positive, better than prior quarters. 2Q22 FCF will repeat in 3Q22, if oil remains in the $80-$100+ range.

7. During 3Q22, debt will continue to be reduced (lower interest costs and the less power of lenders), shares will continue to be repurchased (increasing future EPS and creating the ability for future dividends to be spread over fewer shares).

8. What if stock market equity prices don’t go up or even decline? That event alone does not change FCF and thus changes nothing above.

9. Eventually, companies hit debt targets or run out of debt to buy. This results in greater amounts of cash being used to reduce outstanding shares and to pay dividends.

BOTTOM LINE – Many of us bought or held energy shares over the past 12-24 months based on the idea that FCF would increase and the increased FCF would be used responsibly in 2022. Along the way, people laughed at posters predicting things like “$100 oil by Christmas!” Now some people must be thinking, OMG oil is ONLY $106 – this is horrible! As far as our investments are concerned, good things have happened over the past several quarters….and they will continue to happen.

I am eager to hear the 2Q22 earnings conference calls.