Using EROEI as a portfolio criteria - Aussie Stock Forums

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  1. #1

    Default Using EROEI as a portfolio criteria

    I am interested in this idea.

    Let's say I evaluate the sheets of ~20 med/large cap energy producers.

    Sort by EROEI.

    Hold the top 5 producers. Re-evaluate quarterly.

    Any thoughts? Has anyone tried this at home already?
    Disclosure: Long cash, gold, stocks.

  2. #2

    Default Re: Using EROEI as a portfolio criteria

    You would need to be comparing producers of the same energy resource for it to have any meaning. Eg somoene producing conventional crude at an EROEI of 5 is in a very different situation to someone producing gas at an EROEI of 40. Even though the former has a relatively low EROEI, they have a far more financially valuable product.

    Another complication is the energy source used to drive the production. Eg conventional crude extraction via pumping using electric pumps with an overall EROEI of 10 is very different to someone achieving the same EROEI from a comparable operation but using diesel driven pumps. The energy used may be much the same, but the latter will be at a far higher financial cost in most cases.

    Don't forget that it's not impossible to make a financial profit at a negative EROEI if your outputs are high value (ie light sweet crude) and your energy inputs are low financial value (ie anything other than liquids). It may well be a net energy sink, but it could still be financially profitable. From an economic perspective, it's effectively a means of turning a low value resource (gas, coal etc) into a high value one (liquids) with some losses in the process. That could still be profitable, just as generating electricity (also a means of turning a low grade resource into a higher grade one with losses in the process) can also be profitable despite being a net energy loss. It comes down to the financial spread between the low value resource and the higher value product.

  3. #3

    Default Re: Using EROEI as a portfolio criteria

    Smurf knows his ****, exactly the sort of response I was after. Thanks smurf.
    Disclosure: Long cash, gold, stocks.

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