Intro

Today we had a fantastic session with Neil Mehta, Managing Director and Head of North American Natural Resources Equity Research, alongside his colleague Carly Davenport, Vice President of Equity Research, with Goldman Sachs. Neil joined Goldman in 2008 and oversees research coverage across oil and gas, utilities, midstream, metals and mining, and clean technology, while also leading coverage for large cap energy equities. Carly joined Goldman in 2016 and covers U.S. utilities. She previously covered SMID cap refiners and was a member of the integrated oils & refiners team. With energy earnings season wrapping up, we wanted to reflect on key takeaways. We were fortunate to host Neil and Carly, whose coverage and breadth of knowledge made for a fascinating discussion.
 
In our discussion, Neil first provides a detailed overview of key trends driving market performance, highlighting a shift from a broad sectoral view to a more focused approach on stock selection and performance dispersion. He emphasizes the significant performance differences among companies based on operational execution, capital allocation, and management quality. On the oil and gas side, Neil notes that range-bound commodity prices have reinforced the need for disciplined positioning, with an emphasis on capital efficiency and balance sheet strength. Carly walks us through key trends in utilities, including the surging focus on power demand driven by AI, data centers, and industrial expansion. We explore the growing interconnection between energy and technology markets and its impact on investor behavior, including how generalist investors are increasingly shaping energy sector valuations by focusing on growth and ESG considerations. We discuss the evolving natural gas landscape, the mounting pressure on power prices, and shifting attitudes among tech companies toward energy sourcing, with reliability and speed to market taking precedence over sustainability. We examine trends of investors seeking more access to company boards, the importance of engaged and visible boards in maintaining investor confidence, power price trends, how utilities can sustain investor confidence by tying equity raises to accretive growth opportunities, the role of power forward curves, best practices for managing earnings calls, and more. We greatly appreciate Neil and Carly for sharing their time and perspectives.
 
For additional insights from Neil, we previously had the pleasure of hosting him on COBT in September 2022 (episode linked here).
 
To start the show, Mike Bradley highlighted that the 10yr bond yield has plunged to its lowest level (~4.2%) of President Trump’s second term. Bond markets are growing increasingly concerned that Canadian, Chinese & Mexican tariffs will lead to retaliatory measures against the U.S. which could impact/slow U.S. economic growth. He noted that bonds are now dialing in three interest rate cuts for 2025, and that on the broader equity market front, equities have become increasingly more volatile. He discussed the big intraday volatility on Tuesday in the Dow Jones Industrial Average (~750-point intraday swing) and that the S&P 500 was down ~3% over the last week (due to souring investor sentiment) and was approaching technically oversold territory. On the crude oil market front, WTI price slid to ~$68/bbl this week (approaching low-end of its 6mo trading range) due to OPEC+ unexpectedly signaling its intention to begin unwinding long-held oil production cuts, beginning in April. If OPEC+ does follow through with oil production increases, as planned, then it’ll further widen the 2025 global oil surplus unless its offset by yet unannounced Iranian sanctions by the U.S. On the Energy equity front, the YTD performance dispersion in the Energy sector, and especially