Author Topic: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.  (Read 254221 times)



sculpin

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Heavy crude differential narrows as Alberta oil cuts take effect

https://boereport.com/2019/01/02/heavy-crude-differential-narrows-as-alberta-oil-cuts-take-effect/

$12.75/bbl WCS-WTI diffs

Cardboard

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sculpin

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https://seekingalpha.com/article/4231141-eia-914-u-s-oil-production-increase-october-less-expected

Summary

US oil production was less than expected vs. the weekly + adjustment figure of 11.778 mb/d.

US oil production in October reached an all-time high of 11.537 mb/d.

Texas is showing decelerating growth year-over-year and we expect it to be in the 15% to 20% range going forward.

The impact of even a stalled growth trajectory in US oil production is very meaningful for the global oil market balance in 2019. The delta could be as large as ~500k b/d.

Combine this with understanding the Saudi incentives and we see Brent reaching as high as $90/bbl in Q4 2019.
  :D

sculpin

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https://seekingalpha.com/article/4234312-oil-market-supply-deficit-return-q2-2019

Summary

IEA forecasts oil market deficit to return by Q2 2019.

This aligns with our model and if OPEC extends the production cut, then the H2 2019 balance will be -1 mb/d.

We think the odds of OPEC extending the production cut to the end of 2019 are high.

Our bullish surprise forecast is for Brazil to disappoint again in 2019. While our bearish surprise forecast is for US to grow total liquids by ~1.8 mb/d in 2019.

We remain very bullish oil and energy stocks. Our Brent forecast average this year is $75 to $78 this year with upside to $90. Much of the move to $90 will depend on the trajectory of the US Dollar as well as global economic data.

tombgrt

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What a fun game this is.

Take GXE. Now trading at the same stock price as mid November with the same WTI price. Difference being WCS differential was around $50 back then and $15 now. A difference in FFO of $50 million / year easily. WCS price is literary 4 times what it was in November and around the level where it was during spring and summer. Guess that is the price you pay for illiquidity. Bought more in the last few weeks. Even bought a little for my SO's account at $0.57 which I usually wouldn't consider (she's in trackers mostly). Bigger guys getting some upside at least so returns should come at some point.
« Last Edit: February 20, 2019, 08:45:10 AM by tombgrt »

Joe689

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Still a buyer's strike in Canadian Oil & Gas unless you are a major.   Investment is too risky considering WTI volatility, national incompetence,  and management  teams that are often not shareholder orientated. 

tombgrt

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Absolutely. The incompetency of government is stunning. Now Alberta has to actually lease rail cars to get the oil out. Crazy!

Cardboard

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It is changing slowly guys.

I see only a few or SU, CVE and TOU that have broken out clearly from their 2-3 month range. WCP is joining them now along with TVE so it is not only majors but, fairly liquid, good quality names too.

It will be a while for confidence to return with this near death experience of last fall but, at least now Alberta is serious about things. Investors are just starting to accept that these crazy differentials were a one-off created by a few or mostly Suncor fast starting its Fort Hills project right in the middle of a shipment capacity crunch.

These guys (SU, IMO and HSE) or vehemently opposed to these mandated cuts were happy to lose money temporarily on their upstream assets while making great return on their downstream while still not offsetting upstream losses completely. They salivated at the idea of reduced competition and picking on corpses once things had settled. My view is that an investigation should have been started and subpoenas issued on all internal e-mails and communication at these 3 companies.

Fortunately, the government had a contract in place with all producers and decided to exert its power. Alberta was losing most of its royalty revenues on companies producing oil at a loss and decided that enough was enough. Not only the NDP but, Conservatives also supported that move so it won't change going forward.

The key confidence indicator IMO will be when you start to see some asset sales resume in the sector.

A fiasco is also emerging in Ottawa for the Liberals with potential obstruction of justice in the SNC saga and high profile resignations (Butts was a school buddy of Trudeau and a major anti-oil). This follows sweat loans to Bombardier along with raising transfer payments to Quebec. Won't be too long before the RCMP looks into the SNC dealings.

Trudeau's numbers are counted (at the very least as a majority) unless they turn things around quickly. This could be quite positive for Canada to finally move forward and be able to at least ship current production at fair prices instead of being penalized by American funded anti-oil groups who are ruining this country while America keeps increasing production by the the boat load!

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SharperDingaan

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Keep in mind that industry Q4 earnings start hitting the news headlines in the next few weeks, and it's probably not going to be pretty.
It's also highly likely that there will be an amplification of populist negativism, as we go into election run-up.
Not much positive for o/g share valuations.

SU, IMO, HSE will continue to talk their book. Line 3, reduced drag, bigger pumps, and re-directed flows will increase capacity; but are still AT LEAST a year away. The peoples rail fleet may be despised (by SU/IMO, farmers, and CP/CN). But it's here, it's ADDITIONAL capacity above private hiring, and it's forcing transportation prices DOWN.
Hence the roars and screams.

By the end of Q2, elections will have been decided, a 6 month record of post shut-in differential experience will have been established, shut-in production will have started trickling back into the market, and 2019 pipeline construction will have begun. Higher net-backs from higher pricing, will also have resumed financial engineering.

There are only 5 places that FFO can go. 1) Repay debt, 2) New Drilling, 3) Acquisition of other's reserves, 4) Share buy-backs (acquisition of your reserves), or 5) pay dividends. Most would expect that in today's environment, the bulk of that incremental industry FFO will go to 3) and 4); moving many of the current properties for sale, and raising confidence.   

It is improving, but we're not there yet.

SD





 
   
« Last Edit: February 22, 2019, 06:04:18 AM by SharperDingaan »