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General Category => Strategies => Topic started by: sculpin on September 05, 2016, 11:40:51 AM

Title: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 05, 2016, 11:40:51 AM
Incredible .We are now only "discovering 1 out of every 20 bbls of oil we use". This fact should be forefront in most people's minds as they think into the future for their living standards, choice of residence, employment & portfolio strategy to allow them to both survive and profit from this trend. Certain energy industry followers already believe current demand is greater than supply with oil being drawn down from non US inventories.

http://oilprice.com/Energy/Crude-Oil/Oil-Price-Spike-Inevitable-As-New-Discoveries-Hit-Seventy-Year-Low.html

Obviously this is not sustainable.  Thoughts on each scenario:

1. This will end very badly for civilization as we now know it. Modern humans are so fossil fuel dependent (& not just transport - heating, electrical related but agriculture, plastics and other modern derived products). Large price spikes will be need to encourage F&D and to curb ever growing WW demand.

2. There will be a renewable solution along with slow draw down on fossil fuels to offset most of a shock to the system.

3. A complete polyanna solution that is coming soon (ie fusion, breakthrough battery tech, EV breakthru etc) or future discoveries (ie shale) will quickly move to a higher replacement level.

Portfolio strategy to profit from potential soaring oil prices in the future? (ie long % allocation to oilsands/shale, short airlines/chemicals etc) Timing and sector allocations both short and long. My bet is currently with the first outcome that we will be going back to an oil price spike situation sometime in the next 2 years.

What is chance of loss of large producer suddenly (ie Saudi with 10.5mm bbls/d) like what has happened to Libya - immediate and devastating black swan type of event on world economy, investments etc. Good use of far out of money LEAP options both bull (energy producer call) and bear (general market put or sector?) as portfolio insurance?   http://oilprice.com/Energy/Energy-General/Yemeni-Rebels-Claim-Unconfirmed-Second-Strike-On-Saudi-Aramco-Oil-Facilities.html


some say supply could fall short by about 4 mb/d by 2018-2020 compared to previous estimates from 2014. For an oil market only suffering from a surplus of less than 1 mb/d currently – and only as much as about 2.5 mb/d at its worst – a supply drop off of that magnitude could be enormous. Sure, crude oil and refined product inventories will take time to get worked off, but once that buffer is gone, the global economy could find itself a little short on crude oil. Prices would subsequently spike because the projects that have been cancelled won’t come back online at a moment’s notice.


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 05, 2016, 11:55:44 AM

https://pbs.twimg.com/media/Crm0xGXUIAELdlH.jpg:large





https://climateequilibrium.wordpress.com/2016/02/26/are-renewables-just-a-dream/#jp-carousel-242
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on September 05, 2016, 01:25:43 PM
The article mentions the threat of EVs but I can't see how current infrastucture would be able to carry this electricity demand in the near future unless we seem ridiculous technological advancement in the current renewables? In 10 years a lot can and will happen but in 2-3 years the impact will be small even if they find some breakthrough tomorrow.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Jurgis on September 05, 2016, 01:57:15 PM
Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: rkbabang on September 05, 2016, 04:05:43 PM
"New discoveries hit 70 year low."

It is no coincidence that this is occurring while oil prices are low and have been remaining low for a few years.  If oil prices hit $120/bl again you will see the discovery rate magically improve.  Supply and demand, it is all about incentives. Right now it doesn't make a ton of sense to spend a fortune looking for oil.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 05, 2016, 05:37:48 PM
Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.


What about the other 40mm bbl. p/d?

OPEC produces 33.5mm bbl. p/d, Russia produces 11.5mm bbl. p/d, the US 8.5mm bbl. p/d
and Canada 3.7mm bbl. p/d.. That totals 57.2mm bbl. p/d.. The world will use 97mm bbl. p/d
in the 4th qtr. or an additional 40mm bbl. p/d..

Many of the OPEC producers are in decline, all are having economic and financial problems.
The US is in decline and will continue to be so thru the 1H of 2017. Canada may be flat.

The 40mm bbl. comes from areas such as Mexico, Brazil and the FSU countries. All
are either in decline or not even close to meeting production expectations. Asia
led by China is down. The North Sea is in decline.

US shale will need 2 years to bring back production to its peak if possible. The
massive credit that had been available is no longer there. The majority are highly
levered and are planning to use additional C/F to reduce debt prior to additional
drilling. The majority of producers including the most aggressive PXD state they
need $60 or better to be C/F positive. The MSM makes shale look like it is the
majority of the worlds supply even though at its peak it only got close to 5mm
bbl. p/d. I do not believe any is full cycle profitable currently. The debt &
equity that was issued will not be returned by production at current prices nor
$70 for the majority of the producers.

Offshore is not profitable. Brazil has cut back to 10 rigs offshore as well as
the US. Infill drilling & EOR has been cut way back WW. The 40mm bbl. p/d that
the world will need in the 4th qtr. in addition to OPEC, Russia, the US & Canada
will not be there. Neither is the CAPEX for future additional production. The
production from past CAPEX is online much is already in decline.

The focus by the MSM & WS are on shale and OPEC. They have missed the big picture.
Neither OPEC or shale have any additional capacity & the ROW's 40mm bbl. p/d
is in decline and the CAPEX is not there to replace that declining production.


http://www.investorvillage.com/groups.asp?mb=19168&mn=47271&pt=msg&mid=16332663[/i]
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 05, 2016, 07:26:15 PM
And this supply deficit will come as a surprise. Please take a look at the share prices of Frontline and Teekay Tankers. When you have record high worldwide demand is this what you should expect for major tanker companies?

What has been happening for 4 or 5 months now is offloading of tankers sitting at sea that were used by various players who were benefiting from a large contango that has now diminished and others who were simply investing into physical inventory. This has had a major dampening effect on inventory draws during peak driving season. As this comes to an end or slows down and with fundamentals improving, inventory draws should increase when people least expect it.

Cardboard

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DTEJD1997 on September 05, 2016, 08:31:01 PM
I doubt very much that we will have difficulty finding oil in the near & medium term.

When the price of oil is low, exploration is curtailed...

Some years ago, I knew some petroleum engineers.  They said that there were huge deposits of oil just waiting to be found in around Africa.  Surprisingly, they also stated that there were huge un/underappreciated oil deposits in OPEC nations (Saudi Arabia, Iran).  They claimed that there were large areas of those countries that have NEVER been explored, OR were last explored in the 50's/60's.  That if a concerted effort with the latest technology was run, a LOT more oil would likely be discovered.  Why spend massive amounts on exploration when you've got a lot pumping right now?

They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.

There are other crazier stories that I heard...but I have no doubt that we generally will have enough oil for the next few decades.  100 years from now?  Harder to say....Will we have ups & downs?  Certainly!  Will we even have brief disruptions?  Maybe...but totally changing our way of life?  I don't see it....
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on September 05, 2016, 09:07:06 PM
You might want to read up on the economics of fracking
http://www.theatlantic.com/business/archive/2013/08/shut-up-and-drill-why-fracking-could-end-the-age-of-gas-price-spikes/278494/

Fracked oil is very light crude requiring minimal refining, a single (larger) well will routinely deliver an initial 5,000-7,000 bbl/day, and can be drilled & producing in around 10 days (more likely 2 weeks today) - with delivery by truck. Its pretty easy to knock down a US demand driven price hike, by rapidly bringing on additional US supply.

There's also more than enough crude around the world, provided we're willing to pay the extraction cost.
A good chunk of it will also never be produced - as green energy & methyl hydrates will be cheaper to extract.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Ballinvarosig Investors on September 06, 2016, 01:50:24 AM
My bet is currently with the first outcome that we will be going back to an oil price spike situation sometime in the next 2 years.
Who is to say civil war doesn't break out in Saudi Arabia and the oil price shoots up to $100 in 3 months? Who is to say that demand remains weak and oil stays in the $40-$50 range for the next 10 years? There's a pretty wild range of outcomes when it comes to oil. At this stage, we can't discount the fact that oil might even become obsolete (2/3's of global oil demand is through transport).

If you want to invest in energy, then really, nothing has changed. You buy the lowest cost producer, or else you can identify a company that is under-priced by assets.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on September 06, 2016, 04:32:00 AM
Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.


Spindletop did that, too.

Fracking cost reductions + slow economies + global warming regulations + the rapid development of renewables and EVs does not spell a bright future for oil long term.   NB I'm not saying that renewables and EVs will change supply/demand overnight, but what they DO do is change the mindset of the Saudis, who can see that demand may well be much weaker in 2040 than one might have assumed 20 years ago, and therefore understand that the economics of leaving barrels in the ground doesn't look great anymore.   Their incentive to pump has grown.

Could the price spike?   Yep.   Is the price below the all-in cost of marginal capacity, and therefore likely to rise long term?   Not in my view.   The rate that costs are coming out of fracking is astonishing.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on September 06, 2016, 04:37:06 AM

They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.


This was true several years ago.   Not so true today.   Suncor is largely oilsands and comfortably cash flow profitable despite depreciating high cost mines.   I suspect building mines at today's Ft. McMurray prices is much lower and $45 isn't far from the breakeven point.   And anyway, oilsands are no longer the source of incremental barrels: look to fracking for that.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DTEJD1997 on September 06, 2016, 06:02:18 AM

They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.


This was true several years ago.   Not so true today.   Suncor is largely oilsands and comfortably cash flow profitable despite depreciating high cost mines.   I suspect building mines at today's Ft. McMurray prices is much lower and $45 isn't far from the breakeven point.   And anyway, oilsands are no longer the source of incremental barrels: look to fracking for that.

The point they & I were trying to make is that there is a LOT of oil that does not have to be looked for.  We know exactly where it is, about how much there is, and how to get it...Tar sands and Venezuela would be used before we went back to horses & walking again...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 06, 2016, 06:53:22 AM
Looking at the Oklahoma quake this week suggests to me that fracking is about to get more expensive.  The earthquakes are occurring in a geologic region that was previously pretty stable - previous to 2009.  The companies involved in fracking are going to have to address their wastewater issue in more expensive ways than just putting it deep underground.  The outcome of lawsuits against the fracking companies and the EPA will be telling. 

No insurer in their right mind will touch a liability of this magnitude.  Makes the oil samds look pretty good - and cheap. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 06, 2016, 07:03:35 AM
Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.


Spindletop did that, too.

Fracking cost reductions + slow economies + global warming regulations + the rapid development of renewables and EVs does not spell a bright future for oil long term.   NB I'm not saying that renewables and EVs will change supply/demand overnight, but what they DO do is change the mindset of the Saudis, who can see that demand may well be much weaker in 2040 than one might have assumed 20 years ago, and therefore understand that the economics of leaving barrels in the ground doesn't look great anymore.   Their incentive to pump has grown.

Could the price spike?   Yep.   Is the price below the all-in cost of marginal capacity, and therefore likely to rise long term?   Not in my view.   The rate that costs are coming out of fracking is astonishing.

I think the potential development of alternative transportation and power supply is having a perverse effect on future long tail projects.  Companies, and countries, in oil production are hesitant to invest in the big projects with this backdrop.  If I were an Exxon, Shell, or Chevron CEO, I would be looking at slow diversification of my business away from fossil fuels.  Energy is energy and money is money.  You dont have to be just an oil company.  And I would be very uncomfortable investing billions in projects that may never bear fruit. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on September 06, 2016, 08:11:12 AM

They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.


This was true several years ago.   Not so true today.   Suncor is largely oilsands and comfortably cash flow profitable despite depreciating high cost mines.   I suspect building mines at today's Ft. McMurray prices is much lower and $45 isn't far from the breakeven point.   And anyway, oilsands are no longer the source of incremental barrels: look to fracking for that.

The point they & I were trying to make is that there is a LOT of oil that does not have to be looked for.  We know exactly where it is, about how much there is, and how to get it...Tar sands and Venezuela would be used before we went back to horses & walking again...

Yes, agreed!

As Saudi's old oil minister said, the stone age did not end for a lack of stones and the oil age will not end for a lack of oil!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on September 06, 2016, 08:12:30 AM
Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.


Spindletop did that, too.

Fracking cost reductions + slow economies + global warming regulations + the rapid development of renewables and EVs does not spell a bright future for oil long term.   NB I'm not saying that renewables and EVs will change supply/demand overnight, but what they DO do is change the mindset of the Saudis, who can see that demand may well be much weaker in 2040 than one might have assumed 20 years ago, and therefore understand that the economics of leaving barrels in the ground doesn't look great anymore.   Their incentive to pump has grown.

Could the price spike?   Yep.   Is the price below the all-in cost of marginal capacity, and therefore likely to rise long term?   Not in my view.   The rate that costs are coming out of fracking is astonishing.

I think the potential development of alternative transportation and power supply is having a perverse effect on future long tail projects.  Companies, and countries, in oil production are hesitant to invest in the big projects with this backdrop.  If I were an Exxon, Shell, or Chevron CEO, I would be looking at slow diversification of my business away from fossil fuels.  Energy is energy and money is money.  You dont have to be just an oil company.  And I would be very uncomfortable investing billions in projects that may never bear fruit.

+1. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: wellmont on September 06, 2016, 10:29:32 AM
i think it's safe to say that the worries expressed in the OP are only held by the original poster and perhaps a few other very contrary minded observers. as such options that would pay off big if this actually happened are extraordinarily cheap right now. that probably means it's not a bad time to express this contrary view financially. the reason it's such a contrary view is because there is a lot of oil out there that would be viable in the $80 and up price. i follow a lot of companies whose stocks would really really do well were that to happen. and as a counter point, I would keep a close eye on the permian. apparently a very respected oil research firm has come out with a new report that suggests the success people are having finding cheap oil in the permian may totally offset the production declines in other parts of the NA. and don't forget that if the high price of oil does bring the world economy to its knees, with civilization itself at stake, the voters of California may ultimately say "ok fine, i need to put food on my table, you can go ahead and drill the Monterey Shale". and pot smoking slackers who protest every proposed pipeline in Canada may in the future alter their refrain to "drill baby drill!". this is why options on far higher oil prices are cheeeeep.

The US Energy Information Administration (EIA) estimated in 2014 that the 1,750 square mile Monterey Formation could yield about 600 million barrels of oil, from tight oil contained in the formation, down sharply from their 2011 estimate of a potential 15.4 billion barrels.[3][4]
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: rkbabang on September 06, 2016, 10:35:38 AM
the stone age did not end for a lack of stones and the oil age will not end for a lack of oil

I think that just about says it all.  And I'm sure the solar power age will not end for lack of sun, the fusion age will not end for lack of fusible nucleuses, the antimatter age will not end for lack of matter and antimatter, etc...

The peak oil scaremongers are getting tedious.  Next up: How overpopulation is going to destroy us all!!!!!!!

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 06, 2016, 02:33:14 PM
the stone age did not end for a lack of stones and the oil age will not end for a lack of oil

I think that just about says it all.  And I'm sure the solar power age will not end for lack of sun, the fusion age will not end for lack of fusible nucleuses, the antimatter age will not end for lack of matter and antimatter, etc...

The peak oil scaremongers are getting tedious.  Next up: How overpopulation is going to destroy us all!!!!!!!

Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry. Especially one of such great importance as energy to modern civilization.


People that use this analogy are taking an example of something that had nothing to do with supply scarcity and using it to describe something that does (oil depletion) in a way to pretend that supply scarcity doesn't matter, or is something that will inevitably be dealt with easily. We'll get past real issues of scarcity by acknowledging that the issues are real, that they are serious, and that we have to plan accordingly for the future with those issues squarely in mind. We won't get to the future we desire by shrugging our shoulders, saying that "The Stone Age didn't end for lack of stones..." and claiming that things always work out in the end because it makes us feel good to pretend that they always have and always will. If you think Peak Oil has anything to do with "running out" then I'd suggest that you don't properly understand Peak Oil. Likewise, if you're using the Stone Age analogy, I'd suggest that you don't properly understand energy."


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: rkbabang on September 07, 2016, 05:27:16 AM
the stone age did not end for a lack of stones and the oil age will not end for a lack of oil

I think that just about says it all.  And I'm sure the solar power age will not end for lack of sun, the fusion age will not end for lack of fusible nucleuses, the antimatter age will not end for lack of matter and antimatter, etc...

The peak oil scaremongers are getting tedious.  Next up: How overpopulation is going to destroy us all!!!!!!!

Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry. Especially one of such great importance as energy to modern civilization.


People that use this analogy are taking an example of something that had nothing to do with supply scarcity and using it to describe something that does (oil depletion) in a way to pretend that supply scarcity doesn't matter, or is something that will inevitably be dealt with easily. We'll get past real issues of scarcity by acknowledging that the issues are real, that they are serious, and that we have to plan accordingly for the future with those issues squarely in mind. We won't get to the future we desire by shrugging our shoulders, saying that "The Stone Age didn't end for lack of stones..." and claiming that things always work out in the end because it makes us feel good to pretend that they always have and always will. If you think Peak Oil has anything to do with "running out" then I'd suggest that you don't properly understand Peak Oil. Likewise, if you're using the Stone Age analogy, I'd suggest that you don't properly understand energy."


Oil is finite. Sure everything is finite.  But we will never hit peak oil.  We are going to be using other sources for the majority of our energy needs long before we hit peak oil.  We will still always need oil for plastics, lubricants, etc, and some power applications as well, but humanity will not be relying on it as much as it does now indefinitely.   Yes I understand peak oil. If we can no longer ever produce enough supply to meet demand and this is a permanent state, we will have reached peak oil.  In my opinion this will never happen.  Like any commodities market demand may exceed supply temporarily causing price increases, but peak oil scare stories are simply fear mongering.

EDIT:  Peak Oil could also mean the highest oil production ever reached by humanity, and just like we hit peak whale oil sometime in the late 1800's we will hit that peak oil sometime in the first half of the 21st century.  Oil production will slowly start to fall and it won't be for lack of supply.
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Pelagic on September 07, 2016, 07:33:14 AM
I think it's worth distinguishing between oil as we know it today and liquid hydrocarbons that can fill in for oil, gasoline, jet fuel, etc. Even if we eventually run out of economically extractable oil, synthetic hydrocarbon fuels are well within our capabilities. For instance during WW2 Germany fueled its air force almost entirely with synthetic fuels due to a shortage of available oil. Synthetic liquid hydrocarbons can come from a lot of different sources whether it's coal gasification or biomass, or as the US Navy has proposed just using seawater and air for the respective hydrogen and carbon feedstocks. None of these methods are cheap at today's prices but then again none has ever really been attempted at scale since we do have relatively easy access to crude oil.

http://www.huffingtonpost.com/2014/04/09/seawater-to-fuel-navy-vessels-_n_5113822.html

We shouldn't equate our dependence on crude oil with our dependence as a society on hydrocarbon fuels. Hydrocarbons have a lot of advantages as a fuel source for transport applications in terms of energy density, advantages that there just aren't easy alternatives for - especially when weight/volume are limiting factors like in aviation. While we will probably continue to see a shift toward electric and hybrid vehicles for private use, some applications like aviation and shipping will likely be reliant on liquid hydrocarbons of some form for quite some time to come.

Heck, SpaceX uses kerosene to launch its rockets.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on September 07, 2016, 09:05:26 AM
Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry.

The man who made that statement was the Saudi minister for oil for something like 20 years.   "Complete lack of understanding of an industry"?   He virtually was the industry.   And his point was: before we run out of oil we will move on to something else, just as stone gave way to metals for tools and just as wood gave way to coal which gave way to oil for energy.   Those resources were not infinite, and they have not been exhausted.   

I spent about 7 years studying peak oil in some detail and I understand the theory fairly well.   I am sure oil production will peak one day, but it is as likely to be due to lack of demand as lack of supply.   More importantly, it is worth thinking of what new supplies of lower cost production does to the supply curve.   Fracking is now lower cost than the oil sands and deepwater that represented the marginal capacity 5 years ago, and it is capable of growing fast and shoving those sources of supply off the end of the cost curve.   There is a lot more than just depletion going on.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 07, 2016, 12:38:17 PM
Oil is available at a price and at today`s price it is too low for fracking and most new sources.

Some here don`t seem to realize that U.S. production was 9.6 million barrels/day in April 2015 and is now 8.5 million barrels/day with most of that decline in Lower 48 States and due to fracking or lack thereof. And there is no sign of slowdown in that decline which has continued despite a few dozen rigs having been added in the fields over the past 5 weeks.

So some here should stop posting the non sense from the NY Times and other outlets and spend more time getting an understanding for decline rates and costs at various operations by reading MD&A`s of various companies.

Cardboard

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 07, 2016, 02:33:10 PM
http://www.marketwatch.com/topics/organizations/american-petroleum-institute

U.S. oil inventories down 12.1 million barrels according to API in the last week. An enormous draw for this time of the year with refineries starting their August to October maintenance and changeover to winter fuels. Also the largest that I recall for all of 2016.

Of course Hermine was a factor but, this is much larger than expected by analysts who should have taken Hermine into account in their forecast for a 425,000 barrels build.

The tankers story may start to make sense after all.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 07, 2016, 08:35:33 PM
Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry.

The man who made that statement was the Saudi minister for oil for something like 20 years.   "Complete lack of understanding of an industry"?   He virtually was the industry.   And his point was: before we run out of oil we will move on to something else, just as stone gave way to metals for tools and just as wood gave way to coal which gave way to oil for energy.   Those resources were not infinite, and they have not been exhausted.   

I spent about 7 years studying peak oil in some detail and I understand the theory fairly well.   I am sure oil production will peak one day, but it is as likely to be due to lack of demand as lack of supply.   More importantly, it is worth thinking of what new supplies of lower cost production does to the supply curve.   Fracking is now lower cost than the oil sands and deepwater that represented the marginal capacity 5 years ago, and it is capable of growing fast and shoving those sources of supply off the end of the cost curve.   There is a lot more than just depletion going on.

Trusting Saudi oil ministers for advice on oil is akin to asking for advice from the mortgage derivative experts at Goldman Sach, Merrill, Lehman, Bear etc in 2007
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on September 08, 2016, 01:20:09 AM
Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry.

The man who made that statement was the Saudi minister for oil for something like 20 years.   "Complete lack of understanding of an industry"?   He virtually was the industry.   And his point was: before we run out of oil we will move on to something else, just as stone gave way to metals for tools and just as wood gave way to coal which gave way to oil for energy.   Those resources were not infinite, and they have not been exhausted.   

I spent about 7 years studying peak oil in some detail and I understand the theory fairly well.   I am sure oil production will peak one day, but it is as likely to be due to lack of demand as lack of supply.   More importantly, it is worth thinking of what new supplies of lower cost production does to the supply curve.   Fracking is now lower cost than the oil sands and deepwater that represented the marginal capacity 5 years ago, and it is capable of growing fast and shoving those sources of supply off the end of the cost curve.   There is a lot more than just depletion going on.

Trusting Saudi oil ministers for advice on oil is akin to asking for advice from the mortgage derivative experts at Goldman Sach, Merrill, Lehman, Bear etc in 2007

I won't dignify this with a response other than to say: time will tell!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on September 08, 2016, 01:24:05 AM
Oil is available at a price and at today`s price it is too low for fracking and most new sources.

Some here don`t seem to realize that U.S. production was 9.6 million barrels/day in April 2015 and is now 8.5 million barrels/day with most of that decline in Lower 48 States and due to fracking or lack thereof. And there is no sign of slowdown in that decline which has continued despite a few dozen rigs having been added in the fields over the past 5 weeks.

So some here should stop posting the non sense from the NY Times and other outlets and spend more time getting an understanding for decline rates and costs at various operations by reading MD&A`s of various companies.

Cardboard

I'm not sure if this is aimed at me, but if it is then a) I realise production has fallen and b) I do read the MD&As.   I'm not arguing that the oil price won't rise.   I'm arguing that the 1-in-20 headline of the OP doesn't mean civilisation is clinging to the edge of a cliff.

All I would add to your post is that costs (which are highly positively correlated with the oil price, with a lag) are coming down apace.   My guess is that the marginal cost of a barrel will settle in the $40-60 range, and that has been my guess for about 6 years now.   We shall see...!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 08, 2016, 04:34:05 AM
Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry.

The man who made that statement was the Saudi minister for oil for something like 20 years.   "Complete lack of understanding of an industry"?   He virtually was the industry.   And his point was: before we run out of oil we will move on to something else, just as stone gave way to metals for tools and just as wood gave way to coal which gave way to oil for energy.   Those resources were not infinite, and they have not been exhausted.   

I spent about 7 years studying peak oil in some detail and I understand the theory fairly well.   I am sure oil production will peak one day, but it is as likely to be due to lack of demand as lack of supply.   More importantly, it is worth thinking of what new supplies of lower cost production does to the supply curve.   Fracking is now lower cost than the oil sands and deepwater that represented the marginal capacity 5 years ago, and it is capable of growing fast and shoving those sources of supply off the end of the cost curve.   There is a lot more than just depletion going on.

Trusting Saudi oil ministers for advice on oil is akin to asking for advice from the mortgage derivative experts at Goldman Sach, Merrill, Lehman, Bear etc in 2007

I won't dignify this with a response other than to say: time will tell!

+1 : I wouldn't either. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on September 08, 2016, 08:26:17 AM
EIA confirms API.

So is the decrease of imports due to the storm or is the funny business over.   I would think that all major trader's analysts monitor the storms, and ports and they should have seen this coming (if it was the storm).     Looks to be more than just a storm here.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 12, 2016, 06:33:07 AM
Recent blog post from Cale Smith...

https://www.islainvest.com/blog/

This Week’s Sign We Are Sleepwalking Into a Supply Crunch (#4)

Some highlights from the Business Insider article, “People Are Almost Completely Ignoring a Looming Crisis for Oil”, which includes this summary of a report from HSBC analysts:

“Given the backdrop of the past two years’ severe oversupply in the global oil market, it’s not surprising that few are discussing the possibility of a future supply squeeze. Indeed, most of the current debate on the long-term outlook for oil seems focused on risks to demand from progress on both the policy and technology fronts. “Meanwhile, we expect the past two years’ severe crude price weakness to result in a return to balance in the global oil market in 2017. At that stage, we expect global effective spare capacity to fall to as little as 1% of demand. Supply disruptions have had only limited impact on price in 2015-16 due to the global oversupply, but the market will be much more susceptible to interruptions post-2017. In addition, given the almost unprecedented fall in industry investment since 2014, we expect the focus to return to the availability of adequate supply.”

Read the rest of the article here, and in particular the ten-point summary. More than makes up for that breathless headline.

http://www.businessinsider.com/the-future-of-oil-supply-and-demand-2016-9?r=UK&IR=T
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 12, 2016, 06:44:12 AM
Q2 Letter from Islamorada Investments Tarpon Fund....

Cale Smith understands oil like few others and here is his latest:

Dear Investors,

The Tarpon Folio has returned 37.7% from January 1, 2016 through August 31, net of all fees. Over the same period the S&P 500 Index has returned 7.8%.

It has been a challenging time to be a value investor in the energy sector. The good news is that my being a stubborn fool seems to be working well for us. Thank you for sticking it out so far.

We continue to hold low cost-basis positions in sixteen energy companies that will benefit significantly as oil prices rebound.

Our companies operating in the Permian Basin of West Texas have continued to drive Tarpon’s outperformance. Our cost basis in Resolute Energy (REN) is $3.07 per share. Shares closed on August 31st at $16.91, representing a 451% gain. We have also seen a 594% return on our holdings of Clayton Williams Energy (CWEI), which we originally acquired for a weighted average price of $9.09 per share and which ended August at $63.11. Alas, neither position was a very large one for us in Tarpon originally, but we retain full positions in both companies today. All things being equal, both stocks should be ten-baggers for us at the peak of the oil cycle.

To be clear, we have owned a few duds during this oil cycle, too. The degree of difficulty when investing in small energy companies during the worst oil bear market in history has been considerably higher than I would normally choose to pursue…but, well, the potential gains have been that much higher, too. Fortunately, at this point, the difficult-and-duds have been jettisoned from the portfolio – some with extreme prejudice. But let’s just move along, shall we?

On The Permian

Analysts at Wood Mackenzie believe the Permian has larger recoverable oil and gas potential than the giant Ghawar field of Saudi Arabia. The Midland and Delaware basins of the Permian in particular "hold the largest number of undrilled, low-cost tight [unconventional] oil locations in the lower 48. No other region comes close." Much of the capital in Tarpon is invested right there.

The geology of the Permian is unique. It consists of 3,000 to 5,000 feet of a dozen prospective oil zones, stacked right on top of each other. These “stacked pays” translate into dramatically lower costs to produce oil, making well managed Permian companies the most capital-efficient oil companies in North America. Over time, as technology continues to improve costs and extraction techniques, Permian players will steal market share from other higher-cost producers – both in the U.S. and abroad.

That said, we are value investors. We aren’t buying companies simply because they can spell Permian and plan to grow by constantly issuing new stock. The Street’s history of myopically rewarding growth above all else in the oil patch has created a number of extremely low valuations among the more disciplined of management teams. We are looking for the cheapest, safest exposure to the Permian we can find - run by management teams that emphasize internal economic returns over growth-at-any-cost - in order to maximize our own long-term returns.

The largest, most popular publicly traded Permian operators appear overvalued to me – in spite of the oil bust. In contrast, none of our Permian companies appear to get much respect at all from the Street right now, which I view as a good thing. But that’s a subject for another letter.

With reference to those two outperformers in Tarpon I mentioned earlier - two of Resolute Energy’s recent wells in the Upper Wolfcamp play in Reeves County, Texas, are now producing pre-tax, full cycle IRRs (internal rates of return) in excess of 100% at current oil prices. And that is just in two zones of what could be a dozen plays in the same stack. Clayton Williams Energy, historically a mediocre operator, nonetheless has 66,000 net acres of really good rock also in Reeves County, and is having operational discipline thrust upon them by a large private equity firm which has been buying up CWEI’s equity and debt. Recent transactions in the immediate area put CWEI's landholdings well in excess of $100 per share.

On a look-through basis, an aggregated view of all Tarpon company holdings shows a clear, heavy and intentional portfolio weighting towards cheap, safe growth in oil production in the Permian. These companies should continue to be among the first to resume growth as oil prices rise – while either keeping their balance sheets stabilized and/or improving them.

We also continue to own companies operating in areas outside the Permian – including in Canada, the Bakken in South Dakota, and the Eagle Ford in East Texas. I characterize these positions in Tarpon as low-to-no-current growth, but cash flow neutral. Despite a lack of growth of late, they own good-to-great rock that will drive attractive internal returns once their balance sheets are fully in order and as oil prices increase, at which point these companies can begin to grow intelligently - and at lower cost due to improved efficiencies, drilling processes and technology.

Our other companies outside the Permian should soon begin to appreciate significantly as well, assuming a sustained rebound in the price of oil is imminent. And I believe it is.

Stocks vs. Flows

I believe that there is a very high probability that the global oil market is currently balanced – meaning daily supply is meeting daily demand, right now in real-time. This pivotal development, however, is not being reflected in the price of a barrel of oil for a number of reasons.

The first is that the data that should confirm this balance is on a significant lag.

U.S. inventories and production data are delayed and revised for up to three months. Inventories in thirty-five other developed economies (“OECD” countries) are revised on a four to six month lag. OECD consumption data is published monthly, but global consumption figures are only published annually. Nobody has a good handle on monthly oil demand in small (“non-OECD”) countries – and that number could be meaningful at this point in the oil cycle.

Quick aside: a really interesting question right now is…never mind “balanced” - if the world was actually in a supply deficit right now, how would the market know?

Also, speculation in the “paper” markets could be temporarily masking fundamental shifts in the “physical” market by way of sheer volume. This one takes a little bit of explaining.

The “paper” oil market dominated by speculators dwarfs the “physical” oil market of actual oil producers. The volume of WTI (West Texas Intermediate) oil barrel contracts (1 contract = 1,000 barrels) is over 100x the volume of actual barrels of WTI oil that move through the Cushing, Oklahoma oil hub – and is more than 5x global supply. In other words, in the short-term, speculation can easily overwhelm longer-term fundamentals. Thus all these volatile short-term price swings.

To speculators, oil prices should be correlated most strongly to oil storage levels in the U.S. It’s “stocks” not “flows” that matter to the paper market – in other words, the level of inventories is of much greater interest than the supply/demand balance in the market. Speculators are incentivized to exploit arbitrage strategies (i.e. attempt to create risk-free profit) that right now seem to rely on importing low cost oil barrels in the U.S. – keeping oil inventories higher than might be expected – in order to then export it at significantly higher prices and profit.

Seasonal demand for oil in the U.S. is typically strongest in June, July and August – but the weekly headline numbers for inventory draws this summer, oddly, not only came in smaller than expected but culminated in a series of small increases in U.S. oil storage. This seemed all the more befuddling because oil was concurrently seeing very strong demand, and we saw multiple supply disruptions in the market this summer as well, from Canada to Nigeria.

So how in the world were oil supplies in the U.S. still building this summer?

Strong imports.

High oil imports in the U.S. – ostensibly driven by both speculators and refiners – painted a confusing picture in the paper market this summer. And those elevated levels of oil imports into the U.S. are obscuring more fundamental trends in the physical market, specifically in crude inventory withdrawal numbers.

Interestingly, the data seems clear that (a) a high percentage of oil imported into the U.S. this summer came from “floating storage” – ships that traders rent, fill with oil and temporarily park offshore in the pursuit of arbitrage – and that (b) those floating barrels are just about exhausted.

If you combine the drawdown in floating storage stocks this summer with reductions in oil inventories this summer in Saudi Arabia, Nigeria, Canada, Venezuela and Iran, you’ll come up with almost 80 million barrels of previously stored oil that is now gone outside the U.S. And that’s just from places that are easy to track.

So “stocks” or oil inventories are coming down throughout the world. “Flows” are slowing dramatically (see the footnote below). Once inventory stocks have reached an equilibrium point where global supply matches global demand, and oil no longer accumulates in storage, then the market price of oil will be less driven by the paper market’s obsession with near-term shifts in U.S. oil inventories, and global fundamentals in the physical market will resume their importance. And I believe that day is upon us.

The Rest of 2016

It is possible but unlikely that imports into the U.S. will continue to trend higher throughout September and October – a time when our refineries temporarily shut down to reconfigure for producing winter-blend fuels. And once fewer barrels are coming into the U.S. less than leaving, we will see oil inventory in the U.S. drawdown at a rate that will likely surprise many.

To reiterate – it is global fundamentals which drive crude oil prices in the long-term, not levels of oil storage in the U.S. The current persistent inventory surplus in the U.S., more recently due to the large scale movement of other people’s barrels into the U.S. to capture arbitrage and/or refining profit, is creating an impression of abundant global oil stocks while masking significant worldwide production declines.

The speculators’ obsession with the “stocks” view of high U.S. oil inventory levels is dominating the pricing of oil today. A fundamental view of changes in production “flows,” however, not only provides little analytical support for the speculator’s view – it eviscerates it by the end of 2016. As a result, I believe this will become obvious to both sides of the oil market in the next few months.

So while speculators, oil bears and shortsellers appear to be banking on increased storage builds in the U.S. during the refiners’ upcoming maintenance season, trading on simple seasonality may not work when re-balancing can occur in unpredictable ways, and especially now that U.S. producers can export oil.

If crude inventories in the U.S. could build this summer, then unwinding arbitrage trades on imported barrels this fall could completely flummox those who are ignoring the fundamentals. And that, too, would continue to be good for us.

In Summary

Based on my own tracking of global production “flows,” the world is currently in a deficit of approximately 1.2 million bopd – and headed lower – compared to a year ago. Demand, meanwhile, is up about 1 million bopd over the same period last year. All of which means that even if something miraculous happened – like that, say, Rhode Island suddenly starts producing 1 million barrels of oil per day – the world will still see a supply deficit of over 1 million bopd by the end of 2016.

The mainstream media and Wall Street continue to obsess about U.S. shale and OPEC. They are missing the bigger picture. Neither U.S. shale nor OPEC have any material additional capacity, and the 40 million barrels of oil per day previously coming to market from the rest of the world is in significant decline. The capex is simply not there to replace that declining production anytime soon. And the geopolitics of the Middle East continue to simmer on medium-high.

As a result, I continue to believe that the oil market is at serious risk of sleepwalking into a supply crunch in 2017.

When it comes to our own companies in Tarpon, I suspect the most near-term catalyst when it comes to further price appreciation is likely to be the current record high interest in shorting stocks across the sector. I believe the bears and shortsellers are dramatically overplaying their hand today. The primary question seems to be what exactly will convince them of that, too. I suspect that seeing significant drawdowns in U.S. oil storage during refiner shoulder season might finally do it.

Regardless, by mid-October, a more accurate global picture of supply and demand should become clearer to all - free of the noise caused by a massive shift of oil inventories into the U.S. this summer.

Signs of this are starting to emerge already, most notably in pricing curve signals like “fading Brent contango” – a narrowing discount between the price of Brent oil available for sale immediately and the Brent price six months out, which reduces the incentive to store oil. This signal in particular is probably the clearest indicator that the market is beginning to sense an end to the biggest oil bust of all time relatively soon. Another sign is apparent in a recent price hike by Saudi Arabia on oil shipped to the U.S. and Asia. The Saudi’s own oil inventories appear to have come down far enough, and they appear to not want their storage levels to fall any further while global demand is still very high.

Either way, it appears the tide is about to turn. Finally.

If I am right about the oil market being in balance already, then we will soon see oil prices begin to increase for an extended period of time.

If I am wrong, and the world is not currently balanced, or if for some other reason oil prices continue to wallow in spite of important fundamental trends, then the probability of that 2017 supply shock will increase materially. At some point it will become unavoidable. And though our gains might be deferred, they should still be significant.

In either case, our reaction will be the same. We will be patient and wait.

Please let me know if you have any questions.

Thank you.

- Cale



*Footnote:
Much more relevant than market structure is market math. Other relevant facts from this summer supporting the conclusion the global oil market is currently in balance:

By the end of June, Chinese oil production had decreased by 376,000 bopd compared to last year.
In August, oil production in Colombia had fallen 102,000 bopd per day compared to a year earlier – an approximate 11% decline in a year, the biggest year over year (YOY) decline in its history.
The hot mess that is Venezuela has seen its YOY production decline by at least 200,000 bopd.
Nigeria’s YOY production is down at least 300,000 bopd.
Mexico’s YOY production is down at least 100,000 bopd.
In July, Russian production had fallen by 200,000 bopd – since just the first of this year.
U.S. production is now down from the peak in April of 2015 by just under 1,000,000 bopd.
Each of the numbers above, without increased capex, will continue to fall into 2017. They appear largely unaccounted for in IEA projections. In addition, Brazil production is in decline; Petrobras now only has 10 rigs working offshore. The North Sea is in decline. Etcetera. I think you see the point:

Global production is falling significantly – all while inventories are being reduced by strong demand. That oil inventories in the U.S. have been too high for too long appears largely due to arbitrage and refiner incentives, both of which are (for oil bulls) problems that should soon take care of themselves.

About Tarpon
The Tarpon Folio is an innovative, investor-friendly alternative to the traditional actively managed mutual fund. It's built on a model we call a Spoke Fund.

Spoke Fund is a group of separate investor accounts linked to a portfolio containing a significant portion of the net worth of the portfolio manager. Cale Smith at IIM is the creator and owner of this trademarked and proprietary approach to better transparency and integrity in investing other people’s money.

Fees for Tarpon are 1.25% of assets annually, assessed on a monthly basis. Turnover, taxes and trading are minimized in the fund, which uses a long-term value investing strategy.

For more information, visit our website.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 12, 2016, 09:09:44 AM
Grantham on Natural Resource Equities over the Long Term....

https://www.gmo.com/docs/default-source/research-and-commentary/strategies/equities/global-equities/an-investment-only-a-mother-could-love-the-case-for-natural-resource-equities.pdf?sfvrsn=3

Executive Summary

■ We believe the prices of many commodities will rise in the decades to come due to
growing demand and the finite supply of cheap resources.

■ Public equities are a great way to invest in commodities and allow investors to:
■ Gain commodity exposure in a cheap, liquid manner
■ Harvest the equity risk premium
■ Avoid negative yields associated with rolling some futures contracts

■ Resource equities provide diversification relative to the broad equity market, and the
diversification benefits increase over longer time horizons.

■ Resource equities have not only protected against inflation historically, but have
actually significantly increased purchasing power in most inflationary periods.

■ Due to the uncertainty surrounding, and the volatility of, commodity prices, many
investors avoid resource equities. Hence, commodity producers tend to trade at a
discount, and they have outperformed the broad market historically.

While resource equities are volatile and exhibit significant drawdowns in the short
term, over longer periods of time, resource equities have actually been remarkably
safe investments.

■ By some valuation metrics, resource equities have looked extremely cheap throughout
2015 and the first half of 2016, and that may bode well for future returns.

■ Given the difficulty in predicting commodity prices, the low valuation levels of the
past year and a half may be unjustified.

■ Despite all of this, investors generally don’t have much exposure to resource equities.

Typically, they don’t have large specific allocations to resource equities, and the broad
market indices don’t provide much exposure to the commodity producers. The S&P
500’s exposure to energy and metals companies has dropped by more than 50% over
the last few years, and the same is true of the MSCI All Country World Index. Those
investing with a value bias may be particularly underexposed to resource equities, as
value managers tend to be especially averse to the risks posed by commodity investing.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on September 13, 2016, 11:39:05 AM
And this supply deficit will come as a surprise. Please take a look at the share prices of Frontline and Teekay Tankers. When you have record high worldwide demand is this what you should expect for major tanker companies?

What has been happening for 4 or 5 months now is offloading of tankers sitting at sea that were used by various players who were benefiting from a large contango that has now diminished and others who were simply investing into physical inventory. This has had a major dampening effect on inventory draws during peak driving season. As this comes to an end or slows down and with fundamentals improving, inventory draws should increase when people least expect it.

Cardboard
So you're saying that the tankers were effectively a shadow inventory and that inventory as been reduced? EIA isn't factoring that in?

I'm a little puzzled by the continued oversupply. US onshore has decreased ~1M barrels and that's less than 10% of global production. I know Iran has added, but Venezuela and Nigeria have also reduced. Despite the demand growth rate cuts from EIA, there continues to be growth in demand while what seems like decline in supply. Based on what I know I would have expected supply to have fallen below demand, but I seem to be missing a piece of the puzzle... maybe it's the shadow offshore inventory?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 13, 2016, 12:45:19 PM
I would not call it shadow but, it is not into EIA numbers nor into any international inventory data as it accounts only for farm tanks or land based inventory.

I still don't understand why we don't have good real time data on all of that. There is a company offering satellite imagery to hedge funds that does analyze all oil farm tanks globally. Not sure how they can estimate what is inside the tank (maybe infrared?) but, they are.

Ships are easy IMO. You just identify the type of vessels or tonnage and then with a satellite picture, you can detect how "deep" it floats. Depending on how deep is the hull you can estimate how many barrels it holds at any moment.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 13, 2016, 02:32:25 PM
http://www.marketwatch.com/topics/organizations/american-petroleum-institute

API reports U.S. oil inventories only up 1.4 million barrels vs the very large draw of 12.1 million barrels last week (EIA was down 14.5 million barrels). You had to go back a long time to see such draw.

Last week was an anomaly being such a large draw and with the hurricane preventing normal shipping flows (large input and small output).

However, to see a build of only 1.4 million barrels with things returning to normal is very encouraging and refinery input was likely down with maintenance. It definitely adds credence to the story of floating storage having come down significantly over the past couple of months.

IEA poured cold water on the oil market this morning by revising downwards Asian demand. For the record, these guys have never been right or always predicting lower demand than reality. They must be at the service of some masters of the Western world to always try to keep the oil price lower. Real fundamentals will become too large to ignore here very soon IMO and the price should climb above $50 to at least sustain this industry longer term.

Would be nice if the Russians and Saudis along with OPEC agree to a freeze or some other deal on September 26-28 in Algiers. The market would start to respect them once again. I think that they need to.

Raising gas prices a bit may also help throw out of office Democrats which both of them can't be liking so much. Perfect timing.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on September 13, 2016, 07:23:53 PM
http://www.marketwatch.com/topics/organizations/american-petroleum-institute

API reports U.S. oil inventories only up 1.4 million barrels vs the very large draw of 12.1 million barrels last week (EIA was down 14.5 million barrels). You had to go back a long time to see such draw.

Last week was an anomaly being such a large draw and with the hurricane preventing normal shipping flows (large input and small output).

However, to see a build of only 1.4 million barrels with things returning to normal is very encouraging and refinery input was likely down with maintenance. It definitely adds credence to the story of floating storage having come down significantly over the past couple of months.

IEA poured cold water on the oil market this morning by revising downwards Asian demand. For the record, these guys have never been right or always predicting lower demand than reality. They must be at the service of some masters of the Western world to always try to keep the oil price lower. Real fundamentals will become too large to ignore here very soon IMO and the price should climb above $50 to at least sustain this industry longer term.

Would be nice if the Russians and Saudis along with OPEC agree to a freeze or some other deal on September 26-28 in Algiers. The market would start to respect them once again. I think that they need to.

Raising gas prices a bit may also help throw out of office Democrats which both of them can't be liking so much. Perfect timing.

Cardboard
Interesting. Thanks. If you seasonally adjusted it do you think the industry is currently in a surplus or a deficit?

Kyle Bass had an interesting interview that someone posted where he pointed out that even with the weakening demand people are still forecasting increased demand for the year. Even with today's further adjustment down that remains true. He'd said the supply/demand imbalance globally was ~half a million barrels per day. Since then we've seen basically 1M barrels per day come out of US (https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm).
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on September 14, 2016, 07:37:46 AM
EIA confirms API.

So is the decrease of imports due to the storm or is the funny business over.   I would think that all major trader's analysts monitor the storms, and ports and they should have seen this coming (if it was the storm).     Looks to be more than just a storm here.
'

So today's report did not reverse the week's before.  If it is the weather, it should have.....  Maybe need one more week to confirm as Houston had a passage way closed last week that could have effected it. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 14, 2016, 07:57:42 AM
I do believe that we are into a global supply deficit since sometime in Q2. Still into a deficit even with lower demand from the end of the Summer driving season. Reduced growth demand by 100,000 barrels/day globally for 2016 (from 1.4 million barrels/day demand growth) according to IEA does not change that at all. And when you read the rest of this post, you will wonder how they can possibly be this precise.

EIA just reported a draw of 600,000 barrels last week so it is even more bullish than API for 2 weeks in a row.

Moreover, net imports increased by 7.532 million barrels during the week while input to refineries declined by 1.4 million barrels and yet inventories still decreased by 0.6 million barrels? In the meantime U.S. production increased by only 245,000 barrels for the week with most from Alaska.

It is very hard to reconciliate these numbers. Of course, EIA has its fudge factor of 3.591 million barrels to try to make it right or simply showing how out of touch with reality they truly are.

And now they are pounding down the oil price after a slight rise following the report!

Bank of America has it right IMO. Maybe that the oil price will climb once bearish Goldman has loaded up on it...

http://finance.yahoo.com/news/oil-setting-monster-rally-095000762.html

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jmp8822 on September 14, 2016, 10:28:48 AM
I do believe that we are into a global supply deficit since sometime in Q2. Still into a deficit even with lower demand from the end of the Summer driving season. Reduced growth demand by 100,000 barrels/day globally for 2016 (from 1.4 million barrels/day demand growth) according to IEA does not change that at all. And when you read the rest of this post, you will wonder how they can possibly be this precise.

EIA just reported a draw of 600,000 barrels last week so it is even more bullish than API for 2 weeks in a row.

Moreover, net imports increased by 7.532 million barrels during the week while input to refineries declined by 1.4 million barrels and yet inventories still decreased by 0.6 million barrels? In the meantime U.S. production increased by only 245,000 barrels for the week with most from Alaska.

It is very hard to reconciliate these numbers. Of course, EIA has its fudge factor of 3.591 million barrels to try to make it right or simply showing how out of touch with reality they truly are.

And now they are pounding down the oil price after a slight rise following the report!

Bank of America has it right IMO. Maybe that the oil price will climb once bearish Goldman has loaded up on it...

http://finance.yahoo.com/news/oil-setting-monster-rally-095000762.html

Cardboard

Do you have a favorite position that you think might rise 2-3-4x if oil hits $70 or so in 18 months? Looking maybe for an out of the money LEAP spread, possibly on a levered firm. My favorite position in services is EXTN, but looking for some added kick.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: StevieV on September 18, 2016, 04:55:39 AM
I do believe that we are into a global supply deficit since sometime in Q2. Still into a deficit even with lower demand from the end of the Summer driving season. Reduced growth demand by 100,000 barrels/day globally for 2016 (from 1.4 million barrels/day demand growth) according to IEA does not change that at all. And when you read the rest of this post, you will wonder how they can possibly be this precise.

EIA just reported a draw of 600,000 barrels last week so it is even more bullish than API for 2 weeks in a row.

Moreover, net imports increased by 7.532 million barrels during the week while input to refineries declined by 1.4 million barrels and yet inventories still decreased by 0.6 million barrels? In the meantime U.S. production increased by only 245,000 barrels for the week with most from Alaska.

It is very hard to reconciliate these numbers. Of course, EIA has its fudge factor of 3.591 million barrels to try to make it right or simply showing how out of touch with reality they truly are.

And now they are pounding down the oil price after a slight rise following the report!

Bank of America has it right IMO. Maybe that the oil price will climb once bearish Goldman has loaded up on it...

http://finance.yahoo.com/news/oil-setting-monster-rally-095000762.html

Cardboard

Do you have a favorite position that you think might rise 2-3-4x if oil hits $70 or so in 18 months? Looking maybe for an out of the money LEAP spread, possibly on a levered firm. My favorite position in services is EXTN, but looking for some added kick.

Not Cardboard, but I'll give you my answers.  $70 WTI is a pretty aggressive oil price.  I think a lot of companies will do well from today in that environment.  I have two favorites right now.  PWE and BTE.  PennWest has had much discussion on the board.  It is my largest oil position.  With their recent transactions, they have relatively low debt.  What is nice about PWE is that they should survive under a lot of different oil scenarios AND will do very well if the price of oil rises.  I expect them to do very well if WTI gets to $60.  At $70, I would expect them to do very well.  If you look at the price action on PWE this week, you can see that the market is starting to price them as a lower debt, lower cost operator with downside protection.  Of course, they are still heavily tied as a company to the price of oil, but not as urgent as in the recent past.  I think they could trade at $4 at $60 WTI (versus $1.70s this week).  I haven't considered $70 WTI as much, but obviously, higher oil would mean higher prices for PWE.

BTE is a smaller position for me.  They have a large debt load, but relatively favorable maturities and covenants.  They don't have frequent redeterminations or near term debt maturities.  However, they definitely need higher prices and the debt situation is something that will have to be dealt with down the road.  I think their plan is to wait for higher oil prices, which should drive a higher share price and then they will do an equity raise.  I think they could trade at $20 in a $60+ WTI price environment (versus about $4 this week).

Obviously, these companies aren't XOM (or JNJ or whatever) and have a higher risk profile.  However, I think reasonable chances of 2, 3, 4x in 18 months.  The BTE price target mentioned above is actually 5x.  I am very much not sure about $70 in the 18 months you mentioned, but I don't think that the $20 price target is overly aggressive if WTI is at an apparently sustainable $70 in 18 months.  I would expect them to raise equity at that point. 

All prices in USD.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 19, 2016, 06:48:37 AM
Hi Steve,

I have started a Baytex thread in investments.  Please add to your thesis whe. you get a chance.

Tx, Al.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on September 21, 2016, 06:15:43 AM
Will see if EIA confirms API this morning.  If they do, we continue to draw and where did all those  missing barrels go that were supposed to show up in the coming weeks?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on September 21, 2016, 07:33:02 AM
Looks like EIA confirmed and then some.   Thoughts?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: physdude on September 21, 2016, 07:49:09 AM
I don't understand the market reaction but have a hypothesis. If one examines the historical data, the crude price kept on rising despite clear oversupply for a long time until it peaked in mid 2014. I suspect that it will require a significant period of clear under-supply for the price to start rising significantly. 2-3 months of such draws should help us see at least 60 or so IMHO.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 27, 2016, 02:37:03 PM
http://www.marketwatch.com/topics/organizations/american-petroleum-institute

4 weeks in a row that we are seeing inventory draws and two large ones (last week and 4 weeks ago). Needs to be confirmed by EIA tomorrow but, that is highly unusual for this time of the year with most refineries in the Northern hemisphere switching to winter fuels and slowing down for maintenance.

Damien Courvalin at Goldman Sachs still did not hesitate to trash the oil price this morning with some $43 target for Q4 and prediction for a continued global 400,000 barrels/day surplus in Q4.

http://www.cnbc.com/2016/09/27/goldman-sachs-trims-its-oil-price-forecast-as-supply-surplus-grows.html

Of course, Libya and Nigeria supplying more to market is the largest known unknown but, even today a major pipeline was shutdown in Nigeria due to fire:

http://finance.yahoo.com/news/shell-fire-forces-closure-key-oil-pipeline-nigeria-120721503--finance.html

The question that analysts should start to ask is: what should be the size of draws from inventories once we are passed the shoulder season? What kind of price will be required to eventually stabilize inventories from supply and meet demand?

Cardboard
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on September 28, 2016, 07:42:27 AM
EIA more than confirms with a 1.9 million barrels oil inventory draw last week.

On top of that, U.S. Lower 48 States production is returning to a decline (albeit very small with 5,000 barrels/day) despite rigs having been added over the past 2 months. It is quite possible that many of so called Drilled but Uncompleted Wells have been completed in recent months and despite that and rigs addition that it is not enough to offset the natural decline rate.

Gasoline inventory did build by 2 million barrels but, distillates did decline by 1.9 million barrels so no real change in finished products.

Finally, refineries did reduce input by 253,000 barrels/day or 1.77 million barrels for the week for their maintenance and changeover to winter fuels.

It is getting pretty clear that oil inventory draws should increase to fairly large numbers by the end of October or when refineries return to normal consumption.

Cardboard 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: TwoCitiesCapital on September 28, 2016, 11:48:19 AM
http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2 (http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2)


Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 28, 2016, 12:41:20 PM
EIA more than confirms with a 1.9 million barrels oil inventory draw last week.

On top of that, U.S. Lower 48 States production is returning to a decline (albeit very small with 5,000 barrels/day) despite rigs having been added over the past 2 months. It is quite possible that many of so called Drilled but Uncompleted Wells have been completed in recent months and despite that and rigs addition that it is not enough to offset the natural decline rate.

Gasoline inventory did build by 2 million barrels but, distillates did decline by 1.9 million barrels so no real change in finished products.

Finally, refineries did reduce input by 253,000 barrels/day or 1.77 million barrels for the week for their maintenance and changeover to winter fuels.

It is getting pretty clear that oil inventory draws should increase to fairly large numbers by the end of October or when refineries return to normal consumption.

Cardboard

It seems you may be right about the tanker offloading you mentiomed earlier.  Good call. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 28, 2016, 12:46:06 PM
http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2 (http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2)


Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 28, 2016, 12:51:03 PM
http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2 (http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2)


Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. Its easy to meet a target you cant keep up with anyway. 

Or they are just jawboning.  Does this qualify as buy on rumour, sell on news, or buy on news and sell on rumour. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 28, 2016, 12:53:16 PM
http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2 (http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2)


Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice.   Its easy to reduce your target when no one can keep up with it anyway.

Or they are just jawboning... is this buy on rumour sell on news, or the other way around? 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 28, 2016, 01:34:23 PM
Baytex up 15% today on OPEC news....will the rally continue?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 29, 2016, 01:45:28 AM
Energy comment from NG guru Robry...

......OIL: Thought this Wednesdays EIA report might be the letdown week (Due to pulling out the Colonial linepack in leau of shell storage),
......but not so. Globally we are probably 25-30 MMBLS undersupplied/month (seasonally adjusted) at this point and that could not be undone.
......And surprise, after the EIA came out, OPEC (widely expected to do nothing) did something and agreed to cut. OPEC prestige is on the
......line and it cannot afford to have the bull-train leave the station without it.

......That was the final nail in the coffin of the oil glut. It is gone and won't be back unless invited by a global economic mealtdown. So that
......little "$90 oil by mid February" scenario stays in play and I will leave it there and this will be my last comment on oil. Both natgas and oil
......look to me to be more bullish than at any time that I can remember anytime since 2000.
Folks likely will make fortunes in energy over the
......next 12 months. Hopefully you will be amoung them. My last words on the subject.

http://www.investorvillage.com/smbd.asp?mb=4288&mn=224875&pt=msg&mid=16408284
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on September 29, 2016, 01:03:49 PM
http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2 (http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2)


Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. 

Sold a bit more.  Small sales mostly.  At some point this could well retract for a few days, weeks, or even months.   Should we get a recession it will put a real damper on oil price increases for awhile.  Its always a balancing act.  Sell and take profits, but pay taxes, or hold and endure the inevitable punishment of being overinvested in something. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: KinAlberta on September 29, 2016, 01:44:13 PM
I'd read this a few years back and found it to be very enlightening. I think, so far, it's worked out pretty much as the author (Leonardo Maugeri) suggested.

 

Quote
Oil: The Next Revolution
THE UNPRECEDENTED UPSURGE OF OIL PRODUCTION CAPACITY AND WHAT IT MEANS FOR THE WORLD
Leonardo Maugeri

EXECUTIVE SUMMARY
Contrary to what most people believe, oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. This could lead to a glut of overproduction and a steep dip in oil prices.
Based on original, bottom-up, field-by-field analysis of most oil exploration and development projects in the world, this paper suggests that an unrestricted, additional production (the level of production targeted by each single project, according to its schedule, unadjusted for risk) of more than 49 million barrels per day of oil (crude oil and natural gas liquids, or NGLs) is targeted for 2020, the equivalent of more than half the current world production capacity of 93 mbd.

pg 1




"A sudden dip below $50 would not necessarily suspend the development of many projects worldwide, but would only slow their execution. The exception would be those projects that hold the highest marginal costs, such as some Canadian tar sands projects, Venezuelan extra-heavy oils, Brazilian pre-salt formations, as well as those projects that can be stopped immediately, such  as U.S. shale/tight oil ones those of OPEC producers, whose execution depends on the will of governments.

Such a response from oil companies and governments would soon curtail new production, leaving the world market vulnerable to sudden disruptions by geopolitical factors or major accidents once again. Furthermore, market instability would likely coincide with a rebound of oil demand, driven by lower prices. Market forces should then realign prices with the higher marginal production costs in less than two years.

Conversely, if an oil price collapse were to occur after 2015, a prolonged phase of overproduction could take place, because production capacity would have already accumulated and production costs would have decreased as expected. This is what happened to shale gas production in the United States between 2011 and 2012. In this case, market recovery will depend critically on the strength of the world economy as well as geopolitical factors affecting the steady flow of oil on the global market.

Finally, the worst scenario would involve a collapse of China, which would make any current forecast about the future of the oil market (and the world economy) useless. Being China the current engine of the world economy and of oil price consumption growth, its collapse would leave the oil price fall without a floor."

The opposite may also be true,..." - pgs 63, 64



"After 2015, however, most of the projects considered in this paper will advance significantly and contribute to a strong build-up of the world’s production capacity. This could provoke a major phenomenon of overproduction and lead to a significant, stable dip of oil prices, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent for the entire decade." - pg 66


http://belfercenter.ksg.harvard.edu/files/Oil-%20The%20Next%20Revolution.pdf


Maugeri, Leonardo. “Oil: The Next Revolution” Discussion Paper 2012-10, Belfer Center for Science and International Affairs, Harvard Kennedy School, June 2012.





Quote
Get Used to Cheap Oil. Why Lower Prices May Stick Around
 
By IAN TALLEY
Jan 21, 2015



Leonardo Maugeri, an associate professor at Harvard University’s Belfer Center for Science and International Affairs and who predicted the current collapse in prices back in 2012, estimates world oil production capacity is about 101 million barrels a day. That’s nearly 10% more than expected demand next year.

Mr. Maugeri says U.S. shale and tight oil production is more resilient than many expected because of lower break-even costs and higher productivity levels. Service fees are also falling at the same time, as hedging still offers a cushion to shale producers until mid-2015, he said.

That resilience may force Saudi Arabia to keep up its price war well into the year before the strategy wrings out some of the oversupply.

Elsewhere in the world, Mr. Maugeri said oil producers will likely slash exploration, but not development spending, which means new capacity will still come online.


http://blogs.wsj.com/economics/2015/01/21/get-used-to-cheap-oil-why-lower-prices-may-stick-around/



A book that might be an interesting read

Quote
What Or Who Moves Oil Prices?
Michael Lynch AUG 10, 2016

http://www.forbes.com/sites/michaellynch/2016/08/10/what-or-who-moves-oil-prices/#61415100607d

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: StevieV on September 29, 2016, 03:21:03 PM
http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2 (http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2)


Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. 

Sold a bit more.  Small sales mostly.  At some point this could well retract for a few days, weeks, or even months.   Should we get a recession it will put a real damper on oil price increases for awhile.  Its always a balancing act.  Sell and take profits, but pay taxes, or hold and endure the inevitable punishment of being overinvested in something.


FWIW, I haven't sold any shares in my O&G companies.  I am invested because I think WTI will be $60+ and I think the companies I own will do very well at those prices.  So, I am not planning to sell until: (1) we get  60+ and I think the companies have reached their full value; (2) I am convinced that we aren't going to get 60+; or (3) Something company specific.

I think the conditions for 60+ are just starting to get going.  First, we had huge reductions in CAPEX, but little in the way of production changes.  Then we started to see slowing production, though it lagged the price and CAPEX cuts by a while.  Now, we are getting draws of US inventory.  The production and inventory have been relatively slow moving boats, so I expects trends to persist for a while.

$60 will bring some supply back online.  However, it isn't going to do anything for deepwater or long lead projects.  It isn't going to save Venezuela.  It isn't going to mean a tidal wave of oil sands or other high cost projects.  Accordingly, I think that is a realistically sustainable price.  Even US shale took huge amounts of capital and rigs to bring about the growth.  It is not that easy to bring it back on at the type of rate it came online before.

Right or wrong, I am looking for BTE $20 and PWE $4+ USD.  Given those lofty targets, I have no temptation to make any move now.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: TwoCitiesCapital on September 30, 2016, 08:44:51 AM
http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2 (http://www.reuters.com/article/us-opec-meeting-decision-details-idUSKCN11Y2F2)


Thinking about letting go of my positions in marginal resource companies at this point. Some of the coal and oil names I own are up 200-300% from their lows and up 20-40% just this week. Will still have heavy resource exposure through my EM names, but would like to sell the news now that I'm well into the green in most names.

Not a bad idea.  I was buying Baytex this morning and selling a little off on this rally. 

My speculation is that everyone has been pumping more than they can keep up with and they are unable to even pump at levels this high going forward.  Pure speculation.  That would be the only reason they would make nice. 

Sold a bit more.  Small sales mostly.  At some point this could well retract for a few days, weeks, or even months.   Should we get a recession it will put a real damper on oil price increases for awhile.  Its always a balancing act.  Sell and take profits, but pay taxes, or hold and endure the inevitable punishment of being overinvested in something.

Right - I started my investing career with the buy/hold mentality but got burned by holding a lot of names through 2008 and further was sold on the idea of being more tactical with the understanding that we're probably still in a secular bear market that probably started in 2000ish.

Given that I think that markets are prone to large drops during this period, I've tried to be quicker and more tactical at taking profits, selling covered calls on large spikes, selling shares after prolonged rallies, etc. Sometimes this means missing out on further upside, but in A LOT of cases it's contributed to my returns/reduced losses in some of my largest positions (Altius, Fiat/Chrysler, Santander, etc).

If we were starting from a market P/E of 7-8x, I'd simply say buy great companies, reinvest 100% of dividends, and hold. No reason to try to get fancy with that. When they're trading at elevated multiples with declining earnings with low interest rates and tightening liquidity - I'm nowhere near confident enough to simply "hold" my positions and do try to get fancy to squeeze additional returns out of the same positions.





Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: physdude on October 04, 2016, 03:01:43 PM
A pretty big draw (-7.6 mln barrels) from the API again! Let us see if the EIA confirms. If these draws continue,  I can easily see WTI hitting 60 by the end of the year.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 05, 2016, 08:43:44 AM
A pretty big draw (-7.6 mln barrels) from the API again! Let us see if the EIA confirms. If these draws continue,  I can easily see WTI hitting 60 by the end of the year.

http://www.investorvillage.com/groups.asp?mb=19168&mn=52903&pt=msg&mid=16427219

It's hard to find any weakness in this EIA report
Normally in a shoulder season you can expect some crude builds with little distillate builds offset by some draws in gasoline. Not in this report.

Crude stocks fell again - by 3.0mm bls
Gasoline stocks were almost flat - rising by a mere 0.2mm bls
Distillate stocks fell by a large 2.4mm bls
Total in all 3 products - 5.2mm bls draws, or 0.74mm bpd.

Imports fell again - by 125K bpd to 7.7mm bpd and as expected running below 8.0-8.3mm bpd during summer. This is the very bullish figure suggesting that OPEC and other producers are at peak production and cannot add more.

Refinery utilization at 88.3%- finally showed reduced demand due to the maintenance in full force. This rate is close to a bottom demand. It may drop to 86% similar to previous years for a single week, but may remain at 88% as the season has started earlier this year. Regardless a couple of more weeks at 86-88% should follow by the jump back to 90% in 3 weeks.

Crude builds was certainly impacted by adjustments that dropped by relatively large 370K bpd, from +240bpd to -130K bpd. However the important figure for future expectations is the absolute adjustment that was 130K bpd only - very small.

Crude stocks broke down the psychological level of 500mm bls for the 1st time this year, down by 40mm bls from the peak, and on its way to achieve the last year level of 460mm later this year, and 5-year average of 400mm bps some time next year.

Gasoline stocks are at 227mm bls that is just 7mm bls above 5-year average, or 3.5%. Accounting for 3-4% demand growth in US the gas stocks are basically at average levels.

Distillate stocks are at 160.7mm bls, 11.5mm bls or 7.8% above last year. However higher inventories are needed for expected colder winter this year.

There is no glut in gas and distillate stocks. Crude stocks are falling rapidly and are on its way to remove 40-100mm bls excesses in the next 3-12 months.

US production: continued falling by 30K bpd including 38K in the lower 48.

Demand in all 3 categories continued to be very strong. Unlike last year when demand was weaker after the Labor Day weekend, this year demand did not show any weakness so far:
Gas: +511K bpd
Distillate: +103K bpd
Jet fuel: +202K bpd

Bottom line:
The report is very very bullish. It is hard to find any bearish position.
WTI should break out $50 in a very near future and keep going to $60 no matter what some analysts say.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 06, 2016, 06:25:01 AM
"US production: continued falling by 30K bpd including 38K in the lower 48."

This to me was the nail in the coffin of all the BS that media outlets having been pushing on people for 2 years now or that U.S. shale production had defied all laws: cost down from marginal to best in class, exponentially improving rig productivity, 30 to 40% decline rate that did not matter, etc.

Despite rigs having been added in the field at small increments over the past 2 or 3 months and "thousands" of so called "Drilled but Uncompleted Wells" (DUC's), U.S. production did drop by a relatively large 38,000 boe/d last week and did drop in the prior week also. For perspective, 38,000 boe/d is 1.976 million boe/d on an annualized basis.

So the meaning of current numbers is very clear: higher oil prices (your guess $60?, $70?) are needed to incentivize shale drilling to offset a large decline rate and there is no amount of increased productivity or mysterious easy low cost inventory (DUC's) that will stabilize production at current level.

With slightly higher prices, maybe that more DUC's will be completed and offset the decline rate. However, with the carnage that has played for so many service companies, the number of readily available crews and equipment did decline over the past 2 years so a "rush" to complete will lead to higher rates and costs.

We also forget about the other half of U.S. production which has its own issues despite a lower decline rate (3 to 5% a year). These guys seem in no position or having any sense of urgency to add to production at current prices.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on October 08, 2016, 07:09:48 AM
Speaking anecdotally for the other half of US production (I run an OSV for a marine transport company on contract for Chevron.)

We've been working a drillship in Walker Ridge & last hitch we stayed at the dock the entire 28 days (the 1st time I can remember this happening...)

There are literally 1,000's of tons of capital sitting idle (and that's just in Fourchon.)

This doesn't necessarily add anything useful to your discussion (I probably shoulda posted it in the HOS thread as a cautionary tale...)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 08, 2016, 08:12:49 AM
A pretty big draw (-7.6 mln barrels) from the API again! Let us see if the EIA confirms. If these draws continue,  I can easily see WTI hitting 60 by the end of the year.

http://www.investorvillage.com/groups.asp?mb=19168&mn=52903&pt=msg&mid=16427219

It's hard to find any weakness in this EIA report
Normally in a shoulder season you can expect some crude builds with little distillate builds offset by some draws in gasoline. Not in this report.


Crude stocks fell again - by 3.0mm bls
Gasoline stocks were almost flat - rising by a mere 0.2mm bls
Distillate stocks fell by a large 2.4mm bls
Total in all 3 products - 5.2mm bls draws, or 0.74mm bpd.

Imports fell again - by 125K bpd to 7.7mm bpd and as expected running below 8.0-8.3mm bpd during summer. This is the very bullish figure suggesting that OPEC and other producers are at peak production and cannot add more.

Refinery utilization at 88.3%- finally showed reduced demand due to the maintenance in full force. This rate is close to a bottom demand. It may drop to 86% similar to previous years for a single week, but may remain at 88% as the season has started earlier this year. Regardless a couple of more weeks at 86-88% should follow by the jump back to 90% in 3 weeks.

Crude builds was certainly impacted by adjustments that dropped by relatively large 370K bpd, from +240bpd to -130K bpd. However the important figure for future expectations is the absolute adjustment that was 130K bpd only - very small.

Crude stocks broke down the psychological level of 500mm bls for the 1st time this year, down by 40mm bls from the peak, and on its way to achieve the last year level of 460mm later this year, and 5-year average of 400mm bps some time next year.

Gasoline stocks are at 227mm bls that is just 7mm bls above 5-year average, or 3.5%. Accounting for 3-4% demand growth in US the gas stocks are basically at average levels.

Distillate stocks are at 160.7mm bls, 11.5mm bls or 7.8% above last year. However higher inventories are needed for expected colder winter this year.

There is no glut in gas and distillate stocks. Crude stocks are falling rapidly and are on its way to remove 40-100mm bls excesses in the next 3-12 months.

US production: continued falling by 30K bpd including 38K in the lower 48.

Demand in all 3 categories continued to be very strong. Unlike last year when demand was weaker after the Labor Day weekend, this year demand did not show any weakness so far:
Gas: +511K bpd
Distillate: +103K bpd
Jet fuel: +202K bpd

Bottom line:
The report is very very bullish. It is hard to find any bearish position.
WTI should break out $50 in a very near future and keep going to $60 no matter what some analysts say.


It's a lot more bullish that everyone thinks...

All these INCREASING draws indicate that US demand is routinely exceeding US supply, INCLUDING off shore tanker inventory landing on US facilities. Tanker inventory is mobile; less of it landing can only be because there is EITHER a lot less of it left, or the remainder is starting to be held back for higher prices. Bullish.

Put a well back on-line and you get a temporary production boost, followed by accelerated decline. It would appear that the high decline rate of shale production is now materially overwhelming new production from drilling and DUC tie-up. It's also why the land rig-count has been quietly rising over the last few months. Bullish.

We know the off-shore drill fleet is in deep dung. Few realize that a good number of the existing off shore platforms are barely covering their marginal cash cost. A major can only subsidize temporary losses, if they are profitable elsewhere - and we know from their income statements that the operating leverage on these fixed cost investments has been working against them. Bullish.   

We haven't seen the bankruptcies, we've seen work-outs instead - and cash flow from depreciation paying down debt. The 2nd stage of this is consolidation to produce cash flow savings to fund new drilling. To most folks, it is highly likely that this M&A activity will dominate when most believe that WTI will settle in the $50-60 per barrel range, or higher. Bullish.

We know from the rating and audit firms that if you pay a high enough fee/consulting rate, you can make a pig fly. Post Enron, and the 2006 financial crisis, rating agencies and audit firms now have rules mitigating this. No such rules apply to the media, and we know their 'business model' doesn't work - leaving them highly exposed to this kind of manipulation. Opportunity.

For now the US election is overshadowing everything, but one has to think that if Trump doesn't win (& his controversy is no longer selling papers), the media will need a new source. The 'oil story' would seem to be pretty high on the list. Bullish.

SD   

       


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 08, 2016, 11:05:19 AM
Speaking anecdotally for the other half of US production (I run an OSV for a marine transport company on contract for Chevron.)

We've been working a drillship in Walker Ridge & last hitch we stayed at the dock the entire 28 days (the 1st time I can remember this happening...)

There are literally 1,000's of tons of capital sitting idle (and that's just in Fourchon.)

This doesn't necessarily add anything useful to your discussion (I probably shoulda posted it in the HOS thread as a cautionary tale...)

It's not just US offshore that has been hit hard. It's a worldwide issue that is essentially being ignored by the intense focus on US shale. The last 2 years of cap ex reduction in offshore & overall curtailment of exploration & development outside of the US will see serious supply implications over the next several years.

North Sea Oil and Gas Drilling Activity Plunges to All-Time Low

October 7, 2016

http://www.bloomberg.com/news/articles/2016-10-07/north-sea-oil-and-gas-drilling-activity-plunges-to-all-time-low

The number of rigs drilling for oil and gas in the North Sea, home of the Brent crude benchmark, plunged in September to the lowest in nearly 35 years as companies cut spending to weather low prices.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on October 08, 2016, 12:15:35 PM
I ran an anchor handling tug in Brasil from 2011 to 2015 & was fortunate to have made the move back to the GOM before things got really bad (plunging oil & lava jato...)

Highlight from an article outlining recent events in Brasilian oil:

"In a significant change to Brazil’s offshore oil industry regulations, companies other than Petrobras can now operate blocks in the largest deep-water deposits discovered this century. Until now the heavily indebted state-controlled oil producer was legally obliged to operate all the pre-salt fields with a 30 percent minimum stake."

Link to original article:

http://rigspot.net/2016/10/07/brazil-opens-offshore-oil-fields-to-companies-other-than-petrobras/

I would think they'd have a difficult time attracting capital although China seemed willing to finance Petrobras which may not provide the Chinese with as much value as they expected given this recent legislation.

Argentina has a lot of these type of formations in the Vaca Muerta & it seems to me that Brasil would be deemed the least untrustworthy but I may simply be blinded by Caipirinhas.

Maybe someone smarter than me can interpret whether this means I'll have a chance of going back to work in Brasil some time over the next few years (it beat the heck out of West Africa & the ME...)

As to tanker storage; there's an anchorage SW of the Loop facility that I pass through on the way to Walker Ridge which has been full up for quite some time.

I'll make a note of vessel names & drafts next time I pass & will keep a journal to see if they're coming & going (provided I actually get to haul any more cargo that is...)

(Disclaimer on the above: any fuzzy conclusions I've drawn are obviously those of an amateur & I make them here knowing that you guys are an extremely civil & diplomatic bunch who won't send me crying to my room. I wanna learn more so hook me up!)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 08, 2016, 02:28:48 PM
Speaking anecdotally for the other half of US production (I run an OSV for a marine transport company on contract for Chevron.)

We've been working a drillship in Walker Ridge & last hitch we stayed at the dock the entire 28 days (the 1st time I can remember this happening...)

There are literally 1,000's of tons of capital sitting idle (and that's just in Fourchon.)

This doesn't necessarily add anything useful to your discussion (I probably shoulda posted it in the HOS thread as a cautionary tale...)

It's not just US offshore that has been hit hard. It's a worldwide issue that is essentially being ignored by the intense focus on US shale. The last 2 years of cap ex reduction in offshore & overall curtailment of exploration & development outside of the US will see serious supply implications over the next several years.

North Sea Oil and Gas Drilling Activity Plunges to All-Time Low

October 7, 2016

http://www.bloomberg.com/news/articles/2016-10-07/north-sea-oil-and-gas-drilling-activity-plunges-to-all-time-low

The number of rigs drilling for oil and gas in the North Sea, home of the Brent crude benchmark, plunged in September to the lowest in nearly 35 years as companies cut spending to weather low prices.

There is  bright side to this https://www.abdn.ac.uk/old-business/documents/Aberdeen_Housing_Market_Report_2015Q4.pdf
Aberdeen housing prices have started to come down; a year from now we may be seeing some nice bargains. The pound has also dropped like a brick - further reducing the cost of these things. And what is happening in Aberdeen .... is also happening everywhere else that is reliant upon the off shore industry.

SD 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 14, 2016, 06:27:07 PM
Seems like everything falling in place nicely....

Robry825: Oil to $90 by February 2017 (Coolreit)
Forecast is for sharply rising oil prices.

The "Oil to $90 by February 2017" was (as first mentioned last spring)
a best-case scenario that I saw as legitimizing itself at that time,
predicated mostly on shipping activities.

The $90 was (in my mind) a milepost (not a destination), applicable
should all things come together just right to tighten oil markets
in the summer/fall.

An analogy would be to a cruise ship leaving a dock, but with a rope
still tied to a spindle on the dock. As the ship pulls away, the spindle
would not know the ship had left, because it feels the ships rope tied
around it. As the ship pulls further and further out the spindle does
not notice, until "SNAP-P-P-P-P".

In oil, that is what a bull market is. A glut forms until shell-storage
is full, then refiners (eager to store cheap oil) book tankers to hoard.
The tanker storage (Seaborn Storage) is hidden, out of site of the
markets, and if they want to get really nasty, they can take on ballast
to confuse tanker-watchers.

When gluts end, no-one really knows except the refiners (who have title
to the oil and therefore know exactly) and as oil goes into shortfall
that shortfall is hidden until refiners (one by one) empty their last
tankers and (in the wink of an eye) have to turn to their shell storage.

As to the $90 scenario, so far so good. Chartering rates loosened,
refiners started hedging with abandon, we got 5 crude draws in a row,
then bang... last week (with refiners operating at 85% of capacity) total
stocks fell. Take away LNG's, propane, ethanol, etc, and total stocks
are down hard.

Come about the middle of November refineries come back up it is going to
be an absolute mess.

But for crude oil in the weekly eia's, don't just look at crude oil alone.
The eia reports are a shell game, and you don't know which shell that
little black ball is under. It could be under the crude oil shell, or it
could be under the distillate shell, gasoline shell, unfinished products
shell... you have to look at the oil content in each product and add them
together.

You can back into this by taking total commercial and backing out LNG's, etc,
or you can set up a spreadsheet to do the math for a more precise number.

But all-in-all, the "Oil to $90 by February 2017" is still in play.

http://www.investorvillage.com/groups.asp?mb=19168&mn=54485&pt=msg&mid=16461112
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on October 15, 2016, 06:38:12 AM
Who is this Robry825?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on October 15, 2016, 09:33:13 PM
Back at work & we're on a new job.

Working in Green Canyon 640 with 2 Transocean drill ships (Deepwater Inspiration & Asgard) & a well intervention semi (Q4000) owned by Helix (formerly CalDive.)

Hooooray for cargo ops!

(Didn't go far enough to pass through tanker anchorage...)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on October 16, 2016, 10:21:55 PM
Any suggested positions that people are following to capitalize on a possible upswing? I have small positions in a few service providers:
Civeo, Gulfmark Offshore, Forbes Energy bonds (now in workout), as well as a small position in Macro Enterprises. I'd like to be in some E&Ps, but as a whole thy haven't seen the decline that the service providers have. Thanks
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sarganaga on October 16, 2016, 11:34:18 PM
I like  some of the royalty trusts.

Sabine Royalty Trust (SBR) no debt, no employees, all top line royalties, some Permian exposure.

Dorchester Minerals (DMLP) no debt, mostly top line royalties, some bottom line royalties, some Permian exposure.

Crosstimbers Royalty Trust (CRT)  no debt, no employees, mostly top line royalties, some bottom line royalties, some Permian exposure

I own all three of these with substantially more invested in SBR
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 18, 2016, 07:26:16 AM
From the mainstream media 3 to 4 months later:

http://www.cnbc.com/2016/10/18/in-good-sign-for-market-floating-oil-storage-has-plummeted.html

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on October 18, 2016, 09:24:36 AM
From the mainstream media 3 to 4 months later:

http://www.cnbc.com/2016/10/18/in-good-sign-for-market-floating-oil-storage-has-plummeted.html

Cardboard

I just passes through the Loop anchorage on my way back from the Tahiti field.

There were 2 tankers anchored on the way out & the same 2 on the way in (a day & a half later) both drawing 15 meters.

6 months ago there'd be at least a dozen...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on October 19, 2016, 07:33:57 AM
EIA confirms again, and then some.   Inventories shouldn't be dropping at this seasonal time but they are .   Maybe a little hurricane related?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 19, 2016, 07:56:34 AM
Possibly with net imports down 912,000 barrels/day or 6.384 million barrels in the last week. However, inventories still did decline by 5.2 million barrels despite refineries consuming 452,000 fewer barrels per day than the most recent 4 week average. That represents 3.164 million barrels in the last week. And exports were not down that significantly or less than 10%. They use the same ports and key areas such as the Gulf and Northeast were not affected by the hurricane.

So imported much less and consumed less possibly due to the hurricane? If so, with the talks of Libya and Nigeria apparently coming back on line, the oceans must be filled with full tankers and with it higher tanker daily rates. That is not really what I am seeing looking at the stock charts of FRO and TNK.

I would also imagine that refineries will get back to the 16 million barrels/day of consumption in a few weeks with the end of the maintenance/turnaround season leading to 4.4 million barrels/week additional of consumption.

With OPEC having not cut yet. Just discussions leading up to the November meeting. It seems clear looking at the last 6 to 8 weeks of U.S. data that we are into a deficit already on this side of the ocean. Not sure about Europe and elsewhere but, with the law of supply and demand, you would think that if the U.S. inventories are being depleted that it should be a similar case elsewhere.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on October 19, 2016, 09:58:42 AM
Possibly with net imports down 912,000 barrels/day or 6.384 million barrels in the last week. However, inventories still did decline by 5.2 million barrels despite refineries consuming 452,000 fewer barrels per day than the most recent 4 week average. That represents 3.164 million barrels in the last week. And exports were not down that significantly or less than 10%. They use the same ports and key areas such as the Gulf and Northeast were not affected by the hurricane.

So imported much less and consumed less possibly due to the hurricane? If so, with the talks of Libya and Nigeria apparently coming back on line, the oceans must be filled with full tankers and with it higher tanker daily rates. That is not really what I am seeing looking at the stock charts of FRO and TNK.

I would also imagine that refineries will get back to the 16 million barrels/day of consumption in a few weeks with the end of the maintenance/turnaround season leading to 4.4 million barrels/week additional of consumption.

With OPEC having not cut yet. Just discussions leading up to the November meeting. It seems clear looking at the last 6 to 8 weeks of U.S. data that we are into a deficit already on this side of the ocean. Not sure about Europe and elsewhere but, with the law of supply and demand, you would think that if the U.S. inventories are being depleted that it should be a similar case elsewhere.

Cardboard

Cardboard/Joe, you both want my opinion of course :-).   

Cdbd, I think you are right about tankers getting emptied.  I also, think, and may have mentioned it elsewhere, that the OPECs and Russia are willing to agree to cuts because they have already made them.  I think they were pumping more than they could for a good year and their ability to pump more , or even at the same level, , ex. Major investment, is simply not there.  Even those guys need to plan ahead for major capex.  It is not as simple as just turning on a tap.  The Russians are probably in the same situation. 

There is no way in hell that Iran and SA would agree to a cut if it wasn't going to happen organically while they are lobbing bombs at one another all over the region. 

Totally an opinion piece from someone who knows about as much about the situation as anyone else actually knows. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 19, 2016, 11:48:57 AM
"Cdbd, I think you are right about tankers getting emptied.  I also, think, and may have mentioned it elsewhere, that the OPECs and Russia are willing to agree to cuts because they have already made them.  I think they were pumping more than they could for a good year and their ability to pump more , or even at the same level, , ex. Major investment, is simply not there.  Even those guys need to plan ahead for major capex.  It is not as simple as just turning on a tap.  The Russians are probably in the same situation."

Tankers were emptied because funds could simply not make money anymore with the contango. And I think that many pension funds who had moved into "alternative" investment during the resource super cycle and who hoarded oil as a form of investment had a look at their resource exposure and decided to reduce. 

Regarding OPEC and Russia, there is no indication from official and non-official sources of a reduction in production yet. Flattening and at max production yes. But, everywhere else with such capex cuts including in China (near a 6 year low) there is a decline occurring:

http://www.cnbc.com/2016/10/19/reuters-america-update-5-oil-rises-as-chinese-output-drops-us-inventories-shrink.html

Cardboard


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 22, 2016, 11:51:38 AM
Believe this is the correct call on what will take place...

http://www.investorvillage.com/groups.asp?mb=19168&mn=55710&pt=msg&mid=16484384

Its been a long two years are we here yet?
We hear of all of the oil that will come from Nigeria & Libya and the ongoing
glut of crude and product.

The above two countries could add 700-800m bbl. p/d if stable

Iran and Iraq can add 300-400m additional if the majors invest in them.

All could be true and an additional 1mm to 1.2mm bbl. of crude could come to market
in 2017.

Kazakhstan will add 100m plus but at what cost.

CAPEX is down much greater than costs.

During the shale boom cos. were spending 200-300% of their C/F to get oil that
needed $70-80 to B/E. Today that oil has received $40-50. Cos. are spending
about 110% of their C/F overall.

How much oil will they bring to market to reverse the decline?

RJA stated 700-900 rigs are needed to balance the market. We have 443 drilling
for oil today.

David Demshur is correct net declines will be over 1mm bbl. p/d in 2017. Demand
will be an additional 1mm bbl. p/d.

We will need all the worlds oil.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on October 22, 2016, 11:13:18 PM
Declining dayrates for MODU's & OSV's.

Ditto for sevice hands & I'm just guessing that SLB & others are probably doing everything they can to reduce lifting costs.

Low depletion rates for deepwater as opposed to tight shoreside plays.

I went the easy route with VDE as oil hit $30 & would add if it went lower (you guys are more capable of deep dives on individual operators & quite frankly; I'm a coward...)

Most of the above is just me trying to convince myself that I'll get to keep my job!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 25, 2016, 05:13:18 AM
"Most of the above is just me trying to convince myself that I'll get to keep my job!"

I wonder what is going to be your reaction when Hillary will state: "We are going to put out of business a lot of oil & gas workers".

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on October 25, 2016, 06:00:10 AM
"Most of the above is just me trying to convince myself that I'll get to keep my job!"

I wonder what is going to be your reaction when Hillary will state: "We are going to put out of business a lot of oil & gas workers".

Cardboard

The needs of the many & all that.

I don't want to lose my job but I have spent the past decade preparing.

I own my home (built 2 years ago) & I have no debt & a nice pile saved up.

I do home renovations on my time off & have actually been thinking about taking it on full time.

I already voted absentee for Hillary (I'm at work now & haven't missed a vote in decades...)

If you lived in Florida we'd cancel each other out...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on October 25, 2016, 06:06:21 AM
"Most of the above is just me trying to convince myself that I'll get to keep my job!"

I wonder what is going to be your reaction when Hillary will state: "We are going to put out of business a lot of oil & gas workers".

Cardboard

The needs of the many & all that.

I don't want to lose my job but I have spent the past decade preparing.

I own my home (built 2 years ago) & I have no debt & a nice pile saved up.

I do home renovations on my time off & have actually been thinking about taking it on full time.

I already voted absentee for Hillary (I'm at work now & haven't missed a vote in decades...)

If you lived in Florida we'd cancel each other out...

Cmon Cardboard, we already have at least two threads dedicated to your hatred of the Clintons. 

 :)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 26, 2016, 06:30:50 AM
The API report last night was pretty negative with a 4.8 million U.S. oil inventory build vs expectation for a 400,000 barrels build.

http://www.marketwatch.com/story/crude-prices-tumble-as-us-inventories-rise-sharply-opec-deal-fears-rise-2016-10-26

Gasoline inventories were also on the rise. So overall a bearish report. I don't expect the EIA report at 10:30 to be that different since both have been pretty aligned in recent weeks.

The bigger concern vs this weekly swing to a build, while we are about to end the refinery turnaround season, is Iraq which expressed their disagreement to cut or cap their production this week-end. It is amazing to me that a large OPEC member such as Iraq agrees for cooperation in Algiers, then in Istanbul, then comes up with these comments. These are the same people who had major difficulties paying their oil contractors for 2016 and are now shooting themselves in the foot.

Nonetheless, most if not all these OPEC producers continue running deficits and this will hurt badly at some point bringing unintended consequences. Raising production by a few 100,000 barrels/day in Iraq sounds like a very bad economic decision vs the extra revenue from higher prices.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 26, 2016, 07:33:10 AM
"I don't expect the EIA report at 10:30 to be that different since both have been pretty aligned in recent weeks."

Wow! I was totally wrong.  :D

Very positive across the board except for some increase in U.S. production.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on October 26, 2016, 07:42:48 AM
"I don't expect the EIA report at 10:30 to be that different since both have been pretty aligned in recent weeks."

Wow! I was totally wrong.  :D

Very positive across the board except for some increase in U.S. production.

Cardboard

They were very different.  Any ideas why, or who is more accurate, or if any of it is even relevant?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on October 26, 2016, 07:48:05 AM
Both EIA and API use the exact same survey.   API is voluntary in that they cannot compel companies to return the survey.   EIA survey is mandatory.   This is how I understand it.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on October 26, 2016, 04:40:53 PM
Both EIA and API use the exact same survey.   API is voluntary in that they cannot compel companies to return the survey.   EIA survey is mandatory.   This is how I understand it.
So basically the API survey is an estimate based on a certain % of surveys and EIA is accurate based on 100% of surveys? Could this be compared to exit polling on election night (API being exit polls, followed up by actual votes cast)? I follow the stats at zerohedge (don't laugh, they're actually the best source for a synopsis of this data that I've found so far), and haven't understood the frequent wide gap between API and EIA.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on October 27, 2016, 05:17:52 AM
Both EIA and API use the exact same survey.   API is voluntary in that they cannot compel companies to return the survey.   EIA survey is mandatory.   This is how I understand it.
So basically the API survey is an estimate based on a certain % of surveys and EIA is accurate based on 100% of surveys? Could this be compared to exit polling on election night (API being exit polls, followed up by actual votes cast)? I follow the stats at zerohedge (don't laugh, they're actually the best source for a synopsis of this data that I've found so far), and haven't understood the frequent wide gap between API and EIA.

So, the consensus here might be:  ignore the actual numbers each week, but follow the broader trend. 

Its funny.  I used to pump gas and we measured our storage tanks using dipsticks, the truck driver delivering the fuel used a dipstick before and after using a dipstick.  And this is how we were billed (+/- dozens of litres).  But over time with different trucks and different dipsticks with each truck it probably was relatively accurate.  This is kind of how I envision these weekly stats.  Inaccurate and imprecise as hell, but able to show a trend.

What blows my mind is the amount of trading (multi billions per day) that happens around rig counts, inaccurate reserve measures, and talking heads. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on October 27, 2016, 05:20:25 AM
Precisely,  both reports are estimates.  One estimate just has a larger sample size....   Only thing reliable is the long term trend. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 29, 2016, 12:12:09 PM
Peter Tertzakian ‏@PTertzakian  Oct 27

This is unsustainable...IMF projects that oil exporting countries will pack on $340 billion in new debt (2017-2021):


https://www.youtube.com/watch?v=O3J9BKze3To

http://www.wsj.com/articles/oil-companies-shift-exploration-tactics-curb-spending-1477474206
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 02, 2016, 05:38:37 AM
API reported a 9.3 million inventory build last night... I don't know what to make of it anymore. Is this going to be reversed again by EIA this morning ? I can't see "luck" working in our favour two weeks in a row.

If EIA is reporting a large build too, where is this oil surge coming from?

OPEC being all aligned and now the Iraqis followed by the Iranians apparently refusing to participate in any cap is not helping the oil price. I hope that capital markets will be closed to these guys seeing how little trust they deserve.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on November 02, 2016, 05:51:08 AM
We've been sitting at the dock for nearly 2 weeks so I got nothing as to the Loop facility anchorage occupancy rate (wish we'd get some cargo...)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 02, 2016, 08:30:08 AM
API reported a 9.3 million inventory build last night... I don't know what to make of it anymore. Is this going to be reversed again by EIA this morning ? I can't see "luck" working in our favour two weeks in a row.

If EIA is reporting a large build too, where is this oil surge coming from?

OPEC being all aligned and now the Iraqis followed by the Iranians apparently refusing to participate in any cap is not helping the oil price. I hope that capital markets will be closed to these guys seeing how little trust they deserve.

Cardboard

You didn't expect this to be linear did you?

EIA reported 14.4 million barrel build. 

So much for statistics.  Its all BS.  How do you get a sudden inventory build of 14 million barrels?
And the markets trade on this information. 

BTE and PWT reported as expected earnings today.  BTE even paid off 80 million debt in the Quarter. 
I haven't had a chance to check if either advanced their hedges while oil was up.  Regardless of what happens my 3 direct oil holdings will survive at these prices for at least a couple of years. 

What we do know:
1) Opec is pumping the most it ever has.
2) Russia is pumping the most it ever has.
3) Oil investment is way down from 2014 and long project investment is a fraction of what it was. 
4) Worldwide demand is stable or growing.
5) No one really has a clue what is going on in the short term.
6) In the past higher prices have always followed lower prices.  The same applies to all commodity cycles.

Looks like a buying opportunity to me. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 02, 2016, 09:40:49 AM
Hm, interesting how it's all bullshit when it goes against you. I bet it didn't feel that way when it was the other way around with inventory dropping. Why even bother watching the numbers when you are just going to rationalize when the trend reverses against you?


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: KinAlberta on November 02, 2016, 09:49:29 AM
Hm, interesting how it's all bullshit when it goes against you. I bet it didn't feel that way when it was the other way around with inventory dropping. Why even bother watching the numbers when you are just going to rationalize when the trend reverses against you?

Maybe read Uccmals prior post, on prior page.  Sounds reasonable.


Actually, here, let me post it below:


Both EIA and API use the exact same survey.   API is voluntary in that they cannot compel companies to return the survey.   EIA survey is mandatory.   This is how I understand it.
So basically the API survey is an estimate based on a certain % of surveys and EIA is accurate based on 100% of surveys? Could this be compared to exit polling on election night (API being exit polls, followed up by actual votes cast)? I follow the stats at zerohedge (don't laugh, they're actually the best source for a synopsis of this data that I've found so far), and haven't understood the frequent wide gap between API and EIA.

So, the consensus here might be:  ignore the actual numbers each week, but follow the broader trend. 

Its funny.  I used to pump gas and we measured our storage tanks using dipsticks, the truck driver delivering the fuel used a dipstick before and after using a dipstick.  And this is how we were billed (+/- dozens of litres).  But over time with different trucks and different dipsticks with each truck it probably was relatively accurate.  This is kind of how I envision these weekly stats.  Inaccurate and imprecise as hell, but able to show a trend.

What blows my mind is the amount of trading (multi billions per day) that happens around rig counts, inaccurate reserve measures, and talking heads.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 02, 2016, 10:55:27 AM
Hm, interesting how it's all bullshit when it goes against you. I bet it didn't feel that way when it was the other way around with inventory dropping. Why even bother watching the numbers when you are just going to rationalize when the trend reverses against you?

Maybe read Uccmals prior post, on prior page.  Sounds reasonable.


Actually, here, let me post it below:


Both EIA and API use the exact same survey.   API is voluntary in that they cannot compel companies to return the survey.   EIA survey is mandatory.   This is how I understand it.
So basically the API survey is an estimate based on a certain % of surveys and EIA is accurate based on 100% of surveys? Could this be compared to exit polling on election night (API being exit polls, followed up by actual votes cast)? I follow the stats at zerohedge (don't laugh, they're actually the best source for a synopsis of this data that I've found so far), and haven't understood the frequent wide gap between API and EIA.

So, the consensus here might be:  ignore the actual numbers each week, but follow the broader trend. 

Its funny.  I used to pump gas and we measured our storage tanks using dipsticks, the truck driver delivering the fuel used a dipstick before and after using a dipstick.  And this is how we were billed (+/- dozens of litres).  But over time with different trucks and different dipsticks with each truck it probably was relatively accurate.  This is kind of how I envision these weekly stats.  Inaccurate and imprecise as hell, but able to show a trend.

What blows my mind is the amount of trading (multi billions per day) that happens around rig counts, inaccurate reserve measures, and talking heads.

Thanks Kin.  Saved me from replying. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 09, 2016, 07:50:50 AM
API reported a build of 4.4 million barrels last night and EIA is reporting 2.4 million now.

However, there is a big decline in everything else (gasoline, distillate, etc.) making Total Stocks down 7 million barrels (includes crude). This is despite refineries consuming 2.6 million more barrels of crude this week.

There was a major decline in net imports of 10.9 million barrels for the week so, we are seing some normalization that could help explain the huge crude build of 14.4 million barrels last week or the largest since records were kept.

On the bearish side, we are seeing a big increase in Lower 48 States production of 163,000 b/d or 1.141 million barrels for the week. I find that a little weird since there was no large increase in rig count recently and the oil price has been down quite a bit over the last 2 weeks. It could be a surge in initial production from drilled but uncompleted wells. We have also had a large weekly increase of 150,000 b/d (if I recall properly) 4 or 5 weeks ago that was mostly reversed in subsequent weeks.

Unlike for Alaska, this is a production estimate and has been unreliable on a week to week basis. The number is still large, so we will have to see next week to see if a trend is forming or not.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 11, 2016, 05:34:11 AM

What we do know:
1) Opec is pumping the most it ever has.



Oh look, OPEC output jumps and they expect even more for 2017. But that's bullish right?

Thesis drift?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 11, 2016, 08:10:50 AM
Why don't you short it? Put your money where your mouth is.

At the end of the day, the largest OPEC producers all get destroyed financially if they continue acting irrationally. Civil war or war ensues leading to massive production drop: see Libya and Nigeria.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 11, 2016, 08:26:45 AM
We had also mentioned that the drilling industry was slowly being dismantled. Here is further proof to that:

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aESN-2420808&symbol=ESN&region=C

Many have moved back "home" which means 1,000's of km for some. Returning means moving costs, abandoning a new found job in a different field, disrupting the family, all for a potentially higher paying job with zero certainty as to its duration.

Ramping back up to previous production level in the NA shale industry will prove much more difficult that the media has made so many believe. Based on the above, it is pretty clear that drilling costs have reached a bottom and that producers will have to pay more for new wells. Indication of that are multiple in current Q3 reports.

And this is for shale which is more flexible with low investment, low risk per well. For deepwater, the situation has got to be much worse.

There is no thesis drift in the very large producing bucket outside OPEC and Russia.

Cardboard


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 11, 2016, 08:46:02 AM
We had also mentioned that the drilling industry was slowly being dismantled. Here is further proof to that:

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aESN-2420808&symbol=ESN&region=C

Many have moved back "home" which means 1,000's of km for some. Returning means moving costs, abandoning a new found job in a different field, disrupting the family, all for a potentially higher paying job with zero certainty as to its duration.

Ramping back up to previous production level in the NA shale industry will prove much more difficult that the media has made so many believe. Based on the above, it is pretty clear that drilling costs have reached a bottom and that producers will have to pay more for new wells. Indication of that are multiple in current Q3 reports.

And this is for shale which is more flexible with low investment, low risk per well. For deepwater, the situation has got to be much worse.

There is no thesis drift in the very large producing bucket outside OPEC and Russia.

Cardboard

And this from Acumen referencing Trican's (Cdn frac'g service provider) comments...


Energy services comments:  interesting comments from TCW yesterday regarding staffing availability.  This note has been stating for some time that labour availability is becoming scarce.  This is counterintuitive given the mass unemployment in the province these days.  But if you listen carefully you will frequently hear radio commercials from service companies that are hiring.  Here is the money quote from TCW:

We are not currently anticipating activating any additional equipment. However, management will consider activating parked equipment if service prices increase to a sustainable level and we are confident that long-term demand exists. Staffing challenges and labour constraints are beginning to emerge and may become a significant risk to activating parked equipment in the future.

The reality is that service pricing will need to move higher on any incremental activity increase in the Basin if only because there will need to be an incentive (higher wages) to bring back workers, many of whom have integrated elsewhere in the economy.  TCW for instance, is operating half their equipment and in order to bring back any more there will need to be a return attached to it.  The E&P’s have squeezed all the blood from the service company stone and I stick with my rule of thumb that the next $10 move in oil will be in the service company’s favour.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 14, 2016, 10:08:59 AM
We had also mentioned that the drilling industry was slowly being dismantled. Here is further proof to that:

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aESN-2420808&symbol=ESN&region=C

Many have moved back "home" which means 1,000's of km for some. Returning means moving costs, abandoning a new found job in a different field, disrupting the family, all for a potentially higher paying job with zero certainty as to its duration.

Ramping back up to previous production level in the NA shale industry will prove much more difficult that the media has made so many believe. Based on the above, it is pretty clear that drilling costs have reached a bottom and that producers will have to pay more for new wells. Indication of that are multiple in current Q3 reports.

And this is for shale which is more flexible with low investment, low risk per well. For deepwater, the situation has got to be much worse.

There is no thesis drift in the very large producing bucket outside OPEC and Russia.

Cardboard

And this from Acumen referencing Trican's (Cdn frac'g service provider) comments...


Energy services comments:  interesting comments from TCW yesterday regarding staffing availability.  This note has been stating for some time that labour availability is becoming scarce.  This is counterintuitive given the mass unemployment in the province these days.  But if you listen carefully you will frequently hear radio commercials from service companies that are hiring.  Here is the money quote from TCW:

We are not currently anticipating activating any additional equipment. However, management will consider activating parked equipment if service prices increase to a sustainable level and we are confident that long-term demand exists. Staffing challenges and labour constraints are beginning to emerge and may become a significant risk to activating parked equipment in the future.

The reality is that service pricing will need to move higher on any incremental activity increase in the Basin if only because there will need to be an incentive (higher wages) to bring back workers, many of whom have integrated elsewhere in the economy.  TCW for instance, is operating half their equipment and in order to bring back any more there will need to be a return attached to it.  The E&P’s have squeezed all the blood from the service company stone and I stick with my rule of thumb that the next $10 move in oil will be in the service company’s favour.


Any thoughts  on if this would apply in other areas of oil production such as deep sea drilling, and fracking in the US.  It would seem to me that if you laid off your engineers involved in designing and building longer term projects, and they have moved on, it may take years to get some large projects up and running again.  The actual drilling is a relatively high skill job as well. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 14, 2016, 10:31:56 AM
Boone Pickens has brought up this problem a few times in the past.   Not only engineers that found new careers, but also maybe retired.    He has been saying for over a year now that prices would recover because production would peak.   He has mostly been wrong so far.

Interesting rebound in oil today.   Next couple weeks are going to be real entertainment with OPEC meeting and jawboning in the meantime.

What is everyone's bet on OPEC decision?   I am optimistic on a considerable cut because the alternative would be quite ugly for prices and likely the collapse of OPEC.     Most people think they will do something, but likely be lackluster.



Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 14, 2016, 02:43:38 PM
"What is everyone's bet on OPEC decision?"

Here is the latest production chart from OPEC:

http://s.wsj.net/public/resources/images/ON-BX026_OPECOc_ER_20161114150028.jpg

So, the 3 key players or the ones who have collectively added just over 3 million barrels of oil per day on the market between 2014 and now are: Iran, Iraq and Saudi Arabia.

The glut would have been resolved a while ago if these guys had kept their production more or less constant since 2014: Iran is a special case thanks to a foolish deal, Iraq is post Hussein expansion plans and Saudi Arabia really wanted to increase its market share and kill shale.

Who is going to cut among these 3 if at all is near impossible to answer? There is a religious war between Iran and Saudi Arabia and Iraq is now controlled by Iran. And none of these countries is doing well fiscally at $45 oil. Acting rationally does not seem to be their strength so I won`t hold my breath.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 14, 2016, 03:52:50 PM
I dont think anything gets agreed upon.  If I had some sort of confidence that this motley crew would accomplish anything at all I would be all in with my Cdn. oil stocks.  As it is, I generally keep it below 20%.  The markets are sort of reflecting a dead OPEC. 

There doesn't seem to be any cautious optimism, or anything else.  As Cardboard has indicated these dummies would rather bicker on their petty religious differences than actually try to manage a market. 

They are caught in a mouse trap of their own making and cant get out.  In order to finance their respective wars and welfare states they need to keep pumping all out.  Pumping all out keeps the price down.  At some point they will run out of money, and be willing to actually come to the table and act on their mutual interest. 

Curiously they always seem to have enough sense not to blast their enemies oil rigs, refineries, and pipelines. 

I think any gains in the oil price come as longer term projects continue to get mothballed, and capital,  and expertise flees the industry.  It doesn't come from OPEC.  It all takes longer than we expect. 

With this in mind I am happy with my three oil holdings PWT, BTE, and WCP for now.  All of them will do okay for at least another couple of years.  As mich as I like quick gratification, I think it is unlikely. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 15, 2016, 07:18:09 AM
I am in the minority that think the deal gets done, and is substantial.   Think we are under playing the Russia card.   Russia has big interests in an OPEC cut, and they too seem to want to freeze at least if OPEC gets it done.   But what I think people are missing is; Russia, being outside OPEC, can help broker this deal within OPEC, especially in regards to IRAN.   You see evidence of this with the latest oil contracts and arms deals. Russia is partnering up with Iran to yet again increase their presence in the middle east.   With Iran being one of the problems in the OPEC deal, I see Russia working behind the scenes here big time.  Russia has a lot to loose.

Anyways, API tonight followed by EIA tomorrow.  Refiners should have started to come back on?    Looking for a small build, maybe even a draw?  If bullish numbers come from this report, this could really burn the shorts.   I cannot believe the shorts came back and in such force considering the impending deal.  They are brave.

With the right combination of things, it is not too far of a cry to be near 60 by year end. 

Or I guess with the wrong combination, back at 35?

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 15, 2016, 07:42:37 AM
I think that you are correct to expect better reports from API and EIA. There were big draws in gasoline, distillates and other products last week along with the relatively small oil build. Refiners were ramping back up but, that was obviously not sufficient to keep finished products inventories stable. So that should soak up some of the oil excess supply with higher refinery runs.

Regarding OPEC and Russia, we hear so many conflicting voices so who knows? Putin appeared very much in favor to support a deal but, then the boss at Rosneff said the exact opposite.

The other unknown IMO is Libya. They are slowly ramping back up and the situation over there seems to have calmed down a fair bit in recent months. They have a lot of capacity that could come back on line if the country comes together and they should not be part of any cap by any potential OPEC deal.

Venezuela remains a very potential Gray Swan. They need condensates from other countries to dilute their heavy oil and have had some difficulties paying bills. They have been able to delay the unavoidable on their various bonds but, for how much longer? The country is an absolute disaster and this is a 2.1 million barrels/day producer.

So there are a lot of moving pieces and until OPEC speaks and acts in unison or if some disaster occurs, it does not seem so courageous for traders to short this market with the media still firmly in their camp with negative news all the time.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 15, 2016, 11:34:17 AM
Talk about a reversal.....   Big day for oil.   OPEC is scrambling...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 15, 2016, 04:27:55 PM
This is the same fund manager who wrote the comprehensive report on the oil market at the beginning of the year....



https://www.islainvest.com/LTI/Tarpon_Q3_16_LTI.html#Cales_Notes

Dear Investors,

The Tarpon Folio has returned 37.7% from January 1, 2016 through August 31, net of all fees. Over the same period the S&P 500 Index has returned 7.8%.

It has been a challenging time to be a value investor in the energy sector. The good news is that my being a stubborn fool seems to be working well for us. Thank you for sticking it out so far.

We continue to hold low cost-basis positions in sixteen energy companies that will benefit significantly as oil prices rebound.
Our companies operating in the Permian Basin of West Texas have continued to drive Tarpon’s outperformance. Our cost basis in Resolute Energy (REN) is $3.07 per share. Shares closed on August 31st at $16.91, representing a 451% gain. We have also seen a 594% return on our holdings of Clayton Williams Energy (CWEI), which we originally acquired for a weighted average price of $9.09 per share and which ended August at $63.11. Alas, neither position was a very large one for us in Tarpon originally, but we retain full positions in both companies today. All things being equal, both stocks should be ten-baggers for us at the peak of the oil cycle.
To be clear, we have owned a few duds during this oil cycle, too. The degree of difficulty when investing in small energy companies during the worst oil bear market in history has been considerably higher than I would normally choose to pursue…but, well, the potential gains have been that much higher, too. Fortunately, at this point, the difficult-and-duds have been jettisoned from the portfolio – some with extreme prejudice. But let’s just move along, shall we?

On The Permian
 

Analysts at Wood Mackenzie believe the Permian has larger recoverable oil and gas potential than the giant Ghawar field of Saudi Arabia. The Midland and Delaware basins of the Permian in particular "hold the largest number of undrilled, low-cost tight [unconventional] oil locations in the lower 48. No other region comes close." Much of the capital in Tarpon is invested right there.

The geology of the Permian is unique. It consists of 3,000 to 5,000 feet of a dozen prospective oil zones, stacked right on top of each other. These “stacked pays” translate into dramatically lower costs to produce oil, making well managed Permian companies the most capital-efficient oil companies in North America. Over time, as technology continues to improve costs and extraction techniques, Permian players will steal market share from other higher-cost producers – both in the U.S. and abroad.

That said, we are value investors. We aren’t buying companies simply because they can spell Permian and plan to grow by constantly issuing new stock. The Street’s history of myopically rewarding growth above all else in the oil patch has created a number of extremely low valuations among the more disciplined of management teams. We are looking for the cheapest, safest exposure to the Permian we can find - run by management teams that emphasize internal economic returns over growth-at-any-cost - in order to maximize our own long-term returns.

The largest, most popular publicly traded Permian operators appear overvalued to me – in spite of the oil bust. In contrast, none of our Permian companies appear to get much respect at all from the Street right now, which I view as a good thing. But that’s a subject for another letter.

With reference to those two outperformers in Tarpon I mentioned earlier - two of Resolute Energy’s recent wells in the Upper Wolfcamp play in Reeves County, Texas, are now producing pre-tax, full cycle IRRs (internal rates of return) in excess of 100% at current oil prices. And that is just in two zones of what could be a dozen plays in the same stack. Clayton Williams Energy, historically a mediocre operator, nonetheless has 66,000 net acres of really good rock also in Reeves County, and is having operational discipline thrust upon them by a large private equity firm which has been buying up CWEI’s equity and debt. Recent transactions in the immediate area put CWEI's landholdings well in excess of $100 per share.

On a look-through basis, an aggregated view of all Tarpon company holdings shows a clear, heavy and intentional portfolio weighting towards cheap, safe growth in oil production in the Permian. These companies should continue to be among the first to resume growth as oil prices rise – while either keeping their balance sheets stabilized and/or improving them.

We also continue to own companies operating in areas outside the Permian – including in Canada, the Bakken in North Dakota, and the Eagle Ford in Texas. I characterize these positions in Tarpon as low-to-no-current growth, but cash flow neutral. Despite a lack of growth of late, they own good-to-great rock that will drive attractive internal returns once their balance sheets are fully in order and as oil prices increase, at which point these companies can begin to grow intelligently - and at lower cost due to improved efficiencies, drilling processes and technology.

Our other companies outside the Permian should soon begin to appreciate significantly as well, assuming a sustained rebound in the price of oil is imminent. And I believe it is.

Stocks vs. Flows
 

I believe that there is a very high probability that the global oil market is currently balanced – meaning daily supply is meeting daily demand, right now in real-time. This pivotal development, however, is not being reflected in the price of a barrel of oil for a number of reasons.
The first is that the data that should confirm this balance is on a significant lag.

U.S. inventories and production data are delayed and revised for up to three months. Inventories in thirty-five other developed economies (“OECD” countries) are revised on a four to six month lag. OECD consumption data is published monthly, but global consumption figures are only published annually. Nobody has a good handle on monthly oil demand in small (“non-OECD”) countries – and that number could be meaningful at this point in the oil cycle.
Quick aside: a really interesting question right now is…never mind “balanced” - if the world was actually in a supply deficit right now, how would the market know?
Also, speculation in the “paper” markets could be temporarily masking fundamental shifts in the “physical” market by way of sheer volume. This one takes a little bit of explaining.

The “paper” oil market dominated by speculators dwarfs the “physical” oil market of actual oil producers. The volume of WTI (West Texas Intermediate) oil barrel contracts (1 contract = 1,000 barrels) is over 100x the volume of actual barrels of WTI oil that move through the Cushing, Oklahoma oil hub – and is more than 5x global supply. In other words, in the short-term, speculation can easily overwhelm longer-term fundamentals. Thus all these volatile short-term price swings.
To speculators, oil prices should be correlated most strongly to oil storage levels in the U.S. It’s “stocks” not “flows” that matter to the paper market – in other words, the level of inventories is of much greater interest than the supply/demand balance in the market. Speculators are incentivized to exploit arbitrage strategies (i.e. attempt to create risk-free profit) that right now seem to rely on importing low cost oil barrels in the U.S. – keeping oil inventories higher than might be expected – in order to then export it at significantly higher prices and profit.

Seasonal demand for oil in the U.S. is typically strongest in June, July and August – but the weekly headline numbers for inventory draws this summer, oddly, not only came in smaller than expected but culminated in a series of small increases in U.S. oil storage. This seemed all the more befuddling because oil was concurrently seeing very strong demand, and we saw multiple supply disruptions in the market this summer as well, from Canada to Nigeria.
So how in the world were oil supplies in the U.S. still building this summer?

Strong imports.

High oil imports in the U.S. – ostensibly driven by both speculators and refiners – painted a confusing picture in the paper market this summer. And those elevated levels of oil imports into the U.S. are obscuring more fundamental trends in the physical market, specifically in crude inventory withdrawal numbers.
Interestingly, the data seems clear that (a) a high percentage of oil imported into the U.S. this summer came from “floating storage” – ships that traders rent, fill with oil and temporarily park offshore in the pursuit of arbitrage – and that (b) those floating barrels are just about exhausted.
If you combine the drawdown in floating storage stocks this summer with reductions in oil inventories this summer in Saudi Arabia, Nigeria, Canada, Venezuela and Iran, you’ll come up with almost 80 million barrels of previously stored oil that is now gone outside the U.S. And that’s just from places that are easy to track.
So “stocks” or oil inventories are coming down throughout the world. “Flows” are slowing dramatically (see the footnote below). Once inventory stocks have reached an equilibrium point where global supply matches global demand, and oil no longer accumulates in storage, then the market price of oil will be less driven by the paper market’s obsession with near-term shifts in U.S. oil inventories, and global fundamentals in the physical market will resume their importance. And I believe that day is upon us.

The Rest of 2016
 

It is possible but unlikely that imports into the U.S. will continue to trend higher throughout September and October – a time when our refineries temporarily shut down to reconfigure for producing winter-blend fuels. And once fewer barrels are coming into the U.S. less than leaving, we will see oil inventory in the U.S. drawdown at a rate that will likely surprise many.

To reiterate – it is global fundamentals which drive crude oil prices in the long-term, not levels of oil storage in the U.S. The current persistent inventory surplus in the U.S., more recently due to the large scale movement of other people’s barrels into the U.S. to capture arbitrage and/or refining profit, is creating an impression of abundant global oil stocks while masking significant worldwide production declines.

The speculators’ obsession with the “stocks” view of high U.S. oil inventory levels is dominating the pricing of oil today. A fundamental view of changes in production “flows,” however, not only provides little analytical support for the speculator’s view – it eviscerates it by the end of 2016. As a result, I believe this will become obvious to both sides of the oil market in the next few months.

So while speculators, oil bears and shortsellers appear to be banking on increased storage builds in the U.S. during the refiners’ upcoming maintenance season, trading on simple seasonality may not work when re-balancing can occur in unpredictable ways, and especially now that U.S. producers can export oil.
If crude inventories in the U.S. could build this summer, then unwinding arbitrage trades on imported barrels this fall could completely flummox those who are ignoring the fundamentals. And that, too, would continue to be good for us.

In Summary
 

Based on my own tracking of global production “flows,” the world is currently in a deficit of approximately 1.2 million bopd – and headed lower – compared to a year ago. Demand, meanwhile, is up about 1 million bopd over the same period last year. All of which means that even if something miraculous happened – like that, say, Rhode Island suddenly starts producing 1 million barrels of oil per day – the world will still see a supply deficit of over 1 million bopd by the end of 2016.
The mainstream media and Wall Street continue to obsess about U.S. shale and OPEC. They are missing the bigger picture. Neither U.S. shale nor OPEC have any material additional capacity, and the 40 million barrels of oil per day previously coming to market from the rest of the world is in significant decline. The capex is simply not there to replace that declining production anytime soon. And the geopolitics of the Middle East continue to simmer on medium-high.

As a result, I continue to believe that the oil market is at serious risk of sleepwalking into a supply crunch in 2017.

When it comes to our own companies in Tarpon, I suspect the most near-term catalyst when it comes to further price appreciation is likely to be the current record high interest in shorting stocks across the sector. I believe the bears and shortsellers are dramatically overplaying their hand today. The primary question seems to be what exactly will convince them of that, too. I suspect that seeing significant drawdowns in U.S. oil storage during refiner shoulder season might finally do it.
Regardless, by mid-October, a more accurate global picture of supply and demand should become clearer to all - free of the noise caused by a massive shift of oil inventories into the U.S. this summer.

Signs of this are starting to emerge already, most notably in pricing curve signals like “fading Brent contango” – a narrowing discount between the price of Brent oil available for sale immediately and the Brent price six months out, which reduces the incentive to store oil. This signal in particular is probably the clearest indicator that the market is beginning to sense an end to the biggest oil bust of all time relatively soon. Another sign is apparent in a recent price hike by Saudi Arabia on oil shipped to the U.S. and Asia. The Saudi’s own oil inventories appear to have come down far enough, and they appear to not want their storage levels to fall any further while global demand is still very high.

Either way, it appears the tide is about to turn. Finally.

If I am right about the oil market being in balance already, then we will soon see oil prices begin to increase for an extended period of time.
If I am wrong, and the world is not currently balanced, or if for some other reason oil prices continue to wallow in spite of important fundamental trends, then the probability of that 2017 supply shock will increase materially. At some point it will become unavoidable. And though our gains might be deferred, they should still be significant.

In either case, our reaction will be the same. We will be patient and wait.
Please let me know if you have any questions.
Thank you.
- Cale


*Footnote:
Much more relevant than market structure is market math. Other relevant facts from this summer supporting the conclusion the global oil market is currently in balance:
By the end of June, Chinese oil production had decreased by 376,000 bopd compared to last year.
In August, oil production in Colombia had fallen 102,000 bopd per day compared to a year earlier – an approximate 11% decline in a year, the biggest year over year (YOY) decline in its history.
The hot mess that is Venezuela has seen its YOY production decline by at least 200,000 bopd.
Nigeria’s YOY production is down at least 300,000 bopd.
Mexico’s YOY production is down at least 100,000 bopd.
In July, Russian production had fallen by 200,000 bopd – since just the first of this year.
U.S. production is now down from the peak in April of 2015 by just under 1,000,000 bopd.
Each of the numbers above, without increased capex, will continue to fall into 2017. They appear largely unaccounted for in IEA projections. In addition, Brazil production is in decline; Petrobras now only has 10 rigs working offshore. The North Sea is in decline. Etcetera. I think you see the point:
Global production is falling significantly – all while inventories are being reduced by strong demand. That oil inventories in the U.S. have been too high for too long appears largely due to arbitrage and refiner incentives, both of which are (for oil bulls) problems that should soon take care of themselves.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 15, 2016, 04:58:21 PM
I am in the minority that think the deal gets done, and is substantial.   Think we are under playing the Russia card.   Russia has big interests in an OPEC cut, and they too seem to want to freeze at least if OPEC gets it done.   But what I think people are missing is; Russia, being outside OPEC, can help broker this deal within OPEC, especially in regards to IRAN.   You see evidence of this with the latest oil contracts and arms deals. Russia is partnering up with Iran to yet again increase their presence in the middle east.   With Iran being one of the problems in the OPEC deal, I see Russia working behind the scenes here big time.  Russia has a lot to loose.

Anyways, API tonight followed by EIA tomorrow.  Refiners should have started to come back on?    Looking for a small build, maybe even a draw?  If bullish numbers come from this report, this could really burn the shorts.   I cannot believe the shorts came back and in such force considering the impending deal.  They are brave.

With the right combination of things, it is not too far of a cry to be near 60 by year end. 

Or I guess with the wrong combination, back at 35?

Does Russia, or has Russia, since the fall of the wall, ever engaged in supply side control of the oil flow?  I dont know the answer, but my understanding has been that the companies operate as private enterprises 'independent' of the government.  They obviously can only pump to a certain level without alot of lead time due to distance issues not faced by OPEC. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 15, 2016, 05:34:42 PM
Good question.  During the last OPEC freeze/cut, I believe Russia agreed to participate, but then didn't stay true, and just kept pumping.  So they have a track record of not keeping integrity.

As for the dynamics of government vs private enterprises, it is so inter-mingled.  It all comes down to the loyalty to Putin.
Good article here:
http://www.bloomberg.com/news/articles/2016-10-20/putin-helped-save-his-oil-giant-now-rosneft-returns-the-favor

So I would say there are no free market rules in Russia, and maybe Rosneft could rationalize that freezing would be still be in its interest as it will increase prices proportionally more than the actual supply growth that it could have had.   Just as OPEC is arguing....  It is worth more to cut.

All in all, this entire deal is a hot mess and will never live up to its max potential.   Nonetheless, something is better than nothing and can only speed up the supply demand balance.   

Natural market forces will force a balance between supply and demand.  It is just taking forever.  And by the time is happens, it will be too late, oil will spike for years because of the delay/lag in new production/exploration.  So I think these efforts are important.  It might not be a stretch to say that majority of the world wants to see this deal happen.  It will be best for stable world growth.  Only country that might not give a flying f, is Iran.   A year ago they were without oil revenue anyways.  They have a lot of leverage.

Sorry for all the randomness.  Thinking out-loud. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 16, 2016, 07:14:39 AM
API was bad last night with a build of 3.7 million barrels vs an expected draw of 2 million. Let's see what EIA has to say in 20 minutes. Products inventories and Lower 48 States production will be important too.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 16, 2016, 08:02:46 AM
Well, other than for a small decline in U.S. production, it really was an abysmal report for the bulls. No idea why oil is slightly up right now...

Refinery runs have gone back up and now seem sufficient to keep products inventories stable. So not much upside from there.

Net imports did increase by another 6.37 million barrels for the week which explains most of the 5.3 million oil build being reported.

Imports were 58.961 million barrels for the week vs 48.776 last year and 55.783 for the last 4 week average. Exports were pretty stable.

Very Large Crude Carriers which is the most common type of vessel to carry crude over long distance contain around 2 million barrels. So we can say that roughly 3 more of these did offload this week vs last week, 5 more vs last year and 1.5 more vs the 4 week average.

You would think that a reversion to the mean for imports should be expected in coming weeks but, unless OPEC gets it act together, it seems that the best one can hope for is for inventories to remain as is going forward. The market appears balanced. If they don't act and there is no further cuts elsewhere, then inventories will remain sky high.

Get your shorts ready Tombgrt!

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 16, 2016, 08:09:03 AM
This party is just getting started.   Bad report mostly with higher than expected builds but with a small decrease in domestic production.   Oil drops after report, and five minutes later the jawboning comments are released.  Timely aren't they?   I do not need to be convinced anymore.  There is a concerted effort  from OPEC and others (Russia) to prop oil prices.   With Russia and SA on board, who is to stop them?   Iran, Iraq? 

Feeling very confident with my oil holdings over the next 6-12 months.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 16, 2016, 08:11:07 AM
RUSSIA’S NOVAK SAYS MAY MEET SAUDI ARABIA’S FALIH IN DOHA
RUSSIA ENERGY MINISTER SAYS SEES BIG CHANCES FOR OPEC TO AGREE
RUSSIA ENERGY MINISTER SAYS EVERYTHING WILL DEPEND ON OPECS DECISION, RUSSIA WILL SUPPORT OPEC DECISION
RUSSIA ENERGY MINISTER SAYS THERE IS NOT YET DECISION WHICH DATE TO TAKE FOR OIL FREEZE, NOVEMBER OR JAN 1
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 16, 2016, 08:46:07 AM
"There is a concerted effort  from OPEC and others (Russia) to prop oil prices."

Well that is the problem, it is just talk. And the market is getting really tired of their propping.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on November 16, 2016, 08:46:30 AM
I don't really understand OPEC's logic here. If they collectively reduced output by 10% wouldn't most people agree that prices would increase by at least 10% (world would then be in an undisputed deficit)? So revenue would go up while they're selling less oil?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 16, 2016, 08:56:04 AM
"There is a concerted effort  from OPEC and others (Russia) to prop oil prices."

Well that is the problem, it is just talk. And the market is getting really tired of their propping.

Cardboard

Agree, market is getting tired of their propping, and prices reflect that.   If the market believed all that they said, oil would be trading at 55 by now.  I am just in the minority that a substantial deal gets signed on Nov 30th.   Prices will pop just as they have in history.   By the time, we find out if cheating is taken place, we should be further down the road of being re-balanced anyways. 

Jay, yes, it is a non brainer, and is the reason cartels are formed, to control price.   Nov 30th will decide if there is or if there isn't a cartel anymore. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 16, 2016, 09:17:09 AM
I don't really understand OPEC's logic here. If they collectively reduced output by 10% wouldn't most people agree that prices would increase by at least 10% (world would then be in an undisputed deficit)? So revenue would go up while they're selling less oil?

Prisoner's dilemma. Cartels work until they don't.



@ Cardboard: I'm rather agnostic on where oil is headed. I'll keep to just disagreeing with some of your logic. No offense otherwise. Maybe I was a little blunt about it.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 17, 2016, 06:45:52 AM
The jawboning continues.  SA says to reduce at the low end of target.   At this rate, we will have leak on more specific details of deal soon.    How can one bet against oil right now? 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 17, 2016, 06:47:49 AM
You might want to keep in mind that those VLCCs were filled up somewhere.
Whoever did so had to open their taps wide, & will be showing elevated production this month - just ahead of these discussions. A cut from an elevated level appears much bigger than it actually is, as does the jump to a predetermined price level - from an artificially lowered bar.

We're essentially on a little ship watching a play about oil.
What we see on the stage is theatre; what's making us seasick are the growing swells that the ship is floating on. 

We live in interesting times.

SD


Well, other than for a small decline in U.S. production, it really was an abysmal report for the bulls. No idea why oil is slightly up right now...

Refinery runs have gone back up and now seem sufficient to keep products inventories stable. So not much upside from there.

Net imports did increase by another 6.37 million barrels for the week which explains most of the 5.3 million oil build being reported.

Imports were 58.961 million barrels for the week vs 48.776 last year and 55.783 for the last 4 week average. Exports were pretty stable.

Very Large Crude Carriers which is the most common type of vessel to carry crude over long distance contain around 2 million barrels. So we can say that roughly 3 more of these did offload this week vs last week, 5 more vs last year and 1.5 more vs the 4 week average.

You would think that a reversion to the mean for imports should be expected in coming weeks but, unless OPEC gets it act together, it seems that the best one can hope for is for inventories to remain as is going forward. The market appears balanced. If they don't act and there is no further cuts elsewhere, then inventories will remain sky high.

Get your shorts ready Tombgrt!

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 17, 2016, 07:02:29 AM

So elegantly described!  What is the best strategy to make money during this drama?   Think staying long on oil is the play.  Random thoughts:

1.  They will end up cheating
2.  What price will OPEC target considering US Shale is breathing down their neck
3.  Are we over analyzing?  Is this just another cycle in the cyclical nature of oil?  Are we going to spike big time?
4.  Trump card.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 17, 2016, 07:28:29 AM

So elegantly described!  What is the best strategy to make money during this drama?   Think staying long on oil is the play.  Random thoughts:

1.  They will end up cheating
2.  What price will OPEC target considering US Shale is breathing down their neck
3.  Are we over analyzing?  Is this just another cycle in the cyclical nature of oil?  Are we going to spike big time?
4.  Trump card.

1. Of course, but it doesn't matter because all the big OPEC players are overpumping - is that even a word?  Anyways...

2) Dont  know and probably doesn't matter.  Capital has become more cautious right now, and will stay that way until it appears that we have reached peak oil again. 

3) Yes, it is cycle.  This too shall pass and one day the oil age will pass, but not today. 

4) Completely not relevant.  Aside from actually investing Us government money in shale, the US gov't cant do anything.  For every action there is a reaction.  Cutting off Mid-East oil to the US would drive prices higher on the continent - that would not be popular.  The only beneficiary I see from the US eliminating mideast supply is Canada and the shale states.  And I believe the US operates mostly as a free market, that is capitalized by private investors, unlike the OPECs.  More tax breaks for domestic development maybe - but where does the money come from?  The only thing I see happening under the PE, is the mother of all recessions following a tax and spend binge (a little off piste - sorry).

The upshot is it is all unpredictable in one sense, but completely predictable on another level.  Companies that sensibly manage their balance sheets should do well going forward. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: rkbabang on November 17, 2016, 11:28:00 AM

Largest oil deposit ever found in U.S. discovered in Texas (http://www.usatoday.com/story/money/nation-now/2016/11/17/usgs-largest-oil-deposit-ever-found-us-discovered-texas/94013292/)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 17, 2016, 11:41:11 AM
What price does it take to get out of the ground though?  The planet has plenty of oil in ground , no question there.   The question is how much is economical at $45 to drill....


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 17, 2016, 01:35:32 PM
What price does it take to get out of the ground though?  The planet has plenty of oil in ground , no question there.   The question is how much is economical at $45 to drill....




Thats funny.  In around 2007 on this message boards predecessor I said the exact same thing about much of the planet being underlaid with fossil fuels.  And the peak oil dudes were lambasting me for my obvious stupidity.  My logic then, as now, is that the whole planet was covered with swamp for a few hundred million years, it rotted, got compressed, and become oil, coal, amd nat. gas.  Go figure.  As the Saudi dude said: The stone age didn't end for lack of stones... and so on. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: rkbabang on November 18, 2016, 05:13:34 AM
What price does it take to get out of the ground though?  The planet has plenty of oil in ground , no question there.   The question is how much is economical at $45 to drill....




Thats funny.  In around 2007 on this message boards predecessor I said the exact same thing about much of the planet being underlaid with fossil fuels.  And the peak oil dudes were lambasting me for my obvious stupidity.  My logic then, as now, is that the whole planet was covered with swamp for a few hundred million years, it rotted, got compressed, and become oil, coal, amd nat. gas.  Go figure.  As the Saudi dude said: The stone age didn't end for lack of stones... and so on. 

"common knowledge" on the subject has certainly shifted.  I'm certain if you could go back to 1975 and interview people everyone would "know" that the world would run out of oil long before 2016.  Not too mention that the population bomb was going to starve a billion people to death and global cooling was going to start to send us into the next ice age.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 18, 2016, 05:49:22 AM
"According to the statement, continuous oil and gas means the resource is dispersed throughout the area, unlike conventional accumulations that exist in one place. Because of the location of the oil and gas, officials will have to use special recovery methods like hydraulic fracturing to recover the resources, according to the USGS."

And other techniques maybe not found or too expensive since private companies motivated to make a profit (vs the government USGS LOL!) already operating into this area, for some reasons, are not exploiting this massive resource.  ::)

"What price does it take to get out of the ground though?  The planet has plenty of oil in ground , no question there.   The question is how much is economical at $45 to drill...."

Looking at the behaviour of many operators out there, your first question is the right one to ask vs the second one. I see big bucks being paid for already into production and very little for needed to be drilled to be into production.

And whatever is being drilled now is the cream of the crop and we are still seeing U.S. production stagnant and I think that a return to a decline is imminent with a drop in Drilled but Uncompleted Wells.

http://www.eia.gov/petroleum/drilling/pdf/duc_supplement.pdf

Unfortunately, this was last updated in early September but, I see no indication based on number of rigs in the field that this number is heading back up. More importantly, there has been quite a resurgence in pumpers/frackers activity which would indicate that a lot of them have or are being completed. So that pent-up supply is likely reduced IMO.

Cardboard
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 21, 2016, 09:12:35 AM
Volatility should be intense for the next week and a half.     Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details.   

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 21, 2016, 09:42:49 AM
Volatility should be intense for the next week and a half.     Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details.   

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

Stocks or the commodity itself?

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 21, 2016, 09:49:56 AM
Volatility should be intense for the next week and a half.     Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details.   

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

Yeah, alot if racket and BS.  IMO, there are only a couple of reasons they would be willing to cut or freeze.  They cannot afford to keep pumping at todays prices for whatever reason: too costly to drill; or too unprofitable to keep up with their hush money payments.  And maybe, the OPECs and Russia simply cannot keep up todays level of pumping without huge investment anyway. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 21, 2016, 10:06:38 AM
Volatility should be intense for the next week and a half.     Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details.   

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

Stocks or the commodity itself?

Just in my oil equities.    Just trimming the ones that have the best increase on the day, and hoping to get that slice back later, for cheaper.   Been working for a few weeks.... Surprisingly, many of my names, are not quite tracking these oil moves in their magnitudes, and instead are sort of smoothing the volatility.   I suspect for a lot of funds, they want to see the dust settle before they become more constructive.  They have a reasonable attention span unlike the commodity traders who seem to have 12 hour attention span. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 21, 2016, 12:29:01 PM
Volatility should be intense for the next week and a half.     Huge open interest, polar opposite short/long positions, and OPEC has opened the flood gates for jawboning.  Latest is Iran is highly optimistic, and another reiteration from Russia (Putin himself), that they are willing to freeze.    At this rate, we will have leaks of agreement details.   

Going to do some minor trading to take advantage of all this volatility but nonetheless keeping my biggest chunk on LONG

Stocks or the commodity itself?

Just in my oil equities.    Just trimming the ones that have the best increase on the day, and hoping to get that slice back later, for cheaper.   Been working for a few weeks.... Surprisingly, many of my names, are not quite tracking these oil moves in their magnitudes, and instead are sort of smoothing the volatility.   I suspect for a lot of funds, they want to see the dust settle before they become more constructive.  They have a reasonable attention span unlike the commodity traders who seem to have 12 hour attention span.

I am sitting here sucking my thumb.  I am contemplating selling a bit into the rally, but kind of dont know what to do, so I guess nothing is probaby better than something. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 28, 2016, 07:24:23 AM
Should be a drama filled week.   Will continue to play the volatility with a small portion of my oil shares, otherwise holding the brunt of all my shares through this week of chaos. 

Any other strategies people are going to conduct with their oil names?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 28, 2016, 07:43:10 AM
Should be a drama filled week.   Will continue to play the volatility with a small portion of my oil shares, otherwise holding the brunt of all my shares through this week of chaos. 

Any other strategies people are going to conduct with their oil names?

Still sucking my thumb and hoping for big motion either way.  If it drops precipitously I will buy.  If it rises alot I will sit with my existing positions in PWT, BTE, Wcp, and mtl.  I have built up lots of dry powder the past couple of months. 

Will buy WCP below $10, pwt below 2.05, and BTE below 5.00, all in CDN $.  Otherwise nothing.

My suspicion is that OPEC and Russia are full of enough sh*t to fill a room.  The markets will eventually balance themselves.  Everyone has an opinion but no one really has any idea how this unfolds.  If they (the IEA, the Opecs etc.) cant figure it out I sure cant. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 29, 2016, 10:53:41 AM
I can guarantee you that they will strike a deal: "We will reconvene in June 2017."  ::)

I can't imagine a bigger bunch of morons. Include Russia into this. Too stupid to realize that if they cut their production by a few percentage points that oil will be selling for 15-25% more, generate a lot more revenues and not attract a barrel more of oil from elsewhere in the world.

The proof is in the pudding, U.S. production has remained flat even with oil rebounding to the lower $50's. China is way down. Non-OPEC production excluding Russia is simply not responding to $50-$55 oil. And with higher spot oil price and not higher on the futures curve, hedging becomes unprofitable and will scare away a lot of capital spending.

And why would the futures curve be into backwardation vs contango? Because the market knows that OPEC/Russia could increase production again or above a self imposed limit.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 29, 2016, 11:12:38 AM
Yes, you pretty much sum it up. 

I lean toward there being a significant deal reached.  I would think if things were that bad, ministers would have started pulling out of the meeting.  Instead they are there early, chatting, setting up pre-pre-meetings etc....   Hard to imagine deal crashing on tit for tat 100K quotas.   But then again, it is OPEC, a family more dysfunctional than yours ;-)

I increased some oil names on the drop this morning.   I enjoy playing market turns, you can make a lot, a loose a lot.  Just make sure you get it right more than half the time ;-)

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: valcont on November 29, 2016, 02:27:41 PM
I just don't get why the Saudis are pushing for a deal? Granted they have entitlements and 70% of oil based national revenue but they are also the low cost producer. They can just flood the market and push the oil prices down to $15-20/barrel. Venezuela would be bankrupt in a year, Russia would be hurting bad losing money extracting oil out of Arctic, Iran Iraq wouldn't be able to increase supplies due to capex requirements. And the Frackers , despite their posturing, would fold in few years. The only region I see that can compete is Permian basin but not at $25/barrel. I don't buy them getting so efficient that they can compete with Saudis at any price. Harold Hamm ate the crow when he proclaimed in 2014 that OPEC is toothless. Now he wouldn't utter a word against them. Not to mention all that oil sand and junior miners in Canada.Sitting ducks.

The only wild card here is the Saudi population. They haven't done any productive work in generations and I don't know how they can survive without the dole. But how hard it is to suppress the populace whose only physical activity is running to the harems?

I'll stop ranting now.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 29, 2016, 03:16:52 PM
Why?

Because they have tried your strategy for 2 years now and have burned through $200 billion of their reserves/surplus. A few more years like that and that is the end of their Kingdom. There is a reason why they are trying to IPO their national oil company or Saudi Aramco.

Their strategy actually failed because Obama threw a huge wrench into their plan by lifting sanctions on Iran. I don't think that was part of the equation when they decided to flood the market at the November 2014 meeting. This extra 1.5 million barrels/day that came on the market really changed the supply/demand dynamics.

Regarding Venezuela, it is already bankrupt by the way and it is not $55 oil that will save them. And destroying the industry as you are suggesting is not the smart way to go for the Saudis as they will not be able to supply the market on the other side. Prices will skyrocket and we will be back to producing a ton of oil from marginal places and developing alternative energy.

As I said before, if the Saudis were acting like a rational capitalist with their low cost production, they would expand during good times and stay flat during bears. Their market share would have grown significantly overtime and would likely produce 15 to 20 million barrels/day by now. They would have helped reduce or eliminate price peaks such as in 2008 and 2014 which lead to the rise of a ton of competitors and alternative sources of energy. None of these will go back in the bottle.

So now, they need to stabilize oil development worldwide to avoid a future supply crunch and reduce their cash bleed since diversifying their economy will take years.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 30, 2016, 05:54:43 AM
Kudos.   Looking forward to the details.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 30, 2016, 08:44:23 AM
It is official now: 32.5 million barrels/day vs current 33.8.

Amazed that OPEC signed that deal with the original target as was stipulated in Algiers with all the noise that we have heard over the last few weeks.

It will be interesting to see if anything happens with Russia and other non-OPEC producers now that they have reached a deal within their group. There might have been a IF with Russia. I also expect a wait and see attitude from the market on implementation and enforcement.

Regarding current supply, there was a small 0.7 million barrels oil draw per API last night which was confirmed by EIA at 0.9 million this morning. Although, inventories of gasoline and distillates were a fair bit higher.

U.S. production remains essentially flat.

Worldwide inventories should now decline slowly overtime which should stabilize the market. Oil should trend slowly higher above $50 but, I don't expect any rush to drill since profitability will remain low for most plays. Just offsetting natural decline rates needs some drilling which will occur in the best areas. Moreover, the futures curve is very flat which prevents profitable hedging and the investment into long term projects.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 30, 2016, 08:47:30 AM
Buying, trimming anything today?

Trimmed oil names 1/5 just now as I was way overweight. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: petec on November 30, 2016, 08:53:24 AM
Why?

Because they have tried your strategy for 2 years now and have burned through $200 billion of their reserves/surplus. A few more years like that and that is the end of their Kingdom. There is a reason why they are trying to IPO their national oil company or Saudi Aramco.

Their strategy actually failed because Obama threw a huge wrench into their plan by lifting sanctions on Iran. I don't think that was part of the equation when they decided to flood the market at the November 2014 meeting. This extra 1.5 million barrels/day that came on the market really changed the supply/demand dynamics.

Regarding Venezuela, it is already bankrupt by the way and it is not $55 oil that will save them. And destroying the industry as you are suggesting is not the smart way to go for the Saudis as they will not be able to supply the market on the other side. Prices will skyrocket and we will be back to producing a ton of oil from marginal places and developing alternative energy.

As I said before, if the Saudis were acting like a rational capitalist with their low cost production, they would expand during good times and stay flat during bears. Their market share would have grown significantly overtime and would likely produce 15 to 20 million barrels/day by now. They would have helped reduce or eliminate price peaks such as in 2008 and 2014 which lead to the rise of a ton of competitors and alternative sources of energy. None of these will go back in the bottle.

So now, they need to stabilize oil development worldwide to avoid a future supply crunch and reduce their cash bleed since diversifying their economy will take years.

Cardboard

If they'd had sense they'd have produced flat out since forever and kept domestic spending in check, putting the money into a SWF.

As it stands, they will end up leaving much of their precious resource in the ground untapped when the world moves on to solar, and plenty of people with higher cost oil will have extracted at a profit when they shouldn't have been able to.   The more the Saudis cut today, the more will end up staying in the ground.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 30, 2016, 09:24:20 AM
That is exactly what I said Petec. They made a significant mistake in the past by keeping prices artificially high, living beyond their means and now are living with the consequences.

And one of the consequences, is that they now need to cut a bit production in order to raise prices to avoid bankruptcy but, not too much, which would entice production from others and most of the increase needs to be on the spot price to prevent hedging.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 30, 2016, 09:33:29 AM
Very good call - we expect there are a few other cuts from other players to come as well.
We would also expect that with higher prices, we're about to see a number of delayed sales suddenly conclude.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 30, 2016, 10:17:11 AM
Why?

Because they have tried your strategy for 2 years now and have burned through $200 billion of their reserves/surplus. A few more years like that and that is the end of their Kingdom. There is a reason why they are trying to IPO their national oil company or Saudi Aramco.

Their strategy actually failed because Obama threw a huge wrench into their plan by lifting sanctions on Iran. I don't think that was part of the equation when they decided to flood the market at the November 2014 meeting. This extra 1.5 million barrels/day that came on the market really changed the supply/demand dynamics.

Regarding Venezuela, it is already bankrupt by the way and it is not $55 oil that will save them. And destroying the industry as you are suggesting is not the smart way to go for the Saudis as they will not be able to supply the market on the other side. Prices will skyrocket and we will be back to producing a ton of oil from marginal places and developing alternative energy.

As I said before, if the Saudis were acting like a rational capitalist with their low cost production, they would expand during good times and stay flat during bears. Their market share would have grown significantly overtime and would likely produce 15 to 20 million barrels/day by now. They would have helped reduce or eliminate price peaks such as in 2008 and 2014 which lead to the rise of a ton of competitors and alternative sources of energy. None of these will go back in the bottle.

So now, they need to stabilize oil development worldwide to avoid a future supply crunch and reduce their cash bleed since diversifying their economy will take years.

Cardboard

If they'd had sense they'd have produced flat out since forever and kept domestic spending in check, putting the money into a SWF.

As it stands, they will end up leaving much of their precious resource in the ground untapped when the world moves on to solar, and plenty of people with higher cost oil will have extracted at a profit when they shouldn't have been able to.   The more the Saudis cut today, the more will end up staying in the ground.

Well they didn't.  Now they have to pay the piper.  The other large producers with larger populations have more diverse economies.  SA is a one trick pony.  They do have some precient people there who know this will end. 

Now, if I were an XOM, BP, or Chevron CEO, I would be watching this very carefully.  Expensive long tail projects in hard to access areas (arctic, deep sea) remain a very risky way to invest.  I expect many of the projects that were mothballed in the last couple of years stay that way.  Everyone is going to go for the low hanging fruit as we head into the end game.  My guess is that the major private companies diverisify, amd buy existing assets, rather than spend alot on long term risky projects. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 30, 2016, 10:22:21 AM
Buying, trimming anything today?

Trimmed oil names 1/5 just now as I was way overweight.

Still sucking my thumb, but I am not overweight by any measure.  I see the price getting higher to some point where the Opecs turn it back up again to keep external Capex frightened.  My holdings will perform exceedingly well in an above fifty environment.  I have waited too long for this rebalacing to sell now. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 01, 2016, 07:01:20 AM
Buying, trimming anything today?

Trimmed oil names 1/5 just now as I was way overweight.

Still sucking my thumb, but I am not overweight by any measure.  I see the price getting higher to some point where the Opecs turn it back up again to keep external Capex frightened.  My holdings will perform exceedingly well in an above fifty environment.  I have waited too long for this rebalacing to sell now.

I am suspicious as to how long this rally lasts.  The day before the announcement I bought 1000 BTE and 2000 pwt.  I'll probably reverse that today, and take the $2000 profit.  I have realized losses, elsewhere, to shield the gains.  I have one or two stocks that may go on sale shortly during tax loss selling season. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 01, 2016, 02:01:46 PM
Notice that oil is only back to where it was a couple of weeks ago.  No one believes that OPEC will adhere to this.  To get the price any higher we are going to have to see oil actually go into supply deficit.  This should take some months at least with lots of ups and downs for trading along the way. 

Now, my holdings all sell about 20% Nat. Gas and that is way up.  Forecast for a cold winter or something.  Oil is a real case of buy on rumour and sell on news.  Sold exactly what I intended today.  And will buy it back in a few days when someone gets accused of cheating, or something. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on December 02, 2016, 07:09:07 AM
I'd be careful not to miss a big rally/jump.   Real barrels are leaving the market.   And if you believed that the rebalancing was occurring, this has sped that up.  Oil has been down for years, and this could be the reversal.   Look at history.  This story is not too far off. But I agree, there will likely accusations and other opportunities to trade.   I trimmed my oil positions to take some profit,  and continue to trade a portion intra-week, but will continue to hold a large chunk long for coming 2017 year. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 02, 2016, 07:32:00 AM
The cut will only take effect early after New Year so we are looking at roughly two months from now before we see reduced cargos arriving in the U.S. So unless we see continued draws in inventory (we should but Libya and Nigeria are wildcards), I have a hard time seeing a huge rally from here. Up to $55 WTI ok, but beyond that I have doubts.

I think you guys are right to trade around core positions and that is something that I need to do more going forward. It allows you to increase your returns by taking advantage of short term volatility while still holding on to your long term thesis.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 04, 2016, 01:53:09 PM
The cut will only take effect early after New Year so we are looking at roughly two months from now before we see reduced cargos arriving in the U.S. So unless we see continued draws in inventory (we should but Libya and Nigeria are wildcards), I have a hard time seeing a huge rally from here. Up to $55 WTI ok, but beyond that I have doubts.

I think you guys are right to trade around core positions and that is something that I need to do more going forward. It allows you to increase your returns by taking advantage of short term volatility while still holding on to your long term thesis.

Cardboard

One can only hope.  When I started with PWT over two years ago I traded in and out but the results were not so good as we know.   Although, like FFH in the early 2000s the upside of really getting to know something worked out very well, in the end.  These days I have much more capital to 'play' with, without jeopardizing my longer term.  I can trade around positions without losing my income stream. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on December 06, 2016, 08:18:51 AM
Nice healthy pullback right before the non-OPEC meeting this Saturday.  Russia will not screw this up, they need higher prices.

Thought this article was good:

http://www.argaam.com/en/article/articledetail/id/457707
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 06, 2016, 09:27:36 AM
The key here IMO for higher oil prices in the short term, and to see if we were right or totally wrong, are continued draws from U.S. inventories and flatish U.S. production.

Although, the return of more oil from Libya and Nigeria is challenging the fundamentals, you would still expect the global supply and demand fundamentals to be in a small deficit right now or before the OPEC/non-OPEC cut taking effect in January. That is essentially what the Saudi oil minister was saying that Sunday before the OPEC meeting or that fundamentals would be balanced in 2017 even if they did not act.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 06, 2016, 02:19:19 PM
API report indicates that U.S. oil inventories were down 2.2 million barrels vs expectations for a decline of 1.7 million.

Let's see what EIA has in store for us tomorrow.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 06, 2016, 02:51:38 PM
Nice healthy pullback right before the non-OPEC meeting this Saturday.  Russia will not screw this up, they need higher prices.

Thought this article was good:

http://www.argaam.com/en/article/articledetail/id/457707

It was a good interview.  I disagree with his medium/long term assessment.  Alternate automobile tech. is coming on faster and faster.  And whether or not the US feds maintain subsidies is not so relevant.  Many of the states will maintain them, and some of those are long term Republican.  If subsidies are even that relevant anymore. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 07, 2016, 08:00:27 AM
Oil inventories are down 2.4 million barrels according to EIA or in line with API.
U.S. production is also down 2,000 bls/d or essentially flat.

It would have been a good report considering that OPEC has not cut yet if gasoline had not climbed by 3.4 million barrels and distillates by 2.5 million. However, overall products are up only 1.4 million barrels despite these figures.

Net imports of oil were up 5.11 million barrels for the week while refineries only took in an additional 0.938 million barrels. Then you have adjustments of 2.975 million barrels.

Tough to see what is going on with the numbers on a weekly basis but, if you look at the last 3 to 4 months, it was in deficit and now very stable. There were impressive draws when we least expected it or during the refinery turnaround season and since the end of that, inventories remain pretty much flat. It appears that OPEC increased production played a major role or Libya and others.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 07, 2016, 09:19:10 AM
Oil inventories are down 2.4 million barrels according to EIA or in line with API.
U.S. production is also down 2,000 bls/d or essentially flat.

It would have been a good report considering that OPEC has not cut yet if gasoline had not climbed by 3.4 million barrels and distillates by 2.5 million. However, overall products are up only 1.4 million barrels despite these figures.

Net imports of oil were up 5.11 million barrels for the week while refineries only took in an additional 0.938 million barrels. Then you have adjustments of 2.975 million barrels.

Tough to see what is going on with the numbers on a weekly basis but, if you look at the last 3 to 4 months, it was in deficit and now very stable. There were impressive draws when we least expected it or during the refinery turnaround season and since the end of that, inventories remain pretty much flat. It appears that OPEC increased production played a major role or Libya and others.

Cardboard

This is usually the lowest demand time of year, and often the lowest time of year for crude pricing as well.  Discerning a trend with all the background noise is near impossible.  We will really only see it in retrospect.  It amazes me that with all the information available across the world we really have no handle on the worlds second largest commodity group, after food. 

If the Opecs started secretely producing less, we wouldn't really notice it until people actually started to have trouble buying product. 


Very few people actually saw the world going into a glut in the 2010-2014 range including most oil professionals.  Why would we expect this to be any different? 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 10, 2016, 11:04:51 AM
It is in the bag or 558,000 bls/d reduction from non-OPEC on top of the 1.2 million committed by OPEC:

http://www.reuters.com/article/us-opec-meeting-idUSKBN13Z0J8

This should really reduce worldwide inventories in 2017 and put stability in the oil price going forward.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 11, 2016, 04:25:51 PM
It is in the bag or 558,000 bls/d reduction from non-OPEC on top of the 1.2 million committed by OPEC:

http://www.reuters.com/article/us-opec-meeting-idUSKBN13Z0J8

This should really reduce worldwide inventories in 2017 and put stability in the oil price going forward.

Cardboard

Showing in the futures market now. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 11, 2016, 05:23:58 PM
Don't fight the Saud...

https://www.bloomberg.com/news/articles/2016-12-11/saudi-minister-jolts-oil-market-with-whatever-it-takes-moment

"I can tell you with absolute certainty that effective Jan. 1 we’re going to cut and cut substantially to be below the level that we have committed to on Nov. 30," he said, signaling that if the market demanded it, he was ready go below 10 million barrels -- a level it has sustained since March 2015.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 13, 2016, 07:36:34 AM
From Acumen. The market is already balanced even before the OPEC cuts.....

IEA Oil Market Report
 
Do you know what day it is?  If you said IEA Oil Market Report Day you would be correct.  A couple of items from the release this morning:
 
1.        Demand was revised up in 2016 and 2017.  This should come as no surprise to readers of this note who know that the IEA almost ALWAYS increases demand forecasts through the year.  2016 goes to 1.4 mb/d and 2017 to 1.3 mb/d.

2.       Massive revisions to OECD oil stocks occurred.  August, September and October were ALL revised way down with draws in each at a time when builds should be occurring.  I mentioned yesterday that the market sure looked more or less balanced and the data today seems to confirm that with another draw in November expected.  This run of declines in oil stocks is the longest run since 2011.

3.       IEA projects a deficit in 2017 based on the OPEC announcements of late which amount to about 600k b/d.  the Q4 figure below looks a little wonky to me given draws in October, expectations for one in November which means it had better be a whopper of a build in December.  Look for another revision to come….

Overall, it is a dangerous game to be running off the IEA model given the persistence of revisions higher in demand that occur nearly every year.  The IEA has done a good job of writing awesomely negative headlines featuring “gluts” and “overhangs” which the market takes hold of.  But the devil is most often in the details when it comes to the IEA and the revisions are one key area keen market watchers ought to look on a regular basis.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on December 13, 2016, 07:41:08 AM
Just for fun; any thoughts on what effect Tillerson will have?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on December 13, 2016, 09:00:24 AM
Does the IEA ever have an idea of what is going on?   Wouldn't want to have their job.  Too many dynamic forces at hand.    OPEC/Saudi is going to get the price they want.   The million dollar question is what price do they want?   To get that price, all they need to do is increase/decrease of more production.  They are back to being a cartel and will control prices.    My wild guess is that they want 55-60 quickly, and future contracts to stay near same/backwardation to prevent banks/shale from getting too speculative. 

I think the low cost, nimble producers will outperform the majors because of this.   I expect more consolidation because of this as well. 
 
As for Tillerson, who knows.  One would expect this to be bullish oil.   He is a oil capitalist. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 13, 2016, 09:08:15 AM
Just for fun; any thoughts on what effect Tillerson will have?

No comment.  There already several threads discussing US politics.  Take it over there. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on December 13, 2016, 10:28:48 AM
Just for fun; any thoughts on what effect Tillerson will have?

No comment.  There already several threads discussing US politics.  Take it over there.

Yeah; sorry, it's not like the CEO of Exxon becoming SecState would be an important development in oil markets.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 13, 2016, 01:20:28 PM
Just for fun; any thoughts on what effect Tillerson will have?

No comment.  There already several threads discussing US politics.  Take it over there.

Yeah; sorry, it's not like the CEO of Exxon becoming SecState would be an important development in oil markets.

Baiting me :-). 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 13, 2016, 02:31:23 PM
"Does the IEA ever have an idea of what is going on?"

They do but, their modus operandi is to manipulate prices down. Everything they do seems to point in that direction. IMO, they are a Western agency paid to keep a lid on prices.

If the quarterly surplus had been as large as they mentioned since 2014, all tankers, farm tanks, would be full right now and that is not the case. 2 to 3 million barrels/day surplus is just over 900 million barrels/year. For perspective, the entire commercial U.S. inventory is 486 million barrels. Sure it did climb over the past 2 years but, nowhere near what these estimates would suggest.

In other news, API is indicating tonight a build of 4.7 million which is unexpected. Analysts were forecasting a draw of 1.7 million. So once again, let's see what EIA has to say tomorrow and we will watch for gasoline and other inventories.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 13, 2016, 03:12:50 PM
What the IEA said today.....

''Massive revisions to OECD oil stocks occurred.  August, September and October were ALL revised way down with draws in each at a time when builds should be occurring.''

September 2016 the IEA was scaremongering:

'It reduced growth estimates for this year by 100,000 barrels a day to 1.3 million a day, citing a “dramatic deceleration in China and India” this quarter coupled with “vanishing growth” in developed economies."
“Demand growth is slowing and supply is rising,” the agency said. “Consequently, stocks of oil in OECD countries are swelling to levels never seen before.”



So lets get this straight they stated in Sept demand was 'vanishing' only to revise it upward three month later? They had 1million plus builds in Q2 & Q3 in Sept which now have actually vanished, while they stated stocks would swell like ''never been seen before'' yet we now know these months had draws!!! This before OPEC cuts...

Can there be a more dishonest & fraudulent macro energy forecast agency?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on December 14, 2016, 04:22:37 AM
Just for fun; any thoughts on what effect Tillerson will have?

No comment.  There already several threads discussing US politics.  Take it over there.

Yeah; sorry, it's not like the CEO of Exxon becoming SecState would be an important development in oil markets.
Quote


Sorry DD, I cant really get my head around Trump, and his choices of surrogates.  I dont really know Tillerson, or if he will even get through the process in the US. 

The Us has had 'oil men' in cabinet before such as George Bush, and Cheney and prices went way up.

On the other hand fracking took off mostly after Bush left. 

Tillerson might advise Trump to forget about oil drilling in the US, buy cheap resources from elsewhere, and focus on solar and nuclear, for all we know.  To be certain, as CEO and a senior executive, he has alot of political experience, and an ability to look longer term.  Maybe he would take the chance to change his legacy - again who knows. 

On the other hand he may be hell bent on making the US, oil independent, which would probably bring prices down, but he knows that.  Lower prices mean lower profitability for all.  However, he is being nominated as SOS not the energy ministry.  So, his effect may be minimal in the energy sphere. 

We really cant know what will happen to US energy policy until it happens.  To be sure, everything will be more convoluted for Trump than his simplistic versions suggest (yep, we will open up,federal lands for drilling and lift off shore drilling - maybe).  He has Democrat senators to deal with, and Republicans who dont mind taking him on in the public arena.  Curiously, some of the Rep. run states are more alt. energy concious than most places in the world. 

Any, my take such as it is.

In the meantime, we have the Saudi's desperate to get the price of oil up.  They want the one off windfall of selling part of Saudi Aramco, to get the cash and diversify out of oil.  To me that is a signal that the Saudi's have read the tea leaves and are thinking 20 years out when peak demand has passed.  Why would anyone else be thinking any different.

Cheers, Al.




Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on December 14, 2016, 05:37:44 AM
Thanks Al; the last bit about the Saudis diversifying their economy is encouraging (maybe they can put a dent in terrorism by offering entrepreneurial prosperity in tech, manufacturing, medical.)

They were first rate before the whole crusades thing (not sure when the decline began...)

I only glanced at headlines re: Exxons interest in alternative energy & I really need to read more about Tillerson (not that I could do anything with the knowledge...)

I was kind of being lazy & looking for someone to spoon feed me my opinion about the guy.

Thanks again for the response!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on December 14, 2016, 05:47:28 AM
Pick a few big, medium, and small names - and look back at the IEA announcements over the last 5 yrs. Assume a bet of 1000 shares per name against the IEA announcement at the start of a period (5yr, 4yr, 3yr, etc.), that was 100% sold/repurchased over time - directly contrary to the IEA forecast of the time. It produces interesting results. A simplification is to just look at the revisions.

Hurricane Katrina illustrated just how incompetent FIMA was; investigative journalism later highlighted what FIMA was actually doing.
FIMA is not the only US agency with significant 'deficiencies', but they will never 'surface' unless there is an 'event'. It is highly likely that had there never been a 'Katrina', very few would have been any the wiser about FIMA.

The weekly forecast is just a random number generator producing numbers to trade against.
It serves a market purpose (produces trading volume commission), but it is not about accuracy. A monkey throwing darts is not 'citable' - a government agency is.

SD

What the IEA said today.....

''Massive revisions to OECD oil stocks occurred.  August, September and October were ALL revised way down with draws in each at a time when builds should be occurring.''

September 2016 the IEA was scaremongering:

'It reduced growth estimates for this year by 100,000 barrels a day to 1.3 million a day, citing a “dramatic deceleration in China and India” this quarter coupled with “vanishing growth” in developed economies."
“Demand growth is slowing and supply is rising,” the agency said. “Consequently, stocks of oil in OECD countries are swelling to levels never seen before.”



So lets get this straight they stated in Sept demand was 'vanishing' only to revise it upward three month later? They had 1million plus builds in Q2 & Q3 in Sept which now have actually vanished, while they stated stocks would swell like ''never been seen before'' yet we now know these months had draws!!! This before OPEC cuts...

Can there be a more dishonest & fraudulent macro energy forecast agency?

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on December 14, 2016, 06:49:29 AM
A Sharper perspective!

After nearly 35 years in the industry I know virtually nothing except how to run a boat.

I'm gonna wear my monkey suit all next year...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 14, 2016, 07:40:03 AM
EIA indicated U.S. oil inventories down 2.6 million barrels or quite the opposite from API. Overall inventories of petroleum products down 2 million barrels.

I would say that this is good since ahead of expectations and OPEC has not cut yet.

What is not as good is a climb in Lower 48 States production of 101,000 bls/d. With more rigs in the field and some drilled but, uncompleted wells likely coming on stream this could be expected. It has been pretty flat over many weeks so we need more data to see if an uptrend is forming or not.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 22, 2016, 03:57:11 PM
https://www.islainvest.com/2016/12/22/letter-to-investors-december-2016/

Dear Investors,

From January 1 through November 30, 2016, net of all fees, the Tarpon Folio is up 91.8% compared to an increase of 9.8% in the S&P 500 over the same period.

As of the market close last Friday, December 16, Tarpon is up more than 100% year-to-date, after fees, on an unaudited basis. So I am pleased to report that it appears that you will have doubled your money in Tarpon in 2016.
Merry Christmas.

Thank you for hanging in there after a tough 2015. We are succeeding unconventionally. And we are not done yet.
We now have two ten-baggers in Tarpon. I have made no trades since August. And subsequent to that investor-only email I sent in early November, OPEC cut production, as expected, putting a floor under oil prices and formally closing out one of the most head-scratching chapters in the history of the oil market.

My expectation, in short, is that oil will continue to grind higher in 2017. Global oil flows now look to be in deficit, while elevated oil stocks will be drained further by the recent OPEC/non-OPEC production cut agreement.

I also believe the risk of sleepwalking into a supply crunch in either ’17 or ’18 remains uncomfortably high. That risk is due to several pro-cyclical idiosyncrasies of today’s oil market, the most notable of which is the inconsistent quality of global production and inventory data. IEA numbers in particular are, on occasion, confounding and irreconcilable, appearing to obscure or conflate trends in production and/or inventories which would otherwise be price-supportive for oil.

I suspected it a year ago, and now unequivocally believe it: there are some strange things in that macro oil data – whether Gulf of Mexico oil production forecasts, OECD inventory stock revisions, or the obscuring of oil-versus-condensate storage levels here in the U.S. All of which makes the forward curve even less predictive of future oil prices than it already is.
Get on it, 60 Minutes.

In any case, our companies remain resilient, and our returns in Tarpon next year should be attractive enough that I believe my primary goal as your portfolio manager is to avoid doing anything that might cut the compounding process short.
So let the record show that it’s in your best interest if I do a lot of fishing next year.
But let’s not get cocky – nor forget the role good luck played for us this year. We’ll all be better off if we ratchet down our expectations for 2017.

We found a glitch in The Matrix last year. It continues to be exploitable in a reasonably systematic way via the shares of deeply undervalued U.S. E&Ps – without using margin, derivatives or algorithms – although on occasion it does require some scotch. And we are not done taking advantage of it yet.

As a reminder:
Stock prices are not data. They are an opinion. To a value investor, they are an opinion about the future earnings power of a company. That there is a lot of data available to form an opinion about a company’s true value should not be confused with the idea that all opinions about stock prices are equally valid.

The vast majority of the time, the market values companies correctly – or, at least, an investor should start by assuming the market is correct. But every so often, the market makes a grievous error that alert and patient investors can exploit. And for Tarpon, this has been of those times.

Please understand that because of what we stand to gain the next few years, I will make no apologies for whatever short-term volatility may come as a result of continuing to hold our current Tarpon companies, at their current portfolio weights, for an indefinite period of time.

We own good assets, bought at even better prices, which produce a critical product that many in the market don’t appear to realize may temporarily be in short supply in the not-too-distant future. The primacy of price over all else in the oil market has been nearly absolute. But it is also untenable. I continue to believe this is a perfect storm of cognitive biases, incentives, ambiguity and groupthink on Wall Street that we can take advantage of.

And my job, essentially, is to not screw it up. So we are going to take every penny the market gives us in 2017.
Right now, though, there is a worrisome oversupply of eggnog in Islamorada.

And. I. Am. On. It.

I’ll have more thoughts on Tarpon, OPEC, the new U.S. administration and the shale industry’s response to higher oil prices in a few months.

In the meantime, Happy Holidays!
Peace, love and cash flow.
– Cale
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on December 22, 2016, 04:20:06 PM
https://www.islainvest.com/2016/12/22/letter-to-investors-december-2016/

Dear Investors,

From January 1 through November 30, 2016, net of all fees, the Tarpon Folio is up 91.8% compared to an increase of 9.8% in the S&P 500 over the same period.

As of the market close last Friday, December 16, Tarpon is up more than 100% year-to-date, after fees, on an unaudited basis. So I am pleased to report that it appears that you will have doubled your money in Tarpon in 2016.
Merry Christmas.

Thank you for hanging in there after a tough 2015. We are succeeding unconventionally. And we are not done yet.
We now have two ten-baggers in Tarpon. I have made no trades since August. And subsequent to that investor-only email I sent in early November, OPEC cut production, as expected, putting a floor under oil prices and formally closing out one of the most head-scratching chapters in the history of the oil market.

My expectation, in short, is that oil will continue to grind higher in 2017. Global oil flows now look to be in deficit, while elevated oil stocks will be drained further by the recent OPEC/non-OPEC production cut agreement.

I also believe the risk of sleepwalking into a supply crunch in either ’17 or ’18 remains uncomfortably high. That risk is due to several pro-cyclical idiosyncrasies of today’s oil market, the most notable of which is the inconsistent quality of global production and inventory data. IEA numbers in particular are, on occasion, confounding and irreconcilable, appearing to obscure or conflate trends in production and/or inventories which would otherwise be price-supportive for oil.

I suspected it a year ago, and now unequivocally believe it: there are some strange things in that macro oil data – whether Gulf of Mexico oil production forecasts, OECD inventory stock revisions, or the obscuring of oil-versus-condensate storage levels here in the U.S. All of which makes the forward curve even less predictive of future oil prices than it already is.
Get on it, 60 Minutes.

In any case, our companies remain resilient, and our returns in Tarpon next year should be attractive enough that I believe my primary goal as your portfolio manager is to avoid doing anything that might cut the compounding process short.
So let the record show that it’s in your best interest if I do a lot of fishing next year.
But let’s not get cocky – nor forget the role good luck played for us this year. We’ll all be better off if we ratchet down our expectations for 2017.

We found a glitch in The Matrix last year. It continues to be exploitable in a reasonably systematic way via the shares of deeply undervalued U.S. E&Ps – without using margin, derivatives or algorithms – although on occasion it does require some scotch. And we are not done taking advantage of it yet.

As a reminder:
Stock prices are not data. They are an opinion. To a value investor, they are an opinion about the future earnings power of a company. That there is a lot of data available to form an opinion about a company’s true value should not be confused with the idea that all opinions about stock prices are equally valid.

The vast majority of the time, the market values companies correctly – or, at least, an investor should start by assuming the market is correct. But every so often, the market makes a grievous error that alert and patient investors can exploit. And for Tarpon, this has been of those times.

Please understand that because of what we stand to gain the next few years, I will make no apologies for whatever short-term volatility may come as a result of continuing to hold our current Tarpon companies, at their current portfolio weights, for an indefinite period of time.

We own good assets, bought at even better prices, which produce a critical product that many in the market don’t appear to realize may temporarily be in short supply in the not-too-distant future. The primacy of price over all else in the oil market has been nearly absolute. But it is also untenable. I continue to believe this is a perfect storm of cognitive biases, incentives, ambiguity and groupthink on Wall Street that we can take advantage of.

And my job, essentially, is to not screw it up. So we are going to take every penny the market gives us in 2017.
Right now, though, there is a worrisome oversupply of eggnog in Islamorada.

And. I. Am. On. It.

I’ll have more thoughts on Tarpon, OPEC, the new U.S. administration and the shale industry’s response to higher oil prices in a few months.

In the meantime, Happy Holidays!
Peace, love and cash flow.
– Cale

Congratulations on the YTD return!
FWIW we also have a return > 100% this year, primarily from high weightings to PWT and PD.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 22, 2016, 07:27:13 PM
Congrats SD. Tough to be contrarian when the mainstream media, Goldman - if not all the Ibanks and almost all conventional money managers are telling you that energy investments are not or never the place to be. Well won gains in 2016 while many of the conventional money managers have failed to even produce positive returns.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on December 22, 2016, 09:24:50 PM
Congrats SD. Tough to be contrarian when the mainstream media, Goldman - if not all the Ibanks and almost all conventional money managers are telling you that energy investments are not or never the place to be. Well won gains in 2016 while many of the conventional money managers have failed to even produce positive returns.

Funny thing is that this year was actually the easy bit. As you point out - the smartest investment strategy next year will be to pretty much take the whole year off; of course the downside is the occasional 30-40% unrealized loss while you're crossing the desert, hence the systematic periodic capital withdrawals. It's also much easier to invest this way when money management isn't your primary business.

SD
     
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 23, 2016, 04:19:41 AM
https://www.islainvest.com/2016/12/22/letter-to-investors-december-2016/

Dear Investors,

From January 1 through November 30, 2016, net of all fees, the Tarpon Folio is up 91.8% compared to an increase of 9.8% in the S&P 500 over the same period.

As of the market close last Friday, December 16, Tarpon is up more than 100% year-to-date, after fees, on an unaudited basis. So I am pleased to report that it appears that you will have doubled your money in Tarpon in 2016.
Merry Christmas.

Thank you for hanging in there after a tough 2015. We are succeeding unconventionally. And we are not done yet.
We now have two ten-baggers in Tarpon. I have made no trades since August. And subsequent to that investor-only email I sent in early November, OPEC cut production, as expected, putting a floor under oil prices and formally closing out one of the most head-scratching chapters in the history of the oil market.

My expectation, in short, is that oil will continue to grind higher in 2017. Global oil flows now look to be in deficit, while elevated oil stocks will be drained further by the recent OPEC/non-OPEC production cut agreement.

I also believe the risk of sleepwalking into a supply crunch in either ’17 or ’18 remains uncomfortably high. That risk is due to several pro-cyclical idiosyncrasies of today’s oil market, the most notable of which is the inconsistent quality of global production and inventory data. IEA numbers in particular are, on occasion, confounding and irreconcilable, appearing to obscure or conflate trends in production and/or inventories which would otherwise be price-supportive for oil.

I suspected it a year ago, and now unequivocally believe it: there are some strange things in that macro oil data – whether Gulf of Mexico oil production forecasts, OECD inventory stock revisions, or the obscuring of oil-versus-condensate storage levels here in the U.S. All of which makes the forward curve even less predictive of future oil prices than it already is.
Get on it, 60 Minutes.

In any case, our companies remain resilient, and our returns in Tarpon next year should be attractive enough that I believe my primary goal as your portfolio manager is to avoid doing anything that might cut the compounding process short.
So let the record show that it’s in your best interest if I do a lot of fishing next year.
But let’s not get cocky – nor forget the role good luck played for us this year. We’ll all be better off if we ratchet down our expectations for 2017.

We found a glitch in The Matrix last year. It continues to be exploitable in a reasonably systematic way via the shares of deeply undervalued U.S. E&Ps – without using margin, derivatives or algorithms – although on occasion it does require some scotch. And we are not done taking advantage of it yet.

As a reminder:
Stock prices are not data. They are an opinion. To a value investor, they are an opinion about the future earnings power of a company. That there is a lot of data available to form an opinion about a company’s true value should not be confused with the idea that all opinions about stock prices are equally valid.

The vast majority of the time, the market values companies correctly – or, at least, an investor should start by assuming the market is correct. But every so often, the market makes a grievous error that alert and patient investors can exploit. And for Tarpon, this has been of those times.

Please understand that because of what we stand to gain the next few years, I will make no apologies for whatever short-term volatility may come as a result of continuing to hold our current Tarpon companies, at their current portfolio weights, for an indefinite period of time.

We own good assets, bought at even better prices, which produce a critical product that many in the market don’t appear to realize may temporarily be in short supply in the not-too-distant future. The primacy of price over all else in the oil market has been nearly absolute. But it is also untenable. I continue to believe this is a perfect storm of cognitive biases, incentives, ambiguity and groupthink on Wall Street that we can take advantage of.

And my job, essentially, is to not screw it up. So we are going to take every penny the market gives us in 2017.
Right now, though, there is a worrisome oversupply of eggnog in Islamorada.

And. I. Am. On. It.

I’ll have more thoughts on Tarpon, OPEC, the new U.S. administration and the shale industry’s response to higher oil prices in a few months.

In the meantime, Happy Holidays!
Peace, love and cash flow.
– Cale

Congratulations on the YTD return!
FWIW we also have a return > 100% this year, primarily from high weightings to PWT and PD.

SD
Btw I am not Cale Smith & my returns while very good this year are not close to 100%.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 29, 2016, 08:21:52 AM
EIA just reported a very bullish report IMO.

Crude build was 0.6 million barrels vs an expectation for a 1.4 million barrels decline. API had reported a 4.2 million barrels build last night.

So on that basis that is negative. However, total stocks (including this 0.6 million barrels oil build) were down 12.9 million barrels with gasoline, distillates, propane all down. And that small build of 0.6 million barrels could be accounted for a reduction of 0.7 million barrels going to refineries last week.

While true that some customers may have ordered more finished products for the Holiday season and the climate was relatively cold, consumption was still eye popping. Based on the data from the last few months, we very much seem to be in balance or in a small supply deficit despite the OPEC and non-OPEC cut not starting until January. With the Libya and Nigeria ramp up effect already behind us or over the last few months of 2016, the cut will definitely impact inventories materially.

Another positive news is the decline of 30,000 b/d in Lower 48 States production despite many rigs having been added over the last couple of months and mostly in the Permian Basin or the most prolific/cost effective area. I do believe that this continued refusal for production to increase despite more rigs in the field and drilled but uncompleted wells being completed, indicates that the decline rate is continuing to offset all this increased activity. Therefore, higher prices from here are needed to incentivize more production and with low hanging fruits being harvested, it will take even higher prices to go back to the Williston Basin and other higher cost places.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on December 29, 2016, 11:48:59 AM
It’s useful to do a little arithmetic….

Assume a 1000 shale oil wells were drilled & connected, on Jan 01, 2014 (3 years ago). They stay in production their entire lives, and on day 1 they test out at 100 barrels/month of 100% light crude - or 1,200,000 barrels/year (1000x100/monthx12 months). Over time; pressure drop, gas and water cuts deplete production at 35%, 40%, 45%, 50% per year. At the end of year 4 the average well is no longer commercial. This is most shale oil.

At the end of year 1 - production is down to 780,000 barrels/year (1,200,000 x (1-.35)). At the end of year 2 it’s 468,000 barrels/year (780,000 x (1-.40)). At the end of year 3 it’s 257,400 barrels/year, at the end of year 4 it’s 128,700 barrels/year. Year 1, 2, 3, 4, 5 depletion was 420000, 312000, 210600, 128700, and 128700 barrels/year. Point is; significantly less depletion every year.

Were we in 2014 (Year 1) an additional 420,000 barrels/year of production (via the drill bit) would have just kept Year 1 production ‘flat’ at 1,200,000 barrels/year. That same drilling addition of 420,000 barrels/year of production in 2017 (Year 4) would have raised Year 4 production to 548,700 barrels/year – a 130% increase. Point is; at the aggregate level, the impact of new drilling is currently being swamped by depletion on existing wells. Hence we see rising rig counts, falling production, & drillers talking about better prospects.

Unfortunately, politics now matters.

While the US is not part of OPEC, the senior men in Trumps cabinet are part of ‘big oil’ and there is now a different kind of relationship with Russia - an OPEC ally. From the capital efficiency standpoint it makes sense to temporarily shut US shale in, and support oil price hikes; hence the GS appeal to higher prices. From the state bargaining standpoint it makes sense to consolidate the shale fields, and arm it with disciplined ‘big’ capital – parked on the sidelines (a modern day version of Standard Oil).

We think that for now that means aggressive drilling to get to self-sufficiency, and shut-in production for a while.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 04, 2017, 08:15:05 AM
Acumen commentary...

Energy Sector 2017 Commodity Overview (Oil)

The key for me - and I think it should be for readers as well - are oil stocks.  For all of the gnashing of teeth as to whether Oman or Venezuela or Saudi will meet their production quota, the fact is that oil stocks have been DRAWING since July to the tune of 75 mm bbl.  Many clients have been waiting for "oil stocks to start going down" as the sign the market is turning around.  Well we are at that point in time now where it is occurring PRIOR to any OPEC action.  The IEA indicated that November preliminary numbers indicate another draw across the OECD (indicative of global storage) and in December US stocks have been falling at a faster pace than expected.  Yet, the IEA suggests that Q4 demand will be 96.9 mb/d while supply will be 98.1 mb/d leading to an expected Q4 BUILD of 1.2 mb/d or net build of 110.4 mmbbl. 
 
Just to have some fun with numbers, let's assume that IEA is correct.  And let's also assume that November isn't in fact a draw, as the IEA has indicated, but is neutral.  That means December stock builds need to be 128 mm bbl or >4 mb/d.  Or, the more rational explanation is that demand is higher than reported - which is a consistent pattern that is empirically proven - which means that 2017 demand needs to be revised higher and the market is well into deficit territory.  A little bit of a different narrative than the consensus isn't it?
 
In other words, oil is going quite a bit higher and rely on the IEA at your own peril.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on January 04, 2017, 08:55:08 AM
Look at PD and TDG on the TSE. Both up 40% since Oct 01, and day rates on the premium rigs starting to rise.
The folks hiring them, aren't drinking the IEA cool-aid.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 04, 2017, 09:23:08 AM
Look at PD and TDG on the TSE. Both up 40% since Oct 01, and day rates on the premium rigs starting to rise.
The folks hiring them, aren't drinking the IEA cool-aid.

SD

Yes the services sector should perform very well this year altho I have not invested in the the pure rig companies. Believe there is much more value in some of the anciliary service companies trading at fractions of book value, replacement and at low single digit multiples of cash flow at potential 2017/18 utilization levels. Names are Strad Energy Services (SDY - TSX) well site services US & Cda, Bri-Chem (BRY -TSX) energy fluid distributor all of North America, Critical Control (CCZ - TSX) natural gas flow software & hardware all of North America, Macro Enterprises (MCR - TSX) pipeline builder northeast British Columbia, Petrowest (PRW - TSX) infrastructure & construction NE BC & Alberta, Entrec (ENT - TSX) highly discounted crane operator, Questor (QST - TSX) clean tech service co to energy sector, Western One (WEQ - TSX) provides heat & rentals, modular bldgs to energy & other sectors.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 04, 2017, 04:53:51 PM
Look at PD and TDG on the TSE. Both up 40% since Oct 01, and day rates on the premium rigs starting to rise.
The folks hiring them, aren't drinking the IEA cool-aid.

SD

Yes the services sector should perform very well this year altho I have not invested in the the pure rig companies. Believe there is much more value in some of the anciliary service companies trading at fractions of book value, replacement and at low single digit multiples of cash flow at potential 2017/18 utilization levels. Names are Strad Energy Services (SDY - TSX) well site services US & Cda, Bri-Chem (BRY -TSX) energy fluid distributor all of North America, Critical Control (CCZ - TSX) natural gas flow software & hardware all of North America, Macro Enterprises (MCR - TSX) pipeline builder northeast British Columbia, Petrowest (PRW - TSX) infrastructure & construction NE BC & Alberta, Entrec (ENT - TSX) highly discounted crane operator, Questor (QST - TSX) clean tech service co to energy sector, Western One (WEQ - TSX) provides heat & rentals, modular bldgs to energy & other sectors.

Credit Suisse says " It Has Only Just Begun" For the Oilfield Service & Equip Sector

We are upgrading the Oilfield Services & Equipment sector along with several stocks for the seasonal and the cyclical recovery trade in 2017. The cyclical recovery is under way for onshore NAM. It will accelerate in 2017 with higher utilization and pricing. Onshore international will begin to improve by mid-2017. Offshore remains challenged, but there are select early-cycle stocks that deserve a look.Even understanding that earnings revision will begin any day, there is a strong chance we are all underestimating the magnitude of the recovery.



Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 11, 2017, 07:40:23 AM
Horrible EIA report today: oil inventory up, major build in products, imports way up, Lower 48 States production up 190,000 b/d!

The latter is the most concerning IMO since OPEC and non-OPEC cuts should start to be more visible over the next few weeks as fewer vessels arrive. The cuts were taking effect after January 1. The increase of 190,000 b/d appears rather large considering that we didn't see much if any increase in previous weeks while the rig count has been climbing steadily.

We know that EIA is estimating Lower 48 States production unlike Alaska's production which is more or less exact. However, it would be nice to have more accurate info as this sudden jump after weeks of little change is a head scratcher.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 12, 2017, 02:47:16 PM
This is an excellent year end piece on the oil market by Nuttall at Sprott. Pretty much aligns with what my thoughts were through 2016 and what the future has in store. Full note at the link at the bottom of the page.


2017 is shaping up to be another solid year for energy investors. Our belief that the market would become “undersupplied” (we define that as the level of oil held in inventory falling on a year-over-year basis) came to pass in Q2/16 (note that this was BEFORE the OPEC cuts) and global oil inventories have been falling ever since. The decision by OPEC to curtail production by ~ 0.9MM Bbl/d + the potential for 0.6MM Bbl/d of non-OPEC curtailments only expedites the rebalancing process. The reason why this is happening is because demand continues to rise at a strong rate (~1.4MM Bbl/d in 2016) as it has in every year in modern history yet supply with only several exceptions is falling due to the inability of oil companies to drill enough wells due to depressed cash flows to allow them to offset their corporate declines. We believe this trend will continue until oil rallies to around $60/bbl which we believe will occur in 2017. Until that time given the impact of the OPEC/non-OPEC production curtailments combined with natural declines being experienced by the majority of oil producing nations/companies in the world we believe global oil inventories on a YOY basis could enter into a deficit by the end of Q1 and by the end of Q3 could be below the 5 year average. The finality of this event (and the path getting there) will act as a very bullish price signal for oil.

Despite the very bullish backdrop for oil there remain 4 concerns with some oil investors (I’m reminded of the saying “for every little girl with a balloon there is a little boy with a pin”) and we wanted to address each of them head on.

Firstly some investors believe that the recent OPEC production cut paid only lip service to the oil market and that OPEC will not abide by their 6-month pledge. This was summarized by the former (ie. fired) Oil Minister of Saudi Arabia who said “the unfortunate part is we tend to cheat.” Our view is that the OPEC of today is not the same as the OPEC of previous cycles. Unlike in previous down cycles when OPEC sat on upwards of 14MM Bbl/d of spare capacity we believe effective capacity (pre-cut) is effectively nil and that most members (including Saudi and Iraq) were already up against their maximum productive capacity. Further, the ring leader of OPEC (Saudi) is intending on divesting a stake in its state oil company as a means of raising capital with which it will use to attempt to diversify its economy away from strictly oil. The value of Saudi Aramco in early 2018 will be based largely on its 2017 cash flows which will be based on the 2017 oil price and hence Saudi has a very high incentive to adhere to its curtailment pledge. Lastly the fiscal duress being experienced by all members of OPEC from the implosion in the oil price is extreme by all historical precedents. Most members face one or a combination of hyperinflation (Venezuela), massive fiscal deficits (pretty much all of them), internal terrorism (Nigeria and Libya) or outright war (Iraq). The only result of the OPEC/Saudi “free oil market” experiment over the past 2 years was the devastation of OPEC’s collective balance sheets (Saudi Arabia budget deficit of $176BN in 2015 and 2016) and the forcing of US tight/ shale oil companies to become more cost efficient. As an aside it was reported on January 5th that Saudi Arabia had become fully compliant with their pledge.

The second concern that the market has is the ability of US tight/shale oil to very quickly respond to a $50+/bbl oil price and once again oversupply the market. The consensus view is that at $50/bbl every well in the US is wildly profitable and that as a result companies will ramp up their drilling activities and swamp the market just as it did several years ago. While we do believe the US can meaningfully grow oil production over the next several years (it better…more on that later) we disagree with the belief that this can occur nearly as quickly as the consensus. The market is ignoring what should be several obvious obstacles that will prevent US production from scaling as quickly as feared. These include a shortage of labour (150,000+ layoffs in North America during this downturn), stressed balance sheets that prevent a frenetic ramp in spending, and most importantly a stressed service sector. As oil companies cut spending by the greatest extent in history and demanded that service companies work for negative margins this exerted an enormous stress on their equipment (drilling rigs and especially fracture stimulation equipment). As a result much of the latent equipment is now unworkable due to the lack of proper maintenance and will require both time and an enormous injection of working capital to get back into working order. Hence, though the oil price might now allow industry to increase spending and ultimately production the shortage of workable equipment (and people) will mean that there will be a much greater lag than otherwise might have been thought.

The third concern is that while OPEC production growth is now limited (assuming 100% compliance) there remain a few members that are exempted (Iran, Nigeria, and Libya) that have the potential to ramp production. While it is difficult to evaluate exactly what is going on in Nigeria and Libya we take comfort in the many rosy estimates over the past year that were never met. For every interim peace treaty that makes the front page there is a pipeline bombing or rebel fighting outbreak that just doesn’t seem to get the same media traction. Experts far more qualified than I to comment on both countries believe that the situations in each country are far more volatile than what consensus would have you believe. Iran then is the easiest to evaluate over the next few years. Production today is now almost back to pre-sanction levels (late 2011 of ~ 3.6MM Bbl/d). During the four years of production constraints due to US sanctions  Iran lacked the ability to reinvest in its fields and grow productive capacity since so much of their oil revenues went to pay for state social expenses. Hence, as they are now back to peak levels it will take several years and many hundreds of millions of dollars to grow productive capacity. Given that project tendering has only now just begun Iran lacks the ability to meaningfully grow oil production for at least 2 years. So in summary the only 3 countries exempted from the OPEC production cut all still face significant challenges/logistical issues to be able to meaningfully grow oil production in the near term.

The final concern that some investors seem to have relates to electrical cars and the potential for the combustion engine to become obsolete in the near future. When an investor expresses this worry to me there are a few basic numbers that I share with them. First, annual global car and light passenger vehicle production is roughly 80,000,000. Second, assuming that the average useful life of said cars is 10 years that means there is a global install base of ~800,000,000 vehicles. Third, Tesla in 2016 produced 78,000 cars and has ambitions to grow this number to 400,000-500,000 (ignoring that they have never hit a production goal and still face highly significant challenges like adequate battery production). Giving them the full benefit of the doubt (along with Ford, GM, Daimler-Chrysler, Mercedes Benz, BMW, etc) it seems highly improbable that annual production could exceed 1,000,000 vehicles in the next 5 years. This means that maybe in 5 years electric cars would represent a whopping 1.25% of global car sales but most importantly it would take 800 years to displace the install base. This also ignores that those living in the major areas of car sale growth (India, China, etc.) cannot even afford a “low cost” $35,000 electric car when their average annual salary is sub-$10,000/year.

So in summary, OPEC compliance is likely to be much higher than consensus believes because it is in their best interest to adhere to their pledge, the production response from the US due to higher oil prices will take longer than consensus believes due to labour and equipment shortages that consensus seems to be forgetting about, the 3 exempted OPEC countries still face significant challenges to grow oil production and void the positive impact of the cuts, and Tesla is not taking over the world and displacing the need for gasoline any time soon.

So where do we see opportunity today?

Early in 2016 we made significant profits in stocks that were strongly out of favour due to poor (though not critical) balance sheets and were being priced as if they were imminently going bankrupt. Later in the year we crystalized these profits and high-graded the portfolio into companies that due to the rise in the oil price could expand their capex programs and grow production faster than what was being modelled by the Street. We also took positions in several service stocks that were trading at highly attractive valuations. Today the best opportunities are in oil companies that have the ability to grow oil production faster than consensus believes and as a result are much cheaper than is believed if one can look out beyond this year. We see about 40% upside in many of these companies. We’ve also retained positions in several natural gas stocks. The outlook for natural gas has improved significantly due to strong demand growth and production declines (implosion in natural gas drilling over the past few years + less indirect natural gas production from oil wells). Finally we retain positions in several service stocks that are exposed to the service areas that we believe could tighten much faster than consensus believes and by extension have the ability to raise prices/margins in the coming months. There are stocks where we see 50% upside to current 2018 consensus EBITDA estimates.

One last theme that we would like to leave you with is the reason why we believe that we are in a multi-year bull market for oil. We’ve spoken previously about how the greatest selloff in the history of oil also led to the largest drop in spending in the history of the oil and gas business (see below). The market tends to be a little too US-centric in its thinking as much of the focus of the oil market is on US shale/tight oil however this production only amounts to ~4% of total global production. Outside of the US most oil production comes from large projects that require 4-6 years to bring on and cost many billions of dollars. As a result of the massive drop in investment in such projects the amount of new production coming online from mega projects begins to implode in 2018 and given the lead time there is pretty good visibility out to 2021.

The global oil industry (OPEC+non-OPEC) needs to come up with roughly 5MM Bbls/d of new productive capacity each year (1MM for demand growth and 4MM to offset global declines). Given our view that OPEC is largely out of spare capacity and that the US can grow by a maximum of 1MM Bbl/d per year for the next 2+ years, the burden then falls on non-OPEC/non-US to make up for the shortfall. However the below chart shows that the level of new production from this collective jurisdiction falls in half between 2017 and 2019 and amounts to only ~1MM Bbl/d in 2019 and 2020. Given this implied undersupplied scenario of ~ 3MM Bbl/d we believe the oil market will remain tight for the next several years and that oil will have to progressively appreciate beyond $60/bbl in order to stimulate new investment and bring forward many of the projects that have been deferred or cancelled.

http://www.sprott.com/media/318873/sprott-energy-fund-monthly-commentary.pdf
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on January 12, 2017, 06:52:09 PM
Keep in mind that the o/g drilling industry is a close knit community, and the client/driller relationship is much closer than in other industries. Carry your driller through the lean times, and they will carry you through the good times; you get the rig, & the other guy is SOL - no matter how much he offers. In the WCSB this doesn't matter right now, but comes fall it is going to; & it matters a great deal if you're farming out acreage.     

O/G is also a leading industry; most of the other commodity industries are lagging indicators.
Segment rotation to control risk/return is going to matter.

SD

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 19, 2017, 08:23:56 AM
The data from EIA/API since mid-December has become nearly incomprehensible.

API announced a draw of 5 million barrels last night and this morning we have EIA announcing a build of 2.3 million barrels.

We also have gasoline stocks growing rapidly for the second week in a row and when I was in the U.S. a few weeks ago, the cost of gasoline on the East Coast was very close to $2.50 U.S./gallon at the pump which I thought was too high based on these inflated stocks.

And now refineries apparently really reduced their intake last week with a 4.473 million barrels reduction and we still get a 6 million barrels increase in gasoline???

Is the economy going from good to recession in one week? Have we switched from Winter to Fall in one week???

Finally, we read that Lower 48 States production grew by 190,000 b/d last week and this week it moved by the grand sum of "0". The guy was probably on vacation or something!!!

The only thing that seems to make sense is a reduction in net imports of 4.557 million barrels for the week as likely fewer vessels are now arriving in the U.S. with OPEC/non-OPEC cuts having started Jan 1.

I hope that Trump's Energy Secretary will fire some of the administrators of this joke EIA.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 19, 2017, 09:11:12 AM
http://finance.yahoo.com/news/two-commodities-veterans-are-calling-for-100-oil-in-2018-163400527.html

The IEA is another organization that should get its act examined.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: DooDiligence on January 21, 2017, 06:06:07 PM
An oldie but a goodie...

http://www.geoexpro.com/articles/2011/03/the-best-place-to-find-oil
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 24, 2017, 08:21:10 AM
Goehring & Rozencwajg Year End Letter

Natural Resource Market Commentary 4th Quarter 2016

Friday, January 20, 2017

Oil prices are headed much, much higher.

To understand why, let’s turn the clock back 11 years back to the fall of 2006. As many of you might remember, oil prices peaked in a new bull-market high of $77 per barrel in the summer of 2006. By November, prices had fallen by a steep 30%. Repeated warnings by the International Energy Agency (IEA) regarding huge oversupplies in 2007, the resulting oil price pullback, and the surge in bearish sentiment caused a series of events to take place at the end of 2006 that set the stage for the relentless 150% surge in oil prices starting in January of 2007 which lasted for the next 18 months. We believe it’s imperative to understand the underlying oil market fundamentals in 2006 - both actual and as reported by the IEA. In response to these perceived fundamentals, OPEC reacted strongly and cut production just as the oil market slipped into deficit. OPEC’s actions caused a tight market to become even tighter, which resulted in the huge surge in oil prices

In an ironic twist, we believe that the events that took place at the end of 2006 have now been repeated: OPEC has agreed to significantly cut production into an oil market that has already slipped into deficit, just like they did in 2006. And just like back in 2007 and 2008, we believe oil prices are now set to surge again in the coming 18 months.

According to the IEA, the huge run-up in global oil prices beginning in 2007 should never have happened. In the summer of 2006, the IEA released their first estimates for the 2007 global oil market balances. In that report, the IEA forecast normal demand growth in 2007 (up 1.4 mm b/d) and extremely strong supply growth (non-OPEC supply growth up 1.9 mm b/d). Based upon these forecasts, the IEA projected that the oil markets in 2007 would face significant over-supply. But it wasn’t only the 2007 oil markets that would be oversupplied, according to the IEA. According to their numbers, the IEA believed 2006 was also a year where global supply had significantly exceeded global demand.

As 2006 entered its final quarter, the IEA repeated its assessment that total global oil supply would exceed oil demand by a huge 800,000 barrels per day for all of 2006. The IEA’s estimates of huge over-supply in 2006, combined with their over-supply projections for 2007, meant that OPEC would need to cut production significantly going into 2007. With OPEC producing slightly over 30 mm b/d in 2006, the IEA estimated that the organization must cut a minimum of 1.7 mm b/d to avoid significantly building inventories and putting severe downward pressure on prices in 2007. At the end of the third quarter of 2006, the IEA again raised its non-OPEC oil supply growth forecast to 2 mm b/d and again strongly reiterated its conviction that markets in 2007 were about to be flooded with oil.

Given these extremely oversupplied projections, and given how widely followed the IEA’s projections were, it is easy to understand how bearishness gripped the oil markets during the fourth quarter of 2006. By the fall, oil prices had dipped below $60 per barrel and, given the fundamental outlook put forward by the IEA, many energy analysts believed prices were set to fall back into the low $20s – crude oil’s average price throughout the 1980s and 1990s. Reflecting the price drop, speculators and hedge funds had swung from having significant net-long positions during the summer of 2006 to being significantly net-short on the NYMEX futures exchange by the fall. Everyone was bearish. All you had to do was look at the IEA’s numbers to see an oil market that was in serious over supply—prices were going to fall.

Heeding the IEA’s warnings and succumbing to the huge surge in bearish sentiment that gripped global oil markets, OPEC met in October 2006 in Doha, Qatar, and quickly agreed to a large 1.2 mm b/d production cut that would become effective in November of 2006.

In retrospect, it is painfully obvious these OPEC production cuts were unnecessary. Back in 2006, we wrote extensively about the flaws in the IEA data. The IEA was significantly overestimating 2007 non-OPEC oil supply and underestimating 2007 global demand. Also, if you carefully analyzed 2006 oil market data, it was clear the IEA was seriously misestimating 2006 oil balances as well. Although ignored by most oil analysts, by the end of 2006 almost 600,000 “missing barrels” had crept into the IEA’s oil balances. Instead of building inventories by 800,000 b/d in 2006, which is what should have happened according to the IEA data, actual global inventories built by only 200,000 b/d. This implied that either the IEA was significantly underestimating oil demand, overestimating supply, or doing a combination of both. Also, if you assumed these “missing barrels” were not really “missing,” but rather were either consumed or else were never produced, then the 2006 oil market was nearly balanced. Instead of being wildly oversupplied (as portrayed by the IEA), global oil markets were basically balanced in 2006 and were about to significantly tighten in 2007, even without any cuts in OPEC’s production. In retrospect, OPEC was about to cut production in a market that by the fourth quarter of 2006 had already slipped into deficit, resulting in a market that became ultra-tight as 2007 passed into 2008. In response to the over-tightening, global oil inventories drew by over 300,000 b/d through 2007 and into the spring of 2008. Prices advanced relentlessly in response to falling global inventories and eventually spiked to almost $150 in July of 2008.

Back in 2006, our research told us that the IEA numbers were flawed and that the OPEC production cuts were unnecessary. In October 2006, in our third quarter letter, we wrote:

“Also, it turns out that although we tend to forget the past, in this oil bull market every time OPEC has cut production, it has only supported the ongoing bull market.... Will history repeat itself here if OPEC cuts back production for the fourth time in five years? Our research indicates that there is a high probability that the same thing will happen in 2007. In each of the previous three production cuts, OPEC was looking at three things that never materialized... First, although inventories were rising on each occasion, it turned out that fears of future high inventory levels were overstated. Second, non-OPEC oil production, which was always projected to grow by 1.5-2.0 mm b/d , had failed to materialize every year since 2002, and third, OPEC has consistently underestimated the growing demand for oil coming from the developing part of the global economy....Our analysis suggests that the call on OPEC oil production will increase substantially again in 2007, and I see the global oil market becoming tighter with prices risk increasing to the upside.”

It turns out that our analysis was indeed correct, and we wrote again in July 0f 2007:

“I wrote in last year’s 3rd Q letter that anticipated OPEC production cuts in the 4th quarter of 2006 were unnecessary and would lead to extreme tightness in global inventories by mid- 2007. We based our viewpoint on our models which indicated that non-OPEC oil production would grow by only 500,000-700,000 b/d in 2007. This production growth estimate was significantly less than the originally 1.9 mm b/d grow estimate by the IEA. We also estimated that global oil demand would grow by 1.2-1.3 mm b/d. Using these projections, we felt that OPEC would need to increase production by 600,00-700,000 b/d to balance the global oil market in 2007-not decrease production by 1.0 mm b/d.”

Today, our research tells us the world is in a situation almost identical to 2006.The global markets have already slipped into deficit and, based upon our modelling of 2017 supply and demand, we believe that the deficit will only increase as 2017 progresses -- even without any OPEC production cuts.

Global Oil Commentary

Back in April of last year, we wrote how we had gone from being bullish to “wildly” bullish on global crude-oil markets. We outlined how global demand was growing much faster than most industry observers realized, and that a collapse in global drilling would result in large non-OPEC production declines. Large over-supply in the crude markets, brought about by Saudi Arabia’s decision to increase production by nearly 1 million barrels per day over the course of 2015, would be absorbed by increased demand and falling non-OPEC supply during the second half of 2016, and that OECD inventories (a good proxy for global inventories since very few non-OECD countries maintain crude stockpiles), would begin to draw relative to normal levels. While the absolute inventory levels would likely remain high for some time, our experiences have told us the direction of inventory levels is what matters and that oil prices would move higher as inventories drew down.

When we wrote our analysis, crude prices had already started their rally off of the February lows of $26 per barrel and were trading at $43 per barrel. Since then, pretty much everything we wrote about has come to pass. Crude has advanced by 100% from the lows and 22% since we wrote in April, making it one of the best performing investments of 2016.

On the demand front, we wrote how the IEA, which forms the basis for nearly every oil analyst’s forecast, was significantly underestimating 2016 demand. In April, we predicted the IEA would need to revise their demand figures higher to nearly 96.8 mm b/d—up more than 1.6 mm b/d from their original 2016 projection made in the summer of 2015. Since then, they have indeed revised demand steadily higher to 96.4 mm b/d -- up 1.2 mm b/d from their original estimate. While this is less than our estimate, our models continue telling us the IEA still has to revise upwards its 2016 demand figures by over 400,000 b/d.

Our rationale for today’s required demand revisions is the same as it was back then. As we have discussed at length in these letters, the IEA’s supply-and-demand figures simply do not reconcile with their reported change in inventory levels. For example, based upon the IEA’s figures for supply and demand, OECD inventories should have grown by nearly 255 million barrels over the course of 2016. Instead, based upon the preliminary figures just released by the IEA, OECD inventories were flat year-on-year, implying an incredible 255 mm bb (or 700,000 b/d) of “missing oil.” Of course, as long-time readers of our research are well aware, this oil is never really missing, but is ultimately accounted for when the IEA eventually revises its demand figures higher. Over the last 15 years, the IEA has consistently underestimated non-OECD demand growth, and our models clearly state the IEA’s demand underestimation continues.

On the supply front, total non-OPEC supply declined by 850,000 barrels per day in 2016, the largest year of non-OPEC declines since 1992. As a result of the stronger-than-anticipated demand and large production declines, global oil inventories did indeed begin to draw relative to normal levels beginning in April (even sooner than we would have expected). Since then, OECD inventories have drawn relative to normal by approximately 87 million barrels, which suggests the global crude markets were under-supplied by 350,000 b/d. This represents the largest under-supply since the change in OPEC policy three years ago, and explains why we’re seeing continued upward pressure on oil prices.

This fundamental shift in the oil markets has gone largely unnoticed by the energy analysts and the markets. As recently as September, the IEA was writing about bulging inventory, an ongoing surplus and how “the supply-demand dynamic may not change significantly in the coming months.” This complacency in the market combined with the view that low oil prices are here for the foreseeable future, has left the world today in a very precarious situation (with very bullish implications).
Responding to the seemingly endless barrage of bearish reports, OPEC has now agreed to cut its crude oil production by 1.2 million barrels per day starting in January 2017, while certain non- OPEC countries have agreed to curtail their production by an additional 560,000 barrels per day. In effect, OPEC has agreed to its largest production cut in eight years, right at the time when the crude oil markets are beginning to rapidly tighten.

In an ironic twist, as we outlined in the introduction of this letter, today’s oil market bears an uncanny resemblance to the 2006-2008 period when OPEC also cut into an already-tight market and caused oil prices to surge from $51 per barrel to $145 per barrel in eighteen months’ time. In fact, our models tell us that the dynamics today could become more precarious than they were a decade ago.

Looking forward to 2017, the IEA is predicting that global demand will grow by 1.3 m b/d to 97.6 mm b/d. Non-OPEC supply is expected to recover and grow by 400,000 b/d, after having declined by 700,000 b/d this year. In total, non-OPEC supply is expected to average 64 m b/d next year. Taking the IEA’s figures at face value implies OPEC will need to pump at 33.6 m/d. Considering that OPEC pumped in November at 34.2 m b/d, the IEA is suggesting that OPEC will need to cut production by 600,000 b/d to balance the market.

However, in much the same way as the IEA’s figures misrepresented the market in 2006/2007, we believe the IEA’s 2016 and 2017 numbers are incorrect. First, the IEA is claiming that the oil market is over-supplied today and is ignoring the fact that inventories are drawing sharply relative to normal levels (just like in 2006/2007). According to the IEA data, inventories should be growing by 1.1 m b/d in the fourth quarter. However, based on preliminary data available through November, they have actually drawn by 400,000 b/d. Also, just like in 2006/2007, the IEA is dismissing the fact that oil prices have nearly doubled from their lows this year, which indicates to us that inventories are indeed drawing.

And most important, just like in 2006/2007, the IEA is very likely overstating non-OPEC supply growth for next year. In particular, Canadian production is expected to grow by 200,000 b/d in 2017 which would represent its strongest growth since 2014 despite the fact that the Canadian rig count is more than 50% lower than it was three years ago. Similarly, the IEA is projecting that non- OPEC production outside of North America will grow by 120,000 b/d in aggregate, despite the fact that this category has actually declined in four of the last six years and the fact that the international rig count right now is at an eleven-year low.

Could the US increase its drilling activity and materially grow the production coming from the shales? The short answer is that while this is possible, it would require a huge increase in drilling activity which would require a much higher oil price. As it stands today, the IEA is already calling for US growth in 2017 of 320,000 b/d. Our models indicate 1,000 rigs (or approximately a doubling from todays’ rig count) would be required to achieve this level of growth. While it is certainly possible for the rig count to double from here, a much higher oil price would be needed to incentivize additional drilling activity. Instead, we think the risk is much greater that the US falls short of the IEA’s projections and that the market ends up even tighter than we are modeling today.

To conclude: our models tell us that the global oil markets today are very similar to the end of 2006. The market has quietly slipped into deficit, yet few market participants seem to realize it. The steady oil price advance over the course of the year, driven by drawing inventories, has largely been ignored by energy market analysts. The pervasive bearish reports have led OPEC to announce very large production cuts at exactly the wrong moment. If our models are correct (as we’re very confident they are) and OPEC cuts even a fraction of what they have announced, the world oil markets will end up severely under-supplied by over 600,000 b/d during 2017. Although inventories are much higher than 2006-2007, our modelling tells us that inventories levels will approach 2008’s dangerously low levels by the end of 2018. As mentioned earlier, triple-digit oil prices are a very high probability in the next 18 months.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 27, 2017, 12:26:09 PM
Oil Poised to Reach $80

Source: The Energy Report  (1/26/17)

Joe McAlinden, founder of McAlinden Research Partners and former chief global strategist with Morgan Stanley Investment Management, outlines the trends for energy and discusses which sectors should see the most growth under the Trump administration.
The Energy Report: Welcome, Joe. What is your outlook for oil?

Joe McAlinden: We've been bullish on oil prices and published a piece last April predicting an energy shortage. I continue to think that is where we're headed. There is a self-correcting mechanism in relatively free markets that have been operative in the U.S. As prices fell, producers that are capitalists have cut back production and shut down a lot of drilling activity. We see that in the plunge that we've had in the number of operating rigs and in the number of barrels produced in the U.S.

Meanwhile, in less free markets for energy, namely the Organization of the Petroleum Exporting Countries (OPEC) members, we have seen more and more duress in the governments that are dependent on high oil prices to maintain their governments and living standards for their citizens. And even with non-OPEC members where there's a lot of government intervention in the markets, such as Russia, the same thing has been true.

Another factor is that the financial pressures on producers basically have forced them to the negotiating table, resulting in the recent agreement to cut production that finally came out between OPEC and non-OPEC producers but really between the Saudis and the Russians as the big players. It is important. It's important psychologically because since the agreement was announced, oil prices have moved up. But it is important in the actual supply/demand balance as we look at 2017.

U.S. production has been cut way back. The non-U.S. producers have announced an agreement to cut back. And the stage is clearly set for the supply side to be getting its house in order.

TER: What about demand?

JM: On the demand side, there is a degree of price elasticity in this market. When oil prices have come down, we've seen, for example in the U.S. data, miles driven be very strong. So demand has been very positive.

With the Trump election comes the plans to implement pro-growth policies, cut taxes, reduce regulation, etc., and hopefully get growth up to 3% to 4% in GDP. That's going to be a big positive for oil demand in the U.S. Even with conservation, more efficient vehicles and the usage of natural gas for generating electricity, as well as inroads made by adding alternative energy into the picture, we still have some degree of sensitivity in crude oil demand to the GDP growth rate. So if we've had 1.5% growth on average, but the trend has been about 1.5% to 2%, and the new administration promises to raise that to between 3% and 4%, that is going to have a positive further effect on demand.

That's part of what has changed in the wake of the election in the energy picture. I am more bullish than ever on the whole energy complex, where we had been predicting $60 to $80/barrel oil, and we continue to think that is the upside target.

The other thing that's important is that this administration has outlined plans for opening up public lands to drilling, for expanding fracking and for bringing back the coal industry, all of which are going to run into tremendous pressure from environmentalists. Nonetheless, it is what's on the table, and it's what's planned.

TER: What areas have the greatest investment potential?

JM: I believe that between the rise in prices that we're beginning to see for crude oil and the plans in the U.S. for tremendous expansion of drilling activity, at this point my call is that the energy oilfield services business is poised to do even better than the energy industry overall. This is best characterized by the stocks that you would find in the VanEck Vectors Oil Services ETF (OIH), which I believe will outperform the broad energy industry, which I also like, and which is best characterized by the Energy Select Sector SPDR ETF (XLE).

I'm still bullish on oil and I think the XLE goes a lot higher, but I think the OIH goes up percentagewise a lot more. That's my view on energy.

TER: Thanks for your time, Joe.

Joe McAlinden has over 50 years of investment experience. He is the founder of McAlinden Research Partners and its parent company, Catalpa Capital Advisors. Previously, McAlinden spent more than 12 years with Morgan Stanley Investment Management, first as chief investment officer and then as chief global strategist, where he articulated the firm's investment policy and outlook. He received a bachelor's degree cum laude in economics from Rutgers University and holds the Chartered Financial Analyst designation. McAlinden has served on the board of the New York Society of Security Analysts.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on January 27, 2017, 02:48:22 PM
There's a reason we raised our exposure to the drilling sector  ;)

Notable is that over the last year, both the Baltic Dry and the Copper indexes have risen materially. They indicate that global economic activity was increasing - yet the IEA numbers didn't pick up the higher net demand this was causing? Post US election, the copper index has risen again - & the fall in the Baltic Dry seems to be ending. It is highly likely that demand is actually higher than many people think.

For the technically minded; look at the paper market contract expiries, & the IEA reports over the same period. Look at the total open contracts the day before, and the day after expiry, to get a sense of how much was rolled - and what the actual draw/build was. Then compare to the IEA report. Program it, back test it over the last 2 years, and compare it against the current hypothesis of 'missing barrels'.

Its not exact, but very interesting, n'est-ce pas ?  ;)

SD   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on February 03, 2017, 09:54:55 AM
Our nascent energy bull market...

It is also a feature of new bull markets to rise as high as possible for as long as possible with as few market participants as possible. Therefore, during key points in the primary uptrend, bull-market dynamics of asset-and-sector rotation can often convey confusing signals that amplify volatility and uncertainty — which further reinforce investor mistrust in the new trend and serve to keep most market participants sidelined.

Thanks to 13D Research
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on February 03, 2017, 11:33:33 AM
Is There a Better Asymmetric Investment Play in E&P Land Than Pan Orient (POE - TSX - $1.30)?

Playing the slots for $15 for $1 payoff with 25% COS and almost certain to get your dollar back…

For Pan Orient there is a very important catalyst coming up in the drilling of a well in Indonesia that is being fully funded by global super major Repsol in the next 3 months. The upside potential dwarfs any downside in the short term and over the longer term the value of POE is likely in excess of the current market value of the Company today even without this Indonesian well.

The way to look at this is what do we get for our $1.30 current value (market price) in POE…

Cash (no debt) $0.86/share
Thailand asset $0.24 (570,000 bbls oil P&P)
SAGD asset $4.15 (option on $70+ oil pricing (see below #1))
Angunn well $0 to $11+ (outcome of Repsol well #2 below)

Total potential upside —– $16+
Total potential downside — perhaps trade in short term to cash value. Most likely POE would be broken up & sold on Angunn failure. SOTP > $1.30


#1……Canada – Sawn Lake: On September 26th, 2016, POE announced the results of an -updated NI 51-101 compliant contingent resource estimate for the Sawn Lake SAGD project in Alberta. The unrisked “Best Case” contingent resource estimate increased by 8% to 166.3 million barrels net to POE’s 71.8% interest with the NPV (10% dcf) on an after-tax bases increased by 26% to $228 million ($4.15/sh). The Sawn Lake SAGD project represents significant longer term upside but will require higher oil prices before development.

Successful Demonstration Project In late 2013, the operators drilled one SAGD well pair to a vertical depth of 650 metres and with a horizon section of 780 metres within the Bluesky formation. Steam injection commenced on May 21, 2014 with first bitumen production commencing on September 16, 2014. Over a 17 month period, bitumen production continually increased and the steam to oil ratio continuously decreased. In January and February 2016, bitumen production reached a steady state average rate of 615 bbl/d with cumulative steam-oil ratio (“CSOR “) of 2.1. Although the final production test results of the Sawn Lake SAGD pilot project are impressive, the demonstration project was suspended at the end of February 2016 due to low oil prices.

#2…….EAST JABUNG, INDONESIA –HIGH-IMPACT EXPLORATION PLANNED FOR Q1/17 Background: On June 1, 2015, POE completed a farmout agreement with a subsidiary of Talisman Energy Inc. (now a subsidiary of Repsol). POE transferred an operated 51% interest in the East Jabung block to Talisman (“the Operator”), in return of a US$8 million cash payment, the funding of the first US$10 million of the cost of the first exploration well as well as funding the first US$5 million of the cost of a contingent appraisal well, if the first well is successful.

POE retains a 49% non-operated working interest in the East Jabung PSC. Drilling to commence in Q1/17: Construction of the access road and drilling pad is expected to commence late December. The Ayu-1 exploration well is expected to spud in late Q1/17 and will be drilled to a total depth of ~1,500 metres. The well is targeting the company maker Anggun prospect. Large Resource Potential: Gaffney Cline & Associates completed a NI 51-101 compliant Prospective Resource Report for the Anggun effective June 30, 2015 (Figure 1). The Anggun prospect has three potential reservoir targets; the Intra Air Benakat formation, the Gumai Formation and the Batu Raja Fromation. All three horizons hold large resource potential with a geological chance of success ranging from 11% to 26%.

As shown in the presentation below, POE has various chances with 3 different reservoirs in this prospect. The outcome as modelled by the reservoir engineer provides an outcome listed to POE’s net interest as follows: Low 16.2mm bbls, Best 73mm bbls and High 417mm bbls. My guess it will either be $0 outcome or possibly the mean of the engineer estimates. For a company with a market cap of $72mm and EV of about $26mm this is an extraordinary option! Even the mean outcome of 123mm bbls at a conservative $5 bbl reserve value would be worth over $11 per share to little POE. If it is 0 bbls this is disappointing and there is likely some short term selling and price weakness. However the Company would remain worth more than the current share price on a break up or sale.

http://www.panorient.ca/images/stories/file/Pan_Orient_Presentation_June_15_2016.pdf
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on February 07, 2017, 04:20:09 AM
This is why 'ya dance with the one that brung ya' .....
You're not getting one of these rigs this fall/winter unless you carried us through the lean times - making a farm-out on PWT lands much more valuable than it would be on someone else's property. The PWT farm-out comes with one of those critical rigs.

SD

http://business.financialpost.com/investing/trading-desk/precision-drilling-corp-considered-best-play-on-tightening-rig-market?__lsa=3b65-057f

In Canada, however, the analyst pointed out that Precision’s high spec Super Triple rigs, of which it has roughly 40 of in its fleet, are nearly fully utilized. They also make up approximately 50 per cent of the highest tier of the market in the three key plays, where rigs are crucial for unconventional drilling.

“Winter drilling activity has surprised to the upside and consumed most of the high spec fleet,” Meakim said, noting that Precision should see better rates by the second half of the year, as bookings encounter a much tighter market.


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on February 08, 2017, 06:27:08 AM
14.2 million barrels weekly build according to API last night or 2nd biggest ever! Expectations were for a build of 2.5 million.

That is 2 million barrels/day that had to come from somewhere while reports are indicating 80% and above compliance from announced cuts.

And while rigs have been added consistently over the last couple of months in the U.S. with some signs of increased production, Lower 48 States production was down 45,000 barrels/day last week according to EIA.

It would be nice to have access to OECD weekly inventories so we could reconciliate some of that information which has been erratic to say the least since Christmas. Based on just U.S. information, one would think that the world has added a few million barrels of production/day and not the opposite...

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on February 08, 2017, 10:18:18 AM
Counter-intuitive day for oil after EIA confirms API.   

 Would have thought today would have been the day for a shot below $50.    Seems to be quite a lot of liquidity and support for oil.  Can't fight the trend....


Just another day in the oil markets  ;).
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on February 08, 2017, 11:09:24 AM
The unexpected net build was supposedly 11.7M bbl – or roughly 5-6 VLCC’s off-loading on US shores over the week. If we’re pretty sure supply is being throttled back, & lower 48 production is in fact lower; this has to be either false data – or the supply came from floating storage. The fact that oil didn’t move on these announcements, suggests it’s false data.

Rigs are drilling because price is rising, but it will take around 3 months (May/June) for that newly found shale oil to start hitting the pipelines. It’s also why lower 48 production is currently down – the new production hasn’t arrived yet.

There may well have actually been 1-2 VLCC deliveries, but it’s highly unlikely there were 5-6. It suggests instead that either a big ‘correction’ has just been made to historic data, or that there will be a sizeable offsetting adjustment coming up in the next little while.

All good.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on February 08, 2017, 12:47:00 PM
This is not false data and was confirmed by two independent organizations.

The reason that oil is up slightly today is because the oil build is 13.8 million barrels but, products have come down by 12.4 million barrels for a net petroleum stock build of 1.4 million barrels. Gasoline and kerosene inventories down and distillates flat really helped sentiment today since they were up for a couple of weeks in a row raising worries about demand.

Regarding production, Lower 48 States production was up 73,000 barrels/day this week and was down 45,000 barrels/day last week. So it is already going up based on that, the 4 week average and has been going up steadily for months with U.S. production now close to 9 million barrels/day. And no, it does not and will not take 3 months for shale oil to suddenly appear since it takes only 10-15 days to drill/complete and most wells hit their peak 1 month after completion. So it is already there but, decline rates do matter and was overlooked by the market for 2 years with all this newly found productivity magic. Stop drilling and you see quickly what happens to your production.

Now where this oil comes from remains unexplained but, there was a surge in net imports and commercial stocks that would explain the 14 million barrels. I guess that we will have to wait another week again to finally see some understandable trend.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on February 08, 2017, 02:29:49 PM
This is not false data and was confirmed by two independent organizations.

The reason that oil is up slightly today is because the oil build is 13.8 million barrels but, products have come down by 12.4 million barrels for a net petroleum stock build of 1.4 million barrels. Gasoline and kerosene inventories down and distillates flat really helped sentiment today since they were up for a couple of weeks in a row raising worries about demand.

Regarding production, Lower 48 States production was up 73,000 barrels/day this week and was down 45,000 barrels/day last week. So it is already going up based on that, the 4 week average and has been going up steadily for months with U.S. production now close to 9 million barrels/day. And no, it does not and will not take 3 months for shale oil to suddenly appear since it takes only 10-15 days to drill/complete and most wells hit their peak 1 month after completion. So it is already there but, decline rates do matter and was overlooked by the market for 2 years with all this newly found productivity magic. Stop drilling and you see quickly what happens to your production.

Now where this oil comes from remains unexplained but, there was a surge in net imports and commercial stocks that would explain the 14 million barrels. I guess that we will have to wait another week again to finally see some understandable trend.

Cardboard

I would encourage you to read the EI board on Ivillage. Will cover the topic in a way you will not see in the mainstream media. Nawar's post below...

http://www.investorvillage.com/groups.asp?mb=19168&mn=75471&pt=msg&mid=16842168


What we got here is a confluence of things taking place, seasonally, this is an inventory build up period, however this build up is being compounded by three powerful factors, the OPEC pre-deal production surge, US SPR sales, US refineries hoarding cheap crude amid fears of an import tax, this last item applies equally to speculators holding inventories in floating storage, by moving this inventory onshore, they insure premium pricing in case of an import tax, as a matter of fact, I wouldn't be surprised if inventories onshore outside of the US are being moved to within US borders as a way to protect against and benefit from a border tax, should BAT materialize.
 
In light of the above, I believe the US inventory numbers are highly distorted, and thus on global basis, its likely that we're seeing a net decline inventories. The IEA January OMR, the EIA STEO (released today) and the latest numbers from private research outfits such as Energy Aspects are uniform in their assessment that global crude inventories will shrink in Q1 based on current crude supply/demand data.
 
Going back to the EIA STEO, something that seems to have been lost in the fray today is the major revision the EIA did to historic and global demand data (upped by 900K barrels), which in turn greatly reduced the EIA assumed global supply/demand imbalance, from the EIA report:
 
The main effect of this change on the forecasted STEO liquid fuels market balances is that the higher consumption in 2014 raises the baseline to which the STEO forecast benchmarks. As the assumed annual growth rates for forecast liquid fuels consumption have remained unchanged for 2015-18, the higher baseline 2014 data raises overall consumption through the forecast period. With higher consumption only partially offset by additional production, the implied inventory builds (total global supply minus total global consumption) for 2015 and 2016 are smaller than previously forecast.
 
In the February STEO, EIA now estimates that global liquid fuels inventories built by an average of 1.8 million barrels per day (b/d) in 2015 and by 0.8 million b/d in 2016. Those estimates are 0.2 million b/d and 0.1 million b/d lower, respectively, than in the January STEO. EIA now estimates the global oil markets will be relatively balanced in 2017 with moderate inventory builds reemerging in 2018, as the rate of U.S. production growth increases. EIA forecasts implied global inventory draws of 0.1 million b/d in 2017 and a build of 0.2 million b/d in 2018.
 
Based on the above, the EIA, with a stroke of pen, just removed a total of 110m barrels from global OECD inventories, this is in addition to switching their forecast from 300K barrels build in 2017 to 100K withdrawal, which in turn translates into a 146m swing in their 2017 inventory outlook, going from a 109.5m barrels build in 2017 to 36.5m withdrawal.
 
There is noise and there is data, traders are fretting about  a questionable 14m barrels API build due to the factors highlighted at the top of the post, while the EIA just removed a total of 256m barrels from historic and projected inventories, you decide which data point is more important.
 
Nawar
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on February 09, 2017, 03:46:34 AM
Two news articles that also help explain what has been going on in recent weeks:

http://www.cnbc.com/2017/02/08/gasoline-demand-recession-indicator-sprung-up-in-january.html

http://www.cnbc.com/2017/02/08/oil-news-jump-in-us-crude-imports-to-reverse-in-march-goldman-says.html

And since both reflect the analysis of Goldman Sachs who was one of the biggest bears during the downturn and right. Then I believe that we can count on their data indicating that the fundamentals are still improving.

However, I can say that after 2 years of trying to decipher U.S. EIA data and looking for a turn that I am getting more than ready to see something unequivocally positive on fundamentals.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on February 09, 2017, 07:07:13 AM
Cant speak to all the speculation but in the past few days I have bought
some wcp, bte, and a little pwt, and today a big slug of mullen group.  All are trading postions, meaning I will shrink them as they go higher. 

Wcp and Bte are trading as if it was last winter.  All three o&g cos. are at worst, break even, at these oil prices. 

Seems to me, with all the moving parts in the global oil industry, it is only possible to know what is going on after the fact.  Similar to when the US government says there is no recession (2007), and then backdates the start of the recession a year later. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on February 10, 2017, 08:04:41 AM
From Acumen today. The outright incompetence or fraudulent agenda of the IEA is quite disconcerting....

Energy
 
Do you know what day it is?  If you said IEA Oil Market Report Day you would be correct.  Today’s report was another typical IEA report where demand was revised higher – historical and future, the MASSIVE draws on oil stocks was pooh pooh’d and the general commentary was softly bearish.  Ok, to the facts:
 
1.        2016 demand was revised higher by about 200k bbl/d to 1.6 mb/d with most of this baked into Q4 demand;
2.       2017 demand was also revised higher to 1.4 mb/d from 1.3 mb/d and still seems 100 or 200 k a day short (EIA is 1.6);
3.       Those demand revisions have been occurring steadily (i.e. each month) since Q4 once again highlighting the flaws in the data collection if you look at it in a nefarious light or the difficulty in collecting data if you have a benign view of these gov’t agencies;
4.       MASSIVE Q4 stock DRAW of 800k bbl/d, the largest in 3 years!  Readers of this note will not find this surprising because it was pointed out back in November when the IEA was projecting a massive BUILD in Q4 despite having two months of draws…..which was of course the consensus narrative that the oil markets are still in surplus.  “Glut” is the oft used word.  Remember, Q4 drew this heavily PRIOR to any OPEC cuts, in fact OPEC was jamming out as much production as possible at the time.  Still, though, the IEA is saying storage is building in oil at sea, despite a flat to backwardated
5.       OPEC compliance at 90% with overall global supplies off 1.5 mb/d in January.
 
So what does this mean?  Jan will be the 6th month of stock draws and those draws look to continue well into 2017.  Additionally, we see the same story from the IEA – demand revisions continue to occur.  My rule of thumb is demand grows ~1 mb/d +/- at $100 bbl and at $50 it is closer to 1.5 – 2 mb/d, all else equal.  What’s interesting is that the data is hiding in plain sight for all to see – my calls for a draw in Q4 wasn’t a hypothesis it was simple math and it was sitting in the data.  Stocks had been drawing since August yet the narrative from the IEA and the Street was still that the market is in surplus.
 
This oil market is fighting a huge wall of worry – OPEC compliance, shale resurgence, border adjustment tax, Hot Air taxes…..but if the data continues to trend as it has, even the IEA acknowledges that demand will exceed supply by 600k bbl/d this year.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on February 10, 2017, 11:28:52 AM
Martin King of GMP Research onside (below).  With OPEC cuts and the world already in a supply deficit as early as last July what happens when the shuffling of inventory barrels to North America ends and the true nature of the supply shortfall comes to pass? $100+ WTI & Brent?

There could be massive value creation in the holdings of certain oil reserves that the market & most if not all market participants blow off as worthless in the forever glut paradigm. Think oilsands especially. What is Athabasca, Baytex (Cda for free now), POE SAGD project worth at $100+ oil, GXE heavy and (any others with 10 bagger potential in such a scenario)?? What will happen to Canadian service co's in a market that realizes North American shale, tight oil is the only feasible short term response mechanism in a world that looks to be short supply for the next 3 years?


"Putting aside various reasons why we think U.S. supply growth
may not be as optimistic as some think, such growth in the U.S.
(and Canada) still pales in comparison to the supply losses that
are happening in the rest of the world. If we extract out the
U.S. and Canada from monthly Non-OPEC supply data, the
losses have been significant over the past six months, seeing
year-over-year supply losses in the range of 2.0 million bbl/d
(Figure 8). Allowing for what is going to be little capex
expansion outside of North America this year, further supply
losses are likely for at least the remainder of 2017. With
growth of U.S. supply this year being suggested at 200 to 500
thousand bbl/d, and add in a generous 300 thousand bbl/d for
Canada (which may be too high), and these gains are easily
outweighed by the supply losses in other Non-OPEC supplies.
Layering in the supply reductions from OPEC, and it is obvious
that the global market still has a serious supply problem on its
hands that can only be met by tapping into inventories,
whether those be in the U.S. or elsewhere.

To make a long story short, inventory draws are already under
way in other parts of the globe and we think it is only now a
matter of weeks to one or two months before we see
significant crude oil inventory reductions in the United States,
both as a function of lower imports and the potential for
greater crude oil exports to other parts of the world of its own
(potentially) growing supply. Either way, inventories in the U.S.
and elsewhere are going lower. We think that once this
message begins to sink in, prices will be headed for a break out
to the upside."
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on February 12, 2017, 01:00:16 PM
Curious for other people's take on the US rig count data... the story from the newsmedia seems to be that the the US rig count is rising so production will increase. Intuitively that obviously makes sense and so far that correlation has played out. However, given 2011 through 2014 averaged ~1900 rigs, at ~700 currently that would indicate to me that there may still be more oil being extracted than is coming online. A year or two ago we were hearing about all of these wells that were being plugged after they were done being drilled ("fracklog" i think was the cnbc term). Is it possible (and/or probable) that the increase in US production is due to the uncorking of these wells and drilled reserves are continuing to decline?

7 months old at this point: https://www.bloomberg.com/news/articles/2016-07-21/the-fracklog-isn-t-growing-anymore-and-that-s-bad-news-for-bulls
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on February 13, 2017, 06:27:22 AM
A drilling 'program' typically consists of 2-3 horizontal production wells drilled from a common pad, and a number of vertical injection wells. All the wells get drilled at the same time, and some of the production wells are immediately shut-in for future use. As the producing well depletes over time, or additional space becomes available in the collector facility, the shut-in wells are put into service. Point is a lot of drilling, does not equal immediate additional production.

Over the downturn new drilling was curtailed, but shut-in wells (frac log)continued to be put into service. Those now depleted fields need new injection wells to pressure up the field and minimize the water/gas/liquids production cut. It's additional (very cheap) injection drilling, but there's no big production spike - as its old wells that are producing.

We're now at the stage where new production has begun to come primarily from newly drilled production wells, and the frac log has begun to rebuild. It indicates rising supply, sustainable for some time - but its from a very low base level of production. The  numbers example I did earlier in this thread.

Rising NA shale production just means less NA imports; it has zero impact on depletion & supply cutbacks elsewhere in the world, and only marginally reduces the demand on that non NA supply. It doesn't become an issue until NA becomes a net exporter, and that would be primarily a political consideration.

For now everybody will just continue to sleepwalk, until the first of the inventory storage runs dry.
Then it gets interesting.

SD
 
 


   

     
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on February 13, 2017, 03:44:07 PM
It’s useful to do a little arithmetic….

Assume a 1000 shale oil wells were drilled & connected, on Jan 01, 2014 (3 years ago). They stay in production their entire lives, and on day 1 they test out at 100 barrels/month of 100% light crude - or 1,200,000 barrels/year (1000x100/monthx12 months). Over time; pressure drop, gas and water cuts deplete production at 35%, 40%, 45%, 50% per year. At the end of year 4 the average well is no longer commercial. This is most shale oil.

At the end of year 1 - production is down to 780,000 barrels/year (1,200,000 x (1-.35)). At the end of year 2 it’s 468,000 barrels/year (780,000 x (1-.40)). At the end of year 3 it’s 257,400 barrels/year, at the end of year 4 it’s 128,700 barrels/year. Year 1, 2, 3, 4, 5 depletion was 420000, 312000, 210600, 128700, and 128700 barrels/year. Point is; significantly less depletion every year.

Were we in 2014 (Year 1) an additional 420,000 barrels/year of production (via the drill bit) would have just kept Year 1 production ‘flat’ at 1,200,000 barrels/year. That same drilling addition of 420,000 barrels/year of production in 2017 (Year 4) would have raised Year 4 production to 548,700 barrels/year – a 130% increase. Point is; at the aggregate level, the impact of new drilling is currently being swamped by depletion on existing wells. Hence we see rising rig counts, falling production, & drillers talking about better prospects.
This makes sense if you assume that 2014 is Year 1 (Year 1 gushes, and Year 2 keeps it stable with year 1). But if you run that out with 3 years of 1000 rigs per year you see a steep increase in production (similar to what we saw). Then in Year 4 when drilled wells fall to 350 (1/3rd), production falls by ~20% (not dissimilar to what we saw, if you assume that not all wells are horizontal and decline this quick). Then in Year 5 to sustain production with year 4 you need 700 wells. If you assume that's where we are today, that's where the arithmetic seems to not line up with what we're seeing. We're seeing wells drilled of ~1/3rd of prior levels but production stable or increasing.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on February 13, 2017, 04:54:54 PM
Many analysts & the media have the US production response incorrect. As a friend says...

The increase by 500,000 in US prodn is not the result of shale! Both Bakken & Eagle Ford are still in decline while the Permian increase is aprrox. 200,000 bbls/d according to the EIA YoY. This is modelling revisions and GoM production a lot of which came online in 2015 & 2016 masking shale and other conventional declines. It is about to dry up a long with other long lead time projects. We have seen this in Canada with oilsands projects start ups over the last two years where recent oilsands cost of prodn of 80,000 flowing bbl would mean in todays environment those projects would get shelved. Many analysts are conflating legacy $100 oil decisions with $50 oil to suggest shale is responsible for the recent US prodn rise off the lows of 2016.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on February 21, 2017, 11:03:32 AM
In the end, the EIA called the very large increase in inventories caused by the counting of domestic production logistics (collection, storage and transmission) as compared to imports, “an accounting issue”.

http://blog.pricegroup.com/2017/02/21/manufacturing-break-out-the-energy-report-022117/?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+PhilFlynn+%28Market+Insights+%C2%BB+Phil+Flynn%29#.WKyOBFXyu6I

The crude oil price broke out to the upside as European Union manufacturing data stunned analysts and give us a surge in oil. The February PMI gauge of Euro zone manufacturing activity came in at 56.0, compared to 54.3 that was the expected read. The rally happened despite a roaring dollar that was pumped on Fed talk that is trying to tell the market that a rate hike may be on the table at the next FOMC meeting. We will get U.S. manufacturing data today as well as more Fed speak but for now, the charts on oil are speaking for themselves.

The move higher comes as traders are looking past the U.S. oil and gas glut and focusing on the rising demand expectations that have increased in part because of this strong data. As OPEC compliance to production cuts are good, the global oil market is well on its way to being balanced and as U.S. refiners come out of maintenance, we should see the global oil supply be less than demand. Even Russia has set up its own system to monitor compliance.

Our lonely prediction of a market supply balance and record compliance to OPEC cuts is coming true, setting the stage for what should be a very strong oil market for 2017 and 2018.  We had one of the most bullish calls on the street last year and turned out to be correct after a wild swinging and volatile year. Now many others are getting on the bull oil bandwagon as we are on target for oil to test near $73.00 a barrel this year.

Dow Jones reports that the Organization of the Petroleum Exporting Countries wants the recent initiative to cut production to be the starting point for a new era of cooperation in the oil industry, according to Mohammad Barkindo secretary general of cartel. Speaking at the International Petroleum Week being held in London, the executive said that it was very positive to see other non-OPEC producers such as Russia to agree to join in with cuts and this type of congenial approach was something that needed to be built on for the future well being of the industry. OPEC pledged to cut production by 1.2 million barrels a day on Nov. 30 last year in order to hasten the rebalancing of the oil markets.

We still must work through record U.S. petroleum supply and based on market action, that is expected to happen. U.S. oil exports, already at a modern historical high, will continue to expand and we should see product exports surge to near records as well. We still will see another 10 million barrels sold from the Static Petroleum Reserve here in the U.S and that will happen this month. It appears this oil will show up in commercial inventories when the buyer takes possession.

The Energy Information Admission may be giving the impression that supply may be a little bigger than it is. One loyal Energy Report reader says that one reason for the crude oil build is what is called “line fill” in the pipelines and storage tanks that were built by the MLPs to get the new shale oil production from the various fields to the refining markets. The oil is not “usable”. In fact as is the case for the past several years, refinery inventories are virtually unchanged. Meanwhile the change in pipelines and tankage storage fits the change in total inventories perfectly. That is where all the inventory build is and it will not go back to previous levels.

My purpose for writing is to gain public exposure on the confusion in counting and reporting of domestic inventories and the direct impact of that process on the size of inventories reported by the EIA. And very importantly, to extend this understanding to the markets. I am convinced this would go a long way toward dispelling the misunderstood claim of an oil glut in the U.S. and worldwide now, and in the future.

More importantly, I want to explain to you how EIA counts and reports domestic inventories of crude oil and how this process can and does grossly mistake inventory levels in a way that confuses investors and ultimately can lead to very bad and even harmful mispricing of oil – particularly in the huge and controlling paper market. It is simple, increased domestic production causes exponentially larger inventory “counts” as compared to oil that is sourced from imports. Where crude oil is sourced from has a huge impact on the size of inventory reported by the EIA. As domestic production increased in 2010 to 2015, inventory levels had to increase even though we were reducing imports.

And the EIA knows about all of this. They agree with me. I have communicated my concerns to the EIA and I am convinced they are sympathetic with my argument, but I am equally convinced they will do nothing about it. Sure, because of my “hounding” they removed that ridiculous outdated statement about “the highest inventories in 80 years”. Clearly, that does not contend with the issue that causes me great concern. That is why I am contacting you! In the end, the EIA called the very large increase in inventories caused by the counting of domestic production logistics (collection, storage and transmission) as compared to imports, “an accounting issue”.

If you choose to consider my claims of “misreporting” by the EIA, during my research regarding the so- called glut in domestic oil inventories that carried over to the entire non-OPEC market, I discovered a very interesting article written by John Kemp, in which he came to some of the same conclusions. But, in the end he wandered into a delta in the contango in the futures market, and the reporting issue lost impact. Here is his article, if you choose to read. Reuters wrote, “The basis of my argument is simple – in the last 5 to 7 years the midstream MLP industry has made a huge amount of capital additions totally purposed to get our new shale oil production gains to refining markets. Obviously, this means adding a lot of new gathering and transmission pipelines and along with them very large amounts of tankage/storage. I spent several years as a senior financial executive of two domestic and international trading companies and one domestic merchant refinery. When I saw this, it seemed to me that this would have the effect of adding a lot of inventory to our system. So, with all this talk about the oil glut from every “expert” you could possibly hear from, I decided to visit the EIA web site once again and check it out.

Kemp continued, “As you know, there are now two types of crude inventory; (1) refinery inventories, and (2) tank storage and pipeline inventories. When I looked at the data, I think it supported my suspicion as to why inventories are so high, and why they will not likely go back to prior levels. Along with the data history, the historical graphs paint an overwhelmingly convincing picture of how the growth in total inventories comes almost entirely from pipelines and tankage/storage associated with collecting and transmitting domestic production to refinery markets. To simplify the data presentation for this note, I looked at two data points – March 2011 and March 2016.  – in 3/11, refinery inventory was 93.9 mm bbl, while in 3/16 refinery inventory was 101.2 mm bbl; a very small increase of 7.3 mm bbl.   – in 3/11, tank storage and pipeline inventory was 240.8 mm bbl, while in 3/16 tank storage and pipeline inventory was 395.1 mm bbl; a very large increase of 154.3 mm bbl – explaining all the increase in crude inventories and quite frankly all the crude oil glut. The key to the problem is where the crude is sourced from. When one looks at these numbers, I think it makes it very clear that the inventory increase and oil glut was caused by the increase in domestic production and the new pipelines and tankage that were built to accommodate it. The heart of the issue is what the source of the crude oil is. This will significantly determine the relative level of inventory – and whether there’s an “oil glut” or not. Given the way the EIA accounts for foreign waterborne crude imports (which are counted at discharge near refinery tanks), I would guess they would be at the refinery gates in about 10 days’ max after being picked up as inventory by the EIA.

On the other hand, domestic production must go through gathering pipelines to storage at transmission locations or input sites. Once it is in storage at input, it is then transferred in 30 day batches starting at the beginning of the next month. But, the oil is not available to the receiver until the end of the month, at the output location. So, it could be in tank storage and pipeline inventories for 40 to 60 days (or more) IMO, and based on my experience – but it is clearly not usable inventory. But, the important factor is – this not USABLE INVENTORY, any more than the oil on the ships headed to discharge from distant foreign suppliers! Why would you count oil in transit and related storage for domestic production, but not count oil in transit on vessels from foreign ports even though the oil on board is likely owned by the refiner and the vessel is likely controlled by the refiner? Clearly, as we shift from imports to more domestic production for refinery demand, total inventory will increase dramatically, but usable inventory won’t change!

With the detail of that earlier email I sent to you, and your understanding of what is really happening, you have all that is needed to clear up the confusion about inventory levels in the U.S. As I was concerned, prices are not increasing to a level of acceptable returns for anybody. This talk about shale producers lowering their breakeven costs is just a bunch of undeserved chest pounding. As services start to raise their prices back to a profitable level, well costs are going right back up. And needed deep water projects are being canceled.

That should help put the so-called glut into perspective!
Thanks,
Phil Flynn
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: K2SO on February 22, 2017, 11:45:14 AM
Curious what the long-term oil bulls think about the argument presented in this article:
http://www.marketwatch.com/story/why-oil-prices-will-never-return-to-100-a-barrel-in-one-chart-2017-02-22

There's so much focus here on inventory numbers and other short-term indicators. For the longest time, it has made sense to be long oil because a growing economy would mean growing demand, and because it was assumed that we would use up all of the easily accessible reserves.

Now, with the upcoming Aramco IPO and the fissures within OPEC, it seems to me that oil producing countries are acting as if they are sitting on a depreciating asset, and are trying to monetize it as quickly as they can.

Now assuming the author's interpretation fo this chart is correct, apart from insuring against the tail risk of a Saudi overthrow or WW3, is there any reason for a long-term value investor to own oil stocks?

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on February 22, 2017, 02:20:38 PM
"API reports inventory declines in crude oil, gasoline: sources. The American Petroleum Institute late Wednesday reported a 884,000 barrel decline in U.S. crude supplies for the week ended Feb. 17, according to sources. Analysts and traders polled by The Wall Street Journal expected a consensus gain of 3.4 million barrels. API also reported a decline of 893,000 barrels of gasoline and a 4.3 million barrel decline in distillates. Analysts expected a decline in gasoline stockpiles of 1.2 million barrels and a decline of distillates of 400,000 barrels. The API report precedes the more closely watched Energy Information Administration report on Thursday. After the report, crude oil for April delivery rose to $53.90 a barrel in electronic trading, following a day in which crude futures snapped a three-session winning streak to settle at $53.59 a barrel."

About time!!!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on February 22, 2017, 02:51:36 PM
Weather there is a giga-trillion barrels of oil or not underground is irrelevant. It is how much is available to markets right away, at what price and how much people are willing to consume at that price?

Ask the same economist (LOL) working for BP why oil traded at or above $100 for so many trading days over a 7-8 years span? And how much of these same extractable reserves, with no mention of cost at all, did increase in percentage over the past 2 1/2 years?

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on February 22, 2017, 03:03:08 PM
Curious what the long-term oil bulls think about the argument presented in this article:
http://www.marketwatch.com/story/why-oil-prices-will-never-return-to-100-a-barrel-in-one-chart-2017-02-22

There's so much focus here on inventory numbers and other short-term indicators. For the longest time, it has made sense to be long oil because a growing economy would mean growing demand, and because it was assumed that we would use up all of the easily accessible reserves.

Now, with the upcoming Aramco IPO and the fissures within OPEC, it seems to me that oil producing countries are acting as if they are sitting on a depreciating asset, and are trying to monetize it as quickly as they can.

Now assuming the author's interpretation fo this chart is correct, apart from insuring against the tail risk of a Saudi overthrow or WW3, is there any reason for a long-term value investor to own oil stocks?

Do you suppose that technically recoverable oil is meaningful?  Pulling a similar chart ten years ago would have revealed nearly the same amount of technically recoverable oil but prices were at 100 per barrel.  We were talking about peak oil on this boards predecessor.  I was arguing that the entire planet had been covered with swamps for hundreds of millions of years, and that we would never run out of oil.  Others disagreed. 

Medium term oil prices have nothing to do with the amount of oil that can be recovered.  They have to do with the amount of investment in producing the commodity.  If companies and countries are gun shy about investing in large long term projects then the price will rise.  Of course then we will be in an oil shortage situation.  Back and forth.  Its how commodities behave. 

In the mid 2000s we had a shortage of metals of all types.  People were stripping copper from abandoned houses.  Companies leaving cable spools in my neigbourhood would write "no copper" all over the spool so it wouldn't be stolen.  Steel was being stolen and shipped to Asia.  Then suddenly we are in a glut of every common metal after the financial crisis.  So no one explores,or builds, or upgrades their refining capacity for 10 years and then we will get another shortage.  Oil being more of a depleting asset operates on a tighter cycle than metals.  When oil prices rise they have a negative effect on economic production.  Arguably, according to Jeremy Grantham, with whom I agree, the 2008 financial crisis was partly caused by high oil prices.

We are not talking a buy and hold forever situation here.  I will be out of oil stocks long before the price reaches 100, if it does. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on February 23, 2017, 07:39:42 AM
Yet another wild day in oil.   And now a big EIA report to surely shake things up even more.  Data is getting so noisy that I am attributing that to a fundamental change that is working its way through the system.

Still buying some beaten down Canadian E&P.  Only place I see value right now.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on February 23, 2017, 08:10:55 AM
The argument that much of the inventory is unusable line-fill is a good one - so long as price continues to rise.
When price falls there is incentive to keep the lines full, but draw down the tank storage via physical delivery on contracts.

Spot price is for delivery, now....

It means that when US lines & tanks are full, & the expectation is rising prices; the US spot price is very sensitive upwards. If you want more oil now, your choices are to either pay up - or get it from offshore. With offshore cutting supply overall, & diverting that supply to Asia versus the US, it really means pay up. The GS call for higher prices.

Once the US lines & tanks are full, US shale production also does not matter - as it cannot get to market.
To make it matter the US has to start tidewater exports (creating space in the tanks); adding pipeline simply creates more unusable line-fill. Hence we can have lots of new/replacement pipeline, and new drilling (replacing depletion) - without it really impacting price.

More critically, no-one can afford a sustained decline in price - that starts the tanks emptying.
Hence there is a both a floor price, and a built-in march upwards to offset cost pressures. The price today rising in small increments for quite some time until we get to the USD 70 that GS is calling for.

It adds up to a great time to be in oil ...

SD


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on February 23, 2017, 08:13:23 AM
EIA confirms mostly API with a small build of 0.6 million barrels vs 0.9 million draw but, larger decline in products more than make up for it.

Small increase in Lower 48 States production of 17,000 b/d which is good. No oil rush at $54 WTI...

But, big eye popping reduction in net imports of 1.39 million b/d. Net imports for the week at 6.075 million b/d is the smallest that I have seen in a long time.

So OPEC and non-OPEC cuts seems to be kicking in with fewer vessels arriving. We now need to see a few more weeks like that.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on March 08, 2017, 06:55:49 AM
Eye popping API build.  Doesn't make too much sense.   Waiting for EIA.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on March 08, 2017, 07:43:08 AM
U.S. COMMERCIAL CRUDE STOCKS rose +8.2 million bbl to 528 million bbl last week (SPR release accounted for just 0.251 million bbl)

paired with a huge gasoline stock draw.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 08, 2017, 07:48:08 AM
API was both too high on oil build and too low on product draws.

With EIA saying 8 million barrels build and gasoline down 6.6 million barrels, distillates down 2.7 million barrels and others, we have a net petroleum products inventory down 2.4 to 2.6 million barrels for the week. That is a plus.

Interesting to see some selling from the SPR of 300,000 barrels. I vaguely recall some decision from Congress but, didn't think it was this early.

Net imports were back up 385,000 barrels/day or 2.7 million barrels for the week and refineries consumed 172,000 fewer barrels/day or 1.2 million barrels for the week.

So the whole eye popping oil build seems explainable by less production from refineries that are entering their maintenance season and switch over to Summer fuels and an increase in imports. The latter is getting problematic. Where is all that oil coming from with OPEC and non-OPEC cuts now into full gear? Compliance is apparently good, we are 3 months in and vessels at sea should have normalized. I have noticed that Nigeria is up a lot in a chart that I saw this week which could help explain some.

Lower 48 States production has continued to climb with 46,000 barrels/day this week and this is getting a bit high for my taste. It appears that a lot of that production is being exported with U.S. refineries being saturated or unable to process all that very light oil. It is still a negative on the supply side on a Global basis.

Cardboard
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on March 08, 2017, 11:28:10 AM
Interesting day to say the least.  Seems the high ratio of long contracts finally got torched.  Now where does it go next? Yet again OPEC needs to step up and assure everybody the cut deal is solid.   Or we are going to extend cuts.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on March 09, 2017, 08:32:08 PM
This is a good post on IV. Huge market with no oversight. Inventory manipulation could make billions for those controlling the flow & know the truth behind it.

http://www.investorvillage.com/groups.asp?mb=19168&mn=80482&pt=msg&mid=16943938


Boy, I think this is one of the best examples of market manipulation I've seen
in quite a while.
 
The numbers are absolutely huge.  With consumption somewhere around 100M bbl/d globally, a dollar change in price represents a $36B annualized change in value.
 
And you throw in paper "future" barrels and it goes off the charts.
 
But with global players and trillions of dollars moving around, how they do it is absolutely remarkable.  Probably the real advantage they have is absolutely no oversight and no fear of punishment from insider trading, collusion and all the other SEC no no's.
 
Throw in electronic trading on multiple exchanges globally that no government oversight agency can possible keep up with, corrupt governments involved and personal greed and bingo.
 
Maybe from a macro sense supply and demand matters, but realistically unless you are way out of balance, it really doesn't.  We can track ships, storage, consumption, depletion rates, terrorist attacks, etc. to the tenth of a barrel but realistically you are still throwing at the dartboard.
 
The whole stock market is rigged and unless you are an insider, you are an outsider.
 
GLTA .. you will need it.

Meanwhile, Mexico and Venezuela

While the shifting stored oil barrels game continues, in the real world, Mexico's production for January was down 240,000 BOD YOY, with another 100k to 150k BOD drop expected, this year. In Venezuela, as of Feb. they were about 13 million barrels in arrears, in terms of oil for loan payments, to Russia and China. Rosneft has a 49.9% lien on Citgo, as collateral for loans, and may press to take ownership if/when PDVSA defaults this year. PDVSA claims they'll average 2.5 million BOD production this year, but they haven't been above 1.8 million BOD in exports for months, and can't pay for diluent, or to have export tankers cleaned, so they can begin their voyage. Funny thing : you have to dig in the weeds to get this information, which is mostly absent from the main stream financial media.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 10, 2017, 05:31:52 AM
Reminds me of good ole John Embry on BNN in the early 2000's when he was asked if gold would reach $400 an ounce. And he would reply: "Probably not on this trip."

It was so discouraging to be a gold investor back then, it was very similar to oil now. There was also a lot of discussion around manipulation. And a group called GATA was formed and sued large banks such as JP Morgan. Even Embry himself left Royal Bank because they did not like him mentioning that gold was being manipulated by banks and he joined Eric Sprott which in my opinion really helped put Sprott on the map.

Controlling oil sentiment is really not that hard when you think about it. You have to tell people what factor to look for, create illogical or make scratch your head type data and wait for the perfect opportunity to present it.

The financial media kept on saying in recent weeks that there was a large long contract position held by speculators. And for a few years now, they have been talking endlessly about U.S. oil inventories. Then all of a sudden, we have an eye popping 8 million barrels oil build while it should have been logically going down based on OPEC cuts. And voila, you had the perfect conditions to create a large profitable short downswing in oil this week.

How often did you hear mentioned this week that net oil products actually went down 2.5 million barrels in the U.S.? Or any indication about fewer loaded ships now being at sea explaining the large onshore build?

And how hard and painful is it to manipulate the media? All the big guys have to do is to go have lunch with a babe such as Jackie Deangelis, give her your side of the story, pay her lunch, maybe offer her a Louis Vuitton bag or tickets for some event? She may or may not say exactly what you want on TV but, it was a cheap investment and likely pleasant experience. Ever wondered why John Kilduff gets so much airtime?

Now this will work as long as we are in "balance" according to the poster. I see 3 large supply events in the oil market and they should all be due this year:

1- Venezuela is on its last $10 billion and it is burning fast. These guys can't be saved by $55 oil, not even $70. If civil war or regime change occurs, it won't be good for their production.
2- Nigeria has been really ramping up production with a more peaceful situation in the delta. However, the president is outside the country to address major health issues, the economy is doing terrible and you still have a divided population. What happens if sudden elections are required?
3- Iran is not on Trump's list of friends and they keep on defying the U.S. with missile tests, harrassing U.S. vessels, etc. Even without confrontation, new sanctions are almost unavoidable and if U.S. businesses can't do business there, it makes it very hard for European businesses too due to banking. Means fewer outlets for their oil, tougher to insure shipments, etc.

While previously it was worrisome to be an oil investor. Now you can own very cheap oil stocks with very solid balance sheets, good hedges in place and cash flow positive at $40 oil. Even if oil was to go in the $30's for a few months, they would still make it without any trouble. So while it is unpleasant to be hit like this week with declining share prices, you at least know that you will make in through.

Cardboard 

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on March 10, 2017, 06:44:18 AM
Yeah, there is alot of manipulation as always. 

There is alot missed in any analysis.  Prices to produce from Us and Cdn shale are cheaper than they were.  But for how long?  They have been going after the low hanging fruit for the past two years.  At some point prices for production rise in NA.  Sharper Dingaan discusses this in the PWT thread.  My read is that getting labour back to shale is proving difficult.  The high skill labour force has moved on to other more stable industries. 

WCP, my largest O&G holdimg reported GAAP, EPS profits for the 4th Q 2016.  BTE, is looking better, but still speculative, with no GAAP profits anywhere to be seen, but they are making slow progress on their debt.  PWT reports next week.  I dont expect EPS profits yet but they should be in materially better shape. 

The price manipulation allows the small investor good entry points, or re-entry points.  I would expect Oil to whipsaw more. 



Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 10, 2017, 07:20:58 AM
"My read is that getting labour back to shale is proving difficult.  The high skill labour force has moved on to other more stable industries."

I don't know about the Permian but, this is definitely true in Alberta. If you want confirmation, listen to ESN yesterday's conference call. And costs are going up. Already 10% and negotiating for another 10% in Q3 or for the winter drilling season.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on March 10, 2017, 07:37:59 AM
There is some commentary on the IV thread regarding an IT auditor who couldn't confirm the EIA data. While there were accurate data files he was able to confirm, there was other data that didn't come from them. Not that different to financial statements with 'additional information' in them - that doesn't tie back to the trial balance.

It comes back to boots on the ground; look at the rig counts, day rates, local production area problems, the baltic dry, etc. and make your own mind up. Rating agencies have long claimed that sub-prime mortgages look like investment grade - & still do so today.       

Todays o/g market reminds me very much of the old gold market in the $300-400/oz range, when all the producers were going to huge mines & selling production forward - & it was that forward selling keeping the price down. It went on for years, & essentially terminated in a crash; but post crash - $3000-4000/oz was pretty common.

This is when the easy $ are made.
Once the trends become established, it gets a lot harder.

SD
   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on March 10, 2017, 05:22:57 PM
How often did you hear mentioned this week that net oil products actually went down 2.5 million barrels in the U.S.? Or any indication about fewer loaded ships now being at sea explaining the large onshore build?

It is interesting to compare these two charts:
Total crude oil and petroleum products: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTSTUS1&f=W
Total crude oil: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRSTUS1&f=W
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on March 12, 2017, 12:22:20 PM
Interesting stats:
Quote

The oil market is showing signs of closer balance between supply and demand in early 2017. Although estimates of January and February crude oil production will remain unconfirmed for another month or two, voluntary oil supply reductions by members of the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers (following agreements in late 2016) appear to be achieving a high degree of compliance.

EIA estimates that global oil inventories fell at a rate of almost 1.0 million barrels per day (b/d) in February, which would be the third-largest monthly decline rate since the beginning of 2014. Global economic activity continues to remain robust and is supporting oil consumption growth. However, the outlook for the oil market remains uncertain because of supply developments. While supply from non-OPEC countries in the second quarter of 2017 is expected to be close to its level from the fourth quarter of 2016, OPEC supply is forecast to decline during the same period. Lower OPEC market share could complicate whether its members will renegotiate voluntary supply reductions for the second half of 2017. EIA expects increases in non-OPEC supply, particularly in the United States, to limit upward oil price pressure through much of 2017.

In the United States, total commercial petroleum inventories decreased by 7 million barrels in February, the first February decline since 2013, driven by declines in petroleum products. The comparatively large draws in petroleum inventories likely contributed to the WTI 1st-13th spread increasing by 85 cents/b from February 1 to settle at -$1.50/b on March 2. As refineries return from maintenance in the second quarter, crude oil inventories could decline, which could put further upward pressure on the 1st-13th spread.
https://www.eia.gov/outlooks/steo/marketreview/crude.cfm
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on March 14, 2017, 08:21:54 AM
Another wild day in oil.  Imagine that.   Volatility is back!  Storage reports tonight and tomorrow will only make the volatility increase. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 14, 2017, 08:50:12 AM
The war on oil never seems to end and the shorts are really in control right now.

They took the OPEC report this morning which showed good compliance in my opinion and also pointed out to an increase in demand for 2017 and they really narrowed down the focus on non-OPEC production climbing 400,000 b/d this year.

It is quite possible that we will see a large draw tonight from API. There has been such large swings in recent weeks that anything is possible. But, with what they are doing this morning, if we have a build tonight of any size, they will pound this down again tomorrow...

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on March 14, 2017, 01:55:26 PM
A very stong case can be made that there has been significant  under investment for future potential production and there will be eventually cyclical forces from the cost side that will creep up with time. Absolutely. But isn’t there an underlying tidal wave of structural/technological improvements that even « caught off guard » the captains of the industry?
Necessity is the mother of inventions.
« Saudi Arabia will not bear the burden of free riders ». Does not sound like bluff to me.
Did any here ever try to save somebody who is drowning?
Do not expect cooperation or rational behavior.
If you get grabbed by a party who is willing to go after cash flows with little regard to long term fundamentals, better have deep pockets.
Opinions vary here, but crunching some data/numbers, I submit that U.S. breakeven costs on unconventional oil will determine the high end of long-run price of crude, even if they are relatively marginal (not swing) producers.
The « nationalized » producers are fighting for survival here. I’m only a small fish in the pond (looking from outside in) but I am amazed at the incredible intensity of the competitive rivalry. The competitors are showing their teeth. I wouldn’t want to be stuck in the middle of this.
Time for another showdown?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 14, 2017, 02:19:57 PM
"API data show an unexpected decline in U.S. crude supplies: The American Petroleum Institute late Tuesday reported a decline of 531,000 barrels in U.S. crude supplies for the week ended March 10, according to sources. That contradicted expectations for an increase of 3.5 million barrels forecast by analysts polled by S&P Global Platts. The API data also showed a fall of 3.9 million barrels in gasoline supplies and a drop of 4.1 million barrels in distillates, sources said. Supply data from the Energy Information Administration will be released Wednesday morning. April crude was at $48.45 a barrel in electronic trading, of $47.72 on the New York Mercantile Exchange."

So last week we had a 2.5 million barrels decline in overall oil products and this week we are looking at 8.5 million barrels depending on how kerosene, other oils are doing.

Tomorrow, this will be ignored. They will put our attention on the terrible storm in the Northeast and that demand is gone forever...

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on March 14, 2017, 04:01:12 PM
Just for fun ... I looked at the last 12 months of API data.

Notable is that US inventory rose a net 26.8M over the period. The sum of the actuals over the same period is 24.8M, & the sum of the forecast is 29.79M.

It implies that the forecasts are fairly accurate, but there are significant methodology differences generating 'noise' - & the market is trading that noise. Opportunities  ;)

SD 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 15, 2017, 02:46:40 AM
How misleading is the IEA?

"Demand for oil is expected to drop from 1.6 million barrels a day last year to 1.4 million barrels a day in 2017, the International Energy Agency said in its report, raising further problems for producers as they try to ramp up prices."

GROWTH in demand for oil!!! Still need 1.4 million barrels more per day than in 2016 or a growth in demand of over 1.4%.

With the amount of attention that a lot of people spend on reading properly these days this can fool a lot of folks.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on March 15, 2017, 08:47:22 AM
From recent report:
"Last November, OPEC orchestrated an impressive feat: corralling all (or nearly all) of its members to sign on to relatively aggressive production cut deal, and then actually convincing everyone to follow through on those reductions beginning in January. OPEC’s estimated 94 percent compliance rate defied the cartel’s own history of cheating and mistrust, and OPEC has taken around 1 million barrels of oil production per day off the market."

Perhaps a good result is based on the big picture AND reading the footnotes/fine prints.
Some here clearly have better grasp of the minutiae related to the global oil and gas sector. I respect that.

However, compared to, say last year at the same period, aren't there essential ingredients for a costly price war in place right now?
What happens next, as always in this area, is highly uncertain.

Trying to read between some lines here, isn't there huge spare capacity in the critical spaces? (click max for long term view)
https://ca.investing.com/economic-calendar/baker-hughes-u.s.-rig-count-1652




 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on March 21, 2017, 10:22:46 AM
Should be an interesting 24 hours in oil yet again.  Will the cuts be felt tomorrow in the storage report?  If we show a big build, watch out.....  oil market needs to start seeing inventories come down, almost 3 months into to the cut.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on March 22, 2017, 10:47:49 AM
Quote
API data show U.S. crude supplies up 4.5 million barrels: sources

The American Petroleum Institute late Tuesday reported a climb of 4.5 million barrels in U.S. crude supplies for the week ended March 17, according to sources. The API data also showed a fall of 4.9 million barrels in gasoline supplies and a decline of 833,000 barrels in distillates, sources said.
So crude +4.5M and total petroleum -1.2M. Oil prices down as a result. Is there a good reason for everyone to focus on the crude rather than the total petroleum products?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on March 22, 2017, 10:55:03 AM
Quote
API data show U.S. crude supplies up 4.5 million barrels: sources

The American Petroleum Institute late Tuesday reported a climb of 4.5 million barrels in U.S. crude supplies for the week ended March 17, according to sources. The API data also showed a fall of 4.9 million barrels in gasoline supplies and a decline of 833,000 barrels in distillates, sources said.
So crude +4.5M and total petroleum -1.2M. Oil prices down as a result. Is there a good reason for everyone to focus on the crude rather than the total petroleum products?

Well now oil is up all of sudden.  Just another wild Wednesday in trading paper oil.   The market is driving blind.  Untrustworthy data, untrustworthy research reports, untrustworthy producers, coupled with tons of emotional traders that don't look past today and tomorrow. 

I am bullish on oil almost only because of one reason.  History.  This is a cyclical industry. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 26, 2017, 12:43:02 PM
http://www.cnbc.com/2017/03/26/opec-meeting-kuwait-output-cut-compliance.html

A recommendation made to extend cuts by 6 months should carry a fair bit of weight in the oil market this week. And also Iraq staying in line.

That quote is also interesting:

"However, the end of the refinery maintenance season and noticeable slowdown in U.S. stock build as well as the reduction in floating storage will support the positive efforts undertaken to achieve stability in the market," it said.

Who knows by how much floating storage has been reduced, but these guys must have a good idea. There was also a massive long position in the futures market held by speculators and it probably contributed a lot to the liquidation and sharp price decrease of the last couple of weeks.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on March 27, 2017, 04:40:29 PM
I thought this piece from seekingalpha was pretty interesting in summing up some of the constructive data.

I'm amazed that VLCC rates are that volatile!

https://seekingalpha.com/article/4058254-warren-pies-bullish-oil-oil-markets-daily
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on March 27, 2017, 06:28:08 PM
Keep in mind that those are spot rates for VLCCs.
Part of the reason the rate is falling so fast is because the tankers are emptying and not being refilled, and those tankers are delivering because the purchase + prospective storage cost is > the forward curve. If you want to keep the storage option (pay the standby fees) ... you need the forward curve to rise.

At some point the tankers will quietly start filling again in order to drive up the forward curve, against forward sales 2-3 months along the curve. A string of sizeable inventory draws & the upcoming summer driving season should be more than enough.   

It could be an interesting summer.

SD   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on March 29, 2017, 09:12:06 AM
Thought the EIA report this morning was good for the bulls with high gasoline and distillates draws. And the oil build adjusted for SPR sales was tiny at 100,000 barrels.

Gotta love the government for dumping oil at these prices from the SPR or 18 million barrels this year:

https://www.eia.gov/todayinenergy/detail.php?id=29692

What they seem to forget is that a lot of the oil produced in the States from shale is unusable for U.S. refineries and a lot of it is being exported with 1 million barrels this week. Where is the heavier grade going to come from with Venezuela continuing to head downhill and a conflict with Iran always possible?

They should sell these reserves when crisis hit vs trying to use it to balance their budget.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on March 29, 2017, 10:36:44 AM
We would suggest to you that they are relying on deliveries from the newly approved Keystone line. There might be some volatility for a period (light oil for heavy oil tanker swaps), but nothing long term.

We would also suggest there needs to be some light oil refinery additions, as well as a gas compression facility. The shale output needs a structural place to go, and the Exxons control in these fields - would be materially improved were there vertical integration. It will be a while yet, but it seems pretty much a given.

SD
 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on March 29, 2017, 02:14:00 PM
Quote
The UAE will be cutting oil production by more than 200,000 barrels per day this month as part of its commitment to Opec agreement, the country’s energy minister said in Abu Dhabi on Tuesday.

“This month it [production cut] is going to be close to 200,000 and also little bit more. Next month and the moth after, we are going to cut production by more than 139,000. Over all, for the six months, we are committed to the agreement,” Suhail Al Mazroui told reporters on the sidelines of the Global Manufacturing and Industrialisation Summit.

“The agreement is working well and the current increase in inventories is due to maintenance in the US markets. We know that maintenance is going to be over and we will see drawdown in the inventories in the second half of this year.”

Asked whether he expects higher oil prices in the second half of the year, he said they are more concerned about balancing oil markets and attracting investments rather than oil price.

“I see improvement in the supply and demand which will lead to the price. However, we are not concerned about the price. We are concerned more about balancing the market and attracting investments. We are achieving as we move.”
http://gulfnews.com/business/sectors/energy/uae-plans-more-production-cuts-in-line-with-opec-deal-1.2001947
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on April 06, 2017, 10:21:56 AM
http://boereport.com/2017/04/06/flood-of-u-s-oil-to-asia-comforts-tanker-market-trashed-by-opec/

Why do we get the feeling that the Chinese BOP issue with the US is going to be at least partially mitigated through purchases of crude? Exports from the west coast, imports into the east coast, with the difference coming primarily from US shale & Canadian imports.

Elegant.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on April 12, 2017, 04:51:30 AM
Oil is bouncing back nicely. 

Bought some Whitecap on the downturn a couple of weeks ago.  It is now among my larger holdings. 

BTE is insanely cheap, if one believes oil will get above, and stay above $55.  A big if I suppose.  I may add a bit if it doesn't move up today. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on April 12, 2017, 06:11:58 AM
One of the cheapest oil stocks of them all is PPR in Toronto. Good growth, good balance sheet, good hedge book, low decline rate, trading quite a bit below PDP NAV and at around $20,000 per boe/d.

I didn't like their last 2 share issuance, but it is likely it for a while. However, the last acquisition was a pretty good one with lots of land potential too.

They also have a large hidden asset or acreage in Quebec. This was worthless with the drilling moratorium but, this has changed. If you compare the acreage and valuation of Questerre with these guys it is quite compelling.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on April 12, 2017, 06:51:04 AM
Look a little closer at the WCSB drillers.
Lot of rigs have come off recently because the ground is still soft, but it's drying out pretty fast.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on April 17, 2017, 08:01:47 AM
Have now finished building Cdn heavy oil portfoli0. Small cap Gear. Core mid cap position BTE. Core large cap CVE. High beta/high risk options on heavy oil in shares of Athabasca and Pengrowth...

Cdn Heavy Oil Differentials Are Narrow In 2017, Likely Also Beyond

Posted on April 11, 2017

We weren’t surprised to see Cenovus step up to buy high quality heavy oil assets or strategic investors take control of Northern Blizzard given that the fundamentals driving narrower than expected Cdn heavy oil differentials in 2017 are likely to continue in 2018 and beyond. Cdn heavy oil is trapped and has no option but to sell to the US. But the US is effectively trapped and primarily relies on Canada, Mexico and Venezuela (to a smaller degree Colombia) for its heavy oil supply. And with Mexico and Venezuela continuing to be in decline, the basic supply demand fundamentals continue in a positive trend for Cdn heavy oil. Volatility and seasonality will still be here, but the positive trends mean it is less likely to see Cdn heavy oil differentials blow out for any extended period or to the same $/bbl magnitude as seen in 2014.


Its been a good start to 2017 for Cdn heavy oil differentials. We highlighted this in our Jan 16, 2017 blog “Narrowing Cdn Heavy Oil Differentials, Even Before OPEC Cuts Reduce Deliveries To US” [LINK]. By mid-Jan, Cdn heavy oil differentials had already narrowed by ~US$2.50/b to US$12.50/b. In the last two weeks, Cdn heavy oil differentials dropped below US$10/b driven, in particular, by the reported shut in of heavy oil at ConocoPhillips Surmount heavy oil that was caused by Syncrude’s shut in and a lack of synthetic oil to blend for shipping. Heavy oil needs to blended with a diluent (Syncrude’s synthetic oi is one, condensate is another) to meet pipeline specs.

Rest here...

http://www.streamasset.ca/blog/2017/04/11/cdn-heavy-oil-differentials-are-narrow-in-2017-likely-also-beyond/

The American exit of oil sands continues...

http://af.reuters.com/article/energyOilNews/idAFL1N1HL0PQ?sp=true

UPDATE 2-Chevron exploring sale of Canada oil sands stake worth about $2.5 bln -sources

Commentary....

The move comes as international players are pulling back from the Canadian energy market, particularly the capital intensive oil sands. A range of factors are contributing to investor apathy toward Canada, including weak oil prices, the higher cost of Canadian operations compared with cheap U.S. shale plays and limited export pipeline capacity out of western Canada.

The problem is the economics of Canadian LTO and cold flow heavy oil are being ignored and lumped in with oilsands. The majors all rushed into the oilsands @$100 oil because they sold investors on the longevity of the play to boost reserves. Now they have gone the other way ignoring reserves and focusing more on short cycle plays to boost production. The majors are trying to keep the generalist global investor in their stock with a hyped play rather then with good decisions. In 2015 the majors had one of the worst years on record only replacing 75% of their reserves and ExxonMobil reported oil and gas reserves dropped by 19 per cent last year. Investors should be bailing but instead they are buying into this Permania which the majors have created themselves be paying these huge premiums.

Selling under-valued Canadian assets to buy inflated Permian assets probably wont end well for the majors or their shareholders.

You have to ask if $40 oil was so profitable for the Permian why weren't the sellers drilling this inventory in 2015-2016? We are talking about the who is who of families who have been in the Permian for decades Yates, Bass, Clayton Williams who sold out.

All the Permian M&A has come at the expense of M&A in the Bakken, Marcellus & Conventional US plays which are all down. Perhaps the sentiment in Canadian OG names has been hit the hardest with the added BAT hangover.

Think over next 12 months we will see the Permian unravel with the hype not matching results.

 $60 oil should bring Canadian names greater US attention as growth profile with valuations becomes so compelling
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on April 18, 2017, 10:26:39 AM
Another wild day approaching with tomorrow's report.  Last week's draw was sold off, likely on the increasing shale output.   Seems like consensus is for another draw tomorrow but again there will be continued shale output growth.  So same as last week.  But I bet this week, we see the report get bought.   Crazy oil market

Going out on a limb, but I expect around $55 oil until the May meeting.  Then it will be a tough choice for the gang.   Feel like market will decide whether they extend or not.  $50 oil, they extend (cannot allow it to dive).  $60 oil, they will not extend (will say market is balanced)

 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on April 19, 2017, 07:55:04 AM
Energy View-FPA Capital

Energy – a sector that had generated higher returns for us in 2016 – struggled in the first quarter of 2017. Russell 2500 energy companies were down 9.12%, representing 4.26% underperformance vs. the index. We view the sector’s weakness as a speed bump on the road to market rebalancing and higher oil prices. Our conviction in this thesis remains firm, as the Organization for Economic Co-operation and Development (OECD) inventory (the proxy for global storage) draws suggest that the market has been under-supplied since Q3’2016. Additionally, OPEC and 13 additional countries have accelerated reductions in excess inventory by largely complying with their November agreement to cut production by 1.8 million barrels per day (bpd). Meanwhile, global demand has been consistently revised upward.

So why have oil prices declined during the quarter? There are a few primary reasons, all of which we believe will prove short-lived. The first is simply investor impatience surrounding U.S petroleum stocks, which we believe remain stubbornly high relative to the rest of the world. We would note here that weekly imports have been trending downward since January 11, just as refining utilization is set to ramp up after a particularly heavy maintenance season. At the same time, OECD Europe & Asia Pacific stocks have been falling sharply toward their respective long-term averages since mid-2016. The second issue is anxiety about a resurgence in U.S. shale supply. Indeed, the domestic rig count experienced a notable acceleration since November, while crude production has bounced back by over 600,000 bpd over the last five months. Interestingly, The Energy Information Agency’s (EIA) data show that more than 100% of the increase from September to December 2016 came from Alaska and federal offshore projects, not from the lower 48 states. Moreover, U.S. production alone is simply insufficient to offset the onslaught of OPEC production cuts, limited OPEC spare capacity, historically muted production gains outside OPEC and the United States, multiple years of lower global capital investment, natural production decline rates, and, yes, steadily growing global demand. Further, there are multiple underappreciated headwinds to U.S. production growth, including service bottlenecks, levered balance sheets, potential imbalances between high- and low-density crude supplies, and a limited footprint of tier-one core acreage. Finally, many investors worry OPEC will scale back recent cuts in response to surging U.S. shale production. We believe a Saudi-led extension of the cuts is more likely than not, because the International Monetary Fund estimates that the kingdom needs at least an $80 oil price to balance its (slimmed down) budget, and because of Saudi Arabia’s publicly acknowledged goal this year of reducing global storage levels back to their five-year average. Moreover, OPEC sources have indicated that the group’s members increasingly favor an extension beyond this June.

Let’s end with some simple math to better illustrate why those concerned with today’s oil market concerns may be missing the larger picture. On the demand side, the International Energy Agency expects global oil demand to grow by 6 million bpd from YE2016 to YE2022. On the supply side, the EIA estimates that OPEC currently has 2 million bpd in spare capacity (just 3% of global supply); U.S. production is expected to increase by just 800,000 bpd by YE2018; and Non-OPEC ex. U.S. production growth has not budged since 2010 while investment has fallen off a cliff. Add in a supply shock emanating from Venezuela, Nigeria, Libya, or elsewhere and the situation becomes more precarious, and yet constructive for higher oil prices. These are the asymmetric scenarios that we look for, and we are confident that our high quality energy companies are well positioned to benefit in this environment going forward.

Source: Robert Rodriguez FPA Capital
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on April 19, 2017, 09:10:30 AM
Neutral report to me.  But nothing big to reinforce cuts/re balancing, so bearish in market eyes.

Should be an interesting upcoming 30 days or so with upcoming extension talk.  Think the right move is to persevere short term weakness and buy some distressed value oil names.   Can anyone say Canadian E&P?  I will have to go way overweight unfortunately. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on April 19, 2017, 11:24:10 AM
Oil markets show blood in the streets.  What a day
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on April 21, 2017, 09:49:44 AM
Oil capitulation continues today.    Oil equities are not quite following.  Indication to me that the oil sell off is not fundamental based.    Grabbing some UWT to hold over weekend.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on April 21, 2017, 02:51:04 PM
Oil capitulation continues today.    Oil equities are not quite following.  Indication to me that the oil sell off is not fundamental based.    Grabbing some UWT to hold over weekend.

You can drive yourself nuts following this too closely.  The sentiment shifts all over the place.  So much of the "news" is manipulated by speculators trying to make tiny increments across huge positions. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on April 26, 2017, 05:45:59 AM
Certainly can go nuts watching oil closely.  Have to remember to keep that in mind.  Anyways, EIA reports today!  ;)   Looking for more guidance on imports, and domestic production.  API was showing gains across the board except for distillates. 

OPEC and Russia have sort of been mum during this recent breakdown.  I think they are happy to remind the shale guys not to get over excited, slowing them down.    This price should force the extension?  Otherwise, look out below....
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on April 26, 2017, 08:13:09 AM
Certainly can go nuts watching oil closely.  Have to remember to keep that in mind.  Anyways, EIA reports today!  ;)   Looking for more guidance on imports, and domestic production.  API was showing gains across the board except for distillates. 

OPEC and Russia have sort of been mum during this recent breakdown.  I think they are happy to remind the shale guys not to get over excited, slowing them down.    This price should force the extension?  Otherwise, look out below....
Trend is showing the market as rebalancing: https://twitter.com/JKempEnergy/status/857241425779576832 .

Article yesterday that despite OPEC cuts they're still exporting the same amount: http://www.reuters.com/article/column-russell-crude-opec-idUKL4N1HX1V4 . I'm not sure how to interpret that?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on April 26, 2017, 08:33:29 AM
They are drawing from their storage.  To keep market share.   The deal was for production cuts not export cuts.    Inventories are going down as a whole.  Same difference but delay the visibility in the US, which just happens to be the most transparent.   The Saudi's may be building a "supply crunch" narrative.   They will deplete their storage,  use their production to satisfy domestic,  and exports will drop big time.  Suddenly, buyers wont be able to get their barrells at the quantity, grade, price they need.  That's when the freak out will occur.

It was game of who could keep exports high, longer.  To keep market share.  Just delays the inevitable and when it is realized, it is too late.

Maybe I am getting ahead of myself but if the cuts are extended, we are headed to 60 quickly, maybe higher.   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on April 26, 2017, 08:57:45 AM
Certainly can go nuts watching oil closely.  Have to remember to keep that in mind.  Anyways, EIA reports today!  ;)   Looking for more guidance on imports, and domestic production.  API was showing gains across the board except for distillates. 

OPEC and Russia have sort of been mum during this recent breakdown.  I think they are happy to remind the shale guys not to get over excited, slowing them down.    This price should force the extension?  Otherwise, look out below....
Trend is showing the market as rebalancing: https://twitter.com/JKempEnergy/status/857241425779576832 .

Article yesterday that despite OPEC cuts they're still exporting the same amount: http://www.reuters.com/article/column-russell-crude-opec-idUKL4N1HX1V4 . I'm not sure how to interpret that?
OPEC has cut production but have been exporting out of their storage inventories (both land based and floating). So overall world & OPEC inventories are decreasing but this oil has been sent to North America increasing the widely followed EIA inventory. Hence everyone believes there is still a huge glut - could be a tactic to keep shale under control and drive the need for a second 6 month OPEC production cut extension.

"Oil market is driven by a hub (US inventory) that represents 1/6 of OECD inventory and US production that represents less then 10% of world supply. Shale about half that and Permian another half (so Permian is only 2-3% of world supply). Nonetheless this is all that seems to matter. OPEC has cut production but has been emptying inventories (both land & floating) into North America where the only easily tracked inventory measures are kept. See Iran story below.  As well, inventories & supply/demand must be estimated on a worldwide basis.

"The market is also buying into “$40/bbl breakeven B.S.” being promoted by many US oil companies. It is true that the “break-even” level for US oil co’s has fallen over the past 2 years. However, the biggest reason for this has not been from efficiency or well performance gains but rather high grading of locations and profound service cost deflation. Morgan Stanley estimates that of the $30/bbl in breakeven reductions $18/bbl of it is from service cost deflation (more on this later) and $5/bbl is from high grading (drilling only the best of the best rock). Service costs are rapidly rising at the moment and every 10% price move increases the break-even by around $5/bbl. When I hear of the cost of frac sand DOUBLING over the past 6 months and the cost of fracture stimulation rising 25% Q1/Q4 it gives me confidence that we are not living in a $40-50/bbl world. As well, as we have written that the US is not big enough to offset global declines and meet annual demand growth and as such the global supply cost of $60-70/bbl makes much more sense in the medium term."

Now that Iran has lost an important instrument of sustaining its exports, the country will have little choice but to cut them. With crude oil production at 3.6-3.7 million barrels per day and 1.8 million bpd utilized in domestic demand, Iran has less than 2 million bpd to spare for exports. This is significantly lower than the 3 million bpd it exported with the help of its tanker storages...
 

http://www.economiccalendar.com/2017/04/11/depleted-reserves-iran-sold-all-crude-oil-it-stored-in-tankers-at-sea/
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on April 26, 2017, 09:23:39 AM
I guess the question is if they cut production but they continued to export, have they really cut at all?
Yes: Global inventories (including OPEC) continue to decline, which was the intended effect. If opec continues to export more than they produce, at some point they'll run out of inventory and global inventories (outside of opec) will decline as well.
No: They're still selling the same amount of oil they always were. The cuts are mainly optics and they'll keep the "cuts" going until they run out of inventory, at which point they'll turn the spigots back on and not miss a beat. Win/win for Opec.

Pioneer says breakeven is below $20!  ???
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on April 26, 2017, 09:29:12 AM
Yes, I think that two sided argument is spot on and is reflected in the current weak pricing.  But,  I like argument one (yes).   

The goal of the cut was to stabilize prices and expedite the re-balancing.  It was assumed that natural laws of supply and demand was working, just taking too long.     
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on April 28, 2017, 11:31:35 AM
And the world uses 35 billion barrels of oil & liquids a year?


"discoveries declined to 2.4 b bbl in 2016 vs an average of 9 b bbl average over the past 15 years"


IEA raising the alarm bells.  This is a great chart that shows you how tight the oil market will get, notwithstanding the shale production emanating from the USA.  Conventional oil discoveries declined to 2.4 b bbl in 2016 vs an average of 9 b bbl average over the past 15 years.  In terms of new projects sanctioned, in 2016 that was only 4.7 b bbl which is 30% lower than last year with the total number of projects reaching FID at levels last seen since the 1940’s.  Moreover, global E&D spending is expected to fall for the third straight year in 2017, an unprecedented occurrence in the modern history of the oil market.
 
“The key question for the future of the oil market is for how long can a surge in US shale supplies make up for the slow pace of growth elsewhere in the oil sector."

https://www.iea.org/media/news/2017/Crudeoilresources.png

''total number of projects reaching FID at levels last seen since the 1940’s''

This illustrates the whole absurdity of the way the market has viewed the cost of new barrels since the rout. OG companies are harvesting existing reserves and their best inventory without replacing these barrels with new reserves of similar quality.  Without step-outs wells, exploratory wells, wildcats and brownfield FID's the true cost of the barrels of oil needed in the future is not represented by the current break-even price.

https://www.iea.org/newsroom/news/2017/april/global-oil-discoveries-and-new-projects-fell-to-historic-lows-in-2016.html
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on May 04, 2017, 09:18:17 AM
Just another day in paradise with the oil sector
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on May 10, 2017, 04:54:47 PM
This is good. From the IV BB....


In the ESN (Essential Energy) CC, CEO said they are turning down work and picking the contracts they want. And prices are being negotiated higher across the board. The most interesting thing is that I started listening to their CC's about 3 quarters ago and the Q&A session would last 45 min with several analysts asking questions (Even though they are small company, they have a lot of customers and give very good info on the activity). Well, this time their was not one single question asked. The CEO couldn't believe that nobody called in. In fact all the CC's have virtually nobody calling in anymore. It's almost as if the banks fired all the energy analysts.... maybe they only work 3 days a week now and took 50% pay cuts..... It's hilarious.... Right at the bottom.... And everyone is gone....


http://www.investorvillage.com/groups.asp?mb=19168&mn=90408&pt=msg&mid=17148956
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on May 10, 2017, 04:57:25 PM
Maybe I'm imagining it, but the API data seems to have an increasingly muted effect on the market with more people waiting for the EIA data on Wednesday.

Existing data seems to be pointing more toward an supply/demand deficit?
https://twitter.com/JKempEnergy/status/862314710162694144
http://www.marketwatch.com/story/further-opec-cuts-will-deepen-oil-supply-deficit-in-second-half-of-2017-iea-2017-05-10
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 11, 2017, 05:17:00 AM
Recent price movements have been event driven rather than fundamental.  The shorts load up, get a few pump pieces out about US shale taking over planet Earth, cash their shorts out, knowing the agencies will bring out data that shows supply is tightening.  And then reload and do it all again.  The smarter guys will be getting out of the short trade at some point. 

In the meantime, I am doing a little of the opposite, or at least trying to buy partial extra positions in a couple of my stocks low, and sell higher.  The shorts are better at it than me, with more access to media feeds. 

Goldman and Citicorp have gone long from what I have seen in the news. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on May 15, 2017, 06:42:46 AM
Well looks like the gang is at least going to extend another 8-9 months.  They are not giving up.    They are going to force this market into a deficit if not already.   Question is that once we are into a deficit,  how do we get out?    The more and more you analyze this, you almost just feel that this will follow the cyclical norms and oil will be back into 70s within a couple years.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 15, 2017, 07:49:53 AM
Well looks like the gang is at least going to extend another 8-9 months.  They are not giving up.    They are going to force this market into a deficit if not already.   Question is that once we are into a deficit,  how do we get out?    The more and more you analyze this, you almost just feel that this will follow the cyclical norms and oil will be back into 70s within a couple years.

Cant even hazard a guess.  If Capex for major projects stays depressed, at levels lower than my lifetime, then at some point a significant deficit gets created and persists for a long time. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on May 16, 2017, 12:12:55 PM
Should be an exciting rest of the month as we are about 10 days away from the OPEC meeting.

IEA reported last night more of what market already knows.  Balancing is happening, but slowly.   Variables exist i.e. shale that are hard to predict.

John Kemp's article "OPEC AND HEDGE FUNDS ARE TRAPPED IN GROUNDHOG DAY" is a good read.   My money is on the saudi-russia partnership being successful in raising oil prices.   I expect a surprise too. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on May 16, 2017, 12:47:02 PM
First page from Marshall Adkins (Raymond James) new presentation..

Very bullish on oil prices relative to futures strip:

Crude moves much higher (30%-50%) by YE2017

• Natural gas ok in 2017, lower long-term: gas
supply growth keeps a lid long-term prices
• US Oilfield infrastructure damaged in 2015/16:
Bottlenecks emerge in 2017/18
• At sub-$50/bbl industry cash flows don’t support
800 rigs or current US oil supply growth estimates
• US activity, spending & oil must move up 2017/18
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 16, 2017, 02:51:13 PM
Sounds like another shitty API report.  >:(

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 16, 2017, 03:15:20 PM
Since this is in the strategy section....

I am having a serious rethink on strategy around oil.  Will elaborate as I think it through. 

I no longer believe that we will ever see the price rise.  That is not to say that oil cos. cant be profitable, just that most will be marginally profitable. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on May 16, 2017, 03:18:39 PM
What am I missing from this latest IEA report... doesn't this imply a 1.7 mb/d draw?
Quote
Weakness in a number of previously solid countries - India, US, Germany and Turkey - curtailed the 1H17 global demand growth estimate by 115 kb/d. Global demand growth is, however, still forecast at 1.3 mb/d in 2017, with demand at 97.9 mb/d.

Global oil supply fell by 140 kb/d in April as non-OPEC, and especially Canada, pumped less. At 96.17 mb/d, output stood 90 kb/d below a year ago, even as non-OPEC returned to growth. Non-OPEC supply is set to increase 600 kb/d in 2017.

OECD commercial stocks decreased for a second straight month in March, by 32.9 mb (1.1 mb/d), to 3 025 mb. Product stocks fell sharply on lower refinery output and increased exports. For 1Q17 as a whole, OECD stocks were up 24.1 mb (0.3 mb/d) due to a large build in January. Preliminary data suggests OECD stocks increased in April.

Looking at 2Q17, if we assume that April's OPEC crude oil production level of 31.8 mb/d is maintained, and nothing changes elsewhere in the balance, there is an implied stock draw of 0.7 mb/d.
https://www.iea.org/oilmarketreport/omrpublic/
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on May 16, 2017, 10:22:58 PM
Since this is in the strategy section....

I am having a serious rethink on strategy around oil.  Will elaborate as I think it through. 

I no longer believe that we will ever see the price rise.  That is not to say that oil cos. cant be profitable, just that most will be marginally profitable.

Pretty much think this is the consensus (oil price will never rise) now. I prefer the other side.  Time to revert to the mean....

https://pbs.twimg.com/media/DAAOubsUMAA-gO7.jpg:large

https://pbs.twimg.com/media/DAAO3_XUQAAhmZo.jpg

Feels eerily like 1999/2000....

5/16/17 Most Consensus Trades

- bearish inflation theme (commodities)

- short energy

- long US tech

- short CAD

https://twitter.com/PainCapital/status/864707488213475328
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 17, 2017, 05:08:36 AM
Since this is in the strategy section....

I am having a serious rethink on strategy around oil.  Will elaborate as I think it through. 

I no longer believe that we will ever see the price rise.  That is not to say that oil cos. cant be profitable, just that most will be marginally profitable.

Pretty much think this is the consensus (oil price will never rise) now. I prefer the other side.  Time to revert to the mean....

https://pbs.twimg.com/media/DAAOubsUMAA-gO7.jpg:large

https://pbs.twimg.com/media/DAAO3_XUQAAhmZo.jpg

Feels eerily like 1999/2000....

5/16/17 Most Consensus Trades

- bearish inflation theme (commodities)

- short energy

- long US tech

- short CAD

https://twitter.com/PainCapital/status/864707488213475328

You nailed it.  I am wrestling with the technological improvement aspect of the drilling itself, and simultaneously with the potential movement toward rapid reduction in demand for oil.  . 

I still haven't really coalesced my thoughts around everything. 

But what I see at the moment is not compelling for oil rising in price. 

The IEA predictions are only economic activity extrapolations, and subject to revision, which always seems to be downward.  They are not accounting for adoption of alternative tech. 

OPEC was suppose to save the day.  Instead they are barely holding their own against rapidly advancing technology from other jurisdications, most notably the US and Canada.  I am not convinced any amount of cutting on their part will make a difference to the oil price.  To be fair this is hardly an original idea on my part. 

My primary holding is Whitecap, with some PWT, and BTE.  They are all benefiitting from the advances in tech. and the associated reduction in costs.  I am not sure how to take this other than one wants to hold companies that will thrive in this environment.  That is the tricky part, especially if demand falls off. 

As I said, I am still trying to figure this out.  Obviously, I cant know it all, and have therefore taken the steps of selling all of my oil stocks in all of my tax free accounts (TFSA and RSPs).  I dont like having the potential of not having tax losses available should it come to that.  I have also reduced my overall portfolio dedicated to E&P stocks down toward 10 %. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on May 17, 2017, 07:02:26 AM
It is fairly well documented that in the investment world, the consensus view is almost always wrong. Whether the view is right or wrong it’s hard to fire you if you’re forecasts were in line with the herd; we all got it wrong. An investor is paid to get it right.

Every manufacturer knows that you keep inventory to buffer supply/demand disruption, & moderate price volatility; the bigger the inventory the smaller the price ripple. We’re not going to see 70+ oil until that excess inventory is gone. SA & Russia seem to think that it’ll be another 9 months.

Every speculator knows that spot and forward prices are closely linked; to change spot go big in the forward market, & use the 90%+ leverage of the contracts to do it. Game the headlines to produce a small change & magnify it by your leverage - & it’s much less risk if you’re the name-brand player. 

Hence, we have a gamed short-term forward market, a gamed mid-term inventory market (OPEC+), and a largely un-gamed long-term supply/demand market. Value investors play in the long term space, but ‘see’ gamed short-term and mid-term markets; gaming not in our favour questions judgement. 

Lowering inventory moves the long-term forward; it’s harder to game when there’s less physical to game against. Rising threat of global instability moves the long-term forward. However, the long-term catches up with everybody; and there are no exceptions.

So …. play the game, but hold the gains in growing quantities of low cost stock. Same total $ investment, but now many more shares, and all of them higher up the quality curve. This is when the pythons get fat.

And comes the day the long-term catches up - rinse & repeat by borrowing against the stock; not selling it, lend it out for fee income, & collect the dividends. Minimal tax drag, continually rising cash-flow, and a growing treasury of high quality assets if you get into trouble. What’s not to love.

Thank you, Mr Market

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on May 17, 2017, 07:39:36 AM
Since this is in the strategy section....

I am having a serious rethink on strategy around oil.  Will elaborate as I think it through. 

I no longer believe that we will ever see the price rise.  That is not to say that oil cos. cant be profitable, just that most will be marginally profitable.

Pretty much think this is the consensus (oil price will never rise) now. I prefer the other side.  Time to revert to the mean....

https://pbs.twimg.com/media/DAAOubsUMAA-gO7.jpg:large

https://pbs.twimg.com/media/DAAO3_XUQAAhmZo.jpg

Feels eerily like 1999/2000....

5/16/17 Most Consensus Trades

- bearish inflation theme (commodities)

- short energy

- long US tech

- short CAD

https://twitter.com/PainCapital/status/864707488213475328

You nailed it.  I am wrestling with the technological improvement aspect of the drilling itself, and simultaneously with the potential movement toward rapid reduction in demand for oil.  . 

I still haven't really coalesced my thoughts around everything. 

But what I see at the moment is not compelling for oil rising in price. 

The IEA predictions are only economic activity extrapolations, and subject to revision, which always seems to be downward.  They are not accounting for adoption of alternative tech. 

OPEC was suppose to save the day.  Instead they are barely holding their own against rapidly advancing technology from other jurisdications, most notably the US and Canada.  I am not convinced any amount of cutting on their part will make a difference to the oil price.  To be fair this is hardly an original idea on my part. 

My primary holding is Whitecap, with some PWT, and BTE.  They are all benefiitting from the advances in tech. and the associated reduction in costs.  I am not sure how to take this other than one wants to hold companies that will thrive in this environment.  That is the tricky part, especially if demand falls off. 

As I said, I am still trying to figure this out.  Obviously, I cant know it all, and have therefore taken the steps of selling all of my oil stocks in all of my tax free accounts (TFSA and RSPs).  I dont like having the potential of not having tax losses available should it come to that.  I have also reduced my overall portfolio dedicated to E&P stocks down toward 10 %.

I have serious doubts surrounding the hype that renewables & tech is going to make a serious dent in oil demand. For example read this article about EVs...

Here is an excellent article examining the potential for electric cars to displace oil consumption in vehicles. This is a must read....

http://oilprice.com/Energy/Energy-General/The-EV-Myth-Electric-Car-Threat-To-Oil-Is-Wildly-Overstated.html

 
The EV Myth – Electric Car Threat To Oil Is Wildly ...
oilprice.com
At the outset of the 2014 oil collapse, slacking oil demand growth was often cited as a major contributor to the sharp decline in oil prices. In September 2014, the ...
"One of the most powerful arguments against sustained oil demand growth is the ongoing and expected growth in the electric car market, a trend driven by two powerful forces: innovation and policy support. The former remains in full force; however policy support is questionable in the Trump era (34 percent of the global EV car fleet is in the U.S.). The Paris climate deal aims to have 100 million electric cars on the road by 2030 or roughly 6.6 percent of the expected car fleet in the world by then, such target equates to a 100-fold increase in the global EVs stock. These numbers sound impressive except for the fact that they have a negligible impact on global oil demand."
[/b]
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 17, 2017, 08:01:57 AM
And up she goes despite a decent drop in U.S. stocks! A bull market climbs a wall of worries.

This so called technological advancement making some believe that shale is now as cheap as OPEC or other sources of production is a myth. Lower 48 States production was up a grand total of 12,000 barrels/day last week... Do you think this is sufficient to offset the annual global decline rate of 3 to 5 million barrels/day?

If you look closely at the rig count each week, you will have noticed that the only noticeable increased activity in recent months has been in the Permian. The Eagle Ford, Bakken saw a nice jump in activity last year as oil moved from the lows then you saw stagnation afterwards. This tells me that they are not profitable at this oil price and $50 was the minimum to prune assets and retain land. Offshore saw no increased activity whatsoever.

The Permian has lower cost areas but, I am also thinking that we are also seeing a lot of low hanging fruits being harvested. Moreover, cost pressure is building up and this can be read in most E&P reports with staffing, equipment availability, supply issues. While true that better techniques such as sliding sleeves, better fracking spacing, pad drilling are certainly helping development cost, there is simply not enough oil being produced from the Permian, and never will be, to offset all global factors.

Regarding the replacement of oil, that is another myth from the leftist media. Everyday I see article after article about renewables taking over, robots taking over 50% of jobs in 5 years, etc. Plain insanity! While there will be a move overtime to find new source of energy, competition and cost will remain in place. Lack of key ingredients such as silver, rare metals and other difficulties in producing and disposing of lithium battery will continue to cause issue in the short to medium term.

Then the longer oil stays at these levels, the higher supply risk increases. You have major producing countries at risk of default and civil unrest. I am surprised that Venezuela has not defaulted yet, they must be very close. Then you have zero long term development or production that takes 3 to 5 years to see the light of day. So I would bet that we will see $100 oil before we see its elimination or even robots taking over! LOL!

Cardboard

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on May 17, 2017, 08:12:08 AM
EV cars actually make it neutral at best, & more likely worse.

In most cases the bulk of that E will come from a power station, miles away, burning either coal or gas. Whatever it produces will also be subject to upwards of 30% in 'line loss' (heat, buzz, etc.) in getting the E to your outlet. On hot days, the grid will also be carrying less E to prevent the lines melting.

Granted, E can come from closer windmills & solar - & suffer less 'line loss'. It can also come from Hydro - if we have the water; but most of it will be Nuclear as EV cars constantly plugged in will be pushing up base load in a big way. Clean means no nukes, and no coal - so if you don't have local solar/windmills (in quantity), the cost of E is going up. Suddenly the cost of running EV isn't much different to the the cost of running SUV.

Of course EV will come; & obvious if you live in China, & cant breathe for the smog.
But outdated power grid, & far away power stations are material bottlenecks - that will take at least 10-15 years to clear from standing start. So for the reasonable future, at least in NA - every additional EV on the road is great for business!

SD
 

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 17, 2017, 10:02:45 AM
I can always count on you guys for well reasoned, thoughtful responses. 

I was buying on the dips,and buying on the dips, which keep coming, and ended up way overexposed, IMO, to oil, directly through E&Ps.  I also have further exposure indirectly via Russell Metals, Mullen Group and to some extent via Enbridge.  Those I wont touch because they benefit in any infrastructure scenario. 

I am just being sensible, and trying to destroy the thesis.  The thesis (of oil prices going really high) may be intact, or it may not, or it may have changed.  It has certainly been moved further out in time. And none of this was expected 3 years ago! 

The shale revolution came out of nowhere more or less.  If anything the last few years have taught me is that we cannot even remotely predict how IT will change any industry. 
i.e. I was backpacking in AZ last month and I met the Garmin killer.  A simple app. that runs on any recent smartphone that uses the onboard wifi transmitter/reciever and makes your smartphone into a GPS.  Bye, bye Garmin. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Paarslaars on May 17, 2017, 12:31:57 PM
Well, almost any software based product suffers from that risk. I would not put a long standing industry like oil in that category.
Disruptive technology is a risk for any industry but there are a lot more barriers in oil than in the IT sector that it needs to overcome to actually become disruptive.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on May 17, 2017, 01:18:16 PM
Will try a humble contribution here.
Disclosure: historical bias, often late recognizing trends and have invested in value traps.
Paradigm shifts and cycles.
Oil is not the same as software, higher barriers. But.
I submit that it may be very hard to "manage" cycles in the oil industry.
A lot of unknowns.

That got me thinking about another paradigm shift that occurred not so long ago after all.
In the late 19th century, people/merchandise were carried directly or indirectly by horses mostly.
Oil then was mostly used to "illuminate". Worked better than whale fat.
Horses came with predictable side effects.
In 1894, there came the Great Horse Manure Crisis.
link: http://www.historic-uk.com/HistoryUK/HistoryofBritain/Great-Horse-Manure-Crisis-of-1894/

" This problem came to a head when in 1894, The Times newspaper predicted... “In 50 years, every street in London will be buried under nine feet of manure.”

This became known as the ‘Great Horse Manure Crisis of 1894’. 

The terrible situation was debated in 1898 at the world’s first international urban planning conference in New York, but no solution could be found. It seemed urban civilisation was doomed. 

However, necessity is the mother of invention, and the invention in this case was that of motor transport. Henry Ford came up with a process of building motor cars at affordable prices. Electric trams and motor buses appeared on the streets, replacing the horse-drawn buses.

By 1912, this seemingly insurmountable problem had been resolved; in cities all around the globe, horses had been replaced and now motorised vehicles were the main source of transport and carriage.  "

The solution had already been invented in 1885.
https://www.pinterest.com/pin/402790760400822651/
Apart from some delusional "visionaries" though, in 1894 the problem was horse manure.
By 1912, horse riding became a hobby and nobody talked about CO2 emissions.
Hard to say what will happen in the next 10 to 15 years.
Maybe completely irrelevant.
And then, who am I to say?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Paarslaars on May 17, 2017, 01:55:49 PM
Good example, let's apply it to our case.

In comparison, you could say that Horses vs Motorized vehicles could be similar as Gasoline vs Electric cars.
However, I'm not investing in a car company here, I'm investing in a commodity company.

So in your story, what happened to hay? Or other food horses eat?
Did the industry tank or take a big hit by 1912? A quick search on my end only comes up with a constant rising hay demand.
It doesn't matter what happened to the horses, it matters what happened to the fuel they consumed.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on May 17, 2017, 03:02:53 PM
The example used was just to illustrate an essentially unexpected paradigm shift in a critical part of peoples' lives.
I have no special interest in horses. See page 2.
 http://www.americanequestrian.com/pdf/US-Equine-Demographics.pdf
Apparently the horses population has been trending up lately for recreation purposes.
I will only say (message) that if you look at the population trend from 1915-1960, you realize 1- looking prospectively from the early 20th century, that this was quite an unexpected and massive decline and 2- if you were in the hay business then, you may have wanted to look at other outlets for your product.

Back to the use of oil in transportation and potential paradigm shifts.
Today, we (most of us) drive around using a vehicle equipped with an internal combustion engine and fill the tank periodically.
I submit that, 10, 15 or 20 years from now, the situation may be completely different.
Transportation is a key sub-component of oil demand and overall energy demand.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 17, 2017, 07:26:14 PM
Comparing horses vs cars and then electric powered vehicles vs fossil fuel powered vehicles is a really bad comparison. Where is the paradigm shift in advantage of one over the other? Got to be a little easier to see the differences in the earlier case I would think...

Instead of talking stuff like this, why don't you spend the time and read the article posted by Sculpin?

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 17, 2017, 07:28:54 PM
Well, almost any software based product suffers from that risk. I would not put a long standing industry like oil in that category.
Disruptive technology is a risk for any industry but there are a lot more barriers in oil than in the IT sector that it needs to overcome to actually become disruptive.

I was using the term IT loosely.  But IT alone has led to massive cost savings in the cost of explorarion and drilling.  There are very few dry wells drilled now.  This is very recent. 

The whole horizontal drilling development has been developed by advances in control systems and material science.  Fracking is old but the methodology has advanced. 

Moving from oil to transportation.  I dont think we see autonomous cars anytime soon, but a leap in battery technology will rapidly kill the IC engine.  The reliability, and lack of moving parts of electric cars makes them far more efficient, more durable, and cheaper to operate.  None of us here can answer when the tipping point will be reached. 

The problem for an investor will not happen when oil demand falls off by 30 million bpd.  The price for the commodity will come off when there is even an inkling that demand is falling off.  All it will take is for demand to drop by 1 or 2 m bpd and suddenly the bottom will fall out.  And then we are caught in a seesaw. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: valcont on May 17, 2017, 07:42:41 PM
Comparing horses vs cars and then electric powered vehicles vs fossil fuel powered vehicles is a really bad comparison. Where is the paradigm shift in advantage of one over the other? Got to be a little easier to see the differences in the earlier case I would think...

Instead of talking stuff like this, why don't you spend the time and read the article posted by Sculpin?

Cardboard

Ever so polite Cardboard. Love his outbursts as long as I am not at the receiving end.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on May 17, 2017, 07:48:28 PM
OK.
I just re-read the article.
I'll stick to what I know a lot about.
Which is not very much.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 17, 2017, 08:06:11 PM
Comparing horses vs cars and then electric powered vehicles vs fossil fuel powered vehicles is a really bad comparison. Where is the paradigm shift in advantage of one over the other? Got to be a little easier to see the differences in the earlier case I would think...

Instead of talking stuff like this, why don't you spend the time and read the article posted by Sculpin?

Cardboard

Ever so polite Cardboard. Love his outbursts as long as I am not at the receiving end.

Except you have to understand that Nawar has a big horse in this game.  He has also been very wrong over the past couple of years. 

If you read the article continue onto the comments section where every single one of his pronouncements is met with a well reasoned rebuttle. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: no_free_lunch on May 17, 2017, 08:28:26 PM
OK.
I just re-read the article.
I'll stick to what I know a lot about.
Which is not very much.

I think you are right but I am not sure of the timing.  FWIW I remember making the same type of argument back 15 years ago.  Of course we are much closer now but it has alwasy felt like tech is about to kick fossil fuel's ass. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on May 18, 2017, 04:02:50 AM
BTW, this is not about being right or else.
In fact, my humble take is that, absent a global recession, the next 12-18 months will likely be favorable for oil prices because of:
-well documented supply crunch issues.
-dynamics of the Aramco IPO.
However, longer term, I submit that innovation (both in the field and at the industry level) may go against the long thesis.
If you're the Minister of Energy of Saudi Arabia, I submit that choices are limited.
As value investors, choices are almost unlimited.
So just looking at discomforting and disconfirmatory evidence.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 18, 2017, 05:27:03 AM
OK.
I just re-read the article.
I'll stick to what I know a lot about.
Which is not very much.

I think you are right but I am not sure of the timing.  FWIW I remember making the same type of argument back 15 years ago.  Of course we are much closer now but it has alwasy felt like tech is about to kick fossil fuel's ass.

My recollection is that around 15 to 10 years ago we had peak oil, and were about to run out forever.  On this boards predecessor I was arguing with a guy about their being near unlimited fossil fuels underground.  My argument was that the world had been covered by jungle for hundreds of millions of years and we were not likely to run out of fossil fuels.  Anyway, I digress. 

And tech. development is rapidly killing coal. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 18, 2017, 05:32:14 AM
BTW, this is not about being right or else.
In fact, my humble take is that, absent a global recession, the next 12-18 months will likely be favorable for oil prices because of:
-well documented supply crunch issues.
-dynamics of the Aramco IPO.
However, longer term, I submit that innovation (both in the field and at the industry level) may go against the long thesis.
If you're the Minister of Energy of Saudi Arabia, I submit that choices are limited.
As value investors, choices are almost unlimited.
So just looking at discomforting and disconfirmatory evidence.

Well said.  I am not trying to win an argument.  I respect the opinions of the major posters on this thread, and need to operate with as much perspective as possible.  Its an anything goes environment and to me it would be extremely risky to be 50% or 100% invested, in oil and gas, such as Russia, and Saudis are.  The same applies to me. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 18, 2017, 06:02:30 AM
Nawar has been nearly spot-on on all his oil fundamental analysis.

What he failed to predict was the idiocy of an American president who signed the Iran deal which added nearly 2 million barrels/day on the market. A country that continues to wish death to America, Israel and the West and that works continually on the bomb and ICBM's with the help of its friend North Korea:

http://www.cnbc.com/2017/05/15/former-cia-agent-says-iran-aiding-north-korea-as-new-missile-test-emboldens-pyongyang.html

How long Trump or any other president will let that go on is anyone's guess.

Regarding electric vehicles, it will always be about ownership cost. If you remove government subsidies there is simply no comparison between the two and even if you add them in, it is still tough to go with an electric car. Moreover, as SD mentioned, how do you produce the power to generate the electricity? With line loss, coal or gas power generation, some of the greens buying these cars actually polute more than the people buying the latest gasoline engines with very good fuel economy.

Overtime, solar power and better batteries will help change the equation. You simply have to be careful about not being ahead of your time which is often a costly experience.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 18, 2017, 09:28:32 AM


Overtime, solar power and better batteries will help change the equation. You simply have to be careful about not being ahead of your time which is often a costly experience.

Cardboard

Lol, Aside from entering stock positions a year or two early I habe never managed to be ahead of my time.  Behind the times is more like it. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: rkbabang on May 18, 2017, 11:17:11 AM


Overtime, solar power and better batteries will help change the equation. You simply have to be careful about not being ahead of your time which is often a costly experience.

Cardboard

Lol, Aside from entering stock positions a year or two early I habe never managed to be ahead of my time.  Behind the times is more like it. 

Can I claim to be ahead of my time when I sell a stock too early?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: goldfinger on May 18, 2017, 11:44:24 AM
OK.
I just re-read the article.
I'll stick to what I know a lot about.
Which is not very much.

I think you are right but I am not sure of the timing.  FWIW I remember making the same type of argument back 15 years ago.  Of course we are much closer now but it has alwasy felt like tech is about to kick fossil fuel's ass.

My recollection is that around 15 to 10 years ago we had peak oil, and were about to run out forever.  On this boards predecessor I was arguing with a guy about their being near unlimited fossil fuels underground.  My argument was that the world had been covered by jungle for hundreds of millions of years and we were not likely to run out of fossil fuels.  Anyway, I digress. 

And tech. development is rapidly killing coal.

Peak oil is not about how much oil there is in the ground but rather how economical it is to extract what remains.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 18, 2017, 07:22:20 PM
Watch the results of the Iranian election tomorrow. If Rouhani is out it could mean more agressivity and a return of sanctions or worst.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 19, 2017, 05:17:30 AM
OK.
I just re-read the article.
I'll stick to what I know a lot about.
Which is not very much.

I think you are right but I am not sure of the timing.  FWIW I remember making the same type of argument back 15 years ago.  Of course we are much closer now but it has alwasy felt like tech is about to kick fossil fuel's ass.

My recollection is that around 15 to 10 years ago we had peak oil, and were about to run out forever.  On this boards predecessor I was arguing with a guy about their being near unlimited fossil fuels underground.  My argument was that the world had been covered by jungle for hundreds of millions of years and we were not likely to run out of fossil fuels.  Anyway, I digress. 

And tech. development is rapidly killing coal.

Peak oil is not about how much oil there is in the ground but rather how economical it is to extract what remains.

And that got solved rather rapidly.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Nebraska on May 19, 2017, 08:17:49 PM
I was previously on a frac crew until getting laid off in 2015. Received a phone call earlier this week from a recruiter for one of the major oilfield service companies looking to hire experienced hands.  Definitely think some people are wanting to up production again, how it will all play out in the markets is anyones guess.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Paarslaars on May 20, 2017, 12:41:45 AM
Watch the results of the Iranian election tomorrow. If Rouhani is out it could mean more agressivity and a return of sanctions or worst.

Cardboard

He won easy.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 20, 2017, 05:46:25 AM
I was previously on a frac crew until getting laid off in 2015. Received a phone call earlier this week from a recruiter for one of the major oilfield service companies looking to hire experienced hands.  Definitely think some people are wanting to up production again, how it will all play out in the markets is anyones guess.

So, are you going, or have you had enough?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on May 20, 2017, 07:26:18 AM
It’s useful to remind yourself that o/g drilling is tough on its crews, it’s a young man’s game, and it’s a very specialized business. Even using crews from off-shore (US Gulf), or non-NA on-shore rigs (Nigeria, Venezuela, etc.); it’s only a 50% proposition at best. Crews also age like dogs, and good rig bosses are business partners; it’s just another part of the business.   

To lock in a rig you pay up gladly, and stand behind your commitment. It’s a dance, and there will be many turns on the dance-floor; develop a reputation and you will not get past the bouncers at the door. Everybody at the dance has the money.

There is already a developing shortage of talent for freeze up; there are only so many bosses willing to defer retirement for pay and friendship, and installing the new case linings will extend well completion times. You either get fewer wells for the same number of drilling days, pay the overtime (and add new grunts) to lengthen the days and increase the well count, or find additional crews.

PWT has been in the business for a long time; so has PD. Yet PWT has built a 10% cost inflation into its forecast numbers, and PD has made statements that it expects fall/winter drilling activity to pick up. The people who hire the crews, the people who provide them, and the people who find them – all pointing to developing shortage.

The dance partners are lining up, and the smaller players are getting squeezed out.

SD   
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Nebraska on May 20, 2017, 07:38:06 AM
I was previously on a frac crew until getting laid off in 2015. Received a phone call earlier this week from a recruiter for one of the major oilfield service companies looking to hire experienced hands.  Definitely think some people are wanting to up production again, how it will all play out in the markets is anyones guess.

So, are you going, or have you had enough?

I'm not going to lie it is pretty tempting. Said I would be working 70-90 hours a week on a 15 day on 6 day off schedule. If there was a guarantee not to be a swing in prices that would shut almost everything down again for at least 2-3 years I would do it in a heartbeat. I really enjoyed the job before even though it can completely suck at times.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 20, 2017, 08:13:00 AM
"He won easy."

And they were calling it too close to call  ::)

So no change from the current supply fundamentals around Iran.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on May 24, 2017, 09:07:50 AM
Well OPEC's big meeting is tomorrow.  Always promises to deliver full entertainment.  What a group of characters.    I like  Kemp's OPEC Bingo. 

(https://pbs.twimg.com/media/DAamGX0W0AAHoqY.jpg)

As for the gambling part.  Looks like 90% chance that we get an additional 9 month cut.    5% things go miserably wrong.  5% they surprise with something like deeper cuts. 

Nonetheless, I feel the 9 months is not a small extension.  50% more than December's extent.    It should surely expedite the re balancing. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 25, 2017, 04:35:31 PM
That is a 9 month extension and if you count June: 10.

We had a very large move up on the first 6 month and now 9 month is nothing... Plus EIA reported a pretty big draw all accross the board yesterday (gasoline, distillates too) and Lower 48 added an "estimated" grand total of 20,000 barrels/day.

Hard to explain a 5% drop other than the media and shorts pushing for 12 months and deeper cuts in recent days while a few weeks ago everybody wondered if 6 months would work out and if Iraq would stick with the group...

Can't make that shit up. These guys like Kilduff are good manipulating this oil market. Almost seems like a conspiracy to orchestrate a huge move up in oil due to a short term supply crunch to push their electric vehicles and war on CO2.

Cardboard



Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: goldfinger on May 25, 2017, 04:50:32 PM
That is a 9 month extension and if you count June: 10.

We had a very large move up on the first 6 month and now 9 month is nothing... Plus EIA reported a pretty big draw all accross the board yesterday (gasoline, distillates too) and Lower 48 added an "estimated" grand total of 20,000 barrels/day.

Hard to explain a 5% drop other than the media and shorts pushing for 12 months and deeper cuts in recent days while a few weeks ago everybody wondered if 6 months would work out and if Iraq would stick with the group...

Can't make that shit up. These guys like Kilduff are good manipulating this oil market. Almost seems like a conspiracy to orchestrate a huge move up in oil due to a short term supply crunch to push their electric vehicles and war on CO2.

Cardboard

The problem is that US storage has stayed high in H1 2017 - and unless SA/Russia decreases exports to US, that stuff is going allow bears to party for a while longer...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on May 25, 2017, 06:42:18 PM
Fundamentals seem to be there: https://twitter.com/JKempEnergy/status/867388238494879744

That's with high OPEC exports to the US. I thought I saw a quote that SA is actually going to reduce exports this time around. Also if I remember right I thought GoM production will peak right about now from projects that were started before the downturn, but there's very little after that. I think North Sea has a pretty similar curve, so I'd imagine the rest of world offshore is similar.

If you take a long-term view and don't have balance sheet risk, isn't a lower for longer scenario preferable? My biggest oil related position is HNZ Group (helicopters). They're growing market share and the longer the prices stay low the better their market share will be on the back end. Meanwhile Bristow's shares are down 50% in the last two days, at a price that implies a heavy bankruptcy risk. That's the glass half full look I guess. Also depends on the position... at some point some of these E&Ps pump all their oil and have to raise more capital at the risk of dilution or capital markets being closed.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Matson125 on May 25, 2017, 09:50:51 PM
I found this interesting:

https://twitter.com/ZmansEnrgyBrain/status/867391130500857856

Crude Stocks Change (000 barrels)
YTD Build '15 100,408
YTD Build '16 54,615
YTD Build '17 37,300

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on May 26, 2017, 04:35:29 AM
Fundamentals seem to be there: https://twitter.com/JKempEnergy/status/867388238494879744

That's with high OPEC exports to the US. I thought I saw a quote that SA is actually going to reduce exports this time around. Also if I remember right I thought GoM production will peak right about now from projects that were started before the downturn, but there's very little after that. I think North Sea has a pretty similar curve, so I'd imagine the rest of world offshore is similar.

If you take a long-term view and don't have balance sheet risk, isn't a lower for longer scenario preferable? My biggest oil related position is HNZ Group (helicopters). They're growing market share and the longer the prices stay low the better their market share will be on the back end. Meanwhile Bristow's shares are down 50% in the last two days, at a price that implies a heavy bankruptcy risk. That's the glass half full look I guess. Also depends on the position... at some point some of these E&Ps pump all their oil and have to raise more capital at the risk of dilution or capital markets being closed.

Jay, What's GoM production? 

I have only ever seen anecdotal data on the actual amount of money being spent on big long term project development.  It all seems to trend way down, leaving a large supply crunch somewhere down the road.  Its hard to verify but logical if one compares it to any other commodity. 

Part of my concern is that we get a worldwide recession before prices recover meaningfully.  Then we wait 3-4 more years with dead money and little or no dividends.  OTOH, Grantham has presented data that show that large recessions are caused by high energy costs (Recession as distinct from a stock market correction). 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: clutch on May 26, 2017, 07:36:41 AM
Just for fun... thinking along the line of paradigm shifts in technologies and oil use... and uber long-term.

Imagine Elon Musk and Jeff Bezos (and others) have successfully paved the path to space colonization. And they have discovered energy sources out there that are more than enough for the mankind for foreseeable future. However, this requires extracting all of Earth's energy resources to support space colonization efforts, mainly in the form of rocket fuel...

A possible scenario to peak oil?  ;D
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on May 26, 2017, 09:18:50 AM
“The Other Guys In The Oil Market”

Snippet from BCA Commodity & Energy Strategy...

This week, we are reprising and updating “The Other Guys In The Oil Market” from our
sister service Energy Sector Strategy (NRG), because it so well captures the state of oil production outside the U.S. shales, Middle East OPEC and Russia. “The Other Guys” account for ~ half of global supply. Next week, we’ll publish a joint report with NRG analyzing today’s OPEC meeting.

The aptly named “Other Guys” account for ~ 42mm b/d of production, which they are
struggling to maintain at current levels, let alone increase. These producers supply nearly half of global production, and have been stuck in a pattern of slow decline for years despite high oil prices. Beginning in 2019, we expect production declines to accelerate. This will put enormous pressure on the three primary growth regions, which markets likely will start pricing in toward the end of next year

U.S. Onshore, Middle East OPEC (ME OPEC),
and Russia combine to produce ~43 MMb/d
of oil plus another ~11 MMb/d of other liquids
(NGLs, biofuels, refinery gains, etc.). Combined,
these producers increased crude production by
5 MMb/d plus another 1 MMb/d of other liquids
production over the past three years (2014-
2016), creating the oversupply that crashed
prices. We expect these producers to add another
1.60 MMb/d of oil plus 1.14 MMb/d of other
liquids by 2018 (over 2016 levels), dominated
by nearly 2.0 MMb/d of oil and NGLs from the
U.S. shales.

Oil production from the other 100+ global oil
producers also represents about ~42 MMb/d,
but on balance has been slowly eroding since
2010, failing to grow even when oil prices were
$100+/bbl. Despite some 2017 recovery from
Libya, we expect total production to continue to
fall in both 2017 and 2018.

The few recently expanding producers among the Other Guys are running out of growth. Canada, Brazil, North Sea and GOM account for ~13 MMb/d of oil production in 2016, adding ~1.5 MMb/d over the past three years (2014-2016). North Sea production is projected to resume declines starting in 2017; GOM will reach it peak production sometime in 2017 or 2018, then start to ebb; large new
Canadian oil sands projects will add ~310k b/d in 2017-2018, but scarce additions are scheduled beyond that; and Brazil’s once-lofty growth plans have slowed to a crawl in 2016-2018.

Global deepwater drilling activity and exploration spending have collapsed, lowering the reserve base, and undermining the stability of current production levels.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 26, 2017, 10:41:02 AM
Only 2 oil rigs added in the U.S. this week or a continuation of the plateauing that has been happening in recent weeks: the rate of addition is certainly slowing.

Seems to indicate that at current price, all profitable areas are or have been tapped and/or the availability of rigs and crews is in short supply and with it higher costs.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on May 26, 2017, 12:09:34 PM
Fundamentals seem to be there: https://twitter.com/JKempEnergy/status/867388238494879744

That's with high OPEC exports to the US. I thought I saw a quote that SA is actually going to reduce exports this time around. Also if I remember right I thought GoM production will peak right about now from projects that were started before the downturn, but there's very little after that. I think North Sea has a pretty similar curve, so I'd imagine the rest of world offshore is similar.

If you take a long-term view and don't have balance sheet risk, isn't a lower for longer scenario preferable? My biggest oil related position is HNZ Group (helicopters). They're growing market share and the longer the prices stay low the better their market share will be on the back end. Meanwhile Bristow's shares are down 50% in the last two days, at a price that implies a heavy bankruptcy risk. That's the glass half full look I guess. Also depends on the position... at some point some of these E&Ps pump all their oil and have to raise more capital at the risk of dilution or capital markets being closed.

Jay, What's GoM production? 

I have only ever seen anecdotal data on the actual amount of money being spent on big long term project development.  It all seems to trend way down, leaving a large supply crunch somewhere down the road.  Its hard to verify but logical if one compares it to any other commodity. 

Part of my concern is that we get a worldwide recession before prices recover meaningfully.  Then we wait 3-4 more years with dead money and little or no dividends.  OTOH, Grantham has presented data that show that large recessions are caused by high energy costs (Recession as distinct from a stock market correction).
Gulf of Mexico. Here's the article / graph I had looked at: http://www.epmag.com/new-projects-will-contribute-growth-1540016 . Assuming this is right, you see production continue to increase through 2017 and then decline as projects under development don't fully replace depletion. You see production continue to increase through 2017 though as projects that were commissioned at higher prices come online. I think that's part of why we haven't seen production decline as much as we'd expect... the bulk of the market is still long-term projects with 30+ years from start to finish that were still coming online. (EDIT: Just read Sculpin's article... sounds like that says something similar)

I started the cycle with positions with balance sheet risk... learned my lessons there. Hard to find unlevered companies in the sector.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on May 26, 2017, 02:19:39 PM
How much leverage do you consider acceptable?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on May 31, 2017, 02:17:01 PM
http://www.marketwatch.com/topics/organizations/american-petroleum-institute

8.7 million barrels inventory drop vs expectations for 2.8 million barrels. Gasoline also down 1.7 million barrels while distillates up 124,000 barrels.

The jerks have done a good job: drop the oil price as much as possible over the last 2 days to minimize the impact of the rebound on this much better than expected news. Make a market so beaten up that it does not know how to react on positive news.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on June 01, 2017, 12:22:06 AM
How much leverage do you consider acceptable?
Key to me is that the company has the balance sheet to ride them through the cycle from a cash flow and maturity perspective assuming a longer than expected cycle. I got burned on low P/B companies early in the cycle where I misjudged one of those elements. Buffett talks about how for companies he likes that are repurchasing shares he'd rather have the shares be lower for longer because they'll repurchase more. For some of the servicing companies market share can work in a similar fashion I think... the longer prices are low the weaker their competitors. When I say "some" I've only identified one I believe is in this position, although I know others are out there. These companies are also the better long-term capital allocators. Do you want to invest with the guy who took on a ton of debt to expand at the peak of the cycle or the guy who stockpiled cash to be strong at the trough? There's a good discussion of this in Capital Returns... they've done really well investing in cyclical industries by focusing on supply. Most investors focus on demand.

I haven't looked at the E&P companies because I don't really understand them, particularly on the fracking side.
   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 01, 2017, 06:15:40 AM
http://www.marketwatch.com/topics/organizations/american-petroleum-institute

8.7 million barrels inventory drop vs expectations for 2.8 million barrels. Gasoline also down 1.7 million barrels while distillates up 124,000 barrels.

The jerks have done a good job: drop the oil price as much as possible over the last 2 days to minimize the impact of the rebound on this much better than expected news. Make a market so beaten up that it does not know how to react on positive news.

Cardboard

What do you expect.  Its the largest and most manipulated market in the world.  You can see it in the news feed.  Prices go up, and then there is a slew of articles on how production is increasing, OPEC is no longer relevant, and US shale is taking over the planet.  The price backs off, and then the opposite occurs.  High end quant shops are making out like bandits parsing, and generating the news feed.  Makes Trumps fake news look look like childs play. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Liberty on June 01, 2017, 08:22:39 AM
https://www.bloomberg.com/graphics/2017-oil-projections/
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 01, 2017, 08:25:45 AM
The EIA report did match somewhat with API: less crude drawdown, more gasoline drawdown. Sum of draws for both is near identical in both reports.

What is noticeable this week is that: crude oil stocks (including SPR), gasoline, distillates and total stocks are now all below last year level at same date.

The OPEC/non-OPEC cuts are definitely starting to work despite the U.S. manipulation of numbers with vessels off-loading, traders shifting oil from one market to another, stocks of products vs oil, media, etc.

The demand for vessels must also be diminishing. Look at the stock prices of TK, FRO, TNP, NAP to get a flavour of the sector.

As the trend starts to firm up for inventory decline, we should see an improvement in the oil price. I would think  ::) but, I have been humbled before. However, it can't go on indefinitely with production in the U.S. certainly not advancing as people make it to be (abitrary 20,000 bls/d gain per EIA this week again), offshore and long lead projects dead and so many countries in the red including Venezuela on the verge of collapse.

I found interesting this threat to Goldman Sachs this week by the opposition in Venezuela. The optics for the bank of holding Maduro's debt, getting a very high yield on it and supporting the regime while people starve is really bad.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 01, 2017, 08:38:06 AM
LOL!

It is funny but, I see no change in demand from today until 2025 in all your Bloomberg graphs. Then we have a climb between now and then. And if IEA is so wrong with them always low balling demand then why would I trust any of the other graphs proposed?

So you believe that oil will keep trading at $50 in a supply crunch scenario which will undoubtedly develop between now and then or over a period of 8 years?

Go back to your bubble threads with AMZN and TSLA!

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Liberty on June 01, 2017, 10:10:32 AM
LOL!

It is funny but, I see no change in demand from today until 2025 in all your Bloomberg graphs. Then we have a climb between now and then. And if IEA is so wrong with them always low balling demand then why would I trust any of the other graphs proposed?

So you believe that oil will keep trading at $50 in a supply crunch scenario which will undoubtedly develop between now and then or over a period of 8 years?

Go back to your bubble threads with AMZN and TSLA!

Cardboard

I'm just posting a link, I don't believe anything to specific about commodities, especially not about where they'll trade. The only thing I know is that the secular trend over the long-term will be for fossil fuels to go away because EVs/batteries are improving and solar is improving year after year after year. At some points the trends cross and it just doesn't make sense to have ICEs or operate coal plants and eventually gas plants. I don't know when that'll be, but it's coming, and it won't be a linear change. There will also be at some point a price put on carbon, or at least a removal of fossil fuel subsidies, that will accelerate their demise.

BTW, did you predict the oil crash a couple of years ago?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 02, 2017, 08:43:03 AM
"And Cardboard, you do realize that Trump pulling out of this accord is torpedoing the price of oil, and your oil stocks along with it."

Al my friend, this is about to end. I can't wait to see the Baker Hughes rig count today. My guess is that very little if any rig was added in the U.S. this week or maybe 2 like last week.

The market will work in due time. Trump leaving the Paris Accord has nothing fundamental to do with the oil price going down. This is some kind of over-reaction. A fear that U.S. shale will now start producing like crazy. Why? What has changed? Are the economics of shale going to get any better? No.

If the environmentalists such as Obama truly want to get rid of oil, the key is to ensure that the price goes crazy high. And maybe that their current manipulation to keep it low is part of their grandiose plan or conspiracy to orchestrate a massive supply crunch?

All inventories are now down from 12 months ago and it is not going to change next week or next month. The trend is now in place and we have seen what is max U.S. shale supply capacity in the $48 to $54 WTI range. This is going to get way too big to ignore.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: rkbabang on June 02, 2017, 09:03:55 AM
The only thing I know is that the secular trend over the long-term will be for fossil fuels to go away because EVs/batteries are improving and solar is improving year after year after year. At some points the trends cross and it just doesn't make sense to have ICEs or operate coal plants and eventually gas plants. I don't know when that'll be, but it's coming, and it won't be a linear change. There will also be at some point a price put on carbon, or at least a removal of fossil fuel subsidies, that will accelerate their demise.

An interesting chart contrasting PV installations yearly with the International Energy Agency's World Energy Outlook yearly predictions.


(https://geoharvey.files.wordpress.com/2017/05/05-27-predictions-versus-reality.jpg)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 02, 2017, 10:13:05 AM
I was wrong with 11 rigs added for oil however, where did they go?

Only 2 in the Permian, 0 in the Eagle Ford and 1 in the Williston basin. They say 5 total in Texas but, it is bizarre that Permian and Eagle Ford got so little.

I still think that my theory is starting to work. The Permian was the key place to add rigs since it had the highest profitability. Seems like it is tapped at current prices.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Liberty on June 02, 2017, 10:18:29 AM
An interesting chart contrasting PV installations yearly with the International Energy Agency's World Energy Outlook yearly predictions.


(https://geoharvey.files.wordpress.com/2017/05/05-27-predictions-versus-reality.jpg)

That's exactly the kind of stuff that happens in non-linear systems when tipping points are reached. Almost nothing happens for a while and people extrapolate that in the future, and then you reach a point where, for example, solar makes sense in certain parts of the world with subsidies, so it accelerates. Then it makes sense in a wider range of locations with subsidies as prices keep falling, so it accelerates further. Then at some point it starts making sense almost everywhere without subsidies, and in parallel storage is getting cheaper and cheaper, and adoption goes through the roof because there's simply no reason to build more expensive and dirtier things. We're still in the early days of that curve, so people better get ready for even more action on that second derivative.

F.ex. (https://upload.wikimedia.org/wikipedia/commons/a/a1/China_Photovoltaics_Installed_Capacity_2016.png)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: clutch on June 02, 2017, 10:20:40 AM
The only thing I know is that the secular trend over the long-term will be for fossil fuels to go away because EVs/batteries are improving and solar is improving year after year after year. At some points the trends cross and it just doesn't make sense to have ICEs or operate coal plants and eventually gas plants. I don't know when that'll be, but it's coming, and it won't be a linear change. There will also be at some point a price put on carbon, or at least a removal of fossil fuel subsidies, that will accelerate their demise.

An interesting chart contrasting PV installations yearly with the International Energy Agency's World Energy Outlook yearly predictions.


(https://geoharvey.files.wordpress.com/2017/05/05-27-predictions-versus-reality.jpg)

Looks like a Toronto / Vancouver house price chart.  ;D
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on June 06, 2017, 07:32:15 AM
The last two months, EIA reports have showed demand is going up, and supply is going to down.     When will this market take notice?    Why chase tech, grab a commodity that is in a cyclical upswing.     Don't understand this market.    Some blame US Production growth, but the latest rig counts and production numbers although increasing,  are not going to be enough to satisfy increase in demand paired with declines around the world. 

Maybe this week's reports will make the market take notice...

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 07, 2017, 07:54:09 AM
Wow! I did not see that one coming following API last night or a 1.6 million barrels oil build from EIA vs a 4.6 million barrels draw from API.

This seems to have resulted from a massive drop in U.S. exports, imports near record high and less consumed by refineries. Then we have big build in products... Almost like we have entered into a major recession...

The only positive, if you believe in some supply crunch down the road, is the reduction of 20,000 bls/d from Lower 48 States production. The last time we have seen a weekly decline was many months ago. As I mentioned previously, we have seen a plateauing in the rig count. This tells me that at current oil prices, decline rate, availability of rigs/completion teams/pricing that the U.S. is maxed out in terms of production.

I find amazing that EIA came out with a very bold prediction yesterday, indicating that the U.S. would produce over 10 million barrels/day on average in 2018. And it is worth repeating: on average for the year. While right now, it appears to be peaking at 9.3 million barrels/day.

Cardboard

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 08, 2017, 06:33:32 PM
Maybe we should entertain the notion that this time is different. 

This whole scenario reminds me of the milkshake sequence in "There will be Blood". 

Rig counts are no longer a reliable measure of production.  Its only a matter of time before OPECs agreement breaks down.  The IEA estimates of demand are overly optimistic. 

Electrification is now relentlessly eating away at crude oil demand at an ever increasing rate.  I read today that China now has 2 million operating electrical vehicles, up from none a few years ago. 

Fire away guys. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 08, 2017, 08:01:13 PM
In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

Cardboard

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: goldfinger on June 08, 2017, 08:51:52 PM
Maybe we should entertain the notion that this time is different. 

This whole scenario reminds me of the milkshake sequence in "There will be Blood". 

Rig counts are no longer a reliable measure of production.  Its only a matter of time before OPECs agreement breaks down.  The IEA estimates of demand are overly optimistic. 

Electrification is now relentlessly eating away at crude oil demand at an ever increasing rate.  I read today that China now has 2 million operating electrical vehicles, up from none a few years ago. 

Fire away guys.

https://electrek.co/2017/05/08/byd-electric-vehicle-sales-drop-china/
Maybe there is a connection to subsidies in China...  ::)

There are more than 1.2 B cars today in the world and we are probably going to cross the 2B mark in the 2030's... I do not see the grids taking that much load in such a short period of time neither do I see > 1.2 B cars suddenly all becoming electrical.

Subsidies to solar make the "classic" grid more expensive also. Hybrid might actually win lots of ground instead...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: goldfinger on June 08, 2017, 08:53:02 PM
Maybe we should entertain the notion that this time is different. 

This whole scenario reminds me of the milkshake sequence in "There will be Blood". 

Rig counts are no longer a reliable measure of production.  Its only a matter of time before OPECs agreement breaks down.  The IEA estimates of demand are overly optimistic. 

Electrification is now relentlessly eating away at crude oil demand at an ever increasing rate.  I read today that China now has 2 million operating electrical vehicles, up from none a few years ago. 

Fire away guys.

https://electrek.co/2017/05/08/byd-electric-vehicle-sales-drop-china/
Maybe there is a connection to subsidies in China...  ::)

There are more than 1.2 B cars today in the world and we are probably going to cross the 2B mark in the 2030's... I do not see the grids taking that much load in such a short period of time neither do I see > 1.2 B cars suddenly all becoming electrical.

Subsidies to solar make the "classic" grid more expensive also. Hybrid might actually win lots of ground instead...

Also consuming that much electricity from the grid is not environmentally friendly at all!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on June 08, 2017, 09:32:51 PM
In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

Cardboard

+1

"To quote Warren Buffett, orgies tend to be "wildest toward the end,""

https://seekingalpha.com/article/4078834-fang-stock-mania-new-nifty-fifty

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 09, 2017, 05:43:04 AM
All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

No comments on the supply side? 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.   This could be why rig counts are not rising, and why supply is not dropping. 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 
Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jeffmori7 on June 09, 2017, 07:17:21 AM
All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

No comments on the supply side? 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.   This could be why rig counts are not rising, and why supply is not dropping. 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 
Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: clutch on June 09, 2017, 07:44:44 AM
All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

No comments on the supply side? 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.   This could be why rig counts are not rising, and why supply is not dropping. 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 
Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.

I agree with many of the points made by Uccmal and agree that long-term perspective of oil is not great. And this story is well understood by most people and the sentiment has been reflected in the oil price.

Regards to trading / value investing - IMO there is a fine line between the two, but if you follow Ben Graham's definitions, I'm assuming that the former depends on some short-term predictions.

But you could remove the time aspect from your investment hypothesis and make certain trading opportunities profitable.

In the case of investing in oil companies, my hypothesis would be:
"Will the oil price reach $60 / barrel again at some point in the future?"

If you ask this question to even the oil bears, I believe the answer would be "Yes".

And if the above proposition turns out to be true, I believe most of my oil investments will have positive returns. Most of valuations on oil companies are along the line of "if oil trades at $60, this company is worth X".

Now the question is obviously when. Will it be 1 month? 3 month? 1 year? 3 years? I don't know and that seems like an impossible prediction to make. Depending on when, my annualized return would vary.

The risks that I'm taking are: 1) oil never reaching $60 hence all my investments don't work out, or 2) it takes too long to reach $60 so the annualized return is less than a benchmark return. The latter scenario is especially plausible.

But based on estimating the probabilities of each of these scenarios playing out (discretized scenarios of oil reaching $60 in X months + plus the risk scenarios), I like my odds.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jeffmori7 on June 09, 2017, 07:52:42 AM
Thanks for the precise and clear answer clutch!
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 09, 2017, 07:53:23 AM
All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

No comments on the supply side? 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.   This could be why rig counts are not rising, and why supply is not dropping. 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 
Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.

I will follow on this with something that occurred to me at the gym this morning.

With the increasing reliability of oil E&P (basically 100%), oil has become like natural gas.  The price will move around but never too high or too low.  The shale operators in the US are showing us that it is pretty easy to turn the taps on and off.  They have become like the Opec of the west. 

Trying to invest in this based on the price of oil is turning into a mugs game.  One day, when the price goes up we will all make a killing.  Until then we have opportunity cost, which in 2.5 years has been considerable when compared to infrastructure companies like BAM, Enbridge, Algonquin, Brookfield Renewable. 

It is also telling to me that Fairfax, Bam, and Buffett have not invested in oil.  I dont know the status of Berks smallish investment in Suncor.  But Buffett and Bam have been pouring billions into energy infrastructure. 

Then there is the looming possibility of recession, which will set us back a couple of more years. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 09, 2017, 07:59:28 AM
All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

No comments on the supply side? 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.   This could be why rig counts are not rising, and why supply is not dropping. 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 
Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

Great post. Of course oil will be there for a long time, but people here who don't even want to acknowledge that there are factors that will contribute to a supply diminution in the long term are blinded by ideology.

Apart from that, an honest question on those trying to play oil, aren't you way much too focused on some really short-term moves? Isn't that more gambling, or trading, than investing? Predictions in the energy world are so complicated, I will let you play this game, but from the outside, I am thinking that counting the number of new rigs during a week is not a good investment strategy.

I agree with many of the points made by Uccmal and agree that long-term perspective of oil is not great. And this story is well understood by most people and the sentiment has been reflected in the oil price.

Regards to trading / value investing - IMO there is a fine line between the two, but if you follow Ben Graham's definitions, I'm assuming that the former depends on some short-term predictions.

But you could remove the time aspect from your investment hypothesis and make certain trading opportunities profitable.

In the case of investing in oil companies, my hypothesis would be:
"Will the oil price reach $60 / barrel again at some point in the future?"

If you ask this question to even the oil bears, I believe the answer would be "Yes".

And if the above proposition turns out to be true, I believe most of my oil investments will have positive returns. Most of valuations on oil companies are along the line of "if oil trades at $60, this company is worth X".

Now the question is obviously when. Will it be 1 month? 3 month? 1 year? 3 years? I don't know and that seems like an impossible prediction to make. Depending on when, my annualized return would vary.

The risks that I'm taking are: 1) oil never reaching $60 hence all my investments don't work out, or 2) it takes too long to reach $60 so the annualized return is less than a benchmark return. The latter scenario is especially plausible.

But based on estimating the probabilities of each of these scenarios playing out (discretized scenarios of oil reaching $60 in X months + plus the risk scenarios), I like my odds.

To that end I have reduced my direct oil holdings to 7-8% of my portfolio, which consists mostly of Whitecap.  Peripherally I hold Mullen Trucking which should do well regardless of the gyrations in the oil price, amd Russell Metals which has 30% exposure to oil via pipe.  The demand for pipe will likely remain stable or increase with the lengths needed in horizontal drilling.  Both are diverisified enough to be profitable in any scenario. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: John Hjorth on June 09, 2017, 09:12:28 AM
... I dont know the status of Berks smallish investment in Suncor. ...

Uccmal,

It has been sold before end of March this year, ref. the 13/F for Berkshire end of March 2017. I don't know when.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on June 09, 2017, 10:19:55 AM
All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

No comments on the supply side? 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.   This could be why rig counts are not rising, and why supply is not dropping. 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 
Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

If you back in the thread there has been numerous studies and articles refuting your "just turn on the taps" mentality.  Something to think about on the impact of EV on oil usage. Believe best way to reduce oil usage is conservation, improvements to ICE mpg but unfortunately these improvements are being overwhelmed by great demand in larger vehicles.

http://oilprice.com/Energy/Energy-General/The-EV-Myth-Electric-Car-Threat-To-Oil-Is-Wildly-Overstated.html



 
Even with subsidies and force feeding on the public EV sales in California are not doing well in a state which really should be the panacea for electric vehicles...
 

 
Conking out: Low-emissions vehicles sales slump – San Diego Tribune

There are still eight years and four months to go, but an aggressive goal set by state policymakers to dramatically increase the number of electric, plug-in and hybrid vehicles in California is in danger of failing.

Gov. Jerry Brown wants 1.5 million zero-emission vehicles on California's highways by 2025, the same year the California Air Resources Board (CARB) has mandated that zero-emission vehicles (called ZEVs) make up at least 15.4 percent of all vehicles sold in the state.
But the latest figures show about 3 percent of the new vehicles sold in the state qualify under the Air Resource Board's ZEV program. There are currently just under 224,000 plug-in or electric vehicles in the state.
In the most recent quarterly report by the California New Car Dealers Association, the sales of hybrids and plug-ins have been trending down for the last two years and the registrations for new electric vehicles are flat.
"It's kind of a mixed bag at this point," said CARB spokesman Dave Clegern.
But Brian Maas, president of the new car dealers association, is much more blunt about hitting the 15.4 percent mandate.
"Without some dramatic changes in consumers' willingness to consider these alternative-powered vehicles, it's just not going to happen," Maas said.
Sputtering EV sales come at a time when auto sales are otherwise booming. The car dealers association has reported 23 straight quarters of increasing registrations for new vehicles.
But instead of buying electric cars and hybrids, drivers are snapping up conventionally-powered cars, trucks and sport utility vehicles.
In the second quarter of this year, sales in California for light trucks — which include pickup trucks such as the Ford F Series and SUVs like the Toyota RAV4 — were up 12.8 percent year-to-date from 2015, a year in which light trucks already posted robust sales.

The low price of gasoline has helped fuel the rally.
On Aug. 29, the average for a gallon of regular in California was $2.70. In May 2014, when oil was trading around $100 a barrel, the average price was $4.22 per gallon.
But it's not the only reason.
In a twist, government rules directing automakers boost fuel efficiency standards have helped undercut one of the major selling points for zero-emission vehicles — that buyers can avoid spending a ton of money at the pump.
"Especially when gas prices aren't flirting with $5 a gallon, people are saying, 'I'm going to get a car that gets outstanding gas mileage,' especially compared to the vehicles they're trading in," said Jeremy Acedvedo, pricing and industry analyst for Edmunds.com.
For instance, the Honda Pilot is a three-row crossover utility vehicle that can fit up to eight people but gets 27 miles per gallon on the highway.
"That's such a huge improvement over even a generation or two ago on what the standard gas and diesels were able to achieve," said Patrick Min, senior manager at Santa Monica-based ALG, a division of TrueCar that projects resale values for vehicles.
With transportation accounting for an estimated 35 percent to 40 percent of California's greenhouse gas emissions, CARB administers the ZEV program and has authority through the Legislature to enforce its rules.
"Public health and the health of the environment and our economy are the primary reasons we're doing this," Clegern said.
Mary Nichols, CARB's hard-charging boss since 2007, wants 100 percent of new vehicles sold in the state to meet the zero-emission standards by 2030.
Many auto executives complain in private that state mandates are a losing proposition for them but in May 2014, the CEO of Fiat Chrysler made headlines.
Sergio Marchionne, at a conference in Washington D.C., said of his company's $32,500 battery-powered Fiat 500e: "I hope you don't buy it because every time I sell one it costs me $14,000."
Environmentalists supporting the ZEV mandate accuse car dealers of not trying hard enough to sell hybrids and electric vehicles.
In a report released earlier this month, 174 Sierra Club volunteers reviewed dealerships in 10 states and said 42 percent of the time EVs were either “not prominently displayed” or were only “somewhat prominently displayed.”
In discussions with dealerships that had at least one EV on the lot, the report said about one-third of the time the salesperson did not discuss the federal and state tax credits and rebates available to lower the cost of an EV.
The federal government offers tax credits for clean-air vehicles of up to $7,500.
California offers rebates of $2,500 for battery electric vehicles, $1,500 for plug-in hybrids and $5,000 for hydrogen fuel cell cars, such as the Toyota Mirai.
Even with incentives, hybrids and electric vehicles tend to be more expensive than gas-powered cars.
Maas said the California New Car Dealers Association "wholeheartedly" disputes the notion that sales people steer customers clear of EVs.
"If they want pink Corollas, we'll order and sell lots of pink Corollas," Maas said. "We respond to demand ... Imagine any business — a restaurant, a Target, a newspaper — if the demand for the product is 3 percent, are you going to spend a whole lot of resources promoting something that's 3 percent?"
Some tweaks to the mandate may be in the offing.
CARB has scheduled what it calls a "midterm review" of the latest iteration of the mandate, which has gone through a number of revisions since its inception in 1990.
"We always have the ability to amend these regulations," Clegern said.
California's rules are synchronized with federal regulations and nine other states plus the District of Columbia have followed California’s lead and created their own ZEV mandates.
Part of the California program includes a system in which manufacturers are given credits tied to the number and types of ZEVs sold. If a manufacturer falls short, it can buy credits from car makers that exceed their respective quota.
The plan has been criticized by some because Tesla — which makes electric cars exclusively — has racked up a large number of credits that other car makers have been purchasing.
In the first quarter of this year, Tesla made $57 million by selling ZEV credits to other manufacturers.
The credits are based on a 1-through-9 point system but next year it will be narrowed to 1-through-4.
While some details may change, Clegern said the overall ZEV program is not expected to get less stringent.
"We're inclined to think there's no reason to back off," Clegern said in light of the board looking at a technical assessment report released in August.
Despite flagging ZEV sales, CARB officials say they're still optimistic the mandate can be met.
The number of registrations for Teslas in the state ticked up 12 percent in the California car dealers' most recent quarterly report and Elon Musk plans to roll out the Model 3 in late 2017 that has a base price of $35,000. That’s better than half the price of stripped-down versions of the Tesla Model S and Model X.
This fall Toyota debuts a redesign of the popular hybrid, the Prius, and Chevrolet is about to unveil the Bolt, which boasts an expanded range of 200 miles per charge that has a base price of $37,500 before incentives.
"Will this 200-plus mile range be enough to spur a lot of people to say, OK, I can now live with an EV as my sole vehicle day to day, rather than some of the 80 to 100 mile (range) cars out there right now?" Min said.
CARB also hopes hydrogen fuel cell vehicles can grow into an emerging market. Of the more than 24 million automobiles registered in the state, fewer than 500 are fuel cell-powered. California is part of an alliance with the U.S. Department of Energy to promote hydrogen infrastructure and on Aug. 27 the state opened its 22nd hydrogen fuel-cell station in Truckee.
But what happens if 2025 comes and the 15.4 percent mandate is not met?
CARB has the power to fine car dealers, but Clegern said, "If they can't deliver enough vehicles we can penalize them for that, but so far, everyone's been over-complying."
Is there a scenario in which CARB institutes a quota system — compelling dealerships to sell a predetermined number of ZEVs or restricting the number of gas-powered vehicles they could sell to customers?
"I don't really see us going that way," Clegern said. "And honestly, I don't think we're going to have to go that way."
Free-market thinkers and libertarians have criticized the mandate from its inception and say they're not surprised that its challenges have led to calls from both car dealers and enironmentalists to make changes to the program.
"You can distort the market through policy but as we've learned in lots of other areas, that has huge negative consequences," said Adrian Moore, vice president of policy at the Los Angeles-based Reason Foundation.
"It'll get papered over, replaced, tweaked or expanded so there will be still be something but they'll keep moving the goal-line as long as the goal-line can't be reached."
While mileage figures keep improving for internal combustion vehicles, Clegern said CARB's goal is to eventually get all cars in California to go electric.
"The technology is coming along fast enough and the costs of these vehicles is coming down enough now that I think they'll become viable," Clegern said. "It may still take a few years to really catch fire but they will do it."
An analyst at the research group Bloomberg New Energy Finance has predicted the unsubsidized cost of owning a battery-powered car will fall below the cost of a conventionally-powered car by 2022.
But that premise is not universally held.

A study released earlier this year by researchers from MIT and the University of Chicago concluded that given the current cost of batteries at $325 per kilowatt-hour, the price of oil would need to exceed $350 a barrel before an EV would have a lower cost of ownership than a gas-powered equivalent.
Oil is currently trading at about $48 a barrel.


"While alternative sources of energy and energy storage technology have vastly improved, lowering costs, they still have a long way to go before they are cost-competitive with fossil fuels," said Chris Knittle of MIT, one of co-authors of the study.
Their solution? Have governments place a price on carbon emissions and spend more money on research and development of battery-powered cars.

On supply....

All the DOE reports tell us is that weekly imports determine the global price of oil and that record refinery utilization inputs of crude between 17-17.5 million bbls/d mean little if its swamped by imports. The huge variables in imports/exports is the main story regardless of demand. It would be fine if we could see real time data for global inventory declines when US imports surge but this data is not as visible taking months to publish.

Then their is the DOE weekly data itself which has always aided the bears with its bias. In 2015 the weekly DOE didn't reflect actual US prodn declines with the monthlies showing declines were greater and eventually revised. Now we see the opposite with the monthlies reporting half the prodn growth of the DOE weekly in March. So weekly DOE underestimated US prodn declines and now is over-estimating US prodn growth? The monthly reports are stated to be more accurate yet the market seems to only follow the weekly.

''US Production Growth:
Additionally, the growth in US crude oil production in March (although still growing) was far smaller than anticipated at just +62,000 bbl/d, well below February’s growth of +178,000 and less than half the m/m growth suggested by the EIA’s weekly production figures (which was implying m/m growth in March of +134,000 bbl/d).

·         OPEC-10 Exports: Going forward investors should expect material stockdraws this summer with OPEC-10 (those participating in the cuts) seeing exports fall by -200 mbbl/d m/m in May (now -800 mbbl/d below the Oct. 2016 baseline – albeit still weak compared to production cuts of -1.3 mmbbl/d). Of note, Saudi exports in May fell to the lowest point since Oct. 2015.''
 
Supply/Demand ultimately decides the direction of oil although currently that doesn't appear to be the case. We are stuck with a market focus on short cycle shale oil at the exclusion of long cycle offshore deepwater, oilsands and other play declines. The latter takes 3-4 yrs to show stress as GoM prodn is rising on the back of pre-2014 projects, however beyond 2018 a pending supply shortage looms as the long cycle offshore deepwater & oilsands hopper dries up. IOC's have shifted capital to short cycle US shale in the Permian over capitalizing this play. Last year the Permian players didn't increase the rig count when oil was under $50 because the return didn't justify drilling prime sweet spot inventory. Now with the IOC's buying out these players they are drilling more as within their portfolio short cycle shale probably has some of the best returns. IOCs Shifting capital towards short cycle oil plays will only accelerate the inevitable declines in the longer cycle oil production. Think listening to the Saudis comments that is their expectations beyond 2018 when shale can no longer mask these declines. Plus Permian growth will be accompanied by far higher decline profiles needing far more capital to maintain existing prodn...and is why eventually all plays plateau and then decline.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on June 09, 2017, 01:30:07 PM
I thought the following link to be interesting and relevant.

https://www.bloomberg.com/gadfly/articles/2017-06-01/trump-threatens-new-world-disorder-for-oil

Leaving partisan politics aside, there are a lot of things that we take for granted in these markets reaching for the top.
One of these issues has to do with the expectation that international trade (including for oil) will continue to increase over time.
A potential global trend here is protectionism and increased geo-political risks.
That would mean oil price spike.
Unfortunately, longer term, that would constitute a great incentive for alternatives and substitutes. Also, (mostly opinion and bias on my part, looking for pins to blow bubbles that I see) a material oil price increase could be the trigger for the next recession. After all, it's happened before. And then, collapse for demand.
Not easy.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 09, 2017, 04:01:23 PM
Platitudes hmmm???

"In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

Cardboard"

Remains to be seen if today was the begining of the pop in Can't Go Wrong Stocks and rotation into other sectors.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 09, 2017, 04:50:26 PM
All I get are platitudes and comparisons to the past and a couple of Buffett quotes.  I also stated that there was likely to be a continuing oversupply for oil, NOT that oil was going to disappear. 

No comments on the supply side? 

It does us no good whatsoever, if the technology has improved so dramatically that the world is in constant oversupply.  Here is my working theory:

During the years of high oil prices there was no need to improve practices.  When push came to shove 2.5 years ago large technological advances were implemented, and are continuing to be implememted.  It was a result of pent up developments, not the sudden invention of whole new ways to drill.   This could be why rig counts are not rising, and why supply is not dropping. 

Then I read the other day that there have been huge cost cuts, due to technological advance, in deep sea drilling as well. 

All this adds up to oil being cheaper for far longer than anyone anticipated.  It also caps the upside on oil.  As soon as the price goes up production simply ramps up quickly to meet it causing a perpetual seesaw. 

This means is that the cheapest operators with the biggest balance sheets will be the only ones who make money.  The huge price dependent profit margins of the past may well be gone. 

On the demand side.  I see nothing compelling to show me that demand is going to keep going up. 
Leaving aside electrification, we have constant improvements in how ICEs are being built such as hybrids, improved fuel efficiency, lighter weight materials in vehicles. 

We have jurisdictions slowly mothballing oil powered power plants because they are old, hugely polluting, and politically unpopular.  At the same time solar, wind, and gas are filling the gap, subsidies , or not.  On the note of subsidies: Governments have always subsidized power development, and manufacturing as a way of securing jobs in their districts.  This notion that oil is not subsidized, but renewables are, is totally erroneous.  Ever watch provinces, states, or countries fight over new car plants.  The states routinely try to lure military plants using tax breaks (a subsidy by any other name). 

Then there is the localized pollution isssues, mostly in Asia.  The major cities there are going to push non polluting vehicles.  The assumption they will keep adding to the ICE fleet is dangerous. 

Its a combination of factors and relying in pithy quotes from Buffett, or the past as a guide is not the way to approach this.

If you back in the thread there has been numerous studies and articles refuting your "just turn on the taps" mentality.  Something to think about on the impact of EV on oil usage. Believe best way to reduce oil usage is conservation, improvements to ICE mpg but unfortunately these improvements are being overwhelmed by great demand in larger vehicles.

http://oilprice.com/Energy/Energy-General/The-EV-Myth-Electric-Car-Threat-To-Oil-Is-Wildly-Overstated.html



 
Even with subsidies and force feeding on the public EV sales in California are not doing well in a state which really should be the panacea for electric vehicles...
 

 
Conking out: Low-emissions vehicles sales slump – San Diego Tribune

There are still eight years and four months to go, but an aggressive goal set by state policymakers to dramatically increase the number of electric, plug-in and hybrid vehicles in California is in danger of failing.

Gov. Jerry Brown wants 1.5 million zero-emission vehicles on California's highways by 2025, the same year the California Air Resources Board (CARB) has mandated that zero-emission vehicles (called ZEVs) make up at least 15.4 percent of all vehicles sold in the state.
But the latest figures show about 3 percent of the new vehicles sold in the state qualify under the Air Resource Board's ZEV program. There are currently just under 224,000 plug-in or electric vehicles in the state.
In the most recent quarterly report by the California New Car Dealers Association, the sales of hybrids and plug-ins have been trending down for the last two years and the registrations for new electric vehicles are flat.
"It's kind of a mixed bag at this point," said CARB spokesman Dave Clegern.
But Brian Maas, president of the new car dealers association, is much more blunt about hitting the 15.4 percent mandate.
"Without some dramatic changes in consumers' willingness to consider these alternative-powered vehicles, it's just not going to happen," Maas said.
Sputtering EV sales come at a time when auto sales are otherwise booming. The car dealers association has reported 23 straight quarters of increasing registrations for new vehicles.
But instead of buying electric cars and hybrids, drivers are snapping up conventionally-powered cars, trucks and sport utility vehicles.
In the second quarter of this year, sales in California for light trucks — which include pickup trucks such as the Ford F Series and SUVs like the Toyota RAV4 — were up 12.8 percent year-to-date from 2015, a year in which light trucks already posted robust sales.

The low price of gasoline has helped fuel the rally.
On Aug. 29, the average for a gallon of regular in California was $2.70. In May 2014, when oil was trading around $100 a barrel, the average price was $4.22 per gallon.
But it's not the only reason.
In a twist, government rules directing automakers boost fuel efficiency standards have helped undercut one of the major selling points for zero-emission vehicles — that buyers can avoid spending a ton of money at the pump.
"Especially when gas prices aren't flirting with $5 a gallon, people are saying, 'I'm going to get a car that gets outstanding gas mileage,' especially compared to the vehicles they're trading in," said Jeremy Acedvedo, pricing and industry analyst for Edmunds.com.
For instance, the Honda Pilot is a three-row crossover utility vehicle that can fit up to eight people but gets 27 miles per gallon on the highway.
"That's such a huge improvement over even a generation or two ago on what the standard gas and diesels were able to achieve," said Patrick Min, senior manager at Santa Monica-based ALG, a division of TrueCar that projects resale values for vehicles.
With transportation accounting for an estimated 35 percent to 40 percent of California's greenhouse gas emissions, CARB administers the ZEV program and has authority through the Legislature to enforce its rules.
"Public health and the health of the environment and our economy are the primary reasons we're doing this," Clegern said.
Mary Nichols, CARB's hard-charging boss since 2007, wants 100 percent of new vehicles sold in the state to meet the zero-emission standards by 2030.
Many auto executives complain in private that state mandates are a losing proposition for them but in May 2014, the CEO of Fiat Chrysler made headlines.
Sergio Marchionne, at a conference in Washington D.C., said of his company's $32,500 battery-powered Fiat 500e: "I hope you don't buy it because every time I sell one it costs me $14,000."
Environmentalists supporting the ZEV mandate accuse car dealers of not trying hard enough to sell hybrids and electric vehicles.
In a report released earlier this month, 174 Sierra Club volunteers reviewed dealerships in 10 states and said 42 percent of the time EVs were either “not prominently displayed” or were only “somewhat prominently displayed.”
In discussions with dealerships that had at least one EV on the lot, the report said about one-third of the time the salesperson did not discuss the federal and state tax credits and rebates available to lower the cost of an EV.
The federal government offers tax credits for clean-air vehicles of up to $7,500.
California offers rebates of $2,500 for battery electric vehicles, $1,500 for plug-in hybrids and $5,000 for hydrogen fuel cell cars, such as the Toyota Mirai.
Even with incentives, hybrids and electric vehicles tend to be more expensive than gas-powered cars.
Maas said the California New Car Dealers Association "wholeheartedly" disputes the notion that sales people steer customers clear of EVs.
"If they want pink Corollas, we'll order and sell lots of pink Corollas," Maas said. "We respond to demand ... Imagine any business — a restaurant, a Target, a newspaper — if the demand for the product is 3 percent, are you going to spend a whole lot of resources promoting something that's 3 percent?"
Some tweaks to the mandate may be in the offing.
CARB has scheduled what it calls a "midterm review" of the latest iteration of the mandate, which has gone through a number of revisions since its inception in 1990.
"We always have the ability to amend these regulations," Clegern said.
California's rules are synchronized with federal regulations and nine other states plus the District of Columbia have followed California’s lead and created their own ZEV mandates.
Part of the California program includes a system in which manufacturers are given credits tied to the number and types of ZEVs sold. If a manufacturer falls short, it can buy credits from car makers that exceed their respective quota.
The plan has been criticized by some because Tesla — which makes electric cars exclusively — has racked up a large number of credits that other car makers have been purchasing.
In the first quarter of this year, Tesla made $57 million by selling ZEV credits to other manufacturers.
The credits are based on a 1-through-9 point system but next year it will be narrowed to 1-through-4.
While some details may change, Clegern said the overall ZEV program is not expected to get less stringent.
"We're inclined to think there's no reason to back off," Clegern said in light of the board looking at a technical assessment report released in August.
Despite flagging ZEV sales, CARB officials say they're still optimistic the mandate can be met.
The number of registrations for Teslas in the state ticked up 12 percent in the California car dealers' most recent quarterly report and Elon Musk plans to roll out the Model 3 in late 2017 that has a base price of $35,000. That’s better than half the price of stripped-down versions of the Tesla Model S and Model X.
This fall Toyota debuts a redesign of the popular hybrid, the Prius, and Chevrolet is about to unveil the Bolt, which boasts an expanded range of 200 miles per charge that has a base price of $37,500 before incentives.
"Will this 200-plus mile range be enough to spur a lot of people to say, OK, I can now live with an EV as my sole vehicle day to day, rather than some of the 80 to 100 mile (range) cars out there right now?" Min said.
CARB also hopes hydrogen fuel cell vehicles can grow into an emerging market. Of the more than 24 million automobiles registered in the state, fewer than 500 are fuel cell-powered. California is part of an alliance with the U.S. Department of Energy to promote hydrogen infrastructure and on Aug. 27 the state opened its 22nd hydrogen fuel-cell station in Truckee.
But what happens if 2025 comes and the 15.4 percent mandate is not met?
CARB has the power to fine car dealers, but Clegern said, "If they can't deliver enough vehicles we can penalize them for that, but so far, everyone's been over-complying."
Is there a scenario in which CARB institutes a quota system — compelling dealerships to sell a predetermined number of ZEVs or restricting the number of gas-powered vehicles they could sell to customers?
"I don't really see us going that way," Clegern said. "And honestly, I don't think we're going to have to go that way."
Free-market thinkers and libertarians have criticized the mandate from its inception and say they're not surprised that its challenges have led to calls from both car dealers and enironmentalists to make changes to the program.
"You can distort the market through policy but as we've learned in lots of other areas, that has huge negative consequences," said Adrian Moore, vice president of policy at the Los Angeles-based Reason Foundation.
"It'll get papered over, replaced, tweaked or expanded so there will be still be something but they'll keep moving the goal-line as long as the goal-line can't be reached."
While mileage figures keep improving for internal combustion vehicles, Clegern said CARB's goal is to eventually get all cars in California to go electric.
"The technology is coming along fast enough and the costs of these vehicles is coming down enough now that I think they'll become viable," Clegern said. "It may still take a few years to really catch fire but they will do it."
An analyst at the research group Bloomberg New Energy Finance has predicted the unsubsidized cost of owning a battery-powered car will fall below the cost of a conventionally-powered car by 2022.
But that premise is not universally held.

A study released earlier this year by researchers from MIT and the University of Chicago concluded that given the current cost of batteries at $325 per kilowatt-hour, the price of oil would need to exceed $350 a barrel before an EV would have a lower cost of ownership than a gas-powered equivalent.
Oil is currently trading at about $48 a barrel.


"While alternative sources of energy and energy storage technology have vastly improved, lowering costs, they still have a long way to go before they are cost-competitive with fossil fuels," said Chris Knittle of MIT, one of co-authors of the study.
Their solution? Have governments place a price on carbon emissions and spend more money on research and development of battery-powered cars.

On supply....

All the DOE reports tell us is that weekly imports determine the global price of oil and that record refinery utilization inputs of crude between 17-17.5 million bbls/d mean little if its swamped by imports. The huge variables in imports/exports is the main story regardless of demand. It would be fine if we could see real time data for global inventory declines when US imports surge but this data is not as visible taking months to publish.

Then their is the DOE weekly data itself which has always aided the bears with its bias. In 2015 the weekly DOE didn't reflect actual US prodn declines with the monthlies showing declines were greater and eventually revised. Now we see the opposite with the monthlies reporting half the prodn growth of the DOE weekly in March. So weekly DOE underestimated US prodn declines and now is over-estimating US prodn growth? The monthly reports are stated to be more accurate yet the market seems to only follow the weekly.

''US Production Growth:
Additionally, the growth in US crude oil production in March (although still growing) was far smaller than anticipated at just +62,000 bbl/d, well below February’s growth of +178,000 and less than half the m/m growth suggested by the EIA’s weekly production figures (which was implying m/m growth in March of +134,000 bbl/d).

·         OPEC-10 Exports: Going forward investors should expect material stockdraws this summer with OPEC-10 (those participating in the cuts) seeing exports fall by -200 mbbl/d m/m in May (now -800 mbbl/d below the Oct. 2016 baseline – albeit still weak compared to production cuts of -1.3 mmbbl/d). Of note, Saudi exports in May fell to the lowest point since Oct. 2015.''
 
Supply/Demand ultimately decides the direction of oil although currently that doesn't appear to be the case. We are stuck with a market focus on short cycle shale oil at the exclusion of long cycle offshore deepwater, oilsands and other play declines. The latter takes 3-4 yrs to show stress as GoM prodn is rising on the back of pre-2014 projects, however beyond 2018 a pending supply shortage looms as the long cycle offshore deepwater & oilsands hopper dries up. IOC's have shifted capital to short cycle US shale in the Permian over capitalizing this play. Last year the Permian players didn't increase the rig count when oil was under $50 because the return didn't justify drilling prime sweet spot inventory. Now with the IOC's buying out these players they are drilling more as within their portfolio short cycle shale probably has some of the best returns. IOCs Shifting capital towards short cycle oil plays will only accelerate the inevitable declines in the longer cycle oil production. Think listening to the Saudis comments that is their expectations beyond 2018 when shale can no longer mask these declines. Plus Permian growth will be accompanied by far higher decline profiles needing far more capital to maintain existing prodn...and is why eventually all plays plateau and then decline.

Alot of reading and your ideas, and the ones you have posted have merit.  But we dont really know. 

The day of reckoning keeps getting pushed off - end of 2016; end of 2017; now beyond 2018.  Add in a near certain recession (probabilities) and we are looking out beyond 2020. 

My job is to make money, legally, any way I can.  This trade has not been kind so far.  I am satisfied that I have protected the downside, and maintained the upside without taking unnecessary risks. 

As I have progressed as an investor I have shifted from trying to bat them out of the park to whats in my byline: "Garp at a reasonable price".  I have no need at this point to put alot of capital at risk on speculation.  Part of this whole argument is me working out whether having 20%-25% of my holdings in O&G up until a few months ago made any sense.  It didn't.  So, I cleared a couple of hundred thousand in oil stocks out, most at BE, or slightly profitable.  As mentioned I still hold WCP and a little Pennwest and the service companies. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 09, 2017, 04:51:43 PM
Platitudes hmmm???

"In late 1999, I had the same feeling. I was sitting around 80% in cash and thought for a while that I was missing out: should I buy some Intel or Cisco?

Every newcomer to the stock market was making a killing. Even one of my buddy at a party told me that the UPS IPO was a sure thing: solid company and all IPO's were at minimum doubling on 1st day...

It was highly frustrating for a while to hunt for value. Another of my buddies had subscribed to a newsletter and the author kept on comparing the chart of RCA in the late 20's and AOL and it was near identical. He also highlighted the craziness of the market using various valuation metrics and also had good comparisons to the stock market bubble in Japan. I also recall vividly an older analyst on CNBC saying that the buys were not in the U.S., but in Canada in left for dead companies producing commodities... Who needed commodities to create a website?

There was the Y2K bug, the Greenspan Put, the predicted demise of "Bricks and Mortar", fewer and fewer stocks were making new highs then, everything started to change on March 10, 2000 with a large initial drop in the Nasdaq.

This time is no different. You have people forgetting about valuations and going with what has worked. You hear and read about the demise of oil. Elon Musk and a few others are revered. There is zero love other than for the FANG's and a few others.

If any is so convinced about the future ending up exactly as currently predicted (timing and all that) then please take a look at the stock chart of Best Buy which should have been dead a while ago.

Cardboard"

Remains to be seen if today was the begining of the pop in Can't Go Wrong Stocks and rotation into other sectors.

Cardboard

Or a major market adjustment and recession in every sector...
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on June 12, 2017, 12:29:08 PM
Capitulation in the energy sector looks to be at a fever pitch.  People only want to be in what is working now or they want some "yield". Latest commentary from Nuttall who has seen his fund drop an astounding 38% so far this year. No wonder no one wants to touch this sector.

http://sprott.com/media/318873/sprott-energy-fund-monthly-commentary.pdf


The energy bloodbath continued in the month of May as we officially entered into unchartered territory: going back 25 years
the energy sector (see below chart of monthly performance of the S&P 500 Energy Index back to 1993) has never fallen for
5 sequential months. With June in negative territory so far we are into month 6. Energy is the worst performing sector in
the world and this persistent trend has led to a complete buyer’s strike as money remains in winning sectors (Amazon and
Google etc; OSX vs. SOX hit a 17 year low this week). At the same time the meaningfully increased impact of quant and
macro funds in the space has seen them press their negative bets on oil and oil stocks leading to exaggerated capitulation
on the part of many energy investors as they reached their individual puke points. As commented before this profound energy
weakness has also led to the shutdown of at least 7 material energy hedge fund pods in the United States in the past
2 months which by our estimates amounted to at least a further $10BN of forced selling. Many stocks are breaching their
52 week lows and some are trading lower than when oil reached its low in February 2016 at $26.05 and have fallen by
40%-50% year-to-date. The market is stuck in a negative feedback loop as largely ignorant headlines (legitimately “fake
news”) about persistent US supply growth, the impotence of the OPEC production cut, and weak demand bombard investors
day after day on CNBC, BNN, and other mainstream media. Sentiment today towards energy is literally the worst I’ve ever seen in my career as everyone “knows” that US shale growth will swamp the market, that OPEC always cheats, and that Tesla is going to entirely displace the need for gasoline perhaps
as early as 2025.


Not only is the oil situation eerily similar to what happened in 1999 & 2000 but we have the same type of stock market environment. Back then it was the dotcom, and large cap tech etc (Nortel, RIM, JDS uniphase in Canada) that was carrying the market. Now we have the FANG plus Tesla plus the ETF mania where countless billions are being funneled into the same over priced index stocks.

Perhaps we had our first taste of the 2017 version of the dot com bust on Friday with FANG hit hard and movement of cash into other neglected sectors.


https://www.theglobeandmail.com/globe-investor/inside-the-market/the-scarcity-of-high-performering-stocks-a-trend-in-canada/article35272081/

Analysis of the similarity between now and 1999 of the oil market by a good friend & investor....

This oil rout is nothing like 1986 due to spare capacity, but almost identical to 1998-1999 when sentiment was equally dismal on a self inflicted wound by OPEC (over producing into the glut) after NS hit a peak and Vz was touted to raise prodn to 6 million bbls! Extracted some text from two large reports issued during the 1999 oil rout before recovery occurred.(which was just around the corner contrary to popular belief at the time)

1999 oil commentary:
First OPEC agreement saw a big pop in the oil price which quickly evaporate.(sounds familiar)

'These gains were not maintained for very long, however. The outcome of the OPEC meeting held in Vienna on 30 March was not well received by the market. Traders claimed that the agreed production cuts were not sufficient and that the exporting countries'  intentions to restrict  output  were not credible. This is 'sentiment'. The interesting  question, however, is about  the forces which  determine the behavior of market bears. How much is due to the fundamentals (the relationships between demand, supplies and stocks), and how much to powerful  traders who talk the price down because they hold short positions in futures and other derivatives markets?'

Almost what we see today after OPEC cut agreement. Ignore fundamentals allowing the bears to talk down oil to increase the negative sentiment and short oil.


'For Venezuela, the  willingness  to implement planned increases in production to the stated objective of 6.0 mb/d in 2006 is not totally independent from the behavior of oil prices. After reading month after month throughout 1995 and 1996 in the IEA Month & Oil Market Report that non-OPEC production will increase in the year in question by 2.0 mb/d or more (although,  the  actual  increase turned out to be much lower than the stubborn prediction) is very disturbing. Sooner or later Saudi Arabia was bound to respond. The reaction involved two stages. The first was to increase production during 1997. The change in policy was not advertised. The second stage was to propose an increase in quotas at the November 1997 OPEC Conference of Oil  Ministers  held  in  Jakarta. One intention was to  legalize  the actual production policy followed in the preceding months. The Saudi  agenda may  have involved other considerations:  (a)  a  signal to Venezuela and more generally to other non-OPEC countries that the output restraint shown by Saudi Arabia in recent years could not be taken for granted for ever (b) to restore some credibility to the OPEC quota system which had lost much of its validity through repeated roll-overs (c) to secure  a higher production base line from which to move  downward should the easing of oil  sanctions on Iraq require OPEC to reduce its production.'

Isnt this the exact same playbook the Saudis used during this oil rout. They unexpectedly increased prodn 2014-2016, proposed an increase in quotas(Dec 2015 meeting) and stated they would no longer show restraint. Doing this as in 1999, 'restored some credibility to OPEC quota system' and secure a higher prodn base for the Saudis to cut from as occurred at Nov 2016 meeting. Concern over restored Iraq prodn could be substituted for Iran and Vz surging prodn to 6 million could be shale.  IEA reports constantly repeating to the market about 2.0 million bbls or more of Non OPEC prodn increases is almost deja vu.


'The supply side of  the  oil equation had radically changed  between 1996 and 1997 with the resumption of  Iraqi oil  exports at the  average rate of some 600,000 barrels per  day.  This factor reduced significantly the room for expansion that would have been otherwise  available to other producers. stronger incentives to overstate output levels in January - March  1998 than in  other periods.  Another  reason  that may  have motivated overstatements at least in February and March  1998 is that by this time the main oil-exporting countries had  come to accept the idea that  production cuts if  they were going to be agreed would have to apply to actual output levels and not quotas. This by itself provides a strong incentive for overstating the output position. by signalling, as OPEC did in Jakarta, and as non-OPEC governments and oil companies did whenever they were induced to make a  statement, that higher output is a  fundamental objective this adverse impact resulting from a disequilibrium in the supply/demand relationship is aggravated, and sometimes  very seriously, by the 'sentiment'  that producers intend to pursue aggressively an output  objective. Punters in futures and other derivatives markets then seek to sell. Whenever the willingness to sell exceeds the willingness to buy prices fall.'


This is what occurred in this oil rout with OPEC maximizing prodn before their quota system took place with non OPEC producers often exaggerating or aggressively pursing higher prodn policies during the oil rout creating add'l negative sentiment. ( non OPEC would now be Shale & Russia with Iran being 1999s Vz)


'Saudi Arabia and Venezuela  had to settle their differences first for any attempt to remedy market weakness to have any chance of success.'

Today this would be Iran so the Saudis just repeated their playbook. Like in 1999 they essentially ignored Non -OPEC supply increases the IEA was predicting:
''IEA Month & Oil Market Report that non-OPEC production will increase in the year in question by 2.0 mb/d or more'' to focus on their own house getting OPEC into compliance and re-balancing the market with OPEC cuts.

However the market didnt respond well to the OPEC cuts in 1999 with sentiment at an all time low and oil price plunging to low of $10 as the bears predicted $5 oil because of new productivity gains outside of OPEC!

 
Yet here is a thought: $10 might actually be too optimistic. We may be heading for $5. To see why, consider chart 1. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a “normal” market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range. - 1999 The Economist


That was written at the bottom and oil subsequently rose to $20. The Economist continued:

'Even at $10 a barrel, it can be worth continuing with projects that already have huge sunk costs. Rapid technological advances have pushed the cost of finding, developing and producing crude oil outside the Middle East down from over $25 a barrel (in today's prices)


Seems the same line of thought prevails today, however the truth is almost none of the doom and gloom about sticky productivity increases, IEA stated surge in non-OPEC prodn to Vz doubling their prodn ever came to pass. Reality was the cuts eventually worked, reduced inventories and oil recovered.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: valcont on June 12, 2017, 04:07:12 PM
Capitulation in the energy sector looks to be at a fever pitch.  People only want to be in what is working now or they want some "yield". Latest commentary from Nuttall who has seen his fund drop an astounding 38% so far this year. No wonder no one wants to touch this sector.

http://sprott.com/media/318873/sprott-energy-fund-monthly-commentary.pdf




Good post Sculpin. But this Eric Nuttal's thesis is ahem nuts!! Here is the gist. OPEC cuts will balance the market in 2018-19, US shale growth will continue but slow down later this year because of high sand and pumping cost. The combined effect will be higher oil prices in 2018-19. And how does he trade this? By buying frack sand and pressure pumping companies in 80% of the portfolio.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 12, 2017, 05:37:59 PM
You may argue about his position sizing but, completion is definitely where pricing power is the highest right now.

So if oil goes up $5-10/barrel from here, these guys will experience a gold rush as capacity is already tight right now and pricing is still going up despite the recent oil rout. So their earnings will move massively while E&P's will see a nice improvement.

Of course, valuation and price paid dictate future ROR on an investment but, there are very good overlooked opportunities in the completion space with ESN and BRY being among my favourites.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: valcont on June 12, 2017, 08:03:07 PM
You may argue about his position sizing but, completion is definitely where pricing power is the highest right now.

So if oil goes up $5-10/barrel from here, these guys will experience a gold rush as capacity is already tight right now and pricing is still going up despite the recent oil rout. So their earnings will move massively while E&P's will see a nice improvement.

Of course, valuation and price paid dictate future ROR on an investment but, there are very good overlooked opportunities in the completion space with ESN and BRY being among my favourites.

Cardboard

All I am saying is that his thesis is flawed.He starts by claiming that the macro and quant funds are keeping the price artificially low. Lets run with that. In the next page he claims that the world's supply/demand will be balanced and the prices will rise. Ok but what about those "Quant and Macro funds"? If they can keep the prices low now , wouldn't they do the same next year? Oh btw, I only know of one cartel in the oil industry and they are definitely not on the bears side.

I am not bearish on energy, most commodities mean revert and this time is no different. Don't be fooled by the relative calm of few years in Middle East. Its matter of time before those tribal animosities will come out with vengeance and it'll be 1974 again.

BTW frac sand has run its course imo. Look at Silica, HiCrush.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on June 12, 2017, 10:34:15 PM
You may argue about his position sizing but, completion is definitely where pricing power is the highest right now.

So if oil goes up $5-10/barrel from here, these guys will experience a gold rush as capacity is already tight right now and pricing is still going up despite the recent oil rout. So their earnings will move massively while E&P's will see a nice improvement.

Of course, valuation and price paid dictate future ROR on an investment but, there are very good overlooked opportunities in the completion space with ESN and BRY being among my favourites.

Cardboard
What are you basing this on? Reason I ask is I have a small holding of Forbes Energy reorg equity, which does well servicing in Texas. They've experienced some increase in utilization, but pricing has been awful.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 13, 2017, 03:15:07 AM
I am mostly invested in the WCSB vs U.S. and I based this on similar comments made by various E&P's in Q1 who had to delay well completions due to lack of crews/equipment and that pricing for everything has been going up and continues.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on June 13, 2017, 07:06:34 AM
Being a good capitalist :D we prefer to follow the money ...

The Saudi Aramco IPO is coming up. It will best be served if there is either a calm market, or one in which uncertainty in the Gulf is driving up oil prices. It is also highly likely that SA is NOT the only Gulf State looking to do a IPO. Qatar suggests the Gulf States have opted for regime change uncertainty; the US base in Doha protecting the oil fields, and the recent arms sales to SA protecting the Emirs.

The Exxons are moving into the US shale fields to balance their off-shore production.  Nobody wants to pay more than they have to, so there will be a lid on how high WTI can go. Once the Gulf State IPOs are over, it is hard to see how we do not come back to a $55 WTI upper band again.

All of which speaks to a preference for option-like investing,
and not the traditional buy-and-hold-forever approach.

SD

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on June 13, 2017, 09:01:58 AM
Being a good capitalist :D we prefer to follow the money ...

The Saudi Aramco IPO is coming up. It will best be served if there is either a calm market, or one in which uncertainty in the Gulf is driving up oil prices. It is also highly likely that SA is NOT the only Gulf State looking to do a IPO. Qatar suggests the Gulf States have opted for regime change uncertainty; the US base in Doha protecting the oil fields, and the recent arms sales to SA protecting the Emirs.

The Exxons are moving into the US shale fields to balance their off-shore production.  Nobody wants to pay more than they have to, so there will be a lid on how high WTI can go. Once the Gulf State IPOs are over, it is hard to see how we do not come back to a $55 WTI upper band again.

All of which speaks to a preference for option-like investing,

and not the traditional buy-and-hold-forever approach.

SD

 

$55 upper band ?? What do you think will happen to the likes of Vz and countries that need at least $70 Brent like Saudi, Iraq, Iran over the long term or their propped up governments will collapse at $55. Do you think US shale will make up for all of the declines in the ROW, deep offshore, etc etc at $55.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on June 13, 2017, 10:22:55 AM
We think there is a 50%+ chance that at least 1 of these wild cards will occur (the squall lines we refer to). No idea as to timing, or whether the single event sets off another as well.

But when it occurs we think the demand will initially be met by 1) opening the existing taps wide, 2) inventory draw-down, and 3) new shale. The supply-demand imbalance will be managed as much as possible, to prevent a higher price triggering a new round of shale drilling. Hence while in the next 2 years we may spike over 55, its unlikely to be sustainable . 50-55 versus 45-50 is just best guess; we know the Gulf States need the money, so we are more inclined to 50-55.

For the US to benefit we need friendly taps, and depleted inventory.
Send the Donald to visit the Kingdom.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on June 13, 2017, 01:18:21 PM
I am mostly invested in the WCSB vs U.S. and I based this on similar comments made by various E&P's in Q1 who had to delay well completions due to lack of crews/equipment and that pricing for everything has been going up and continues.

Cardboard
Interesting. Thanks.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on June 19, 2017, 08:58:39 AM
https://shift.newco.co/this-is-how-big-oil-will-die-38b843bd4fe0
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Paarslaars on June 19, 2017, 10:56:17 AM
I'm sure everyone agrees on the fact that and how oil will die.
The whole investment thesis in oil is based on timing, when will oil die?
2025 seems strongly exaggerated, he's comparing the death of 2 types of technology with that of a finite resource.
Just because people starting building houses out of brick instead of wood, doesn't mean the wood industry perished.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on June 19, 2017, 02:02:29 PM
Sure of course. But combined with the fact that shale does indeed but a price cap on oil, I don't see how this space is looking all that attractive both in the short and in the long term.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jmp8822 on June 21, 2017, 02:27:12 PM
Does someone want to make a guess as to what is really happening out there?  I guess logically, the reason I'm interested in oil is because investment in new production should have dropped substantially, coupled with natural declines of wells worldwide, which would eventually lead to higher prices. Am I missing something? Is worldwide investment in new production up, not down? Do oil wells not actually decline? Have no worldwide producers decided that $50 is not enough revenue to produce oil?  Out of 100 million barrels of daily production, everyone is making money and will never stop producing? It doesn't add up to me.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 21, 2017, 02:59:46 PM
Does someone want to make a guess as to what is really happening out there?  I guess logically, the reason I'm interested in oil is because investment in new production should have dropped substantially, coupled with natural declines of wells worldwide, which would eventually lead to higher prices. Am I missing something? Is worldwide investment in new production up, not down? Do oil wells not actually decline? Have no worldwide producers decided that $50 is not enough revenue to produce oil?  Out of 100 million barrels of daily production, everyone is making money and will never stop producing? It doesn't add up to me.

Oil was low for the entire 1990s..way lower than this.  In the interim alot has happened. 

My best guess is that oil stays in a see-saw pattern of supply/demand comng in and out of balance for the foreseeable future.  To profit in this environment a company has to have really good management.  Everyone has bought their costs down in the free world.  The oligarchy is no longer able to dictate prices.  That is the new paradigm. 

Saudi Aramco missed the boat on an IPO.  We are caught in a paradigm shift.  Renewable usage, improvements in efficiencies with the usage of oil, and so forth ensure that the price never goes very high again.  I am guessing that demand has peaked. 

The markets are telling us that the world is oversupplied today, and the OPEC cuts, if they are being followed are only managing to keep oil at these prices.  If people think the market is being manipulated down somehow I would like to see evidence.  We have seen very public attempts to get the price up but it isn't working. 

Maybe we see a price spike at some point in a couple of years but that will only fuel renewable development. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: goldfinger on June 21, 2017, 04:46:05 PM
On shale profitability at these levels (and around 50$/boe too): http://oilpro.com/post/31703/attempt-to-help-don-minter-his-math?utm_source=DailyNewsletter&utm_medium=email&utm_campaign=newsletter&utm_term=2017-06-21&utm_content=Article_7_txt

On renewables:
https://www.technologyreview.com/s/608126/in-sharp-rebuttal-scientists-squash-hopes-for-100-percent-renewables/
https://www.spectator.co.uk/2017/05/wind-turbines-are-neither-clean-nor-green-and-they-provide-zero-global-energy/#
https://wattsupwiththat.com/2017/06/13/wind-power-fails-in-canada-a-23-year-life-span-not-likely-to-be-replaced/
etc... etc... etc...

On Future energy mix:
http://www.mckinsey.com/industries/oil-and-gas/our-insights/energy-2050-insights-from-the-ground-up

On Current oil market technicals:
https://twitter.com/TheVolawatcher/status/877602556578418689
https://twitter.com/staunovo/status/877536228106809344 (and it seems that imports from SA are about to go much lower next week as traffic shows no new tanker coming)
https://twitter.com/hmeisler/status/877636932175503360

On future prices:
attached pdf (slide 10)

Not claiming this is a complete set (I have no time to expand) but just trying to break from the platitudes that we hear on the more bearish side lately.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 21, 2017, 04:54:40 PM
Good material to read Goldfinger.

The market is definitely manipulated. The futures or "paper" market is multiple times the size of physical exchanges and if you are right on a $1 move you can make millions with little money due to the enormous leverage. It is a short term thing vs long term so traders play with sentiment. Does it make sense to you that the world is only focused on one report on Wednesday morning at 10:30 am which only discusses U.S. supply and demand?

And by the way, the report was positive today and the oil market still dropped 2 to 3% not long after. There was some talk about some planned production increase somewhere (I missed it) in 2018 and bang. Push it down on "some" rumour.

It has been exactly 3 years since oil started its decline. Looking back, oil was oversupplied already for well over a year. I know since I had bought some oil stocks in 2013 that were into "restructuring" and I had written down the imbalance in the oil market as a risk.

So for a long time this was ignored and oil remained at $100+ for a variety of reasons: supply risk, China growth, Ukraine risk, you name it. Today, it is about the exact reverse in fundamentals where inventories are declining worldwide, market is in a deficit, long lead projects have been cancelled, OPEC and non-OPEC are cutting supply (voluntarily or due to a lack of funds to grow/offset declines?).

The reality is that growth in demand has continued this year and continues so obviously Uccmal is wrong, for now anyway, about peak demand. When you add 1 to 1.5 million barrels/day of demand growth each year, combined with 3 to 5 million barrels/day of natural decline, it becomes pretty obvious that the U.S. increasing supply by a few hundred thousand barrels/day won't suffice. Then you have Libya coming back on line and Nigeria getting back to normal. These last two have contributed a lot to the recent "offset" to cuts but, for how long? They are part of OPEC too so I would think that at least Nigeria is about to see pressure from other members.

The rest of the world nobody talks about and that is roughly 40% of production. There is no shale in that bucket, no oil sands, no announced cuts. However, a lot of these countries have seen decline for years under good conditions. Many that look promising such as Brazil are in deep trouble with high offshore costs and government crisis. China is declining, Mexico and most others.

It is actually amazing that the oil market is currently in a supply deficit considering the gift that Obama has made to the Iranians. That is a lot more oil than what the U.S. has added to the market on average since early 2015. Libya is also a big factor, then the Saudis who increased it a lot before curtailing.

Eventually jmp8822 all of this will matter. And when people panic to get their hands on a commodity that is in need, it can be crazy. Just look at the price of Met Coal since early 2016. A few disruptions in Australia and that is all it took to get the price to rise like crazy. Yup, dirty coal to make steel rising like crazy!

Today you have guys like Al, the media and many others talking about renewables and electric cars. These guys all seem to ignore that it requires copper, silver, lithium, cobalt, rare metals to make these things work. It requires space (a lot actually), wind, sun, transmission lines to produce and deliver energy that for the moment cannot be stored effectively. And they also ignore that you have a world growing in population and per capita demand growth. While some will identify me as some kind of polluter, I am just a realist. Things will transition but, it will take many years.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 21, 2017, 05:38:49 PM
Its always funny how people will justify thier investments with endless articles and data points, WHEN no one really has no idea, and no ability to predict the future beyond a few months.  Cardboard has been doing this for over two years on this thread and others.  So when does this turn happen?  Before the world goes into recession, 2018, 2019, 2020, 2021?  At some point demand will peak, and start to drop off.  We used to play this if only game with Fairfax.  They are great investors.  If only they had the capital to invest, since their insurance companies always lose money.  Now they have the capital to invest and their insurance companies are profitable... if only they could invest.   

And Goldfinger, I could turn around and produce opposite articles from credible sources.  Texas gets 1/4 of its electricity from wind.  California produces more energy then they can get rid of from renewables.  China doubled the worlds solar capacity last year.  And so on. 

 If oil goes way up I will make money.  If it doesn't I will make money.  I have always been flexible enough in my thinking to consider other ways things may unfold.  I am not angry, but I am done with this thread. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: goldfinger on June 21, 2017, 06:23:28 PM
No one is trying to justify a thesis beyond the point of reasonable doubt. And no one denies that renewables are growing in the future (we actually absolutely need it, e need most sources of energy we can find by the same token...).
It is just that at the moment everyone repeats the same arguments:
- EV(s) - Tesla - (The experience of Norway is kind of interesting with oil consumption increasing with rapid growth of EV sales and large gov subsidies in that direction and a green country with plenty of good will).
- Renewables (plenty of subsidies and actually solar would make the grid less competitive at first making EV ramp up a difficult task).
- Peak Oil demand (Even McKinsey sees it as far in the future)
- Shale (well let's see what would happen if they cannot hedge at higher prices than today in the next 2 quarters...)
- World swimming in oil (Global inventories are starting to depict another perspective)

If someone digs into the nitty gritty details - this is just much more complicated but oil is still needed for a long period of time at a higher level than today and necessary supply capacity comes at a higher price point (including shale in the equation - Rystad probably has the best database for upstream companies). This crisis comes from a prolonged period at 90-110$ oil and it takes time to flush excesses. Also, as most recent crisis reminded us of, markets crisis do not end in crash - there are repeats (reminds me of the recent 2011/12 experience with financials). Recent supply reports are actually more bullish than the market is giving credit for but sentiment is just negative. I am seeing almost no tankers coming for SA in the last week, so their targeting of US storage is probably not bullshit and that should shake some bears pretty soon. Anyway the laws of depletion are immutable like gravity and time at these prices ranges goes against the bear thesis big time.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on June 21, 2017, 08:53:30 PM
Oil price goes through long cycles.  Last real down cycle, we went from nominal high of $38 in 1980 to nominal low of $9 in 1999.  In hindsight, we can all say with confidence that #38 was too high and $9 was too low.  Along the way, we brought on production in the North Sea and Alaska, but then we also had LatAm crisis, the Soviet Union broke up, Japan started its unique deflationary journey, and the Asian crisis, which finally gave us THE low after a 2-decade ordeal, all the while volume was going up on both supply and demand side, not necessarily in sync with each other.  What affected prices was clearly not just supply volume, demand volume and the marginal cost of production. There were currency movements, geopolitical events, factors which are unimaginable for any oil price prognosticator in the early 80's, but factors that clearly drove sentiments, and affected prices in the years to come. 

We are now 3 years into a supply shock after a 3-decade period of relatively uninterrupted worldwide economic boom, driven by globalization and a modernizing China.  For the time being, we seem to have settled into a new range of say $40 - $60.  Are we already so confident that prices will break to the upside and stay above in the near future?  Think all the potential geopolitical events in Europe and LatAm, a rapidly aging China, globalization which seems to have lost its 2 most enthusiastic proponents in US and Britain and a US economic expansion that is 9 years old.  There are just so many factors that basing price prediction just on a thorough study of the world wide marginal cost of supply (if it can be done so thoroughly) may not be sufficient. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on June 21, 2017, 11:33:41 PM
"In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could."
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 22, 2017, 03:11:50 AM
HJ,

Regarding cycle, we are not 3 years but, 9 years into a down cycle as the nominal price peak was in 2008 at around $140/barrel. And along the way we have had 2 drops or one in 2008-2009 and one now since June 2014.

If I simply divide $9 by $38, I get 23.7% or a price drop of 76.3% over 19 years to reach the absolute low. If I divide $26 by $140, I obtain 18.6% or a price drop of 81.4% over less than 8 years to reach a low of $26 in February 2016.

So a deeper and really sharp drop from the historical data that you presented. Kind of demonstrates the beauty of the Efficient Market Theory ::) and how a consensus from millions of people with all available information can deviate so much from a reasonable price expectation. The power of optimism and pessimism are definitely stronger than fundamentals.

Cardboard



Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 22, 2017, 05:05:29 AM
I said I wouldn't post on this thread again  :) but I am like a schizophrenic addict. 

I am not agnostic on this topic.  I happen to hold over 100 k of Whitecap stock and the aforementioned Russell Metals, and Mullen Group.  But I want to protect the downside as well. 

I dumped the PWT and BTE.  PWT will do well if, and only if oil goes into the 55 range.  BTE is overleveraged, and in a prolonged down environment they go out of business, or more likely a richer operator takes them out at a low price.  This week: 4 executives of WCP have reported buying large numbers of shares.  50% of the oil is hedged at above 50 USD for the first half of this year.  I am guessing they are taking big gains on these hedges this week.  They have also recently issued 200 M in a private placement at 4.32%.  And they have set up their share buyback account: Nothing has been reported yet.  And they are considering increasing the dividend which is around 3% right now:  My guess is they will leave this on hold until their cash flows at any given price have been confirmed, and are in the door.  And the stock price is very near the lows experienced in early 2016, when oil was sub $30. 

In general:
There are so many data points and information on each side of the equation that it is impossible to quantify.  One thing I know is that nearly every E and P operating in NA has increased production this year.  Rig counts in the US have been increasing weekly all year.  We have no real idea of how much oil is recoverable in the key formations in NA.  In 2007 the notion of fracking had just been born and it proved to be a game changer.  And that is just NA.  Costs are way down for sea drilling due to technological improvement, and I suspect alot of cleaning up of the financial excesses generated during the high price days.  They had gotten sloppy, in other words. 

And then there is the possibility of a recession which grows each day.  If we are going to believe oil is in a cycle, then we cant simultaneously ignore the economic cycle.  It has been dampened and muted by cheap money for a long time but how long will that work?  Excesses are building up throughout the economy from cheap debt. 

And then there is the narrative of demand becoming muted due to alternatives which we have beaten to death on this thread.  We dont know how this will play out.  To me it says that nothing is going to be straight forward.  So, IMO, it is best to own really good operators or stay out of the game. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Paarslaars on June 22, 2017, 09:06:49 AM
Wouldn't it be best to buy the cheapest ones that you have confidence can survive until oil goes up?

Cause if you believe it won't go up again, even the best operators are a poor investment.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on June 22, 2017, 12:29:39 PM
Wind turbines are neither clean nor green and they provide zero global energy

We urgently need to stop the ecological posturing and invest in gas and nuclear

The Global Wind Energy Council recently released its latest report, excitedly boasting that ‘the proliferation of wind energy into the global power market continues at a furious pace, after it was revealed that more than 54 gigawatts of clean renewable wind power was installed across the global market last year’.

You may have got the impression from announcements like that, and from the obligatory pictures of wind turbines in any BBC story or airport advert about energy, that wind power is making a big contribution to world energy today. You would be wrong. Its contribution is still, after decades — nay centuries — of development, trivial to the point of irrelevance.

Here’s a quiz; no conferring. To the nearest whole number, what percentage of the world’s energy consumption was supplied by wind power in 2014, the last year for which there are reliable figures? Was it 20 per cent, 10 per cent or 5 per cent? None of the above: it was 0 per cent. That is to say, to the nearest whole number, there is still no wind power on Earth.

Even put together, wind and photovoltaic solar are supplying less than 1 per cent of global energy demand. From the International Energy Agency’s 2016 Key Renewables Trends, we can see that wind provided 0.46 per cent of global energy consumption in 2014, and solar and tide combined provided 0.35 per cent. Remember this is total energy, not just electricity, which is less than a fifth of all final energy, the rest being the solid, gaseous, and liquid fuels that do the heavy lifting for heat, transport and industry.

Such numbers are not hard to find, but they don’t figure prominently in reports on energy derived from the unreliables lobby (solar and wind). Their trick is to hide behind the statement that close to 14 per cent of the world’s energy is renewable, with the implication that this is wind and solar. In fact the vast majority — three quarters — is biomass (mainly wood), and a very large part of that is ‘traditional biomass’; sticks and logs and dung burned by the poor in their homes to cook with. Those people need that energy, but they pay a big price in health problems caused by smoke inhalation.

Even in rich countries playing with subsidised wind and solar, a huge slug of their renewable energy comes from wood and hydro, the reliable renewables. Meanwhile, world energy demand has been growing at about 2 per cent a year for nearly 40 years. Between 2013 and 2014, again using International Energy Agency data, it grew by just under 2,000 terawatt-hours.

If wind turbines were to supply all of that growth but no more, how many would need to be built each year? The answer is nearly 350,000, since a two-megawatt turbine can produce about 0.005 terawatt-hours per annum. That’s one-and-a-half times as many as have been built in the world since governments started pouring consumer funds into this so-called industry in the early 2000s.

At a density of, very roughly, 50 acres per megawatt, typical for wind farms, that many turbines would require a land area greater than the British Isles, including Ireland. Every year. If we kept this up for 50 years, we would have covered every square mile of a land area the size of Russia with wind farms. Remember, this would be just to fulfil the new demand for energy, not to displace the vast existing supply of energy from fossil fuels, which currently supply 80 per cent of global energy needs.

Do not take refuge in the idea that wind turbines could become more efficient. There is a limit to how much energy you can extract from a moving fluid, the Betz limit, and wind turbines are already close to it. Their effectiveness (the load factor, to use the engineering term) is determined by the wind that is available, and that varies at its own sweet will from second to second, day to day, year to year.

As machines, wind turbines are pretty good already; the problem is the wind resource itself, and we cannot change that. It’s a fluctuating stream of low–density energy. Mankind stopped using it for mission-critical transport and mechanical power long ago, for sound reasons. It’s just not very good.

As for resource consumption and environmental impacts, the direct effects of wind turbines — killing birds and bats, sinking concrete foundations deep into wild lands — is bad enough. But out of sight and out of mind is the dirty pollution generated in Inner Mongolia by the mining of rare-earth metals for the magnets in the turbines. This generates toxic and radioactive waste on an epic scale, which is why the phrase ‘clean energy’ is such a sick joke and ministers should be ashamed every time it passes their lips.

It gets worse. Wind turbines, apart from the fibreglass blades, are made mostly of steel, with concrete bases. They need about 200 times as much material per unit of capacity as a modern combined cycle gas turbine. Steel is made with coal, not just to provide the heat for smelting ore, but to supply the carbon in the alloy. Cement is also often made using coal. The machinery of ‘clean’ renewables is the output of the fossil fuel economy, and largely the coal economy.

A two-megawatt wind turbine weighs about 250 tonnes, including the tower, nacelle, rotor and blades. Globally, it takes about half a tonne of coal to make a tonne of steel. Add another 25 tonnes of coal for making the cement and you’re talking 150 tonnes of coal per turbine. Now if we are to build 350,000 wind turbines a year (or a smaller number of bigger ones), just to keep up with increasing energy demand, that will require 50 million tonnes of coal a year. That’s about half the EU’s hard coal–mining output.

Forgive me if you have heard this before, but I have a commercial interest in coal. Now it appears that the black stuff also gives me a commercial interest in ‘clean’, green wind power.

The point of running through these numbers is to demonstrate that it is utterly futile, on a priori grounds, even to think that wind power can make any significant contribution to world energy supply, let alone to emissions reductions, without ruining the planet. As the late David MacKay pointed out years back, the arithmetic is against such unreliable renewables.

The truth is, if you want to power civilisation with fewer greenhouse gas emissions, then you should focus on shifting power generation, heat and transport to natural gas, the economically recoverable reserves of which — thanks to horizontal drilling and hydraulic fracturing — are much more abundant than we dreamed they ever could be. It is also the lowest-emitting of the fossil fuels, so the emissions intensity of our wealth creation can actually fall while our wealth continues to increase. Good.

And let’s put some of that burgeoning wealth in nuclear, fission and fusion, so that it can take over from gas in the second half of this century. That is an engineerable, clean future. Everything else is a political displacement activity, one that is actually counterproductive as a climate policy and, worst of all, shamefully robs the poor to make the rich even richer.

https://www.spectator.co.uk/2017/05/wind-turbines-are-neither-clean-nor-green-and-they-provide-zero-global-energy/#
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: goldfinger on June 22, 2017, 12:32:30 PM
Very nice interview for one the heads at PIRA:  http://www.bnn.ca/video/a-guru-s-call-on-crude~1152595

Balanced, well informed, "far away from noise of all types" overview of the oil market now and in the next decade.
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jeffmori7 on June 22, 2017, 12:36:21 PM
Here is the latest summary about renewables on the planet: http://www.ren21.net/wp-content/uploads/2017/06/17-8399_GSR_2017_Full_Report_0621_Opt.pdf

For a little summary:

Total final energy consumption 2015: 78.4% fossil fuels, 2.3% nuclear, 19.3% renewables, with wind+solar+biomass power+geothermal power at just 1.6%.

For electricity production at the end of 2016: Non-renewable 75.5%, renewable 24.5%, including 16.6% hydro, Wind at 4% and Solar PV at 1.5%

Still a long way to go, but those are the actual numbers.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on June 23, 2017, 06:51:25 AM
Wouldn't it be best to buy the cheapest ones that you have confidence can survive until oil goes up?

Cause if you believe it won't go up again, even the best operators are a poor investment.

I think, and have repeated many times, that we are in a see saw pattern.  WCP pays me a 3% yield while I wait.  And they are making money today on their hedges.  They are skilled operators.  There are others out there to be sure in the same league but not many.  With WCP I have management that made it through the worst of the bust, and grew.  I have management that owns 30-40 million collectively in the stock, is planning to buy back shares, and will keep paying, and has signaled an intention to increase the dividend.  They manage their debt carefully.  They just issued debt at 4.32% which is pretty cheap in the oil patch.  They dont issue a apaper annual report, and keep expensive press releases to a minimum.  Everything in their DNA is careful and considered. 

If labour and resources get tight, for whatever reason, who will have an easier time accessing these resources?  The guys who cut off your company's services or fired you will have a harder time.  The guys who kept you on, even at reduced capacity will get first bid.  The WCSB is a small place and a reputation goes a long way. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: valcont on June 27, 2017, 07:12:15 PM
Oil bulls , this was trending today.

http://www.marketwatch.com/story/opec-have-no-fear-the-us-oil-shale-output-crash-is-here-2017-06-27
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 28, 2017, 08:13:02 AM
I printed out the article to check it back in a few months: 100 million fewer barrels in U.S. inventories by the end of September? That would be a really big deal.

Regarding shale production, the article may be very well timed as the EIA reported today that Lower 48 States production was down 55,000 barrels/day last week. I had mentioned before that it was looking like plateauing and despite continued rig additions, the count increase has slowed dramatically over the last few months.

Cardboard

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on June 30, 2017, 04:59:58 PM
http://www.zerohedge.com/news/2017-06-30/us-oil-rig-count-drops-first-time-24-weeks-trump-unveils-us-mexico-petroleum-pipelin

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on July 18, 2017, 02:29:01 PM
The reality is that there is no one 'best' choice for the WCSB.
Arguably there is less risk as an investor taking on a WCP versus an OBE, but both will do very well if there is a upturn - it's just different tolerance for risk.

Ultimately it comes down to timing; if you're OPM, the O/G space probably isn't the place for you.
But if you can afford to send ships to the 'new land', & wait for their return; it's hard to find a much better place.
If you know your business, and held your ground - ultimately, you're going to be rewarded.
Put your stock away, do something else, and let the cycle work for you.

SD


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on July 20, 2017, 12:30:41 PM
Interesting strategy: http://www.reuters.com/article/us-saudi-oilexports-kemp-idUSKBN19Y1E3 . They're still selling the oil, just trying to sell it elsewhere first.

Crude inventory within ~1M barrels of 2016. Should see the streams cross within the next few weeks, if not next week.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on July 20, 2017, 12:55:12 PM
It was the third bullish weekly report in a row. Please note that oil products inventories were down 10.2 million barrels last week and that all key inventories are below last year at same date.

Then notice that refineries are consumming around 400,000 barrels/day more than last year or in the 17.2 million barrels/day range. This increased demand combined with reduced supply should normalize oil inventories fairly quickly.

Then at some point in the near future, all this minimal capex into long lead projects will hit supply. There is just no way around it. And with Libya and Nigeria near fully back on line where is the next supply boost possibly coming from?

Demand is growing 1 to 1.5 million barrels/day globally and supply is shrinking around 3 million barrels/day due to natural decline. The more shale in the mix and the worst the decline rate gets. So it is over one Canada or one Iraq that you need to develop each year.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: investor1 on August 16, 2017, 08:40:25 AM
Given some conviction that a tightening oil market could send prices to $70+ in the next 12-24 months, what are the best “free options” to get exposure? By “free option”, I’m thinking about companies whose equity value would be largely the same in 12-24 months if oil stayed at $50, but would have many multiples of upside if a price spike occurred.  Here are a couple (under-researched and over-simplified) ideas. Any others folks might add?

DNR – Market view: Over-levered and left for dead. PV-10 doesn’t cover debt at $50 oil. Option view: Low decline CO2 flood assets that will largely look the same in 12-24 months. First significant debt maturity in 2021 is a long clock on restructuring. $70 oil would send equity up 5x – 7x.

BTE – Has been discussed extensively on this board. But similar situation to DNR: highly levered with long dated maturities, FCF break-even (accounting for sustaining capex) at $50 oil, so it looks the same in 12-24 months save for shorter duration on the debt. FCF generation explodes above $50.

Obviously in both cases, if nothing changes, the debt maturities will be two years out rather than four. But these equities remind me of LEAPs, wherein the time decay is gradual when far out from expiration (or restructuring). Thus, I think a basket strategy with these sorts of names might be the cheapest way to get oil upside exposure with a favorable return profile. It seems like the oil bulls are going to have their story either proven or disproved over the next 1-2 years, and there might be a “cheap” way to get exposure if they're right.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jmp8822 on August 16, 2017, 08:55:19 AM
Given some conviction that a tightening oil market could send prices to $70+ in the next 12-24 months, what are the best “free options” to get exposure? By “free option”, I’m thinking about companies whose equity value would be largely the same in 12-24 months if oil stayed at $50, but would have many multiples of upside if a price spike occurred.  Here are a couple (under-researched and over-simplified) ideas. Any others folks might add?

DNR – Market view: Over-levered and left for dead. PV-10 doesn’t cover debt at $50 oil. Option view: Low decline CO2 flood assets that will largely look the same in 12-24 months. First significant debt maturity in 2021 is a long clock on restructuring. $70 oil would send equity up 5x – 7x.

BTE – Has been discussed extensively on this board. But similar situation to DNR: highly levered with long dated maturities, FCF break-even (accounting for sustaining capex) at $50 oil, so it looks the same in 12-24 months save for shorter duration on the debt. FCF generation explodes above $50.

Obviously in both cases, if nothing changes, the debt maturities will be two years out rather than four. But these equities remind me of LEAPs, wherein the time decay is gradual when far out from expiration (or restructuring). Thus, I think a basket strategy with these sorts of names might be the cheapest way to get oil upside exposure with a favorable return profile. It seems like the oil bulls are going to have their story either proven or disproved over the next 1-2 years, and there might be a “cheap” way to get exposure if they're right.

BTE has been the closest thing I've found to what you are describing. I'd been looking for a similar LEAP-esque oil stock. That said, I haven't looked at DNR. Timing and position sizing has been my hang-up on how to play in this space. Anyone have thoughts on when/if oil hits $65-$70 in the next 24 months and why?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: investor1 on August 16, 2017, 09:19:29 AM
Anyone have thoughts on when/if oil hits $65-$70 in the next 24 months and why?

I think it's hard to get conviction on specifics (look at the small number of truly successful oil traders still intact) but I do know this: sentiment is bearish, and supply-demand fundamentals are improving. That's a recipe for a great set-up, but the trick is expressing the view in way that gives your flexibility on timing and a way out if you're wrong.

Additional food for thought:
- Since the end of February, U.S. core petroleum inventories (crude, gasoline, distillate, jet fuel, residual fuel) have experienced the sharpest decline since record keeping began in 1983.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on August 23, 2017, 04:49:04 PM
Anyone have thoughts on when/if oil hits $65-$70 in the next 24 months and why?

I think it's hard to get conviction on specifics (look at the small number of truly successful oil traders still intact) but I do know this: sentiment is bearish, and supply-demand fundamentals are improving. That's a recipe for a great set-up, but the trick is expressing the view in way that gives your flexibility on timing and a way out if you're wrong.

Additional food for thought:
- Since the end of February, U.S. core petroleum inventories (crude, gasoline, distillate, jet fuel, residual fuel) have experienced the sharpest decline since record keeping began in 1983.

Apparently, no one has told the oil traders.

Happy to be holding Whitecap in this environment.  3% dividend on my purchase price.  Plenty of dividend coverage.  CEO buys shares every time the price gets this low: 20,000 this week alone.  Expanding production, EPs profitable....   

Baytex has no downside protection, and gets worse as this drags out, with all that leverage.  If interest rates rise they are going to have to leverage at higher rates. 

As to price sensitivity I think, and this is just my opinion, that holding a really good company such as WCP, which is trading obscenely cheap, gets you nearly the upside of a Baytex with massively less risk.  Obviously there are others getting not much love such as Raging River, or Seven Generations in a similar situation. 

My theory is that the companies with the highest quality balance sheets will be the first to bounce.  The Baytex's of this world will be caught in a wait and see (if this oil price rally holds)situation for months or years into a price rally.  I could be wrong but I have now been observing this unfolding as a shareholder for just about 3 years. 

Disclosure: 10-12 % position in WCP, 3-4% in OBE (Pwt); former BTE holder: got out just before the worst of the recent price collapse. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on August 28, 2017, 12:18:37 PM
Marshall Adkins latest update...

Clearly, energy investors continue to express skepticism toward oil market fundamentals as they remain focused on 1) U.S. shale growth, 2) potential negative demand impact from electric vehicles, and 3) OPEC compliance (and noise). This oil pessimism has persisted despite recent huge drawdowns in U.S. oil inventories providing clear evidence of a massively undersupplied oil market. In fact, we think the unprecedented reported U.S. oil inventory reduction over the past six months even understates the tightness in the oil market since these large drawdowns have occurred despite the headwind of sales from the Strategic Petroleum Reserve (SPR).

In today’s Stat we’re turning our focus toward the SPR and the impact on U.S. oil inventory trends. In short, we believe that the oil market is even tighter than the bullish U.S. commercial inventory trends suggest because : (1) the dramatic improvements in oil inventories have been partially masked by drawdowns from the SPR, (2) commercial oil inventory trends should continue to improve sharply over the next six weeks, (3) forthcoming SPR sales starting again in October will generate additional noise, and (4) large draws of commercial inventory should still be a major bullish catalyst for oil prices the rest of this year.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on August 30, 2017, 04:04:57 PM
Can someone decipher this Orwellian doublespeak for me from the EIA highlights thi week:

"U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.4 million barrels from the previous week. At 457.8 million barrels, U.S. crude oil inventories are in the middle of the average range for this time of year."

The 'middle of the average range'.   Like isn't that right on the average?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on August 30, 2017, 04:25:15 PM
Perhaps this is intentional ambiguity.

But you often find this "language" in bureaucratic institutions.

To help understand where my kids stood when they went through elementary school, teachers often used a picture which looks similar to the link below.

https://www.csd.k12.sd.us/cms/lib/SD01001880/Centricity/Domain/186/Bell_Curve_Visuals.pdf

"Most people in the world fall in the average range."

Perhaps, it is just a way to say that the true value of the average is uncertain/unknown and they just use a concept of confidence intervals with a certain percentage probability (ie 95%) that the true value lies in the interval.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on August 30, 2017, 05:48:58 PM
Can someone decipher this Orwellian doublespeak for me from the EIA highlights thi week:

"U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 5.4 million barrels from the previous week. At 457.8 million barrels, U.S. crude oil inventories are in the middle of the average range for this time of year."

The 'middle of the average range'.   Like isn't that right on the average?
I've posted these links before, but I really like John Kemp @ Reuters' graphs of these: https://twitter.com/JKempEnergy/status/897830239270825986 . He's in the UK so on vacation this week and last, but should still paint the general picture. I find it a lot easier to scroll through his tweets weekly rather than try try to decipher a bunch of nonsense articles.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on August 31, 2017, 06:05:02 AM
U.S. inventories of about everything are down around 5% from last year and the steepness in decline is a record according to some analysts. It has been 7 weeks in a row that we have had large declines.

Then you have U.S. refineries processing record amounts of oil and U.S. demand itself for gasoline hit a record this summer, so it is not just exports. Sure there is Harvey that will skew a lot of things temporarily but, I was told that the market was a forward looking mechanism?

I use CNBC mobile and everything related to oil is a negative headline. It is as bad as news related to Trump! However, you will not read that inventories are now at around the 5 year average and declining fast. There is not much fanfare either when the rig count declines as in recent weeks or when Lower 48 oil production declines as we saw last week.

This stinks manipulation to keep oil prices low. Maybe it is true hate for oil from the leftist media to promote their clean energy agenda or it is setup to help the economy but, eventually, and the longer it goes, we will hit a massive air pocket.

Venezuela is out of money and the U.S. is now putting sanctions on. Saudi Arabia still bleeds $50 to $100 billion/year at these prices. Most OPEC countries have large budget problems and Russia is not doing well either. Then there is every other country that you don't hear about with declining production already since a few years.

Then growth in demand next year is about all is needed to soak up all the cuts from OPEC and non-OPEC of 1.8 million barrels/day if the cuts are even real.

Right now this feels like a massive coiled spring. It is almost like traders are keeping it as low as possible and once things tighten further, they want to see how fast shale and others meet demand at slightly higher prices. What will be the reaction when there is no immediate response? Or worst, when some event hits supply by a tiny amount?

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: StevieV on August 31, 2017, 09:55:53 AM
I have been bludgeoned on my O&G holdings so far this year, but I think the picture for oil is becoming increasingly bullish.

The inventory reports pre-Harvey have been starting to show a pretty steady bullish trend.  I think there is growing evidence that US production growth is going to disappoint and EIA 914 report out today adds to that.   I also think that demand trends are picking up.

Harvey has thrown a wrench into the data in the short term.  Very hard to say what the inventory reports will show in the next few weeks and what they will mean, if anything.  Nevertheless, I think the supply and demand picture is tightening substantially and is going to support rising prices before too long.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on August 31, 2017, 09:21:23 PM
This chart is pretty interesting: https://twitter.com/anasalhajji/status/903310348442324993

So either the weekly production is too high or the monthly production is too low. The recent inventory draws I guess would point to the weekly production being too high. Here's the source data for the monthly: https://www.eia.gov/dnav/pet/pet_crd_crpdn_adc_mbblpd_m.htm
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on September 01, 2017, 06:20:04 AM
Will venture into this despite the real risk of being called ignorant again.
Maybe slowly catching up though.

Looking for true inflection points.
Before shooting the messenger, maybe see this as playing devil's advocate.

I realize that a lot of inventory data (trend wise) point in the right direction and some absolute negative inventory changes seem to be significant (ie comparing to some prior years etc) but there is a lot of noise. And what about where the absolute numbers are now compared to historical levels.

Perhaps this is linked to the seemingly benign comments about the range of the average from before. One may still be within the average range despite getting across the 15th percentile. To make money as value conscious investors, we have to catch these hidden gems (gap between fundamentals and sentiment). You pay a high price for a cheery consensus. But this seems like a long journey. My question is: Are we there yet?

http://www.bessemertrust.com/portal/binary/com.epicentric.contentmanagement.servlet.ContentDeliveryServlet/Public/Published/Insights/Documents/Bessemer_Trust_A_Closer_Look_07_22_16_Inventories_and_Oil_Prices.pdf

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPC0_SAX_YCUOK_MBBL&f=W

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WTTSTUS1&f=W

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: mattee2264 on September 07, 2017, 09:02:43 AM

 I've done a bit of work on Denbury and it does look promising if you want to speculate on oil prices getting above $60 a barrel in the second half of this year.

 It is your classic overleveraged high cost producer with debt of $2.8BN versus equity of $500M and with all in sustaining costs of $55/barrel. They have some leg room as the covenants have been relaxed for this year and only apply to bank debt which is only $600M and the notes payable of $2.2BN aren't due until 2021 onwards. They also have $500M or so untapped credit facility. Of course these are subject to re-determination and they are going to need more external funds to sustain production if oil prices stay low. So the spectre of financial distress in a continued weak oil price environment contributing to keeping the stock price down.

 But it is trading close to early 2016 lows of $1 a share. And later in 2016 when it looked like OPEC would be able to get oil prices well above $50 and optimism returned the price got as high as $4.

 For some rough numbers Q1 2017 run rate is 60,000 BOE/D or 21.9m a year. With oil prices at $65 they'd make a margin of $10 per barrel or so and would make net income of just under $220m or lets say $132m after tax. There are about 374m shares outstanding so that works out at around 35 cents per share. Put a 10x multiple on that and you get into the mid $3s which is more or less where it traded late in 2016. As a point of reference in the high oil price environment before the crash they were making over $1 a share in income with a much higher cost base.

 Although my maths clearly indicates traders were being way too optimistic that oil prices would rebound a lot higher than they actually did as in reality they never got high enough for Denbury to break even. I'd expect a bit more scepticism this time round if oil prices started trending upwards. But by virtue of its cost structure and leverage you'd expect the stock price to outpace any oil price increase. And it does have defensive characteristics from the relaxed covenants, lack of near term maturities, and the fact it survived the initial shakeout etc.

 

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on September 07, 2017, 09:09:13 AM
mattee2264,

I had looked at this company, among a few, in 2015-6 but no longer up to date.
You may find the following helpful.

https://tulane.app.box.com/s/54xw38snzfxz3e61xy7gpmj2rra4iluo
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 20, 2017, 10:57:47 AM
QUOTE: "The market is selling inventories from everywhere,” @Mercuria CEO Marco Dunand said in an interview #OOTT

https://www.bloomberg.com/news/articles/2017-09-20/oil-traders-empty-key-crude-storage-hub-as-global-demand-booms

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: dyow on September 20, 2017, 10:43:47 PM
U.S. inventories of about everything are down around 5% from last year and the steepness in decline is a record according to some analysts. It has been 7 weeks in a row that we have had large declines.

Then you have U.S. refineries processing record amounts of oil and U.S. demand itself for gasoline hit a record this summer, so it is not just exports. Sure there is Harvey that will skew a lot of things temporarily but, I was told that the market was a forward looking mechanism?

I use CNBC mobile and everything related to oil is a negative headline. It is as bad as news related to Trump! However, you will not read that inventories are now at around the 5 year average and declining fast. There is not much fanfare either when the rig count declines as in recent weeks or when Lower 48 oil production declines as we saw last week.

This stinks manipulation to keep oil prices low. Maybe it is true hate for oil from the leftist media to promote their clean energy agenda or it is setup to help the economy but, eventually, and the longer it goes, we will hit a massive air pocket.

Venezuela is out of money and the U.S. is now putting sanctions on. Saudi Arabia still bleeds $50 to $100 billion/year at these prices. Most OPEC countries have large budget problems and Russia is not doing well either. Then there is every other country that you don't hear about with declining production already since a few years.

Then growth in demand next year is about all is needed to soak up all the cuts from OPEC and non-OPEC of 1.8 million barrels/day if the cuts are even real.

Right now this feels like a massive coiled spring. It is almost like traders are keeping it as low as possible and once things tighten further, they want to see how fast shale and others meet demand at slightly higher prices. What will be the reaction when there is no immediate response? Or worst, when some event hits supply by a tiny amount?

Cardboard

where am I?

gonna move to planet zolton.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on September 24, 2017, 07:58:40 AM
We might want to think in terms of the 'S' curve of technology - a slow start that builds slowly until adoption hits critical mass, rapid acceleration as per the neck of the curve, then slow fan out as it becomes evident that inflated & unrealistic market expectations are not going to be met. The length of time until critical mass, time in the neck, and time in the fan out; changing with every cycle. However, as with most cycles; the longer it takes to build - the stronger & longer it often turns out to be.

Global inventory is being rapidly run down, as per OPEC intent.
Supply disruption from N Korea/Trump, Venezuela, & the collapse of off-shore is sucking hard, resulting in as little price change as possible. Furthermore, pricing WTI at +/- USD 50/bbl keeps demand high - & bleeds out US shale production through high depletion. When the bulk of that global inventory is gone, we will have critical mass.

How long to get there is a guess, but most would grant the probability that the fuses are already burning.

SD
       
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on September 25, 2017, 05:32:10 AM
"Kuwaiti Oil Minister Essam al-Marzouq, who chaired Friday’s meeting in Vienna of the Joint Ministerial Monitoring Committee, said output curbs were helping cut global crude inventories to their five-year average, OPEC’s stated target"
http://ca.reuters.com/article/businessNews/idCAKCN1C002U-OCABS

Notable is that he's talking about AVERAGE, without any reference to the fact that supply during some of that time was extremely high as OPEC flooded the market for an extended period of time with the intent of driving US Shale out of business. He's really saying that at the margin, OPEC is going to be cutting back supply to roughly about the degree to which it flooded the market.

But during the five-year average period non OPEC production was depleting, & there wasn't much in the way of new global LONG TERM production investment to replace it - it was all shale oil with high immediate production and a typical 35%+ annual depletion rate. Better still is that reliance on shale to meet the GROWING production gap, means more drill crews are needed & pressure on costs - raising the cash cost of drilling by quite a bit. To fund the well, shale producers are going to need higher crude prices.

LONG TERM production investment (ie: offshore) costs a lot more upfront, but gives you YEARS of low cost oil as scaling keeps working the cost/bbl down. SHORT TERM production investment (ie: shale) costs less up front, but makes you highly vulnerable to supply shock as you need a new replacement well every 2 years just to stay still. And .... just as we saw with the US housing crises, if the refinancing rate (drilling costs) at the time your teaser rate expires (2 years after that first shale well gusher) is significantly higher, you're f****d.

All good  ;)

SD

   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on September 28, 2017, 05:21:55 AM
With dropping heavy oil supplies from both Mexico & Venezuela, future looking much brighter for many of the Canadian heavy oil producers. Share prices have by and large been annihilated over the 3 year bear market in oil - Pengrowth (PGF - TSX), Athabasca (ATH - TSX), Cenovus (CVE - TSX) , Cardinal (CJ - TSX), Gear (GXE - TSX)etc. Pipeline constraints will limit upside somewhat but oil by rail will be growing....


 http://www.worldoil.com/news/2017/8/11/venezuelas-citgo-turns-to-canada-for-oil-as-crisis-deepens
 
Venezuela's Citgo turns to Canada for oil as crisis deepens

By LUCIA KASSAI AND ROBERT TUTTLE on 8/11/2017

HOUSTON and CALGARY (Bloomberg) -- Venezuela’s oil-supply woes are so dire that its U.S. refineries are turning to Canada for help.

Citgo Petroleum Corp., the largest U.S. importer of Venezuelan oil and a unit of state-owned Petroleos de Venezuela SA, has started to make quiet inquiries to buy Canadian crude for its refineries in Texas and Louisiana, according to people familiar with the situation. The imports would be used to replace dwindling shipments from Venezuela, where output dropped to a 14-year low in July.

Venezuela, the country with the world’s largest crude reserves, is shipping less to Citgo as it redirects more of its shrinking supply to China and India to repay loans. Canadian crude, equally heavy and high in sulfur as Venezuelan oil, is a natural replacement, said Dinara Millington, V.P. of research at the Canadian Energy Research Institute in Calgary.

“Canada would be in the best position because that volume would be more or less guaranteed,” Millington said.

This would be the first time Citgo imports Canadian oil for its Lake Charles, Louisiana, and Corpus Christi, Texas, refineries in more than two years. Although Canada is the largest supplier of oil to the U.S., more than half of that is absorbed by plants in the Midwest. Limited pipeline connections and expensive rail make it hard for Canadian oil to reach buyers along the U.S. Gulf Coast, home to the world’s largest cluster of refineries.

Last week, U.S. imports from Venezuela fell to 507,000 barrels a day, the lowest level in five months, according to data from the U.S. Energy Information Administration. The latest monthly data show that Citgo’s Gulf refineries took 176,000 bpd from Venezuela in May, the least since December.

Spokesmen at PDVSA and Citgo didn’t return emails seeking comment.

Other refiners

Citgo’s not the only company looking north. U.S. refiners have also been on the hunt for alternative supplies amid concern that U.S. sanctions, currently aimed at Venezuelan nationals, may expand and target oil imports from the South American country. One Gulf refiner has started to test fuel oil from Russia and the Middle East and diluted bitumen from Canada as potential replacements, according to a person familiar with the matter.

Citgo is starting to feel the effects of falling oil output in Venezuela, exacerbated by 20 years of cash-for-oil deals signed with China, Japan, India and, most recently, Russia. Rosneft PJSC, which signed two long-term oil and oil product supply agreements, said it has made total prepayments for future oil supplies of about $6 billion. That leaves less oil to be processed by the refineries controlled by PDVSA.

The Venezuelan crisis isn’t only affecting the Citgo refineries. Venezuelan refineries are operating at less than half of their capacity. In Curacao, PDVSA’s Isla refinery has been importing light U.S. oil since last year to make up for lower domestic production of light grades.

Canadian producers

While Venezuela hurts, Canadian producers seem to be finally out to catch a break. A reduction in Venezuelan imports may bolster the case for the Keystone XL pipeline, which would carry western Canadian crude directly to the Gulf of Mexico, Millington said.

Heavy crudes from Canada, Mexico and elsewhere have increased in value after OPEC and other producers capped output, reducing primarily supplies of less-expensive heavy crude. Western Canadian Select was $10.05/bbl below benchmark U.S. West Texas Intermediate on Thursday, from a $16.15-discount at the end of 2016, according to data compiled by Bloomberg.

Higher prices for Canadian heavy crude would come at a welcome time for the industry, said Trevor McLeod, director of the Natural Resources Centre at the Canada West Foundation.

“The energy sector in Alberta is struggling a bit right now,” McLeod said in an interview. “They’d absolutely welcome a price increase.”

Crude oil production at Mexico's Pemex hits 22-year low


 https://www.reuters.com/article/us-mexico-pemex/crude-oil-production-at-mexicos-pemex-hits-22-year-low-idUSKCN1B32RT

MEXICO CITY (Reuters) - Monthly crude production from Mexican national oil company Pemex fell below 2 million barrels per day in July for the first time in more than two decades, according to company data released on Wednesday.

Average crude output in July was 1.99 million bpd. The monthly average was the lowest level of crude production for Pemex, officially known as Petroleos Mexicanos, since Hurricane Roxanne severely disrupted operations in October 1995, pushing down output that month to 1.90 million bpd.

Pemex has experienced a 13-year streak of declining oil output. Seeking to reverse the trend, a landmark oil opening finalized in 2014 ended the firm’s monopoly while allowing private producers to operate their own fields for the first time in decades.

Scheduled maintenance on a major Floating Production and Storage Offloading vessel in the Bay of Campeche, home to Pemex’s most productive oil fields, contributed a loss of about 90,000 bpd to the July total, according to a Pemex representative.

So far this year, average crude production stands at 2.01 million bpd.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on September 28, 2017, 03:18:24 PM
Sadly any heavy oil from the WCSB, in quantity, is essentially shut-in - as it is the last fill in the pipeline. The good news is that it means higher prices for the heavier grades (to cover alternative transport costs), AND A STRUCTURAL PRICE LIFT on all the lighter grades as well. The positives are starting to compound on each other.

All good.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 05, 2017, 05:34:00 AM
GMP's latest weekly crude oil cut analysis....

Price direction. Higher. The data is calling you to the starting blocks.

The latest round of weekly data was all-round price bullish in our view. Crude oil and
refined product exports reached record highs again, confirming what we have
been saying for months: that another backlog of crude oil and refined products
in the United States is most unlikely, even during the downtime created by the
refinery maintenance season. Commercial crude oil inventories took a big
tumble and which could have been closer to 7 million barrels if not for another
Harvey-related release of 950 thousand barrels from the strategic petroleum
reserve (SPR).

The market remains fearful of any sustained period of +US$50
per barrel prices for WTI, seemingly worried that another surge in Lower 48 U.S.
oil supply will be waiting in the wings to drown the market. Nonsense, we say,
as the plateauing of the oil rig count and the long running rollover in oil rig
productivities is a sign that U.S. supply growth is decelerating. The latest week to-week
reading for Lower 48 supplies of no change may be reflecting what we
suggested last week: that recent supply levels are overstated in the weekly
data versus the more complete monthly data. It might take multiple weeks of
flat to slightly lower figures for Lower 48 supplies before the market begins to
embrace the concept that U.S. supply growth is not the ever rising price bearish
monster than many seem to fear.

So if all this data is so bullish, what is holding back WTI prices
(and spooking Brent as well)?

We think there are two factors.


The first is the still high levels of crude oil inventories at
Cushing (Figure 7), the physical delivery point for the Nymex
WTI contract. Yes, these levels are high, but remain well
below the effective capacity level of 77 million barrels and are
still well below the record levels reached earlier this year.
Moreover, the recent price discounts of WTI to Brent, with
Brent being a benchmark for imported crude oil into the U.S.
East Coast, is resulting in more railing of Midwest and Bakken
barrels to the East Coast. There are anecdotal indications that
more Midwest crude is being shipped to the Gulf Coast
because of the recent discounts. This crude could be refined
domestically or exported. This type of action will slow the
tendency for Cushing inventories to rise.

Second, we believe there is still overstated fears that prices
north of US$50 per barrel on a sustained basis will result in
some kind of surge in U.S. crude oil production. We think this
to be more fiction than reality. In our previous analysis we
took great pains to point out that the U.S. oil rig count has
recently plateaued, with a small pop higher last week, but also
that U.S. oil rig productivities rolled over months ago. These
two pieces of information should be sufficient to dispel any
fears that supplies will be rocketing higher to swamp the U.S.
market with crude oil. Besides, it can be exported almost as
fast as it can be produced. The rig productivities and little net
gain in oil rig counts in recent months all suggest a
deceleration in crude oil supply growth, not some magical
resurgence.

Martin King (403) 262-0625
mking@gmpfirstenergy.com
Nate J. Heywood (403) 262-0622
njheywood@gmpfirstenergy.com
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 05, 2017, 06:20:02 AM
Thanks Sculpin!

This analysis by GMP is bang on.

Lower 48 States production in the weekly reports has likely been overstated for months. I have said for a few years now that this is crap and their reporting of "0" movement from week to week which happens many times a year is indicative of their incompetence.

Regarding the incredible $6 per barrel gap between Brent and WTI, it must be a mouth watering opportunity to large trading houses and it seems to. Exports were almost 2 million barrels/day last week which has to be a record and over double the level of exports seen all year.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 05, 2017, 09:02:23 AM
The black swan in this - is that at some point there's going to be a reconciliation; of the inventory that is actually there, versus the inventory claimed per the production reports. Ultimately the shortfall will be made up from a big draw on the SPR, & it will shock.

This is very similar to a large distributor installing a new inventory system. We all know there will be glitches, but it's hard for the sponsors to publicly recognize it - so they don't. Chaos prevails as what is supposed to be there isn't, the stores work around it by 'plugging' their own numbers in, & eventually there's a system wide count of the inventory - & a write-off. Often painful.

Sometimes, incompetence can be a good thing  ;)

SD 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 05, 2017, 09:08:41 AM
"Sometimes, incompetence can be a good thing "

Maybe good for us investors in the oil patch but, pretty bad for society.

A slowly moving higher oil price would prevent economic shocks and favour the transition overtime to other sources of energy.

So for these organizations and governments to "tweak" the data is profoundly negative in my opinion.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on October 17, 2017, 06:35:26 AM
I took advantage of the high volatility in GXE yesterday and bought some more at CAD$0.75. For example, last week the stock moved up extremely to $0.90 from $0.76-0.77 on no news, only to end the day on $0.82.

On a more general note, while prices are nearing year highs again, I believe the market underestimates rebalancing, oil demand growth and the risks in L-America, Iraq, Nigeria etc. This is mostly a hunch on current market sentiment however from what I've read. Recency bias at work if you ask me. And as SD pointed out, these "seemingly unforseeable black swans" can cause shocks that likely aren't priced in.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 17, 2017, 08:11:05 AM
I think that you should consider T-CJ and T-CONA instead of T-GXE.

Both have retreated a fair bit over the last 2 to 3 weeks. All these players are into heavy oil but, EV/PDP NAV is much lower for CJ/CONA, similar price per flowing, much larger/respected players and their decline rate is much lower too. And CJ pays you nicely to wait!

Bought some more CJ this morning.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on October 18, 2017, 05:52:55 AM
I think that you should consider T-CJ and T-CONA instead of T-GXE.

Both have retreated a fair bit over the last 2 to 3 weeks. All these players are into heavy oil but, EV/PDP NAV is much lower for CJ/CONA, similar price per flowing, much larger/respected players and their decline rate is much lower too. And CJ pays you nicely to wait!

Bought some more CJ this morning.

Cardboard

CIBC initiated coverage on CJ/CONA this morning. CJ outperform and CONA underperform.

Personally, I still like GXE because of the lower financial leverage but more financial leverage could be more attractive if oil prices get very strong. Also, long PPR, IPO and ATU.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 18, 2017, 07:36:00 AM
Lower 48 States production down by 1.083 million barrels/day according to EIA???

Have we finally saw the giant lie pop or is it a mistake? Nonetheless, it was down last week and very likely down this week too.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on October 18, 2017, 08:52:41 AM
Lower 48 States production down by 1.083 million barrels/day according to EIA???

Have we finally saw the giant lie pop or is it a mistake? Nonetheless, it was down last week and very likely down this week too.

Cardboard

I think it’s supposed to be the GOM production offline because of storm activity. Should bounce back.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 18, 2017, 09:23:04 AM
Our own thoughts are that the errors are now so big, and so widespread - that it is no longer possible to cover them by a 're-benchmark'. We're also getting an idea as to the general level & degree of incompetency, as very few would attempt to 'smooth the books' & still manage to get it this wrong.

The best analogy we can think of is FIMA when Hurricane Katrina came on-shore. A 'good ol boys' sleepy response agency pumping out numbers every week; filled with the clueless - that couldn't deliver when the chips were down  Getting away with what they were doing, because there was no reason to believe that their capabilities just weren't up to it.

We would SPECULATE that while the SPR may be showing storage near the top of the average range; the US is not the beneficial owner of a material chunk of it. We're looking at a retail sales floor & seeing lots of inventory available for sale, but not realizing that a good portion of it is consignment inventory being STORED/sold on our floor (for a FEE/commission) - but actually owned by others.

When prices were low & 3rd party storing was widespread, the problem was that there wasn't enough storage capacity to go around. We would suggest that some of the SPR capacity was made available for a fee - & that the 3rd party oil hasn't come out yet. Ultimately we would expect a physical for paper swap, that they would previously not have been disclosed.   

Nice to see you back.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 18, 2017, 12:42:01 PM
"I think it’s supposed to be the GOM production offline because of storm activity. Should bounce back."

Sure but, keep an eye on next week production numbers vs last week at 8.977 million barrels/day for Lower 48. If this comes significantly lower than that, then we will know that they have used the storm to "adjust" downward their weekly figure which many have called out as being erroneous vs their monthly figures.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on October 18, 2017, 04:43:38 PM
"I think it’s supposed to be the GOM production offline because of storm activity. Should bounce back."

Sure but, keep an eye on next week production numbers vs last week at 8.977 million barrels/day for Lower 48. If this comes significantly lower than that, then we will know that they have used the storm to "adjust" downward their weekly figure which many have called out as being erroneous vs their monthly figures.

Cardboard

I hear you. As long as global inventories keep falling though, prices will eventually adjust.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 18, 2017, 05:31:05 PM
Then you have the WTI fraud or over $6 gap to Brent! How useful are these hurricanes to manipulate a paper market?

Seaborne or not where are arbitrageurs these days?

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on October 18, 2017, 06:12:11 PM
Then you have the WTI fraud or over $6 gap to Brent! How useful are these hurricanes to manipulate a paper market?

Seaborne or not where are arbitrageurs these days?

Cardboard

My understanding is that around a $4 spread between WTI and Brent is enough to get arbs interested. At $6 we are seeing exports reaching record levels and inventories are falling so I think the market is adjusting. Commercial crude inventories are still 115m bbl over the 10 yr seasonal average (which is an 85m bbl improvement since March). If the trend continues, one would expect prices to improve and spreads to tighten.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on October 18, 2017, 07:34:02 PM
On oil production, some people seem to think the monthly numbers are more accurate: https://www.eia.gov/petroleum/production/ . They're fairly delayed (last one was July) so by the time they come out they aren't very newsworthy. I don't know enough to have a view, but it is a different data set.

Any views on the WCS/WTI differential? Between the possibilities of Keystone XL and TransMountain (it sounds like the recent Enbridge line is more logistical simplification than actual increased oil) it seems the oil may be a bit less landlocked? I don't know enough about the chemistry, but if Venezuela production decreases that could increase demand for heavy Canadian oil?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 19, 2017, 05:38:41 AM
"Any views on the WCS/WTI differential? Between the possibilities of Keystone XL and TransMountain (it sounds like the recent Enbridge line is more logistical simplification than actual increased oil) it seems the oil may be a bit less landlocked? I don't know enough about the chemistry, but if Venezuela production decreases that could increase demand for heavy Canadian oil?"

There's a strong argument that while this widens, it's largely offset by FX effects. The price of WTI rising because of a bump in the value of its heavier fractions (driven by Venezuelan cutbacks), the price of WCS staying flat as it isn't displacing lighter fractions in the pipeline. $CAD diving as there's less CAD oil being sold.

To really change this Alberta needs to be refining versus just exporting, & exporting gasoline via pipeline.
Unfortunately, its highly unlikely to occur.

SD
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 25, 2017, 12:12:52 PM
Well, it looks like that the hurricane effect (Gulf area partial shutdown) was the entire explanation for last week big drop in Lower 48 States production estimate. Looked much larger than Harvey which basically paralyzed Houston hence my initial reaction.

They are now saying 9.003 million barrels/day which is 26,000 barrels/day above 2 weeks ago. I still don't trust this number with so many flaws over the years with: production moving by zero for I don't know how many weekly estimates?, monthly production numbers never matching and this:

Total petroleum stock have declined by a whopping 12.2 millions barrels last week while crude oil was up by only 0.5 million barrels. We are not into the Summer driving season but, typically a pretty weak demand period for gasoline and even distillates or both down over 5 million barrels each. So pretty strong consumption. There are also a lot of refineries undergoing maintenance and switch to winter fuels but, they normally do it at this time since consumption is lower.

Then if you look at oil demand from refineries, it pretty much matched the net imports increase. However, we are told that production from Lower 48 States did increase by 1.1 million barrels/day from the week before or 7.7 million barrels. Where did that oil go?

The only logical explanation would be that this oil is still in transit from the wells to storage area. So if it is not added up to oil inventories next week, while taking into account the other numbers, there is definitely something really weird with that estimate.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 25, 2017, 12:32:17 PM
Tax Loss Selling Candidates in Canadian Energy - Probably Corps & Mutual Funds crystalizing their tax losses - Canadian energy has no shortage of opportunities....

Symbol   Company   YTD Price Change
   
MEI   Manitok Energy Inc.   -70.3
PONY   Painted Pony Energy   -69.3
CPI   Condor Petroleum Inc.   -69.2
NAL   Newalta Corporation   -69.0
CQE   Cequence Energy Ltd.   -64.8
OXC   Oryx Petroleum Corp*   -64.2
WRG   Western Energy Services   -61.3
CJ   Cardinal Energy Ltd.   -60.4
EGL   Eagle Energy Inc.   -60.3
PD   Precision Drilling Corp   -58.7
PNE   Pine Cliff Energy Ltd.   -56.6
TDG   Trinidad Drilling Ltd.   -56.3
PMT   Perpetual Energy Inc.   -54.9
BXE   Bellatrix Exploration   -53.6
BTE   Baytex Energy Corp.   -53.5
BNE   Bonterra Energy Corp.   -52.0
CPG   Crescent Pt Energy Corp   -49.8
PHX   PHX Energy Services   -48.2
ATH   Athabasca Oil Corp   -47.8
CONA   Cona Resources Ltd.   -47.4
OBE   Obsidian Energy Ltd.   -46.8
BNP   Bonavista Energy Corp.   -46.8
BIR   Birchcliff Energy Ltd.   -46.0
GXO   Granite Oil Corp.   -45.7
CR   Crew Energy Inc.   -45.0
ZAR   Zargon Oil & Gas Ltd.   -44.9
PEY   Peyto Expl. & Dev. Corp   -44.9
AOI   Africa Oil Corp.*   -42.5
VII   Seven Generations Egy   -42.4
MEG   MEG Energy Corp.   -41.9
TAO   TAG Oil Ltd.   -41.6
CVE   Cenovus Energy Inc.   -40.9
SPE   Spartan Energy Corp.   -40.6
SGY   Surge Energy Inc.   -39.0
GXE   Gear Energy Ltd.   -38.1
TOU   Tourmaline Oil Corp.   -37.0
VLE   Valeura Energy Inc.   -36.8
CKE   Chinook Energy Inc.   -36.3
PXX   BlackPearl Resources   -36.2
GTE   Gran Tierra Energy Inc*   -35.2
TNP   TransAtlantic Petro.*   -34.9
SRX   Storm Resources Ltd.   -34.9
SES   Secure Energy Services   -34.7
PGF   Pengrowth Energy Corp.   -33.7
SOG   Strategic Oil & Gas Ltd   -33.3
XOP   Cdn Overseas Petroleum*   -33.3
RRX   Raging River Explor.   -33.2
ESI   Ensign Energy Services   -33.0
UEX   UEX Corporation   -32.7
GRO   GrowMax Resources Corp.   -32.3
ARX   ARC Resources Ltd.   -32.1
PRQ   Petrus Resources Ltd.   -31.4
DEE   Delphi Energy Corp.   -30.8
SNM   ShaMaran Petroleum*   -30.4
TOG   TORC Oil & Gas Ltd.   -29.4
ESN   Essential Energy Srvcs   -28.9
JOY   Journey Energy Inc   -28.6
WCP   Whitecap Resources Inc.   -28.0
LXE   Leucrotta Exploration   -27.9
SCL   ShawCor Ltd.   -26.1
DML   Denison Mines Corp.*   -25.7
XDC   Xtreme Drilling Corp.   -25.0
VET   Vermilion Energy Inc.   -24.7
AAV   Advantage Oil & Gas Ltd   -24.2
HWO   High Arctic Energy Serv   -21.9
EFR   Energy Fuels Inc.*   -19.9
CCO   Cameco Corporation   -19.7
OYL   CGX Energy Inc.*   -19.2
AKT.A   AKITA Drilling Ltd., A   -17.4
RMP   RMP Energy Inc.   -17.1
TVE   Tamarack Valley Energy   -17.1
MTL   Mullen Group Ltd.   -16.3
POE   Pan Orient Energy   -16.3
CEU   CES Energy Solutions   -16.1
IMO   Imperial Oil Limited   -15.9
ERF   Enerplus Corporation   -15.7
ALA   AltaGas Ltd.   -15.0
ECA   EnCana Corporation*   -13.2
ENF   Enbridge IF Holdings   -12.9
IPL   Inter Pipeline Ltd.   -12.9
ENB   Enbridge Inc.   -12.7
QEC   Questerre Energy Corp.   -12.6
TWM   Tidewater Midstream   -12.6
CNE   Canacol Energy Ltd*   -12.0
TGL   TransGlobe Energy Corp*   -11.5
PKI   Parkland Fuel Corp.   -11.1
PSI   Pason Systems Inc.   -10.7
FCU   Fission Uranium Corp.   -9.4
SRHI   Sprott Resource Holding   -9.1
KEY   Keyera Corp.   -8.7
GEI   Gibson Energy Inc.   -8.6
TCW   Trican Well Service Ltd   -8.0
PXT   Parex Resources Inc.*   -6.5
MCB   McCoy Global Inc.   -6.1
SEN   Serinus Energy Inc.*   -5.3
SU   Suncor Energy Inc.   -4.3
KEL   Kelt Exploration Ltd.   -3.8
CNQ   Cdn Natural Resources   -3.5
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on October 25, 2017, 12:47:06 PM
That list doesn't even include two of my favourite losers, PPR.TO and IPO.TO.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 26, 2017, 07:27:06 AM
Picked up off the IV Energy board...


Global inventories were 373M over the 5 year average last November...they were 170M over there 5 year average as of this August off which 135M was oil and other 35M were refined products..Since then, as of the end of October, latest data shows 125M over the 5 year average. That's a 250M barrel spread over about 11 months..now add 100M decrease in floating storage and hidden storage in S Africa and the Caribbean...that's now a 370M decline over 11 months...Add Kurd region being down 300k per day and accelerated declines as reported by OPEC and you get about 40 to 45M barrels reduction per month as we stand right now..The world will be going into shortages by the end of the year and dropping below the 5 year average as we speak...there are more pipes out there now too then three years ago which should be netted out of the 5 year average per Ross at Platts



https://www.investorvillage.com/groups.asp?mb=19168&mn=115567&pt=msg&mid=17644510
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 26, 2017, 08:09:43 AM
Keep in mind as well that the rolling 5 year average is ALSO a very high number, as cheap oil was deliberately being put into storage for much of this period. Hence, when inventory initially falls below the 5 year average - it is highly likely that the reaction will be a lot more muted than many would expect, continuing the sleepwalk.

A useful analogy is the drug trade at an extended Rave. Initially the drugs go out at low prices to displace competing product, prices and quantity then gradually increase to both distort judgement & addict as deeply as possible, then supply is suddenly cut back to create panic pricing. Time honored, ruthless, effective - & unfortunately, we know that it works very very well.

Look at what the 5-year average NORMALLY is across MULTIPLE cycles, subtract it from the current average; and divide the difference by the average draw down rate/month for the last 12-18 months. The result is a rough idea as to how long before we go to panic pricing.

Different strokes.

SD


 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on October 26, 2017, 08:21:34 AM
"A useful analogy is the drug trade at an extended Rave. Initially the drugs go out at low prices to displace competing product, prices and quantity then gradually increase to both distort judgement & addict as deeply as possible, then supply is suddenly cut back to create panic pricing. Time honored, ruthless, effective - & unfortunately, we know that it works very very well."

Is this from personal experience and use? LOL!

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 26, 2017, 09:00:42 AM
Conversation with 'interesting-people'.
Good is good - no matter which side of the line they happen to be on; and the drug dealer sends his/her kids to business school - the same as everybody else. Perspectives are different, but otherwise its largely the same issues - just in a different wrapper.  It's not that unusual either; think of the traditional policemen/villain spectrum, where both are often 'family' businesses. 

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on October 27, 2017, 06:52:24 AM
I think that you should consider T-CJ and T-CONA instead of T-GXE.

Both have retreated a fair bit over the last 2 to 3 weeks. All these players are into heavy oil but, EV/PDP NAV is much lower for CJ/CONA, similar price per flowing, much larger/respected players and their decline rate is much lower too. And CJ pays you nicely to wait!

Bought some more CJ this morning.

Cardboard

Oddly enough, I specifically like GXE because of how small and nimble they are. Their strategy works great on current scale. Just look at the latest montly report on Paradise Hill. Great operators in current markets and their lower leverage doesn't make higher prices a must. More likely to do ok in most environments than many competitors.

Valuation versus a year ago is getting absurd but it is what it is. Last year in December was a perfect storm combining higher oil prices, portfolio window dressing and some euforia. Should have taken some of the table then as a trade. I've started to learn (very slowly) that is generally a good idea to sell some whenever I start to check on my exact profits on a stock.  ::)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Paarslaars on October 27, 2017, 07:05:19 AM
I've started to learn (very slowly) that is generally a good idea to sell some whenever I start to check on my exact profits on a stock.  ::)

Same here... but I get greedy.  ::)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on October 27, 2017, 09:12:12 AM
https://www.wsj.com/articles/oil-prices-are-up-why-arent-energy-shares-1508930616

This article sums it up nicely. I don't see anything excessive happening price wise either but some companies are simply decently profitable at current prices and absolutely ignored by the market.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on October 30, 2017, 08:10:21 AM
https://www.reuters.com/article/us-oil-prices-kemp/oil-market-set-to-move-from-rebalancing-to-tightening-kemp-idUSKBN1CZ0UE

Quote
The current rebalancing process is already therefore fairly mature and at some point in the next six to nine months will be more accurately described as tightening.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on October 30, 2017, 01:56:20 PM
Many moving variables.

Following on a link with PetroChina.

Helpful sometimes to look back and to see “patterns” in this cyclical game that has a speculative twist to it.

Market conditions now are, in many ways, similar to the 2002-3 period, when Mr. Buffett bought into PetroChina.

Here’s a link that exposes an interesting perpective on the elasticity of supply:

http://euanmearns.com/oil-price-scenario-for-2017/

My take is that the elasticity of supply looks quite favorable in the next few months especially if you factor in the impact of OPEC trying not to flood the market until the Aramco IPO gets underway.

Here’s another retrospective link:

http://www.fticonsulting.com/~/media/Files/emea--files/insights/reports/fti-oil-price-drivers-report.pdf

It’s relevant because I find the report is well researched and well done. Interestingly, as of June 2016, the author did predict higher prices despite not factoring in a high likelihood of a turnaround in strategy for Saudi Arabia.

However, my take is that we are far into the global economic cycle and from an analysis (and probably biases), I am bearish on the global economy and therefore, I find that the favorable supply side factors are not enough to balance (on a weighted probability basis), the potentially negative impact on demand from a global slowdown.

If you don’t have these macro concerns however, the speculative outlook looks positive.

BTW, saw a video this morning which, somehow, may be related.
From King Salman's Future Investment Initiative:
https://www.youtube.com/watch?v=N53DzL3_BHA
They want to "show the Planet how it's done".
When dreams become reality. ???
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on October 30, 2017, 02:35:57 PM
If you don’t have these macro concerns however, the speculative outlook looks positive.
Is demand really that elastic?  Looking at this chart (http://www.indexmundi.com/energy/), demand went from 86.2mbpd in 07 to 84.5mbpd in 09. Before that there really weren't any noticeable dips since 1983.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on October 30, 2017, 02:39:15 PM
Could be panic buying into this sector over next few months. Pretty much everyone (retail, pension, public funds, hedgies ) way way underweight energy with mainstream mantra of conventional hydrocarbons going to be cheap forever and EV's, solar, wind going to solve all of our problems.

http://www.gorozen.com/static/assets/pdf/ql/GRAQuarterlyLetter3Q2017.pdf


But now another important point has emerged in our oil bull market journey that must be highlighted. As demonstrated by the energy analyst Mike Bodell on Chart 2, the inventories have now drawn down to critical points where further inventory reductions will result in severe upward price pressure. As you can easily see from our modeling, we have marked where inventories will stand by both year end and by the first quarter of 2018. If our inventory extrapolation is correct and inventories reach these levels (and they should—our modeling has been correct over the past nine months), then prices have historically surpassed $100 per barrel.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on October 30, 2017, 03:12:15 PM
Many moving variables.

Following on a link with PetroChina.

Helpful sometimes to look back and to see “patterns” in this cyclical game that has a speculative twist to it.

Market conditions now are, in many ways, similar to the 2002-3 period, when Mr. Buffett bought into PetroChina.

Here’s a link that exposes an interesting perpective on the elasticity of supply:

http://euanmearns.com/oil-price-scenario-for-2017/

My take is that the elasticity of supply looks quite favorable in the next few months especially if you factor in the impact of OPEC trying not to flood the market until the Aramco IPO gets underway.

Here’s another retrospective link:

http://www.fticonsulting.com/~/media/Files/emea--files/insights/reports/fti-oil-price-drivers-report.pdf

It’s relevant because I find the report is well researched and well done. Interestingly, as of June 2016, the author did predict higher prices despite not factoring in a high likelihood of a turnaround in strategy for Saudi Arabia.

However, my take is that we are far into the global economic cycle and from an analysis (and probably biases), I am bearish on the global economy and therefore, I find that the favorable supply side factors are not enough to balance (on a weighted probability basis), the potentially negative impact on demand from a global slowdown.

If you don’t have these macro concerns however, the speculative outlook looks positive.

BTW, saw a video this morning which, somehow, may be related.
From King Salman's Future Investment Initiative:
https://www.youtube.com/watch?v=N53DzL3_BHA
They want to "show the Planet how it's done".
When dreams become reality. ???

Re: recession risk.  I think the risk of recession will be become much greater as the oil prices rise.  Looking back in history, most major recessions followed oil price spikes.  Jeremy Grantham wrote a dissertation on this a couple of years ago blaming the 2008 crash at least partly on the high oil prices leading up.   It just makes sense that the largest input into world manufacturing and consumption would have an outsize effect in the economy. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on October 30, 2017, 04:00:13 PM
Could be panic buying into this sector over next few months. Pretty much everyone (retail, pension, public funds, hedgies ) way way underweight energy with mainstream mantra of conventional hydrocarbons going to be cheap forever and EV's, solar, wind going to solve all of our problems.

http://www.gorozen.com/static/assets/pdf/ql/GRAQuarterlyLetter3Q2017.pdf


But now another important point has emerged in our oil bull market journey that must be highlighted. As demonstrated by the energy analyst Mike Bodell on Chart 2, the inventories have now drawn down to critical points where further inventory reductions will result in severe upward price pressure. As you can easily see from our modeling, we have marked where inventories will stand by both year end and by the first quarter of 2018. If our inventory extrapolation is correct and inventories reach these levels (and they should—our modeling has been correct over the past nine months), then prices have historically surpassed $100 per barrel.

This is a very good report, thank's for posting. Couple of add-on's.

The level 2 targets will all use longer shot lengths (up to 5 miles in some cases) to make up for the depletion on the level 1 bores. You don't just need 2 (or more) rigs, they are also drilling for a longer distance & taking more time to drill - for a higher total cost. The best level 2 targets will also drill first, boosting production more than expected.

A good many of the big GLOBAL fields have ALSO peaked - it isn't JUST lower than anticipated US production. Part of the rising Brent -WTI spread is because the North Sea (& connecting pipes) just does not have the 'on-line' production anymore. Sucking on US inventory harder, for longer.

Alberta Syncrude also locks up tighter - the higher WTI goes, as its the last fill in the pipe. Absent Venezuela, & US refiners are going to have to pay enough rail freight to displace other fills in the pipe. Cost pushes AS WELL AS supply pushes. 

All good, but PLEASE don't tell anybody  ;)

SD     
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on October 30, 2017, 06:34:55 PM
"Is demand really that elastic?  Looking at this chart (http://www.indexmundi.com/energy/), demand went from 86.2mbpd in 07 to 84.5mbpd in 09. Before that there really weren't any noticeable dips since 1983."

That's exactly the point. The demand for oil is quite inelastic (vertical line). Small changes in demand will cause a relatively large change in price. Combine that with sentiment and you get the price curve in 2007-9. Perhaps the interesting part is that you get the opposite effect with only slightly higher demand (especially if unexpected).

A practical application of this. I don't know if this happens in your area but sometimes, in my area, with higher gas prices, there are attempts to "boycott" gas stations on a particular day only to see line-ups the next day. ::)

As far as the Goehring & Rozencwajg Associates, I understand that they find that present conditions are similar to the 2005-6 period which I find interesting. I would find them even more convinving if they were able to predict or least protect themselves from the 2014-6 price decline.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on October 30, 2017, 08:22:38 PM
"Re: recession risk.  I think the risk of recession will be become much greater as the oil prices rise.  Looking back in history, most major recessions followed oil price spikes.  Jeremy Grantham wrote a dissertation on this a couple of years ago blaming the 2008 crash at least partly on the high oil prices leading up.   It just makes sense that the largest input into world manufacturing and consumption would have an outsize effect in the economy."

Who knows what will happen?
I certainly don't.

But, if you compare the global economy to a boxing match, I figure that we are in the late rounds and it might not take a big punch.
Have you seen the tight correlation of the oil and food price index?
Looking for substitution may not be limited to extractable ressources.
May we all do well.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on October 30, 2017, 09:20:14 PM
"Is demand really that elastic?  Looking at this chart (http://www.indexmundi.com/energy/), demand went from 86.2mbpd in 07 to 84.5mbpd in 09. Before that there really weren't any noticeable dips since 1983."

That's exactly the point. The demand for oil is quite inelastic (vertical line). Small changes in demand will cause a relatively large change in price. Combine that with sentiment and you get the price curve in 2007-9. Perhaps the interesting part is that you get the opposite effect with only slightly higher demand (especially if unexpected).
Fair point.. overall differences being discussed between supply and demand are pretty small, so even a 2mbpd difference could easily swing it the other direction.

Quote
As far as the Goehring & Rozencwajg Associates, I understand that they find that present conditions are similar to the 2005-6 period which I find interesting. I would find them even more convinving if they were able to predict or least protect themselves from the 2014-6 price decline.
Fair point as well. I can't read this whole article but doesn't look like they fared well: https://www.bloomberg.com/news/articles/2016-02-10/chilton-said-to-close-commodity-hedge-fund-as-manager-retires

Surprisingly I've heard of very few who were betting against oil in 2014. Looking back it seems like such an obvious trade, but I guess that's true of a lot of investments.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 02, 2017, 04:47:45 AM
https://www.bloomberg.com/news/articles/2017-11-01/fracking-boom-hits-midlife-crisis-as-investors-geologists-see-shale-limits

Piece on sustainability of US oil output.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 02, 2017, 07:15:17 AM
https://www.bloomberg.com/news/articles/2017-11-01/fracking-boom-hits-midlife-crisis-as-investors-geologists-see-shale-limits

Piece on sustainability of US oil output.

Interesting tidbit on the gas. Explains why crude stocks are drawing down - & gas prices are both gradually falling, & expected to remain low for quite some time. The gas is landlocked, storage is full, & old shale wells are getting shut-in as additional storage. In times past the gas would have been flared.     

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 03, 2017, 04:33:01 AM
https://www.bloomberg.com/news/articles/2017-11-01/fracking-boom-hits-midlife-crisis-as-investors-geologists-see-shale-limits

Piece on sustainability of US oil output.

Interesting tidbit on the gas. Explains why crude stocks are drawing down - & gas prices are both gradually falling, & expected to remain low for quite some time. The gas is landlocked, storage is full, & old shale wells are getting shut-in as additional storage. In times past the gas would have been flared.     

SD

Natural gas storage is actually below the 5 year average and well below last year and of course LNG exports is an option so gas isn’t landlocked any more. There is definitely a view (and it may be correct) that it is very easy to turn on more gas production in response to price improvement.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on November 03, 2017, 03:52:28 PM
Natural gas storage is actually below the 5 year average and well below last year and of course LNG exports is an option so gas isn’t landlocked any more. There is definitely a view (and it may be correct) that it is very easy to turn on more gas production in response to price improvement.
$9/mmbtu in China: http://www.reuters.com/article/us-china-lng/as-china-faces-winter-gas-crunch-lng-prices-soar-idUSKBN1D30EH?rpc=401&

Good spread in there for somebody. Think I read somewhere that the cost to liquify/transport is ~$1.50/mmbtu on average.

My biggest oil holding (HNZ Group) announced a sale to the CEO (Canadian assets) and PHI (South Pacific assets). Nice IRR, but lowball offer in my opinion. They're buying the company basically for asset value right as a few contracts are starting to ramp up and the oil market is clearly turning. Last quarter was better than it looked because they had start-up costs for these big contracts. Canadian ownership laws for these types of companies make the competition pretty limited. Time to find the next one..
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 06, 2017, 05:03:23 AM
And just like that, the narrative seems to be changing.    If oil stock declines keep up, the new narrative could be here to stay. 

And we got the big OPEC meeting end of November.   Seems like market is betting on extending throughout 2018. 

It started over a year ago, but there is a good chance that a multi year oil bull run is upon us. 

Macro-wise, this could really support the global market rally for more years to come...



 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Paarslaars on November 06, 2017, 05:52:00 AM
For a while, then recession.  :D
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 06, 2017, 08:55:37 AM
Well something is up....  really large move.     
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 06, 2017, 09:04:55 AM
Venezuela default, turmoil inside Saudi Arabia with multiple high profile arrests, Saudi Arabia accusing Iran of helping the Houthis launch a ballistic missile towards Riyad's airport that was intercepted and then improving oil fundamentals...

So actually, lots of things are up  ;D

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 06, 2017, 09:13:10 AM
I got interested in the disconnect between the Canadian E&P's and oil price recently.  But 1) there seem to be so many different Canadian companies to look through, that it's such a big exercise to compare one vs. another, and 2) How does one think through the take away constrains now that some of contemplated pipelines got canceled?   Are there publicly available resources / discussions that people care to share?

Thank you.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on November 06, 2017, 09:23:47 AM
I got interested in the disconnect between the Canadian E&P's and oil price recently.  But 1) there seem to be so many different Canadian companies to look through, that it's such a big exercise to compare one vs. another, and 2) How does one think through the take away constrains now that some of contemplated pipelines got canceled?   Are there publicly available resources / discussions that people care to share?

Thank you.

(https://insideclimatenews.org/sites/default/files/styles/icn_full_wrap_wide/public/CanadaPipelinesChart529px.png?itok=sXlVfyIK)

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 06, 2017, 09:30:38 AM
I got interested in the disconnect between the Canadian E&P's and oil price recently.  But 1) there seem to be so many different Canadian companies to look through, that it's such a big exercise to compare one vs. another, and 2) How does one think through the take away constrains now that some of contemplated pipelines got canceled?   Are there publicly available resources / discussions that people care to share?

Thank you.

1) Yes, alot of companies. 
2) Doesn't matter to incumbent oil producers.  There is plenty of pipe, and if that doesn't work rail can be used. 

Read PWE thread, this thread, Foresight Energy.  There are tons of links. 

I have been at this for three years reading every day, on top of having previously invested years ago in O&G.  So have Cardboard, SD, Sculpin, and a few others. 

Maybe a bit late to the game. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 06, 2017, 10:27:48 AM
You might want to read some of the posts on the IV 'energy' thread, particularly those from the Lebanese community.

It is highly likely that the KSA's MBS Project has begun encountering opposition, and that it is entering some of its more persuasive phases. It is also unlikely that Saturdays rocket attack was a coincidence - and there will be consequences. As has been recently reported, some of the KSA helicopters seem to have an unhealthy habit of suddenly falling out of the air.

There are also a lot of empty tankers currently in the LOOP, looking for a fill-up. Trump is selling weapons for oil in Asia, the clock is ticking on NK (2018 Winter Olympics), and at a average 2M bbl a pop - the draws could be significant over the next few weeks.

..... Buy a tanker of US crude, in return for 2-3 Patriot missile systems?

All of it good for price.

SD           
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 06, 2017, 11:08:38 AM
I'm having mixed feelings. Fully stocked on oil stocks (well, GXE mainly) but these kind of moves feel very unnatural after getting used to seeing such low oil prices. Sentiment has completely shifted in a matter of two weeks, very odd. You'll see that this post coincides with the medium term top! ;)

I did add some GXE even today (after it was already up 4%) as expected CF just rose circa 10% based on current prices (which is of course premature!). Hard to buy though... Valuation gap stays as wide as it was weeks ago at $0.70.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 06, 2017, 11:47:11 AM
I'm having mixed feelings. Fully stocked on oil stocks (well, GXE mainly) but these kind of moves feel very unnatural after getting used to seeing such low oil prices. Sentiment has completely shifted in a matter of two weeks, very odd. You'll see that this post coincides with the medium term top! ;)

I did add some GXE even today (after it was already up 4%) as expected CF just rose circa 10% based on current prices (which is of course premature!). Hard to buy though... Valuation gap stays as wide as it was weeks ago at $0.70.

Well your not the only one who believes this price rise is just temporary. 

WCP, my largest oil holding has gone up a tiny bit, even though they raised the dividend last week, and analysts uniformly have buys on the stock and target prices from 12 to 16 - its around 9.60.

OBE went up a little bit and is moribund again. 

It appears there is going to be a lag effect.  Both of these companies and most others are going to be hedging into 2018 on the oil price rise. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on November 06, 2017, 12:43:12 PM
A sudden change is what I expected, although it remains to be seen if this rally is that change or if this is just transitory.

In 2014, the prices went from $100 in August to $50 in January. The fundamentals didn't change that quickly, but the market realized the fundamentals had changed that quickly.  http://www.macrotrends.net/1369/crude-oil-price-history-chart
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 06, 2017, 12:54:04 PM
Maybe a bit late to the game.

I did buy a bit a while ago, and it feels like it's indeed a bit late to chase the current move right now.  Not able to distinguish one vs. another I decided to diversify and took a bit each of CJ, WCP, RRX CPG, BNE.   No particular reason on why one vs. another, just took the oilier names, and for no particular reasons (maybe it's the pipeline worries), didn't buy any oil sand names.  Other names on deck were KEL or OBE.  Trying to catch up on due diligence, and narrow things down a bit however, is turning into a pain.  All different plays with different economics, and for all I know, the market is probably pricing geology and management quality better than I can hope to decipher from the financials.  Was heavily influenced by this article:
 https://www.albertaoilmagazine.com/2016/10/best-little-oil-companies-canada/

All the while I read oil sands supply is going up next 2 years, and pipeline takeaway capacity may not be there, and Canadian E&P can't give gas away at AECO or was it Station 2? and if oil needs to go by rail, it will only be absorbed by the WCS / WTI basis.  So now I feel stuck.  Incapable of narrowing down the names, and don't know how to evaluate the pipeline takeaway capacity question.  I do appreciate the fact that oil & gas investing in its nature is somewhat of a macro call on oil price.  But I still would like to pretend to be a "value investor" and form something of an opinion of on one company vs. the next.   The article made mention of the fact that Bonterra hadn't grown share count forever, a nugget near and dear to a generalist's heart.  Was my bias of oilier rather than gassier names justified, at least as it pertains to Western Canada?  Sometimes all the data serves to obfuscate rather than clarify the important questions in these investments,..., which I don't even know what that question is!  Just feel a bit overwhelmed by the sheer number of different instruments available out there.

I'm not 100% sold on the idea that oil is going one way up either by the way.  Reading transcripts from the shale players this quarter, EOG is talking about 10% IRR with oil in the 40's, and there seem to be other companies still with hefty growth plans going into 2018.  Sentiments seemed to have changed a bit on the Canadian juniors last couple of weeks, but narrative has yet to catch up. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 06, 2017, 01:40:00 PM
Seems like small caps are lagging. For example, still seeing PPR.TO and ATU.V trading below 3x cash flow and IPO.TO and GXE.TO, below 4x.

Maybe earnings this week for a lot of small caps will act as a catalyst.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 06, 2017, 02:33:51 PM
Maybe a bit late to the game.

I did buy a bit a while ago, and it feels like it's indeed a bit late to chase the current move right now.  Not able to distinguish one vs. another I decided to diversify and took a bit each of CJ, WCP, RRX CPG, BNE.   No particular reason on why one vs. another, just took the oilier names, and for no particular reasons (maybe it's the pipeline worries), didn't buy any oil sand names.  Other names on deck were KEL or OBE.  Trying to catch up on due diligence, and narrow things down a bit however, is turning into a pain.  All different plays with different economics, and for all I know, the market is probably pricing geology and management quality better than I can hope to decipher from the financials.  Was heavily influenced by this article:
 https://www.albertaoilmagazine.com/2016/10/best-little-oil-companies-canada/

All the while I read oil sands supply is going up next 2 years, and pipeline takeaway capacity may not be there, and Canadian E&P can't give gas away at AECO or was it Station 2? and if oil needs to go by rail, it will only be absorbed by the WCS / WTI basis.  So now I feel stuck.  Incapable of narrowing down the names, and don't know how to evaluate the pipeline takeaway capacity question.  I do appreciate the fact that oil & gas investing in its nature is somewhat of a macro call on oil price.  But I still would like to pretend to be a "value investor" and form something of an opinion of on one company vs. the next.   The article made mention of the fact that Bonterra hadn't grown share count forever, a nugget near and dear to a generalist's heart.  Was my bias of oilier rather than gassier names justified, at least as it pertains to Western Canada?  Sometimes all the data serves to obfuscate rather than clarify the important questions in these investments,..., which I don't even know what that question is!  Just feel a bit overwhelmed by the sheer number of different instruments available out there.

I'm not 100% sold on the idea that oil is going one way up either by the way.  Reading transcripts from the shale players this quarter, EOG is talking about 10% IRR with oil in the 40's, and there seem to be other companies still with hefty growth plans going into 2018.  Sentiments seemed to have changed a bit on the Canadian juniors last couple of weeks, but narrative has yet to catch up.

Welcome to the 'circle of competence'.
As in any business - you need to know your 'value add'. Where do you have advantages, what are they, why are they pluses, how do they apply here; and then only play within them. Sounds pretty obvious - but very few actually do it. Both management and investor have to know the business.

You might want to severely scope down your search, and settle on just 1-2 'circles'. If the business cycle seems favorable, drill a little further - if it's not; pass and move on.  A simple decision, but it might save you a fortune.

SD
   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 06, 2017, 02:46:49 PM
Maybe a bit late to the game.

I did buy a bit a while ago, and it feels like it's indeed a bit late to chase the current move right now.  Not able to distinguish one vs. another I decided to diversify and took a bit each of CJ, WCP, RRX CPG, BNE.   No particular reason on why one vs. another, just took the oilier names, and for no particular reasons (maybe it's the pipeline worries), didn't buy any oil sand names.  Other names on deck were KEL or OBE.  Trying to catch up on due diligence, and narrow things down a bit however, is turning into a pain.  All different plays with different economics, and for all I know, the market is probably pricing geology and management quality better than I can hope to decipher from the financials.  Was heavily influenced by this article:
 https://www.albertaoilmagazine.com/2016/10/best-little-oil-companies-canada/

All the while I read oil sands supply is going up next 2 years, and pipeline takeaway capacity may not be there, and Canadian E&P can't give gas away at AECO or was it Station 2? and if oil needs to go by rail, it will only be absorbed by the WCS / WTI basis.  So now I feel stuck.  Incapable of narrowing down the names, and don't know how to evaluate the pipeline takeaway capacity question.  I do appreciate the fact that oil & gas investing in its nature is somewhat of a macro call on oil price.  But I still would like to pretend to be a "value investor" and form something of an opinion of on one company vs. the next.   The article made mention of the fact that Bonterra hadn't grown share count forever, a nugget near and dear to a generalist's heart.  Was my bias of oilier rather than gassier names justified, at least as it pertains to Western Canada?  Sometimes all the data serves to obfuscate rather than clarify the important questions in these investments,..., which I don't even know what that question is!  Just feel a bit overwhelmed by the sheer number of different instruments available out there.

I'm not 100% sold on the idea that oil is going one way up either by the way.  Reading transcripts from the shale players this quarter, EOG is talking about 10% IRR with oil in the 40's, and there seem to be other companies still with hefty growth plans going into 2018.  Sentiments seemed to have changed a bit on the Canadian juniors last couple of weeks, but narrative has yet to catch up.

The basket approach seems a reasoanble way to do it. 

I am unsure what to think about US shale.  Hefty growth plans may not lead to more oil, or it may.  I lean towards depletion being faster than production. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 06, 2017, 05:52:42 PM
The one risk diversification doesn't solve, of course, is take away capacity, which gives rise to the basis.  But is that what caused the Canadian E&P disconnect from WTI price to start with?  Articles like this below makes one really leery of investing in the gassier names in Western Canada.

https://seekingalpha.com/article/4114056-western-canadian-natgas-production-growth-creates-illusion-value

Is light oil really that different?  The article mentions liquids by rail, but wouldn't the cost of transportation just be reflected in a wider Edmonton Par / WTI basis as well?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 06, 2017, 07:45:57 PM
The one risk diversification doesn't solve, of course, is take away capacity, which gives rise to the basis.  But is that what caused the Canadian E&P disconnect from WTI price to start with?  Articles like this below makes one really leery of investing in the gassier names in Western Canada.

https://seekingalpha.com/article/4114056-western-canadian-natgas-production-growth-creates-illusion-value

Is light oil really that different?  The article mentions liquids by rail, but wouldn't the cost of transportation just be reflected in a wider Edmonton Par / WTI basis as well?

Thats an awful lot of noise in that article.

I have tended to stay away from nat. gas, except from the pipeline side.  12 years ago there were several companies operating in my area trying to sign people up for long term 'price protection' plans.  My wife was intimidated for some reason when these people came to the door and twice she signed us up for a plan after showing the gas bill to a salesperson at the door.  And twice I called and cancelled the plan right away. 

The reason was threefold: 1) If gas prices kept going up and we were 'protected' these companies would go belly up; -and 2) I didn't believe gas demand would exceed supply, partly because I had been hearing the same nonsense for 10 years; and 3) These companies intended on making money as if they were mutual funds or brokers via skimming. 

My wife agreed that perhaps I should handle people coming to the door after that.  What was a real head scratcher for me was that she found these people so intimidating.  She scares me and I am 6 feet tall and 200 lbs.  Anyways I digress. 

We are really talking about two completely dis-associated products and markets.  WCP produces about 18% gas incidental to their oil production.  They just hedge most of it so as to not lose money on it. 

I think pipe for Bitument and the real heavy crudes from up north are more a concern, but they can easily shift to rail as needed.  Warren will happily tansport their priduct down to Texas or Oklahoma. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 07, 2017, 07:24:56 AM
It's useful to recognize that 'at the margin' gas is primarily a by-product of oil production, little different to water or condensate.
At least the water can get pumped back into the ground to re-pressure the field  - but where connection facilities are very limited, it's often cheaper to simply flare the gas off. And as the well depletes - the gas and water cuts get progressively higher.

Options are very limited. You are essentially flooding the market, with a product that is already very common in that market; it has no value, because there is already too much of it. Fixable - only if you have a way of getting it out. 

While gas pipelines are less controversial than oil (less damage in a spill), infrastructure is limited, & LNG carriers are essentially floating bombs. A tanker going off at a loading station (Halifax explosion) can really ruin your day.

The highest & best use is to simply put gas powered power stations on the field. Burn the gas locally, export electricity instead - & use the environmentalists to help you instead of fighting them (no spill damage, cleaner than coal, EV cleaner than gasoline, etc). Seldom happens though, as over the life of the power station - coal can often be supplied as the cheaper fuel.

A fairly distant second is to liquify, strip, and upgrade bitumen. The higher fractions going to the food service industry (ethane/ripening product at sea), the lower fractions to hydrogenation. Capital intense, much harder to do, & way less efficient.   

SD


       
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 07, 2017, 02:18:59 PM

Cale Smith
Published on Oct 29, 2017

Cale Smith on oil prices.  Video #3 from the Islamorada Investment Management 2017 investor meeting.

https://www.youtube.com/watch?v=67dd6ID2FAk&feature=youtu.be



Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: cwericb on November 07, 2017, 05:22:20 PM
"...trying to sign people up for long term 'price protection' plans."

I always carry a small amount of gas & oil stocks so if the price goes up, the stocks go up and I don't mind paying a little more for gas at the pumps, & oil for the furnace.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 07, 2017, 07:06:53 PM
"...trying to sign people up for long term 'price protection' plans."

I always carry a small amount of gas & oil stocks so if the price goes up, the stocks go up and I don't mind paying a little more for gas at the pumps, & oil for the furnace.

Thats great.  I hold a stake in Bell Canada purely to get the dividend to pay our phone bill.  The dividend actually goes up faster than the phone bill. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 07, 2017, 07:08:47 PM

Cale Smith
Published on Oct 29, 2017

Cale Smith on oil prices.  Video #3 from the Islamorada Investment Management 2017 investor meeting.

https://www.youtube.com/watch?v=67dd6ID2FAk&feature=youtu.be

That was a realy well done presentation.  If he is right $100 oil is not far fetched, although I noticed he wont predict a price.  Thanks,

Al
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 08, 2017, 08:32:33 AM

Cale Smith
Published on Oct 29, 2017

Cale Smith on oil prices.  Video #3 from the Islamorada Investment Management 2017 investor meeting.

https://www.youtube.com/watch?v=67dd6ID2FAk&feature=youtu.be

Thanks for posting ... and a couple of things worth adding.

It is obvious that there is a growing disconnect between facts and 'market sentiment'. Perception vs reality.
The 'because the market is never wrong; you must be, and just aren't getting it'. 2+2 =5 because we say so, and if enough people believe it - IT IS. All quite true - and wonderful for the value investor!

Less obvious, is that this degree of distortion could not be maintained without at least some degree of state complicity. Propaganda.
With what is transpiring in Japan/China/US/SK/NK, SA/Iran/Lebanon, Syria, & oil Supply/Demand - most would expect oil prices to include a very high risk premium; gasoline prices should be so high that they threaten the global economic recovery. Remaining silent, and not domestically reporting what's happening 'over there', is Propaganda 101. Propaganda 102 is substitute your own 'story' to fill that empty space. Heard anything about SA or NK in the US press recently?   

We would suggest that global events are now approaching the stage, where it's no longer practical to hide them.
Case in point: We know the SK Olympics are Feb-2018, and that it is not practical at this point to change the timing or location. It is also not practical to offer NK, in the current environment, such a large target within artillery range. A solution is required - hence the current Trump Asia tour. We know from historic precedent (Iran & the Shah's deposal) what 'deals' usually look like, and from other places - what happens when the deal isn't taken. None of this is good, and yet it doesn't move oil prices? Propaganda.

SD
         

 
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 09, 2017, 08:00:58 AM
Thank you for referencing Gear Energy in this discussion.  I very much enjoyed reading the CEO's monthly letter.  In the January 2015 letter, he used the attached set of simplified numbers to demonstrate why US shale at $45 a barrel is not sustainable. 

Using his framework, if the oil price input is set to $55/barrel, assume cash flow per barrel can get to say something around $22-$25 per barrel, with some level of capital efficiency improvement, the numbers all of a sudden can be balanced.  I know these are very crude approximations.  But isn't it then fair to say that a reasonable case can be made for shale oil sustainability somewhere between $55-$60 for a while?   Reading presentations from Continental, EOG, PXD, on their operation stats, those numbers seem to be quite achievable?  Those guys stats are actually better than that, and point to something more like $50-$55?  I guess the question is how much inventory they have that gets to this level of productivity, so we are all just waiting for those operating stats to deteriorate? 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 09, 2017, 08:19:59 AM
In reference to the presentation above by Islamorada.  Islamorada maimtaims that shale is on the decline.  Simultaneous to this we have OPEC stating that shale supply is going to increase and is increasing. 

OPEC obviously has the same data or better data than Islamadora.  How do we reconcile the one with the other.  Are the OPEC''s just jawboning to keep all eyes focused on continuing the reduced supply, or are they correct? 

I have no answer. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 09, 2017, 01:28:52 PM
Caught this podcast with Art Berman who generally believes oil price will go higher based on inventory data. 

https://www.macrovoices.com/313-art-berman-comparative-inventory-draws-spell-higher-oil-prices

However, towards the end of this podcast, Eric Townsend discusses the current term structure of oil future, where he relays a conversation he had with a commercial broker who's doing hedging on behalf of producers.  And indeed 2 year WTI is only at 51/52 today where front month is at $57.  The interpretation is that anytime that 2 year oil goes above $50, a lot of hedgers are brought out of the woodworks. 

The conversation on oil term structure starts a little after 1 Hr 11 Mins.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 10, 2017, 09:09:45 AM
Seems like small caps are lagging. For example, still seeing PPR.TO and ATU.V trading below 3x cash flow and IPO.TO and GXE.TO, below 4x.

Maybe earnings this week for a lot of small caps will act as a catalyst.

Quarter for PPR.TO doesn't look so hot. Don't know them well however. Can you give me a quick overview here?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 10, 2017, 02:10:14 PM
Seems like small caps are lagging. For example, still seeing PPR.TO and ATU.V trading below 3x cash flow and IPO.TO and GXE.TO, below 4x.

Maybe earnings this week for a lot of small caps will act as a catalyst.

Quarter for PPR.TO doesn't look so hot. Don't know them well however. Can you give me a quick overview here?

Energy
PRAIRIE PROVIDENT RESOURCES INC.
PPR (CAD$0.50) – Target: $2.00 – BUY
[PDF]Conservative Capital Plan With a Focus On Oil
8 pages
Action: Reiterate BUY and 2.00 Target Price
PPR has a strong production and cash flow base to support the exploitation of large inventory of low risk Mannville locations at its Wheatland and Princes core area and stable high netback production from Evi. The company remains highly undervalued on a cash flow, reserves and NAV basis and we reiterate our BUY and $2.00 target price.
Details: Q3/17 Financial & Operating Results
Production & Cash Flow: Average Q3/17 production of 5,506 boe/d (weighted 61% to oil) was below with our forecast of 6,200 boe/d. Cash flow of $4.5 million ($0.04/fd share) was lower than our forecast of $6.5 million ($0.05/fd share) primarily due a lower realized natural gas price and lower production. Capital expenditures of $4.8 million were nearly fully funded with cash flow.

Sale of non-core assets: On October 1, 2017, PPR sold non-core properties which are expected to reduce Q4/17 production by ~400 boe/d but have a minimal impact on cash flow

Additional Financial Flexibility With Expanded Borrowing Base: On October 31, 2017, PPR announced the closing of a two-part debt financing, consisting of a US$40 million revolving facility due October 31, 2020 (3-years) and a US$16 million secured notes due October 31, 2021 (4 years). On a blended basis, the revolving facility and the secured notes offer an average coupon rate of 8.2%. The overall debt structure expands the PPR’s borrowing base from C$65 million to approximately C$72 million and extends the term of its debt instruments. PPR issued to the lender 2,318,000 warrants with an exercise price of $0.549.

Princess & Wheatland Core Area Update: In Princess, in Q3/17, PPR drilled one (0.7 net) Detrital well and commenced the tie-in of two (1.7 net) standing wells expected to be on production in Q4/17. In Wheatland, PPR drilled one (1.0 net) exploratory well and tied-in two (2.0 net) wells.

The Stock Is Cheap: At the current market price of $0.51 per share, PPR trades at 33% of its proven developed producing (“PDP”) reserves valuation of $1.55/sh and at a 2017E EV/DACF multiple of just 4.1x.

Normal Course Issuer Bid (or “NCIB”): Given the company trades at a large discount to its underlying value, the Board of Directors of PPR have approved plans to implement a NCIB.
Impact: Neutral; Cash Flow To Benefit From Recent Oil Price Rebound
PPR is opportunity rich and we expect the company to accelerate growth in Q4/17 and in 2018 on the back of the recent recover in oil prices. We believe a NCIB is prudent give the company trades at a steep discount to its PDP value. We maintain our BUY recommendation and our $2.00 target price.


  By Bill Newman – 2017/11/10
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 11, 2017, 01:02:37 AM
From what I have read, I have no idea why anyone would buy this over say GXE. It is not even cheaper which it should be.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 11, 2017, 07:15:08 AM
From what I have read, I have no idea why anyone would buy this over say GXE. It is not even cheaper which it should be.

I own both. I thought the quarter was disappointing too. It looked cheaper before the quarter! Cash flow should be higher next year at current oil prices to make its valuation a bit cheaper than GXE. It has more financial leverage as well which is a knock for sure but does mean more upside to the equity. Finally, it has the QC Utica shale exposure, which if realized could be an enormous opportunity.

Catalyst wise, I imagine Goldman is waiting for some clarity on the Utica shale before trying to sell the company.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 11, 2017, 07:52:19 AM
Ok, thanks for your view. I think PPR would be in for a decent pummeling if oil prices were to drop 20% from here. Not something I'm comfortable with and understandable it gets a decent discount from the market. And prices can rise but management needs to deliver too. If your operations go to shit, you won't notice much of higher prices.

I prefer lower leverage anyway for oil companies. Gives management operational leverage, easier to shift gears. Miss the timing on highly leveraged ones results in the stock looking cheap all the way down.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 11, 2017, 07:56:55 AM
Ok, thanks for your view. I think PPR would be in for a decent pummeling if oil prices were to drop 20% from here. Not something I'm comfortable with and understandable it gets a decent discount from the market. And prices can rise but management needs to deliver too. If your operations go to shit, you won't notice much of higher prices.

I prefer lower leverage anyway for oil companies. Gives management operational leverage, easier to shift gears. Miss the timing on highly leveraged ones results in the stock looking cheap all the way down.

I think every oil stock would get a decent pummeling if the oil price stepped back 20% from here.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 12, 2017, 07:22:39 AM
Ok, thanks for your view. I think PPR would be in for a decent pummeling if oil prices were to drop 20% from here. Not something I'm comfortable with and understandable it gets a decent discount from the market. And prices can rise but management needs to deliver too. If your operations go to shit, you won't notice much of higher prices.

I prefer lower leverage anyway for oil companies. Gives management operational leverage, easier to shift gears. Miss the timing on highly leveraged ones results in the stock looking cheap all the way down.

I think every oil stock would get a decent pummeling if the oil price stepped back 20% from here.

There are so many moving parts.  By my estimate the rise in oil this year from 45 to 57 is now costing the worlds oil users roughly 1 B more per day than last year. 

This coupled with quantitative tightening, rising interest rates and so forth may (will) start to dampen growth at some point.  Whether or not this translates into slower demand growth and slower price growth is anyones guess. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on November 13, 2017, 09:44:29 AM
http://www.nasdaq.com/article/venezuela-oil-output-hits-28year-low--opec-20171113-00932

All is fine...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 14, 2017, 06:51:07 AM
Whitecap just bought a piece of Cenovus, and upped their dividend by 5% on the acquisition.  This was the second dividend increase in a week for a total of 10%.  The stock will stay low a few days likely.  There issued 400 M in new shares at slightly below market price. 

IMO, buying the best operators into a rally seems better than marginal operators.  Unlike many US Shale operators WCP had no problem rasing money wih a bought deal since they were profitable already. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 14, 2017, 07:59:37 PM
I don't know how to think about this whole Cenovous exercise.  It buys Conoco Phillips Canadian assets for C$17.7 billion at announcement, which was funded in a very complicated manner:

http://www.cenovus.com/news/news-releases/2017/04-06-2017-financing-update.html

The whole deal was announced March 29th and closed May 17th.  Really fast given how complicated the whole financing package is. 

Cenovous then turns around and

Sells Pelican lake for C$975MM
http://www.cenovus.com/news/news-releases/2017/09-05-2017-divestiture-greater-pelican-lake.html
Sells Suffield for C$512MM
http://www.cenovus.com/news/news-releases/2017/09-25-2017-divestiture-suffield.html
Sells Palliser for C$1.3 billion
http://www.cenovus.com/news/news-releases/2017/10-19-2017-divestiture-palliser.html
Now Sells Weyburn for C$940MM
http://www.cenovus.com/news/news-releases/2017/11-13-2017-divestiture-weyburn.html

You have reports here that says they originally expected to get as much as C$1.5 billion for Weyburn and C$1 billion for Palliser as late as July.   

https://www.reuters.com/article/us-cenovus-energy-divestiture/cenovus-expects-up-to-c2-5-billion-from-weyburn-palliser-sales-sources-idUSKBN19X305

CVE stock has since come down to C$13.25 per share.  All the while oil price fell, Canadian junior stocks got pummeled until this recent bounce, and then the CEO who did the deal got the boot. 

So how is an investor to think about all this maneuver?  Was the original COP deal that bad for CVE?  Stock price has underperformed vs.large cap Canadian peers SU, IMO, etc but not that terrible vs. some of the smaller cap names.   Other than leverage, is the asset shuffling to become more of a focused oil sand player that bad?  Was leverage the dominant issue that caused the stock to underperform its large cap peers?  Did Whitecap just pick up a good deal from Cenovous?  I guess we'll get some disclosure when filings on the material change come out.  All this excitement , but how is a minority investor supposed to make sense of this whole exercise?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 15, 2017, 06:08:08 AM
Read these two press releases and pay attention to price per flowing:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCVE-2530187&symbol=CVE&region=C

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aWCP-2530185&symbol=WCP&region=C

Basically, almost none of these E&P companies can be trusted. And I would say it is the case for most companies out there. They all try to twist reality in their favour and then board of directors give executives sweat bonuses for a job well done.

Then with Canadian E&P's, on top of having terrible ROCE, you have a small country club of directors concentrated in Calgary who serve on multiple boards and all know each other. Not the best environment for top corporate governance.

Obviously with poor ROCE, comes the need to issue shares and raise capital for which again a small knitted community of investment bankers come happily to the rescue... In return, research coverage and lofty price targets are the reward.

In the end, everybody does well in this make-work project other than......... shareholders. 

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: gurpaul88 on November 15, 2017, 07:11:44 AM
any thoughts on rmp? tia
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 15, 2017, 07:50:10 AM
Read these two press releases and pay attention to price per flowing:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCVE-2530187&symbol=CVE&region=C

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aWCP-2530185&symbol=WCP&region=C

Basically, almost none of these E&P companies can be trusted. And I would say it is the case for most companies out there. They all try to twist reality in their favour and then board of directors give executives sweat bonuses for a job well done.

Then with Canadian E&P's, on top of having terrible ROCE, you have a small country club of directors concentrated in Calgary who serve on multiple boards and all know each other. Not the best environment for top corporate governance.

Obviously with poor ROCE, comes the need to issue shares and raise capital for which again a small knitted community of investment bankers come happily to the rescue... In return, research coverage and lofty price targets are the reward.

In the end, everybody does well in this make-work project other than......... shareholders. 

Cardboard

Yeah, that discrepancy is comical.  I found an explanation on the stockhouse bullboard that one was including the royalty barrels and the other was excluding it.  Meanwhile, another deal also with the name of Weyburn in it was closed earlier in the year: Cardinal Energy buying Apache assets:

http://www.cardinalenergy.ca/news/80/67/Cardinal-announces-acquisition-of-quality-low-decline-light-oil-assets-170-million-financing-and-updated-2017-guidance/d,Cardinal_News_Detail.html

There is also some metrics in there to look at.  The purchase price was ultimately dialed down by $20MM.  Cardinal also did a bought deal financing: C$170MM at $5.50 in June.  The metrics on the 2 deals are not too far off.  The Cardinal stock promptly cratered after that bought deal financing. 

Actually, on second look, I stand corrected.  On price per 2P reserve basis, the Whitecap deal is $2.5 lower per boe.  On that basis, WCP deal looks quite a bit better.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 15, 2017, 08:47:58 AM
Cenovus. We have no dog in this, but some things seem pretty obvious.

The 17.7B Conoco Phillips acquisition was marginal at best, and dependent on being able to sell off assets quickly. To make the numbers (& get paid the advisory fee); they/advisors used high end valuations, assumed 'expressions' of interest would rapidly translate into sale agreements, and didn't hedge against the possibility they could be wrong (bet that rapid execution removed the need). It's not going as planned, they need the capital elsewhere, and need a body to blame. Bye bye CEO.

WCP simply took advantage of a motivated seller. There may well be a few other deals announced in the next few months as well, as Cenovus will need to pay off the transaction related debt as rapidly as possible.

O/G is a small club, and this is part of the business; dancers make passes, sometimes they don't work, and the result is a switch up.
Not really any different to most other industries.

SD
 
   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sbalsam on November 15, 2017, 01:10:14 PM
Whether the Whitecap or Cardinal deal is a better deal based on the price paid per reserves would depend on the true net interest that each company owns in the reserves purchased. If Whitecap has only a 78% net interest in the reserves (11,500 boed/ 14,800 boed - see note below), then Cardinal's deal might be in line if it has a much higher percentage interest ownership in the purchased reserves.

From the Cenovus press release:
(2) Current production above reflects Cenovus's
production net of third party burdens other than
Crown royalties. Gross production includes
production associated with a net profit interest
and gross overriding royalties held by third parties
and is 14,800 barrels of oil equivalent per day.

Steve
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 15, 2017, 02:27:20 PM
Whether the Whitecap or Cardinal deal is a better deal based on the price paid per reserves would depend on the true net interest that each company owns in the reserves purchased. If Whitecap has only a 78% net interest in the reserves (11,500 boed/ 14,800 boed - see note below), then Cardinal's deal might be in line if it has a much higher percentage interest ownership in the purchased reserves.

From the Cenovus press release:
(2) Current production above reflects Cenovus's
production net of third party burdens other than
Crown royalties. Gross production includes
production associated with a net profit interest
and gross overriding royalties held by third parties
and is 14,800 barrels of oil equivalent per day.

Steve

That's the difference in price per flowing well in the respective buyer and seller press releases.

Royalties doesn't figure in any of the 1P, 2P reserve numbers, and PV 10 calculation are all supposed to be net of royalties, or at least that's my impression in how disclosures in this space is supposed to work. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 16, 2017, 07:58:35 AM
Cenovus has a long history of wheeling and dealing acoording to various CEOs whims and getting nowhere.  Their history comes from a long line of wheeler and dealers who churn assets and get nowhere, except for the Officers and directors. 

Whitecap got a good deal.  There were 3 or 4 alleged bids.  Presumably theirs was the best, or perhaps the only bid that came through with the cash.  But why not?  Cenovus wanted 1.4 B - 1.5 B for it.  I guess if you get yourself in a situation you take what you can get.  WCP, on the other hand financed it with shares, and cheap debt, and kept to their debt to cash flow targets. 

Too add to this:  CVE returns since inception minus 6% per year for a total of -45% compounded, including dividends more or less.  CEO in the job for 5 months following retirement of the prior CEO who did the COP deal. 

WCP: 9% with divdends since inception through the oil crash.  WCP is two yrs. younger than CVE.  CEO has been there since inception. 

So, who got the better deal?  Time will tell. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 16, 2017, 08:00:34 AM
In reference to the presentation above by Islamorada.  Islamorada maimtaims that shale is on the decline.  Simultaneous to this we have OPEC stating that shale supply is going to increase and is increasing. 

OPEC obviously has the same data or better data than Islamadora.  How do we reconcile the one with the other.  Are the OPEC''s just jawboning to keep all eyes focused on continuing the reduced supply, or are they correct? 

I have no answer.

Pulling this forward.  Harold Hamm says the EIA shale growth estimates are too high.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 16, 2017, 11:37:47 AM
So my question is why is it that WCP won that deal?  There were reportedly multiple bidders:
https://uk.reuters.com/article/cenovus-energy-divestiture/whitecap-among-final-round-bidders-for-cenovus-weyburn-asset-sources-idUKL1N1ND1IZ
Why didn't others pay up more to try to win it if it's a cheap asset?  It doesn't sound like WCP have operation around Weyburn, that it can bid with synergy assumptions?  Or was it simply a case of WCP being the only bidder that that the banks feel comfortable doing a $300-400MM bought equity deal for?  Maybe the deal is too big for Cona Resource or Spartan, but $400MM equity should be do-able by that Manulife affiliate? 

I would have thought this is a pretty well shopped deal, and there must have been a few well to do Canadian oil man (cashed out before 2014) who is capable of ponying up for it?

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on November 16, 2017, 12:26:00 PM
So my question is why is it that WCP won that deal?  There were reportedly multiple bidders:
https://uk.reuters.com/article/cenovus-energy-divestiture/whitecap-among-final-round-bidders-for-cenovus-weyburn-asset-sources-idUKL1N1ND1IZ
Why didn't others pay up more to try to win it if it's a cheap asset?  It doesn't sound like WCP have operation around Weyburn, that it can bid with synergy assumptions?  Or was it simply a case of WCP being the only bidder that that the banks feel comfortable doing a $300-400MM bought equity deal for?  Maybe the deal is too big for Cona Resource or Spartan, but $400MM equity should be do-able by that Manulife affiliate? 

I would have thought this is a pretty well shopped deal, and there must have been a few well to do Canadian oil man (cashed out before 2014) who is capable of ponying up for it?

I suppose that we wont know.  Whitecap is well run and careful.  CVE, not so much.  That much I can observe. 

It was a 940 M. deal.  Perhaps the Manulife affiliate couldn't get the cash from parent company.  I can imagine the bureaucracy operating there.  As above, without being in the process.... who knows?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 19, 2017, 08:28:33 PM



Energy
PRAIRIE PROVIDENT RESOURCES INC.
PPR (CAD$0.50) – Target: $2.00 – BUY
[PDF]Conservative Capital Plan With a Focus On Oil
8 pages
Action: Reiterate BUY and 2.00 Target Price
PPR has a strong production and cash flow base to support the exploitation of large inventory of low risk Mannville locations at its Wheatland and Princes core area and stable high netback production from Evi. The company remains highly undervalued on a cash flow, reserves and NAV basis and we reiterate our BUY and $2.00 target price.
Details: Q3/17 Financial & Operating Results
Production & Cash Flow: Average Q3/17 production of 5,506 boe/d (weighted 61% to oil) was below with our forecast of 6,200 boe/d. Cash flow of $4.5 million ($0.04/fd share) was lower than our forecast of $6.5 million ($0.05/fd share) primarily due a lower realized natural gas price and lower production. Capital expenditures of $4.8 million were nearly fully funded with cash flow.

Sale of non-core assets: On October 1, 2017, PPR sold non-core properties which are expected to reduce Q4/17 production by ~400 boe/d but have a minimal impact on cash flow

Additional Financial Flexibility With Expanded Borrowing Base: On October 31, 2017, PPR announced the closing of a two-part debt financing, consisting of a US$40 million revolving facility due October 31, 2020 (3-years) and a US$16 million secured notes due October 31, 2021 (4 years). On a blended basis, the revolving facility and the secured notes offer an average coupon rate of 8.2%. The overall debt structure expands the PPR’s borrowing base from C$65 million to approximately C$72 million and extends the term of its debt instruments. PPR issued to the lender 2,318,000 warrants with an exercise price of $0.549.

Princess & Wheatland Core Area Update: In Princess, in Q3/17, PPR drilled one (0.7 net) Detrital well and commenced the tie-in of two (1.7 net) standing wells expected to be on production in Q4/17. In Wheatland, PPR drilled one (1.0 net) exploratory well and tied-in two (2.0 net) wells.

The Stock Is Cheap: At the current market price of $0.51 per share, PPR trades at 33% of its proven developed producing (“PDP”) reserves valuation of $1.55/sh and at a 2017E EV/DACF multiple of just 4.1x.

Normal Course Issuer Bid (or “NCIB”): Given the company trades at a large discount to its underlying value, the Board of Directors of PPR have approved plans to implement a NCIB.
Impact: Neutral; Cash Flow To Benefit From Recent Oil Price Rebound
PPR is opportunity rich and we expect the company to accelerate growth in Q4/17 and in 2018 on the back of the recent recover in oil prices. We believe a NCIB is prudent give the company trades at a steep discount to its PDP value. We maintain our BUY recommendation and our $2.00 target price.


  By Bill Newman – 2017/11/10

Not to turn this into a PPR thread but I posted this on SA comments and thought it would be worth posting here too.

Has anyone been paying close attention to the NAFTA lawsuit?

I didn't appreciate we might be close to a ruling as closing arguments are due next week in Montreal (Nov 24) following a hearing in front of a Tribunal in early October in Toronto.

Is anyone familiar with how long it takes the Tribunal to come to a ruling?

Given that the claim is for more than the entire enterprise value of the company, while it's not the investment case it's a nice option much like a clearer path to the development of the Utica shale would be as well. Best case scenario is a clear path to commercialization in QC with the capital to exploit it from the arbitration process.

Link to notice of hearing in Montreal next week: http://bit.ly/2jGKooB
Link to all other procedural details: http://bit.ly/2B5pzHM
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 20, 2017, 03:53:57 AM
http://www.petroleum-economist.com/articles/markets/outlook/2017/oil-the-price-is-not-right

Amrita Sen
20 November 2017

Oil: The price is not right
The market wants to trade a demand slow-down of the future, while ignoring the fundamentals of the present

Until recently, 100m barrels a day of global oil-product demand seemed a distant prospect. In its World Energy Outlook , published in November 2016, the International Energy Agency's (IEA) central scenario didn't think consumers would reach this landmark before 2024. Strong recent tailwinds—particularly from China, India, the US and Europe—have, however, brought the milestone perilously close. We think it will be reached by mid-2018.

The IEA isn't alone in having underestimated global demand. Take your pick from Opec, BP, ExxonMobil or any of the more oft-quoted long-term analysts: none forecast 100m b/d of demand much before 2022, with most putting its arrival between 2024 and 2026. Opec's 2016 World Oil Outlook cited 2022 as the likely first sighting of 100m b/d, and forecast average demand growth of 1.0m b/d per year between 2015 and 2021, well below what was realised over 2015-17. As for the IEA, its 450 Scenario—in which policy would limit average global temperature increase to 2°Celsius above pre-industrial levels—says demand would never hit 100m b/d. Even in its Current Policies Scenario, it doesn't happen till 2020. These mandarins of long-term forecasting failed to capture the recent upsurge in demand growth because their models were built on a dated premise of ever more efficient oil use. But that was a legacy of a decade of high prices.

Before 2015, with the odd exception such as the temporary rebound in 2010 that followed the Great Recession, global oil-demand growth had been on a slowing trend and most demand-side models reflected this paradigm. Indeed, in 2014, consumption rose by just 0.8m b/d, raising widespread fears (among oil producers) that efficiency gains were here to stay. At that point, most assumptions (including ours) gravitated towards 1m b/d of annual average growth each year through to 2020—we saw that as a best-case scenario. Wrong. As prices plummeted from mid- 2014, consumer behavior rapidly evolved. Cheap feedstocks fed a thriving petrochemicals sector, while drivers worldwide, and especially in the US and China, shunned more efficient vehicles for SUVs and other gas-guzzlers.

According to auto-research company Edmunds, in 2015 and 2016, 40% of hybrid or electric-vehicle (EV) trade-ins in the US were for SUVs or trucks and over 10% for luxury cars. In turn, oil demand grew by 2.1m b/d in 2015, 1.8m in 2016 and should see out 2017 with growth of another 1.6m. Annual average growth between 2015 and 2017 will have been 1.8m b/d—almost double the forecasts just three years ago. Simply put, $50-a-barrel oil has proven too cheap, particularly against the now robust economic backdrop. Instead of growing to 98m b/d by 2020 ( from 92m in 2014) demand will average 100m b/d by H2 18. And it doesn't look likely that oil-demand growth will flatten out in 2018 either. Barring a sudden recession or sharp rise in the oil price, the year will add 1.5m b/d of consumption.

That being so, the real question for the market is whether supplies will be able to keep up. American tight oil production is often quoted as the major source of new output growth—the IEA expects it to add 1m b/d between 2015 and 2020, with similarly sized additions forecast through the late 2020s and an underlying oil price of $130/b needed to squeeze out an extra 1m b/d by 2025. We forecast tight oil adding exactly 1m b/d between 2015 and 2020, reaching a cumulative 6.2m. If prices rise sharply, that growth could be over 2m b/d. That's a lot. But it's not enough. The fear in the market is that $50-55 oil will unleash a torrent of shale that will overwhelm demand. But look again at the demand-growth trend of recent years. If demand is growing three times as quickly as tight oil output, shale on its own won't be able to plug the gap. Some of shale's shine has come off recently too. Several banks have begun changing their tune on tight oil breakevens and many equity analysts are starting to downgrade their producers. The tide seems to be turning somewhat. Add in some high-profile fund managers betting against a number of American tight oil firms, and suddenly infinite growth from the


American shale oil patch is no longer a given. As a group, tight oil producers have not made money. The 51 US E&P companies we track together spent $18.2bn on capex in the second quarter of 2017, while cashflow from operations was $12.2b - negative free cashflow of $5.9bn. Nor was Q217 an anomaly. Simply put, these firms have never been able to fund themselves with cash generated from oil and gas production. This is not a dirty little secret; it is a common feature of businesses in growth mode in a multitude of sectors unrelated to oil and gas. Still, an oil-production growth model is neither sustainable nor can it generate value for investors if low oil prices become a long-term structural feature of the industry. Ultimately, "lower for longer" means that the discounted cashflows for these businesses remain negative, and therefore their attractiveness as a potential value-generating stock in a portfolio are diminished. These factors influence appetite for E&P debt and equity, which are the two key determinants of production growth because they, rather than cashflows from operations, fund drilling programmes for companies in growth mode.

In other words, when there is no money there is no growth. If E&P stocks fall because investors doubt their capacity to generate future value, then the value of potential equity funding drops as well, meaning less cash is available to fund operations. If E&Ps issue more debt, their interest payments rise (drawing cash from the business) and investors become concerned over firms' debt positions, diminishing demand for the stock. This was a key concern in 2016, when low oil prices caused borrowing-base redeterminations and lenders cut revolving credit lines, reducing the cash pile available to fund drilling. While E&Ps have made strides to reduce their debts and shore up balance sheets, they have done so by selling more equity.

Based on the guided H217 and 2018 crude production ramp-up for our sample group and the current forward strip, these shale firms will not be funding drilling programmes through operating cashflows anytime soon. This means they are likely to continue tapping debt and equity markets for finance, adding to a debt pile that already stands at $120bn. And investor appetite for exposure has been sliding. Since the start of 2016, an investment in a basket of E&P firms would have underperformed the S&P 500 and WTI crude oil significantly. This tells us two important things: first, that macro investors seeking a benchmark-beating return would have been better rewarded by putting their money elsewhere.

Second, oil investors would have been better off just buying oil futures. The problem with the oil market right now is that it wants to trade the next decade's potential slowdown in demand, but ignores the fundamental reality in front of it today. We don't deny that demand growth can slow materially from around 2026 as the penetration of EVs and hybrids becomes material to transportation demand. But investors remain transfixed by an as-yet-unrealised energy revolution, and they are not paying attention to the supply side's ability—or inability—to meet today's demand for oil. Once the last of the legacy projects come onstream, there is little new investment on the horizon outside the shale sector.

If demand does not slow, the world will need far more oil than the tight oil sector can offer at $50/b. Without additional productive capacity, rapidly growing consumption could trigger a supply crunch well before the theoretical peak in oil demand is reached. We are not saying for one moment that there is too little oil—there is plenty. There just isn't enough oil at $50/b.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on November 20, 2017, 06:36:08 AM
It's useful to remind yourself as to what the growth assumptions in most of these models are for both China and India, and why.
Some might conclude that they were selected to support the 'desired' narrative of the time - the 'give the boss what he wants' agency issue.

When air pollution in a major city is so bad, that you can no longer see - coal fired power plants get shut down, & the windmills/solar get installed. But until the green solutions can carry the load, electricity supply gets cuts back (voltage reduction, rolling blackout), only the worst polluters get mothballed, & additional o/g picks up the slack. And all that additional volume exposure to o/g priced in foreign currency, spurs rapid development of domestic green solutions (priced in local currency), & their installation. Global o/g demand rises, and shifts forward - not in the 'narrative'.

However, that additional o/g demand - is also MULTIPLIED by whatever economic recovery there has been SINCE THE MODELS WERE RUN. Most would recognize that recovery from the GR is not limited to just NA & Europe - China and India have also been significant beneficiaries. Again, not in the 'narrative'.

To some - this is just conjecture; not much different to the 'idea' that a US homeowner would 'never' simply toss their keys to their banker - when their house equity is seriously under water. Of course, if you wish to remain poor - that is also your choice.

SD


 

     
   
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 20, 2017, 06:41:02 AM
"According to auto-research company Edmunds, in 2015 and 2016, 40% of hybrid or electric-vehicle (EV) trade-ins in the US were for SUVs or trucks and over 10% for luxury cars."

This is pretty telling: many people were switching to hybrid's and EV's because the cost of gasoline had gone up too much.

I was glancing at a parking lot last week and the percentage of hybrids/EV's was at around 1-2%. From my earlier days investing into Autozone, I recalled the average of cars being in the 10 year average. It is not much different today.

So even if everyone decided to switch to EV's tomorrow morning to cut CO2 emission (obviously not the reason for the 40% of trade-ins mentioned above), it would likely take at minimum 10 years to switch over half of the existing fleet.

For many people, buying a new car is simply not a possibility as they don't have the money. On top of it, EV's are more expensive to acquire making it less affordable for those who can switch.

Then you have an enormous production system built around current cars with assembly lines, parts suppliers, castings, etc. that you would have to switch over to build something very different. You would need much higher supply of raw materials such as lithium, cobalt, copper, rare Earth metals. It takes around 10 years from time of discovery to opening of a mine. Then you have questions around grid capacity and where does that additional electric supply of energy comes from?

All considered, I am thinking that 20 years is a more reasonable target to switch over 50% of the current fleet and once again, that would mean that there is a desire and cost advantage for people to do it. Add another 10 to 20 years to go to 100% with those who can't afford to buy a new car and for other reasons.

Of course, this is somewhat static in terms of analysis since autonomous vehicles will likely affect the size of the fleet downward. There is also population growth which means an increasing fleet size. Overall, I think that making the assumption that fossil fuels will be with us for quite a while is not unreasonable. Could be a tappering of demand at around 100 million barrels/day but, that is still a lot of demand.

It would take a big shock to actually accelerate the transition and with lower investments by government pension funds (Norway for example) reducing capital availability to the industry it could well happen. Unfortunately, this could get very ugly for the economy if done in this manner.

Cardboard 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 20, 2017, 09:07:19 AM

[/quote]

Not to turn this into a PPR thread but I posted this on SA comments and thought it would be worth posting here too.

Has anyone been paying close attention to the NAFTA lawsuit?

I didn't appreciate we might be close to a ruling as closing arguments are due next week in Montreal (Nov 24) following a hearing in front of a Tribunal in early October in Toronto.

Is anyone familiar with how long it takes the Tribunal to come to a ruling?

Given that the claim is for more than the entire enterprise value of the company, while it's not the investment case it's a nice option much like a clearer path to the development of the Utica shale would be as well. Best case scenario is a clear path to commercialization in QC with the capital to exploit it from the arbitration process.

Link to notice of hearing in Montreal next week: http://bit.ly/2jGKooB
Link to all other procedural details: http://bit.ly/2B5pzHM
[/quote]

Amazing isn't it?!? Here we have a Company trading at a fraction of just PDP in a rising oil price environment with the potential for a $250mm settlement plus costs but is completely ignored by a market that wants to pay $100's of millions & billions for companies with negligible revenues or assets that are involved in blockchain, marijuana or lithium.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 20, 2017, 09:42:57 AM

Amazing isn't it?!? Here we have a Company trading at a fraction of just PDP in a rising oil price environment with the potential for a $250mm settlement plus costs but is completely ignored by a market that wants to pay $100's of millions & billions for companies with negligible revenues or assets that are involved in blockchain, marijuana or lithium.
[/quote]

I checked with an event-driven sales guy today and he hadn’t even heard of PPR let alone about the potential of this hearing. Just on a probability adjusted basis, this seems like a good risk reward. You could have a positive result on the suit which could be worth multiples of the stock price and/or Quebec policy could move further towards allowing fracking on PPR acreage which could be worth multiples of the stock price.

Plus you have Goldman owning over 50% of the company in credit funds that surely would like to get fair value for their stake which will only happen once both of these situations are resolved one way or the other.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 20, 2017, 10:04:28 AM

Amazing isn't it?!? Here we have a Company trading at a fraction of just PDP in a rising oil price environment with the potential for a $250mm settlement plus costs but is completely ignored by a market that wants to pay $100's of millions & billions for companies with negligible revenues or assets that are involved in blockchain, marijuana or lithium.

I checked with an event-driven sales guy today and he hadn’t even heard of PPR let alone about the potential of this hearing. Just on a probability adjusted basis, this seems like a good risk reward. You could have a positive result on the suit which could be worth multiples of the stock price and/or Quebec policy could move further towards allowing fracking on PPR acreage which could be worth multiples of the stock price.

Plus you have Goldman owning over 50% of the company in credit funds that surely would like to get fair value for their stake which will only happen once both of these situations are resolved one way or the other.
[/quote]



As well, PPR owns these boomer gas wells in the Liard basin. Who knows when this could become commercial...

http://www.marketwired.com/press-release/lone-pine-resources-announces-shale-gas-land-continuation-pointed-mountain-liard-basin-tsx-lpr-1786774.htm


The results Forest Oil Canada got on PPR's Utica acreage with only vertical wells on an emerging shale gas play were very good given the learning curve potential & move to extended reach horizontals with modern day frac & technological advances.  As well, market access is excellent given that the play is situated in Eastern North America.

Utica Shale

Over the last two years, Forest has accumulated approximately 269,000 net acres, under lease or farmout, in the St. Lawrence Lowlands in Quebec, Canada. Two vertical pilot wells were drilled in 2007, testing the Utica Shale, to a total depth of approximately 4,800 feet. Production rates tested up to 1 MMcfe/d. Although the play is still in the early stages, Forest believes the initial results are encouraging due to the following factors:

Shallow depth of the shale

Rock properties are comparable to other more established shale plays

High-quality natural gas with minimal impurities

Infrastructure in place with nearby access to major pipelines

Premium natural gas pricing to NYMEX makes the economics compelling

Forest plans to drill three horizontal wells in 2008 to refine its drilling and completion techniques. Based on technical data and the vertical pilot well program, the preliminary net resource potential on Forest’s acreage is estimated to be approximately 4 Tcfe. First production is expected in 2009 with the potential for a full scale drilling program in 2010 and beyond.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: HJ on November 20, 2017, 10:36:03 AM
Probably a question with no answer, but is there precedent for this sort of thing working out for PPR? 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 20, 2017, 11:23:37 AM
Probably a question with no answer, but is there precedent for this sort of thing working out for PPR?

This is really interesting (if I’m reading it right).

See page 15. I think it’s saying that 46% of cases going through this process are awarded all or partial claims. That’s a giant percentage when the potential outcome is worth over $1/share and the stock is $0.45.

https://icsid.worldbank.org/en/Documents/resources/ICSID%20Web%20Stats%202017-2%20(English)%20Final.pdf
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on November 20, 2017, 12:33:42 PM
This self-taught investor has outperformed Warren Buffett. Here's his top holdings right now

When Christopher Rees left home in 1966 at the age of 16, his parents thought he would be back in time for dinner. But he ended up wandering the world for several decades, working at jobs in difference places, including as a tailor in Afghanistan, a cook in India, a carpenter in Switzerland and a charter-boat captain in the Caribbean.

The thrifty Mr. Rees is also a self-taught investor who has invested his savings well enough to establish a track record better than his hero, Warren Buffett. He has made the right buy or sell call an astonishing 80-per-cent of the time for his "10STX" portfolio, registered since 2000 on Marketocracy.com. The return on his personal portfolio averaged 21 per cent a year over the past 25 years, as recorded on Tenstocks.com. Mr. Rees has appeared in publications such as Forbes, SmartMoney, The Times of London and The Globe and Mail – and was featured in Matthew Schifrin's 2010 book, The Warren Buffetts Next Door: The World's Greatest Investors You've Never Heard Of.

The Globe recently caught up with Mr. Rees to get an update on how things have been going since we interviewed him in 2008.

Is your investing approach still the same?

I haven't changed anything. My focus is still on trying to find companies selling at a discount to tangible book value, and/or special situation investments, while running a concentrated portfolio of around 10 stocks. I am often investing in companies that 97 per cent of investors would not touch with a bargepole. Sometimes, my portfolio can look like an undesirable collection of rotting fish-heads and dumpster debris. When I am buying, almost nobody agrees with me. I like it like that.

What are you investing in these days?

Currently my portfolio is focused on energy- and commodity-related investments. I think it's the only part of the market where there is still some value to be found. It's very unusual for me to be so concentrated in a single sector. Usually I diversify across sectors, currencies, and geographies. This concentration introduces a great deal of price volatility in the portfolio. I'm used to a lot of price volatility but this current sector concentration amplifies it even more. In the face of extreme price volatility, I focus more on the value of the underlying investments rather than day-to-day price gyrations. Those who invest alongside me don't always enjoy the ride. A strong stomach is required.

What are your top holdings?

The top five are Obsidian Energy, Vale SA, Chesapeake Energy preferred D shares, Suncor and Capital Product Partners. My biggest position is Obsidian Energy (OBE-TSX, OBE-NYSE), formally known as Penn West Petroleum. I've owned OBE several times over the years, including selling a chunk as high as $34 (U.S.) a share in 2008. Since then I've been to hell and back multiple times. But OBE is now a smaller, more compact company and I'm bullish on the long-term price of oil. Demand is increasing, and I think the supposed production threat from U.S. shale is way overblown. John Brydson, a director and board member, has been accumulating OBE stock for some time, his most recent, a purchase of 250,000 shares, was at $1.60 back in April. Mr. Brydson spent close to 15 years managing a $2-billion portfolio at Credit Suisse. He knows his stuff and he's on the inside. David French, the CEO, has also begun nibbling at OBE shares, with several buys in August and September at around a $1 a share. Obsidian Energy is my best idea.

What's your take on the stock market these days?

I am basically in a holding pattern, waiting for higher oil and commodity prices to sell stocks and raise cash. I really don't like this market. In my opinion, risk is way too high and reward is way too little. I'm currently 7-per-cent cash but would like to see it rise to the 40-per-cent range sooner rather than later. This market is toppy, overvalued and high risk. I want no part of it. I suspect in the next crisis of over-confidence there may be no place to hide. People will likely be forced to sell what they can, not what they want. The best place to be may be sitting on a lot of cash to be a buyer when some fear returns to the market.

You were in the Dominican Republic when we spoke in 2008. Where are you now?

I have relocated to a small beach town in Thailand. My 13-year-old daughter is fluent in Spanish, English and Thai – and is currently learning Mandarin and Japanese. One reason I moved to Thailand was because I was intrigued by [billionaire investor] Jim Rogers moving with his family to Singapore. His reasons for doing so made a lot of sense to me [in interviews with journalists, Mr. Rogers has said that he wants his heirs to grow up and live in Asia because he believes that's where the best opportunities will be over the next century].

https://www.theglobeandmail.com/globe-investor/investment-ideas/this-self-taught-investor-is-outperforming-warren-buffett/article37019857/
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on November 20, 2017, 01:05:36 PM
sculpin,
Appreciate the post and reference to an investor I did not know, Mr. Christopher Rees.
He has a website. Unconventional but quite interesting. Instructive recent developments: his returns, his holdings and his outlook.
As I continue to wonder if I'm on the right side of statistical variance, when I read: "I do, and will, make mistakes. I'm really not a very smart guy. There are still plenty of things I don't know.", I sort of knew that this was worth considering.
I hope this guy hangs around as he does not seem to confuse a good run with superior skill.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 23, 2017, 06:34:57 AM
Back on PPR for a minute.

This development in Quebec has lit a fire under QEC and ATI. PPR has bigger exposure than both plus the added option of the NAFTA Tribunal which ends tomorrow (decision expected within a few months).

http://www.ledevoir.com/environnement/actualites-sur-l-environnement/513407/energies-fossiles-quebec-elargir-l-acces-aux-fonds-publics

Tax loss selling may be providing the opportunity (although that is the excuse I am using for any stocks that I own that are seemingly stuck in the mud).
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 23, 2017, 10:15:18 AM
I really hope that they win because when a company is willing to pay 15% interest on 4 year notes to drill mostly for gas at Wheatland to honour a commitment to a royalty company, it is pretty screwed up.

If at least they were running a tight ship, the situation could be explainable but, that is not the case. While G&A has somewhat improved it remains too high vs peers.

There is value in this company but, I am really unclear on the leadership to make it surface.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 23, 2017, 11:53:30 AM
I really hope that they win because when a company is willing to pay 15% interest on 4 year notes to drill mostly for gas at Wheatland to honour a commitment to a royalty company, it is pretty screwed up.

If at least they were running a tight ship, the situation could be explainable but, that is not the case. While G&A has somewhat improved it remains too high vs peers.

There is value in this company but, I am really unclear on the leadership to make it surface.

Cardboard

The debt structure is interesting because it is a blended rate of 8.2% but the structure incentivizes having more debt on the balance sheet. Perhaps it's worth having funding security as opposed to having to go back to the banks every 6 months.

You are right about management though. I just don't understand why they don't market the Utica Shale opportunity and the NAFTA lawsuit. Just the optionality on those events incorporated into valuation would reduce the cost of capital significantly. One only has to look at Questerre to see what promotion can do for valuation.

That being said, I have to think if they are allowed to drill in Quebec, a buyer will show up and put the management team out of its misery.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: LC on November 27, 2017, 12:31:38 AM
Interesting article

https://www.scientificamerican.com/article/drilling-reawakens-sleeping-faults-in-texas-leads-to-earthquakes/
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on November 30, 2017, 01:19:44 PM
Despite the stupid talk that we have heard over the past 2 weeks that Russia would not join into a 9 month extension, that is exactly what they did:

https://finance.yahoo.com/news/opec-allies-set-agree-oil-074724500.html

Another very large recent move in the energy world is Cameco cutting worldwide uranium mine supply by roughly 10%:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCCO-2527905&symbol=CCO&region=C

Cardboard

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on November 30, 2017, 02:08:45 PM
Despite the stupid talk that we have heard over the past 2 weeks that Russia would not join into a 9 month extension, that is exactly what they did:

https://finance.yahoo.com/news/opec-allies-set-agree-oil-074724500.html

Another very large recent move in the energy world is Cameco cutting worldwide uranium mine supply by roughly 10%:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCCO-2527905&symbol=CCO&region=C

Cardboard

Any thoughts on Uranium exposure? I own EFR.DB which is a convertible piece of paper with an 8.5% coupon trading at par. While EFR is still losing money, the debt is small compared to the market cap and it has tons of leverage to the uranium price if it moves. I think the debt protects me from more dilution in the equity. I also bought a little CCO post the announcement.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 01, 2017, 08:00:37 AM
I have not researched the uranium companies recently. From past research, there are very few companies with operational mines worth investing in with CCO being the main player.

U or Uranium Participation Corp. is an interesting alternative to gain exposure as they are basically a closed end fund holding uranium inventory trading at a discount to NAV.

While you would have no leverage to a rising uranium price, at least you would be more or less guaranteed to have a 1:1 correlation which is often not the case with companies where leverage is often killed by managers stupidity.

Since Fukushima in 2011, uranium has been in a bear market. Interestingly, most commodities have seen the same so it does not appear totally related to the incident. There has been very large divestments from large funds of all things related to commodities. You no longer hear about them being an alternative investment, hedge or all the reasons stated for owning them prior.

Specifically to uranium, you have Japan restarting its reactors, China adding roughly 30 gW by end of 2020 from today or a double in capacity, India adding some and the supply from disarmement is no more.

I own nothing in that area yet but, definitely looking.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cigarbutt on December 01, 2017, 11:04:23 AM
Here is an article and a relevant study questioning conventional wisdom of shale "sweet spots" economics.
The cost curve may need some adjustments (up).

https://mrtopstep.com/crude-all-fracked-up/
https://erlweb.mit.edu/sites/default/files/23%20Justin%20Montgomery.pdf

"If it ever gets cold, you better watch out, you better not cry, you better get long, I’m telling you why..."
Santa Claus may be coming to town.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 06, 2017, 07:55:52 AM
Another very positive EIA report again this morning if you are in the bull camp. Inventories of almost everything are down big time since last year and the trend does not seem to be stopping.

And it is certainly not being reversed by EIA arbitrarily indicating Lower 48 States production growth at 20,000 boe/d vs the week before! Almost always like that. Up 20,000 or 0... What a hunk of bs!

Unfortunately, if you have been investing in producers, you have likely not seen good returns this year unlike for the price of oil. I would think this should change over coming months if oil stays above $55 WTI and with the end of tax loss selling. On oil, here are some notes from a presentation by Pierre Andurand at the London Sohn conference who has been right on with his calls, including the crash:

http://www.marketfolly.com/2017/12/pierre-andurands-presentation-on-oil.html

Someone was asking previously about Canadian producers more oriented towards natural gas. I believe that the situation will change with TransAlta's plan to convert its coal-fired power plants to natural gas and eventually this should get reflected at least in future long term prices:

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aTA-2542466&symbol=TA&region=C

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on December 08, 2017, 03:59:43 AM
http://www.petroleum-economist.com/articles/markets/outlook/2017/oil-the-price-is-not-right

Good analysis.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on December 08, 2017, 06:12:59 AM
http://www.petroleum-economist.com/articles/markets/outlook/2017/oil-the-price-is-not-right

Good analysis.

We find it useful to look at the US housing collapse of the mid 2000's, & ask 'why could insiders not see the danger of the widespread securitization of high ratio teaser rate, non-recourse mortgage loans?' We know today, that insiders DID see the dangers; but did little about it - because the money was too good to 'look the other way'. It created a 'bubble', and so long as nobody popped it - there was no reason for the party not to continue.

We look at oil/gas today, and can't tell the difference.
Hard to believe that insiders cannot see the developing imbalance, and easy to imagine that the money 'to ignore it' is very good.
More for the astute.

SD

 

 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SafetyinNumbers on December 19, 2017, 04:15:11 AM
I really hope that they win because when a company is willing to pay 15% interest on 4 year notes to drill mostly for gas at Wheatland to honour a commitment to a royalty company, it is pretty screwed up.

If at least they were running a tight ship, the situation could be explainable but, that is not the case. While G&A has somewhat improved it remains too high vs peers.

There is value in this company but, I am really unclear on the leadership to make it surface.

Cardboard

The debt structure is interesting because it is a blended rate of 8.2% but the structure incentivizes having more debt on the balance sheet. Perhaps it's worth having funding security as opposed to having to go back to the banks every 6 months.

You are right about management though. I just don't understand why they don't market the Utica Shale opportunity and the NAFTA lawsuit. Just the optionality on those events incorporated into valuation would reduce the cost of capital significantly. One only has to look at Questerre to see what promotion can do for valuation.

That being said, I have to think if they are allowed to drill in Quebec, a buyer will show up and put the management team out of its misery.

Article from Sunday. Sounds very constructive on Quebec prospects. QEC.TO and ATI.TO reacted well to the report but PPR.TO did nothing. Perhaps, the last days of tax loss selling. I imagine most tax loss selling will be done this week.

http://www.lapresse.ca/actualites/politique/politique-quebecoise/201712/17/01-5147453-les-hydrocarbures-seront-exploites-assure-le-ministre-moreau.php
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on December 20, 2017, 12:08:28 PM
 :'(Stockpile dropping nicely.

Bought some MCF yesterday at average of $3.50. It's better to be lucky than good. Also picked up some PPR.TO recently.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jimjam on December 20, 2017, 01:47:20 PM
It appears that the Chicago Mercantile Exchange is tightening the spec for delivery quality and that this might exclude some previously allowed blends (for example those involving Canadian heavy, according to the twitter replies):

https://twitter.com/JKempEnergy/status/942761667133394945

I wonder if anyone here might be able to clarify whether this is a material change or not for WCS? Who wins? Who loses?

Thanks
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on December 20, 2017, 01:49:25 PM
Been doing a lot of research on HWO, Canadian listed driller that mostly operates in Papua New Guinea. Think that creates an interesting dynamic. PNG story is really strong, although there's been some civil unrest related to the LNG exports.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 22, 2017, 10:04:08 AM
I really like HWO here at this price: over 5% yield well covered, no net debt, profitable, cheap. It does not seem to have multi-bagger upside potential but, risk seems quite low.

PNG has become a steady operation with continued renewal contracts while Canada is going to be the growth engine in coming years IMO.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on December 22, 2017, 01:35:00 PM
http://www.worldoil.com/magazine/2017/december-2017/features/permian-producers-push-the-envelope-for-output-growth-in-2018

This is a very good, balanced article. You can interpret it many ways.

My sense looking at the recent U.S. rig count trend and reading multiple Q3 financial reports is that the low hanging fruits have already been harvested in the U.S. and production growth will lag expectations. The oil price has risen but, the rig count is not responding and completion costs are going up. We went from the high $40's to the high $50's on WTI without a corresponding rush in drilling.

Investors are also demanding profitability now instead of just growth in production, so this will mean continued harvest of best plays with discipline on IRR.

Cardboard

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on December 22, 2017, 01:49:23 PM
You may have seen this (may have even been posted here before), but it would support your thesis... interesting regardless: https://www.wsj.com/articles/investors-question-oil-output-in-permian-basin-americas-fastest-growing-field-1502325779

Quote
Most wells produce natural gas as a byproduct alongside oil, and that gas output tends to rise over time. That is because as a reservoir is depleted, its pressure drops and gas vapors separate from liquid—reaching the “bubble point” at which natural-gas production accelerates.

Pioneer last week indicated that some of its Permian wells are reaching this point sooner than it anticipated.

“Why everyone’s so concerned is that it could mean at some point in the future, that oil declines are steeper than what company and the investment community thought they would be,” said Ben Shattuck, research director at consultancy Wood Mackenzie. “It raised that big question mark.”

The "demanding profitability" thing I find pretty funny... the financials of these companies have shown cash burn for years. Einhorn gave his presentation on Pioneer in 2015. Not sure why they expected different at today's oil prices?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 26, 2017, 09:56:05 AM
Sleepwalking toward crisis.....

"More worrisome, Passos said, is 2017 discoveries are on pace to replace just 11 percent of the world's production this year."



Oil discoveries hit lowest point in 70 years

Supply shortages and increasing prices may be awaiting as companies spend less on exploration amid the shale revolution

By David HunnDecember 25, 2017 Updated: December 25, 2017 10:32pm

Major oil discoveries have fallen to their lowest levels in more than seven decades, as drillers across the world wrestle with stubbornly low prices and the tantalizing draw of quick returns in U.S. shale fields.

Global oil companies are projected to end 2017 with discoveries totaling just 7 billion barrels of oil and gas - less than one-quarter of the 30 billion barrels identified in 2012, according to Norwegian research firm Rystad Energy. That falloff eventually could translate into supply shortages and sharply rising prices as global demand diminishes existing reserves.

"We haven't seen anything like this since the 1940s," senior Rystad analyst Sonia Mladá Passos said in a report. "We have to face the fact that the low discovered volumes on a global level represent a serious threat to the supply levels some 10 years down the road."

Exploration budgets - the cash oil companies spend on finding new fields - have fallen for three consecutive years, Rystad said, dropping by more 60 percent in total. And the shale revolution has further diverted company spending from offshore and conventional exploration to U.S. fields, where hydraulic fracturing unleashed vast and previously unknown oil reserves.
But shale production won't come anywhere close to providing enough oil to satiate the world's growing appetite, rising toward 100 million barrels per day. Energy research firm IHS Markit estimates shale fields account for just 7 percent of global production.

World oil discoveries began falling in 2010, Rystad said. In 2012, companies found fields holding an estimated 30 billion barrels of oil and gas. By 2014, that number had fallen by half, to 15 billion barrels; last year it halved again, to 8 billion barrels.
. More worrisome, Passos said, is 2017 discoveries are on pace to replace just 11 percent of the world's production this year. Average offshore discoveries held just 100 million barrels this year, compared with 150 million in 2012.

Oil prices began tumbling in June 2014, after several years of sustained drilling and fracking in U.S. shale fields helped produce a glut of oil. They kept falling into February 2016, bottoming out at about $26 a barrel. More than 300 oil, services and pipeline companies went bankrupt; nearly all cut spending steeply.

As prices have rebounded, production has become concentrated in the Permian Basin in West Texas, where companies could drill, frack and pump oil quickly and profitably, leading many to pull out of more expensive offshore and international positions.

Oil majors like California-based Chevron Corp. and independents such as Houston's Marathon Oil Corp. and Apache Corp., shifted their focus from offshore and international toward such shale fields. Chevron recently began a multibillion-dollar drilling campaign on 2 million acres in the Permian. Marathon sold its offshore portfolio in Norway to focus almost exclusively on shale. Apache expects to spend about two-thirds of its $3 billion capital budget this year in the Permian.

Still, analysts, executives and energy agencies have all warned that low levels of investment in exploration of conventional oil fields could lead supplies to run hundreds of thousands of barrels short by the end of the decade.

In 2015, the Houston energy investment bank Tudor, Pickering, Holt & Co. projected oil industry cost-cutting could take 19 million barrels of oil out of daily production in the years that followed. Last year, the consulting firm Deloitte reported that the industry is $2 trillion short on the cash it needs to replace the crude it is pumping today.

And in January, Paal Kibsgaard, chairman and CEO of the international oil services giant Schlumberger, said most countries outside the Persian Gulf are depleting their reserves without replacing the oil they produce.

Rystad noted a few major discoveries in 2017, including Exxon Mobil's 1-billion-barrel find off Guyana and Dallas-based Kosmos Energy's 15 trillion feet of natural gas in Senegal. In Mexico, the state-owned oil company Pemex discovered about 350 million barrels in the onshore Ixachi field, and Houston's Talos Energy found at least 1.4 billion barrels in the Gulf of Mexico.

The research firm said it doesn't expect any other large discoveries this year, but with U.S. crude stockpiles shrinking and oil prices approaching $60 a barrel, companies may be more inclined to increase exploration budgets soon.

http://www.houstonchronicle.com/business/article/Oil-discoveries-hit-lowest-point-in-70-years-12454783.php?utm_source=dlvr.it&utm_medium=twitter
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on December 26, 2017, 10:23:57 AM
:'(Stockpile dropping nicely.

Bought some MCF yesterday at average of $3.50. It's better to be lucky than good. Also picked up some PPR.TO recently.

And each day I say: "Too late to buy more now. I'll wait for a pullback."  ;D
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sbalsam on December 27, 2017, 11:58:59 AM
Regarding High Arctic, anybody know why the CEO resigned so suddenly?
Steve
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on December 27, 2017, 03:58:05 PM
Regarding High Arctic, anybody know why the CEO resigned so suddenly?
Steve

The rumour is he wanted to make an acquisition (could have been Essential Energy - ESN TSX). Might have been hostile and the Board did not allow him to move forward with it.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on December 27, 2017, 04:50:08 PM
Regarding High Arctic, anybody know why the CEO resigned so suddenly?
Steve

The rumour is he wanted to make an acquisition (could have been Essential Energy - ESN TSX). Might have been hostile and the Board did not allow him to move forward with it.

Which CEO was that? It's an odd pattern for sure. Tim Braun retired when they acquired Tervita. The other more recent CEOs were titled as interim.   

CEO:
Bruce Thiessen, 2008 - 2013
Dennis Sykora (interim), 2013-2014
Tim Braun, 2014-2016
Thomas Alford (interim CEO) 2016-2017
Michael Binnion (interim CEO). 2017
Cameron Bailey, 2017 - Present

CFO:
Morley Myden, 2008 - 2011
Robert Morin, 2011 - 2012
Dennis Sykora, 2012 - 2013
Ken Olson, 2013 - 2015
Brian Peters, 2015 - Present

Been some turnover in VP, Operations as well. Normally this would be a flag to me. What gives me some comfort is Cyrus Capital Partners has been invested since 2007 (converts), and invested more in 2012 and 2014. Although I don't know much about them, but they manage $4B of assets and co-founded Virgin America. The company has no debt and cash distributions from PNG (where cash is generated) are approved by the PNG government. Their customers are large oil companies (Oil Search Limited, Exxon, Total) . Long story short, I'm not sure what to make of it?
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sbalsam on December 28, 2017, 07:16:58 AM
Thanks Sculpin.

JG - I was referring to Thomas Alford. While he was an interim rather than full-time CEO, he retired as both CEO and a director at the same time without the hiring of a full-time CEO which seemed unusual and sudden. And while he was an interim CEO, I thought he sounded pretty committed and involved based on the conference calls.

For what it is worth, I have owned shares through the round trip of the past couple of years and remain so today.

Steve
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on January 02, 2018, 06:54:22 PM
So far this story/thread is coming to fruition and just day 1 of 2018 cuts.  The Russians and SA have showed a lot of resolve to accomplish a supply crunch.   Staying strong with some of my canadian oil names despite the increase in wcs/light discount as of late.   They appear to be the most undervalued.  Many well under book value...a book value that likely increase with some YE reports.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 03, 2018, 08:15:32 AM
The various pundits, media show boaters and strategists are turning bullish on energy after by and large being negative for several years. Probably one of the most under owned sectors in the market. Most of the Cdn energy stocks have a long way to move up.

Byron Wein...

Headline -  $80 oil and 9 other surprises that Byron Wien is bracing for in 2018
 

Link - https://www.marketwatch.com/story/80-oil-and-9-other-surprises-that-byron-wien-is-bracing-for-in-2018-2018-01-02
 
Key quote - "He also calls for West Texas Intermediate crude CLG8, +0.00% to top $80 a barrel due to continued world growth and unexpected demand from developing markets. On the production side, he expects shale production to disappoint, diminished inventories, discipline on output by the Organization of the Petroleum Exporting Countries, and only modest production rises by Russia, Nigeria, Venezuela, Iraq and Iran."
 
Also here is a link to the original press release on the Blackstone site:
 
https://www.blackstone.com/media/press-releases/byron-wien-announces-ten-surprises-for-2018

CNBC clown show turning positive....
 
https://www.cnbc.com/video/2018/01/02/cramer-shares-his-top-energy-stock-picks-as-oil-prices-rise.html

Nine Themes and Predictions 2018  (accuracy not guaranteed) from Acumen...
 
A new year, some more forecasts.  Stock picks to follow.
 
The oil market rebalances in 2018 and WTI tickles $70/bbl.  So are those who are calling for higher oil prices just inveterate bulls, stopped clocks or will this be the year?  The global economy is in a synchronized growth phase and as a result demand growth will be stronger than consensus estimates (1.3 mb/d), OPEC will take this the distance and grind stocks down the extra 100 mm bbl they need to get down to the 5 yr average level.  Moreover, new oil discoveries are at near all time lows with just under 7 b boe discovered in 2017 with the avg size of a new field falling by 33% to 100 mmboe.  In other words, US shale BETTER perform because the industry is not replacing production and hasn’t since 2012.  There will be a lot of heavy breathing around US shale growth and indeed it will grow again Y/Y.
 
But consider this:  the IEA serially underestimates demand and with nothing changing on the economic front – it may even be better in 2018 – it isn’t wild to think that demand will be 200 – 300k b/d HIGHER in 2018.    And on the supply side, IEA is most bullish on US shale growth at 1.1 mb/d.  It is also possible that this disappoints by 200 – 400k b/d.  Either of these scenarios results in a balanced market next year and that is without considering any other supply disappointments elsewhere (Venezuela, China, Brazil come to mind).
 
Oil stocks going higher will be the rally everyone will hate, doubt and pooh pooh because expectations of the Street and most investors are anchored around $50/bbl with recurring nightmares of $26/bbl still top of mind.  But if OPEC hits their goal of the 5 year average, oil will be $70/bbl.  As a result, the Canadian stock market will have a surprisingly good year.
 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on January 03, 2018, 09:44:39 AM
Momentum is turning. Except for PPR.to of course. :D
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on January 03, 2018, 10:11:27 AM
Also keep in mind that the geo-political 'stability' of the last few years is coming to an end.

Most would surmise that today's protests in Iran; are the response to the Iranian missile shot down over Riyadh by US missile defense last year, amplified by recent changes in the Saudi rulership. Riyadh clearly wants heads; Khomeini has successfully done this before, and is a very old dog. Pipelines are not defensible, Riyadh needs the Saudi-Aramco flotation to go well, and a lot of the current protest would vanish if a rocket landed on any one of a number of key Aramco facilities. Nobody protests if $80 oil allows the Ayatollahs to suddenly start distributing free food.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on January 03, 2018, 10:27:49 AM
What is incredible is that despite the daily run-ups in most oil stocks, they generally still lag the underlying oil price. When will this close (partly)?! Markets can only turn away for so long...
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on January 03, 2018, 01:59:05 PM
WTI nearly at $62. What a day.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 03, 2018, 02:16:51 PM
For those who own Gear Energy..

GXE is HFI top pick with target $3 to $4 share

https://seekingalpha.com/article/4135103-hfi-research-best-ideas-going-2018

Gear Energy, California Resources and Discovery Communications are our best ideas going into 2018.

The underlying fundamentals of Gear continues to grind higher despite bearish investment sentiment. With $70/bbl and $80/bbl potential in 2018 and 2019, Gear can trade to C$3 to C$4 per-share.


Gear Energy just released its 2018 guidance this week showing 15% exit-to-exit growth with almost certainty that the company will produce over 10,000 boe/d by 2019. The market however remains concerned over Western Canadian Select (heavy oil and more discussion in section 2) prices in 2018, and the recent price weakness is more reflective of that than the fundamentals of the business.

As we noted in our 2018 guidance update report, Gear’s capex spending for 2018 is “geared” to allow it to grow more in the years ahead by spending C$12 million on expanding inventory. This capex focus on expanding inventory should illustrate to investors the more long-term focused nature of the management, but given how bearish sentiment is today – the stock price continues to languish at the same level as last year despite 1) higher oil prices and 2) higher production.

But it’s with this diverging view between the company’s underlying fundamentals and the market’s view that we continue to see Gear as one of our best ideas in 2018. We have joked at times with subscribers that we have no interest in selling any Gear shares at least until we see C$3 per share, and that price target is moving higher and higher with each subsequent improvement in the underlying fundamentals.

 
This price target is also illustrative of what the potential may be if one was to take a longer-term view on oil and underlying fundamentals (something the market never does).

We estimate that if WTI can average $70/bbl in 2018 and $80/bbl in 2019, Gear could generate a total of C$61 million in free cash flow after capex of C$158 million, and produce 9,644 boe/d on average in 2019.

At a range of EV/DACF of 4.5x to 6x, Gear would trade between C$3 to C$4 per share making our reasoning for not selling any until C$3 per share all the more convincing if oil prices cooperate. And with the share price languishing around C$0.79, we feel the set-up into 2018 makes it all the more appealing to call this idea our best idea for a second-year in a row.

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on January 03, 2018, 07:18:55 PM
Also keep in mind that the geo-political 'stability' of the last few years is coming to an end.

Most would surmise that today's protests in Iran; are the response to the Iranian missile shot down over Riyadh by US missile defense last year, amplified by recent changes in the Saudi rulership. Riyadh clearly wants heads; Khomeini has successfully done this before, and is a very old dog. Pipelines are not defensible, Riyadh needs the Saudi-Aramco flotation to go well, and a lot of the current protest would vanish if a rocket landed on any one of a number of key Aramco facilities. Nobody protests if $80 oil allows the Ayatollahs to suddenly start distributing free food.

SD

No one is going to blow up the pipelines of another country.  The mid-east has been in a state of strife for decades and this has never happened on a large scale - one soveriegn to another.  It invites retaliation which does nobody any good and they all know that.  Self preservation by mutually assured destruction ensures this wont happen. 

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on January 03, 2018, 11:00:41 PM
Most interesting here is that almost no one seems tot be long in size. Sector really hated.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on January 04, 2018, 05:15:24 AM
Also keep in mind that the geo-political 'stability' of the last few years is coming to an end.

Most would surmise that today's protests in Iran; are the response to the Iranian missile shot down over Riyadh by US missile defense last year, amplified by recent changes in the Saudi rulership. Riyadh clearly wants heads; Khomeini has successfully done this before, and is a very old dog. Pipelines are not defensible, Riyadh needs the Saudi-Aramco flotation to go well, and a lot of the current protest would vanish if a rocket landed on any one of a number of key Aramco facilities. Nobody protests if $80 oil allows the Ayatollahs to suddenly start distributing free food.

SD

No one is going to blow up the pipelines of another country.  The mid-east has been in a state of strife for decades and this has never happened on a large scale - one soveriegn to another.  It invites retaliation which does nobody any good and they all know that.  Self preservation by mutually assured destruction ensures this wont happen.

Agreed, but this is also the land of an eye for an eye; the measured response WOULD actually be a mildly damaged receiving facility, that puts it out of commission for a few months. The major loser would be the Saudis, the rest of the ME would benefit from higher oil prices, those with large populations would get some relief, and those with small ones &/or American 'presence' would experience pressure to 'behave'. Fermenting unrest is a two-way street, Khomeini is very good at it, and recent Saudi upheavals have created a lot of resentment.

Responding in kind just proves you're a madman, & largely neuters the use of American force - as Trump is a liability. The traditional desert solution to this kind of thing is a knife in the night, and its use would be fully understood in this part of the world. Ultimately somebody will lose, and the region will return to relative calm again. A facility attack doesn't even have to be 'successful' - the fact that it  occurred would be enough. Rockets don't have to carry warheads.

SD


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on January 04, 2018, 06:23:19 AM
Most interesting here is that almost no one seems tot be long in size. Sector really hated.

I sure am long in size.  My position in Whitecap is so huge its taking every bit of my strength of will not to sell too early into the rally.  Between WCP,  MTl, and RUS I am up around 35%.  Now I wouldn't do this with more companies on the more speculative end of the scale. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 04, 2018, 12:23:09 PM
Most interesting here is that almost no one seems tot be long in size. Sector really hated.

I sure am long in size.  My position in Whitecap is so huge its taking every bit of my strength of will not to sell too early into the rally.  Between WCP,  MTl, and RUS I am up around 35%.  Now I wouldn't do this with more companies on the more speculative end of the scale.

WCP is an example of what is wrong with this market....
WCP execution flawless, operationally one of the best companies with well results and prodn beating expectations.
Executes a low decline rate acquisition in southeast Saskatchewan last November at the bottom (when oil was bouncing around in the $45 range) Closes asset and within a month or so oil at $62...that was great timing for a FCF oil play that worth more now.
Instituted share buyback, two dividend increases and mgt buying stock...

Stock is lower YoY, while oil is much higher? If a company like WCP is down doing everything right the market is not functioning correctly.Not sure what else they could have done.....

It should be a go to name for US generalist investors in the US , it has a huge cushion at $60+ oil, its safe down to $40. FCF is increasing with low decline assets.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on January 04, 2018, 01:04:09 PM
Challenge with WCP is the spread for Western Canada Select? How do you think about that spread before Kinder Morgan gets their pipeline built? It seems like the product is fairly landlocked at this point, similar to natural gas in the US (and Canada, I suppose). WCP does look interesting.. capex has been heavy but production growth has been real. Assuming you're correct about the long life of their assets their depletion accounting supports meaningful net income.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on January 08, 2018, 06:27:35 AM
https://www.bloomberg.com/gadfly/articles/2018-01-07/don-t-expect-opec-s-oil-output-deal-to-collapse-in-2018

"“We tend to cheat,” former Saudi oil minister Ali Al-Naimi famously observed shortly after the output deal was agreed in November 2016. That has certainly been a perennial problem for OPEC in the past, but it may be much less of a problem in the coming months. That's not because of some new-found sense of collective responsibility so much as the fact that those countries most prone to flouting their pledges simply can't do so at the moment. They are already producing at, or very close to, full capacity."

Good example of Occam's razor principle if you ask me.

As in many sectors, most tend to overanalyse and overreact to each and every move and word said. Some can't see the forest for the trees no matter what you do or say.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 08, 2018, 12:11:08 PM
GMP's Weekly Crude Cut....

 
Weekly Crude Oil Cut
    
The comments below were prepared following the release of the U.S. Department of Energy’s weekly report on the United States petroleum market. Analysis is for data reported for the week ending December 29, 2017. The purpose of this report is to provide a general commentary by drawing on recent data and developments in the United States and global crude oil markets.
Initial market reaction. Price neutral.

Price direction. More sideways, but with some tendency to rise in the coming weeks. The evidence is accumulating that the global and U.S. crude oil markets have been largely resetting themselves to much lower crude oil inventory levels. This reduction has been engineered by a combination of lower supplies from the OPEC/Non-OPEC supply agreement and what has been a very strong global demand picture supporting U.S. crude oil exports and strong U.S. refining runs. All indications are that this demand picture is going to remain strong for most 2018, contributing to what will be additional reductions in crude oil inventories worldwide. It was these inventories that were the single largest source of inventory bloat in 2015 and 2016, especially those in the United States, and which were holding back meaningful price recovery. With most of that bloat now gone, we think that WTI and Brent crude oil prices have a very firm foundation to hold and improve on current US$60+ per barrel prices. Although refined product stocks may increase more in the coming months, we think these will be offset by additional reductions in crude oil inventories, and we forecast an additional 20 to 30 million barrels coming out of U.S. commercial holdings of crude oil before the end of 1Q18. This would run counter to typical seasonal builds in crude oil inventories during the first quarter of the calendar year. With inventory and demand trends looking very supportive, the remaining holdback on prices may be the degree to which U.S. petroleum supplies are able to expand in 2018. Although we are likely to revise up our expectations of U.S. supply growth for 2018 simply because prices are outperforming our bullish forecast, we think the supply gains can be easily managed by a U.S. and global market that is clearly signaling the need for more supplies. In other words, don’t get too bent out of shape concerning additional U.S. crude oil supply growth. It’s coming and will be consumed quite readily and will not be a serious price negative.
    
Martin King
(403) 262- 0625
mking@gmpfirstenergy.com
   

Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on January 08, 2018, 12:18:46 PM
Thx sculpin. Nicely in line with what HFI research (see SA articles) has been saying for some time. No need to make it overly complex.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 08, 2018, 02:04:32 PM
THE MOTHER OF ALL CONVERGENCE TRADES

Energy equities generally trade as a proxy for the commodity. To this point, over the past 29
years there have been only three decouplings of consequence between energy share prices
and crude with 2017 being the most stark. The analysis below and those on the following
page are updated though the end of last week. Relative to the S&P 500, the energy sector is
trading as if WTI was being priced at $28/barrel, as per below.
We see this disconnect as
being unsustainable.

The gap between energy equities and oil prices that took place in 1999 ended up closing as a
function of capitulation – we don’t recall there having been any particular spark to start the
process. In 2003, however, the reconnect began with something rather innocuous which was
a restatement of Shell Oil’s petroleum reserves. Whether the catalyst this time around will be
something innocuous remains to be seen



https://gallery.mailchimp.com/1fd69cd92527e68cf2ef3aeb5/files/29f516a1-3068-42f4-bd41-06f4db3903b1/The_Morning_Energy_Update_8_Jan_2018.pdf
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on January 08, 2018, 06:07:25 PM
Relative to the S&P 500, the energy sector is
trading as if WTI was being priced at $28/barrel, as per below.

That doesn't seem right to me. What is the Y axis on their data? A lot of E&Ps never traded down nearly as much as you would have thought. As a result, the rebound has been fairly minimal. $28/barrel would mean bankruptcy for a large portion of the sector, but the market definitely isn't pricing that.

I've been short PXD, and despite raising additional equity through the downtown shares haven't really changed. In August 2014 they were ~$200, now they're ~$180. Exxon has gone from ~$100 to $87 over that time period. Continental Resources peaked at $80 in August 2014, and is now at $56.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 09, 2018, 07:49:44 AM
And it continues. Eventually this will be very beneficial to Canadian heavy oil producers...

Lee Saks‏
@Lee_Saks

#VENEZUELA CRUDE #OIL OUTPUT DECLINES ANOTHER 151K B/D IN DEC - PDVSA EXECS: ARGUS. #OOTT
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on January 09, 2018, 08:54:16 AM
Oil spiking as we speak.    Broke an important level of resistance.    When will the market wake up and see the opportunity here?   E&Ps will become profitable again.   Either I'm crazy or Canadian E&P (light oil) could be a multibagger by this time next year if prices keep up.

Just keep buying tech!  ;)
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: JayGatsby on January 09, 2018, 12:36:34 PM
And it continues. Eventually this will be very beneficial to Canadian heavy oil producers...

Lee Saks‏
@Lee_Saks

#VENEZUELA CRUDE #OIL OUTPUT DECLINES ANOTHER 151K B/D IN DEC - PDVSA EXECS: ARGUS. #OOTT
Is your point that think declining output of Venezuelan heavy oil may increase the relative demand for Canadian heavy as it's required to mix with light Texas shale, possibly reducing the price difference between WCS and WTI?

Agree the Canadian producers seem interesting... trying to learn a bit more about that.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: tombgrt on January 09, 2018, 02:29:38 PM
Crude -11.19MM
Gasoline +4.338
Distillate +4.685MM
Cushing -2.516MM


Lol.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 09, 2018, 02:59:42 PM
Couple of posts from twitter....

On supply..

Crudehead  🛢‏
@cbjom

I’m thinking the key talking point in the #oil markets for 1Q18 will be Venezuela rather than US crude production. #OOTT
2:31 PM - 9 Jan 2018


On demand...

Cuneyt Kazokoglu

@ckazok

The issue with demand is that it keeps growing while the majority of press is dominated by "surging electric cars" and "peak demand", i.e. there is a big gap between perception and reality. My gut feeling is 8/10 articles in media is bearish on demand. Misguiding.

https://twitter.com/cbjom
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 10, 2018, 07:52:30 AM
An oil draw of 4.9 million barrels which is still a lot for this time of year but, a lot less than the 11 million mentioned by API last night.

What I found more interesting in the report is the very large decline of 293,000 barrels/day in Lower 48 States production.

Where is that coming from? There was no hurricane. And the XL pipeline has been returning to normal shipments. While the weather was cold, then bad on the East coast, could this be all related to very cold weather in North Dakota affecting production and shipment? The number still looks way too large.

Or is this the adjustment that we have been waiting for a long time for EIA to normalize the difference between monthly and weekly production? Looking for an explanation.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Joe689 on January 10, 2018, 09:09:07 AM
 Freeze-offs  is one explanation.   See https://btuanalytics.com/permian-freeze-offs-ahead/   .
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 10, 2018, 11:13:58 AM
An oil draw of 4.9 million barrels which is still a lot for this time of year but, a lot less than the 11 million mentioned by API last night.

What I found more interesting in the report is the very large decline of 293,000 barrels/day in Lower 48 States production.

Where is that coming from? There was no hurricane. And the XL pipeline has been returning to normal shipments. While the weather was cold, then bad on the East coast, could this be all related to very cold weather in North Dakota affecting production and shipment? The number still looks way too large.

Or is this the adjustment that we have been waiting for a long time for EIA to normalize the difference between monthly and weekly production? Looking for an explanation.

Cardboard

Excellent explanation of today's production drop in 2 tweets.

EIA reported today a major ⬇️ in US crude oil production by 293 kbd to 8.979 mb/d while it ⬆️ production of Natural Gas Plant Liquids by 275 kbd. This is not an actual change in one week, this is a reclassification, which my friends and I have been calling for in our tweets https://t.co/UxB7pA14FC

I expect additional downward revisions of US crude production for the last 4 months of 2017. I also expect the #EIA , #IEA, and #OPEC to revise down their expectations of US crude #oil production for 2018 and 2019, making those two years more bullish than what most people think. https://t.co/N9b0DrgKc3
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on January 11, 2018, 07:06:42 AM
Just a disclosure that we've concluded building a position in WCP.
Purely a dividend paying trading position for us, that we see jumping by at least 25% (or more) over 1H 2018.

SD
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 11, 2018, 11:18:39 AM
Hold on to your Cdn heavies....We are bullish on Western Canadian Select

From the Eight Capital report today....

•   Our big out of consensus call: We are bullish on Western Canadian Select (WCS) pricing. We believe the current differential of US$25/Bbl is unsustainably wide because: A) The rail bottlenecks are temporary and typically clear out around late Q1, early Q2; B) Multiple sources state that the Keystone mainline is back at full rates, which should help reduce Alberta storage levels and mitigate large apportionments on the Enbridge mainline; and C) Shell's 255 MBbl/d Scotford upgrader had a one month unplanned outage in late November. Additionally, we note that Latin American heavy oil exports to the U.S. have been on a significant decline over the past seven years owing to falling production in Mexico and Venezuela. Plus Venezuela's economic woes are likely to continue to negatively impact its production, which recently hit a low not seen since 2003. This is important because the quality of WCS is similar to that of the heavy oil production coming from Mexico and Venezuela. With the U.S. Gulf Coast and Midwest refining complexes being large consumers of this type of heavy oil, we see this being a further benefit to WCS, which is why we expect to see differentials narrowing dramatically from the current US$25/Bbl Spot price in Q2/18 and beyond. BUY rated ATH, MEG, and to some extent CNQ are our best ideas on this. NEUTRAL rated BTE should also benefit.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: investor1 on January 11, 2018, 12:55:59 PM
Hold on to your Cdn heavies....We are bullish on Western Canadian Select

From the Eight Capital report today....

•   Our big out of consensus call: We are bullish on Western Canadian Select (WCS) pricing. We believe the current differential of US$25/Bbl is unsustainably wide because: A) The rail bottlenecks are temporary and typically clear out around late Q1, early Q2; B) Multiple sources state that the Keystone mainline is back at full rates, which should help reduce Alberta storage levels and mitigate large apportionments on the Enbridge mainline; and C) Shell's 255 MBbl/d Scotford upgrader had a one month unplanned outage in late November. Additionally, we note that Latin American heavy oil exports to the U.S. have been on a significant decline over the past seven years owing to falling production in Mexico and Venezuela. Plus Venezuela's economic woes are likely to continue to negatively impact its production, which recently hit a low not seen since 2003. This is important because the quality of WCS is similar to that of the heavy oil production coming from Mexico and Venezuela. With the U.S. Gulf Coast and Midwest refining complexes being large consumers of this type of heavy oil, we see this being a further benefit to WCS, which is why we expect to see differentials narrowing dramatically from the current US$25/Bbl Spot price in Q2/18 and beyond. BUY rated ATH, MEG, and to some extent CNQ are our best ideas on this. NEUTRAL rated BTE should also benefit.

Would be nice. The spread is particularly painful for a lot of heavy oil producers that hedge their WTI and are basis exposed. CONA is a great example. Probably why the stock hasn't reacted to oil prices. It's hard to see how the spread narrows more permanently over the next 2-3 years. You have continued supply coming online in excess of pipeline takeaway capacity. That means that rail transport costs will set the differential (US$15-$20 / bbl), no matter how much Venezuelan and Mexican imports decrease.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 15, 2018, 08:12:41 PM
FPA Capital 4Q17 Letter – Why We Invest in Energy and Hold Cash

FPA Capital 4Q17 Commentary

Almost 60% of the portfolio is invested in energy-related companies and cash; this compares to less than 5% in energy and 0% in cash for the Russell 2500

Why do we have such a large exposure to energy?

Believe we are in the early stages of another historic multi-year oil bull market
Our energy investment is not just tied to our belief that oil prices will go higher. We see that extreme investor bearishness, and perhaps apathy, have caused oil-related equity performance to disconnect from crude oil commodity performance

Bear argument #1: global demand growth will fizzle out (bears will often cite the following)
Slower global economic growth: that’s looking unlikely since the IMF is now forecasting that only six of 192 countries will register an economic contraction in 2018, the fewest on record
Existential consumption risk in China: crude demand in China is up 7% YTD versus the same period last year, more than double the consensus figure at the beginning of the year
The rise of electric vehicles: EVs make up just 0.1% of the global installed vehicle base, and that miniscule percentage will not change meaningfully over the next 5 years

Bear argument #2: OPEC and its partners, including Russia, will ramp up supply growth
Actions taken since November 2016 and quota compliance data don’t back up this argument
For the House of Saud, the most obvious incentive to keep oil supplies tight stems from budgetary constraints; the country needs over $70 oil just to neutralize its fiscal deficit and stop the ongoing bleed of foreign currency reserves
In the Kremlin, we must assume that Putin had its 2018 re-election campaign in mind when he endorsed the 2018 quota extension; Russia’s economy is dependent on crude oil, with 70% of Russian exports related to the oil and gas sector

Bear argument #3: US shale producers will flood the market
There are a few interrelated reasons why US shale will surprises to the downside
Operators focused on their best acreage during the downturn, leaving them with costlier and less productive sites
Weak financial results at top producers despite higher oil prices and focus on best acreage
Investors are pushing E&Ps to better prioritize returns over production growth

With average global demand growth expected to be at least 1.3 million bbl/d in 2018, we estimate the global inventory overhang would clear before the end of next June, or roughly six months prior to the end of OPEC’s current quota agreement
Last time this level of inventory was reached, oil prices were hovering about $100/bbl, while global demand was about 5 million bbl/d lower than it is today

To conclude, we think it’s important to point out how similar this set up looks relative to major oil bull markets of the 1970s and after the dot com bubble

These time periods were preceded by accommodative monetary policy, sky-high equity valuations, robust crude demand, and extremely bearish sentiment
1960-1970: S&P 59% vs WTI 16%; 1970-1980: S&P 47% vs WTI 1004%; 1980-1990: S&P 143% vs WTI -34%; 1990-2000: S&P 300% vs WTI 24%; 2000-2010: S&P -5% vs WTI 162%; 2010-2017: S&P 111% vs WTI -28%; 2018+: ?
Selling our energy stocks today would be akin to selling the farm before a historic harvest

Why is our cash level so high today?

We have simultaneous bubbles across virtually all traditional asset classes

Mechanics are relatively simple to understand: in a low-interest-rate world, investors must buy riskier assets to generate adequate returns, and this in turn drives up the price of those assets
But what will happen now that central banks have begun to unwind the purchases and raise rates?
We expect these market distortions to eventually collapse under their own weight, providing patient, cash-rich investors with substantial opportunities

What have returns looked like from this valuation level for the S&P? Terrible. Over the last 100 years, returns have averaged negative 7% over a 3-year period at similar valuation levels

When S&P 500 CAPE was below 10x, 3-yr returns of 39%; between 10x and 14x, returns of 34%; between 14x and 18x, returns of 13%; between 18x and 22x, returns of 20%; between 22x and 26x, returns of 22%; between 26-30x, returns of negative 1%; greater than 30x, returns of negative 7% (31x today)

Bubbles appear to be cropping up everywhere

European junk bond yields fall to 2.6%
$450 million da Vinci painting sale shatters previous record
Even depreciating assets are appreciating (composite index of Porsche 911s has increased in value by more than 30% over the last four years)
Bitcoin appreciates over 1,300% in one year
Over $3 trillion invested in ETFs
Don’t try to time an avalanche, just get out of the way
Cash may now be one of the only undervalued asset class left
Cash’s value comes from two sources: 1) yield and 2) optionality
When just about every asset class is expensive, cash may be one of the only undervalued asset classes left
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 16, 2018, 06:03:31 AM
I am also really heavy into energy for some of the reasons mentioned by FPA and at the same time very worried about the rest of the markets. Yes, markets including real estate.

Commodities appear to be the only sector where you can find value and Canadian energy being on top. There are also pockets of value elsewhere in small to micro-caps or special situations but, they are getting tough to find and you have to be careful about land mines.

The parabolic chart now very apparent in the DJIA, SPY and Nasdaq combined with very high valuations is quite scary. These events rarely (if ever) end up positive.

So it is problematic for my energy holdings as we need either more time, some sector rotation or both to see revaluation. The best scenario could be a stock market that starts to go sideways but, once fear of losing profits grips the market, that seems very unlikely.

What to do? Hedging the market is costly and does not work unless you are bang on the turning point. How many have been trying to do that on this board since when? 2013???

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Uccmal on January 16, 2018, 06:36:20 AM
I am also really heavy into energy for some of the reasons mentioned by FPA and at the same time very worried about the rest of the markets. Yes, markets including real estate.

Commodities appear to be the only sector where you can find value and Canadian energy being on top. There are also pockets of value elsewhere in small to micro-caps or special situations but, they are getting tough to find and you have to be careful about land mines.

The parabolic chart now very apparent in the DJIA, SPY and Nasdaq combined with very high valuations is quite scary. These events rarely (if ever) end up positive.

So it is problematic for my energy holdings as we need either more time, some sector rotation or both to see revaluation. The best scenario could be a stock market that starts to go sideways but, once fear of losing profits grips the market, that seems very unlikely.

What to do? Hedging the market is costly and does not work unless you are bang on the turning point. How many have been trying to do that on this board since when? 2013???

Cardboard

That about sums it up.  A market crash or worldwide recession could very well be the result of simultaneous central bank tightening, high oil prices, and increasing labour costs. 

Also, these guys give 5 yrs before EVs will have an impact.  5 years seems reasonable.  After that, demand is likely to drop.  The oil majors of course know this and will invest less in long term large scale projects so it may be a moot point.  But extremely high oil prices, say above 100 per barrel are going to speed the adoption of alternate technologies. 
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: SharperDingaan on January 16, 2018, 07:09:35 AM
It's useful to go back to basic economics.

The monetary and fiscal solution to the GR was to flood the economy, with so much new money that it overwhelmed the effects of collapsing asset prices and avoided the wholesale collapse of money banks across the world. It has eventually worked; but until the collective stimulus of the last 10 years can be safely removed, we have too much money chasing too few assets - producing bubbles everywhere. The traditional solution has been to raise interest rates, cautiously at first, then with increasing frequency.

Improving economies consume more oil, no matter where they are; all else equal, existing supply depletes every year. To make up the difference you must either drill for it, drain inventory, or both. Shale production ramps up and depletes quickly, with the cheapest & most accessible fields drilled first. We know that at present, US shale is barely maintaining existing production; to raise production is to drill higher cost fields, requiring a higher WTI price. Hence at even just flat production, an existing o/g firm might expect higher earnings and cash flow going forward.


SD


Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 16, 2018, 07:14:05 AM
Generally, EV's remain too expensive and ICE efficiency keeps on going up. People wanting to make a statement may buy an EV, but for people with a calculator, the choice is obvious.

Moreover, people in general simply don't have money to switch. There is a reason why vehicles are 10 to 12 years old on average. So for EV's to take off, you need a lot of the "rich" people to buy EV's to create a used market and why would these people do other than making a statement? They have plenty of choices and incentives.

So I think it is more 10 years than 5 and likely more 20. You would need a combination of more renewables to generate power, continued higher efficiency, more EV's and hybrids, autonomous vehicles and all of this has to offset population growth AND higher standard of living.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sbalsam on January 18, 2018, 10:33:15 AM
Does anybody have a sense of what is behind the huge draws at Cushing? Cushing is currently at 42M barrels compared to 64M barrels on November 3rd.

The Keystone outage began on November 16th and the pipeline resumed operations at reduced pressure on November 27th. I can't find the date of full capacity coming back online. I'm sure that had a major impact but hard to believe that it is still causing such a huge impact over the past two reports of huge draws at Cushing.

Steve
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 18, 2018, 10:49:56 AM
I don't know why it has dropped so much at Cushing specifically other than this being the hub for WTI and settlement of futures on delivery. Maybe that there is a real short squeeze going on and that the paper market is losing a bit control with buyers demanding physical?

Could be also arbitrage going on with that gap between WTI and Brent remaining enormous at around $6. First it was supposed to be due to the hurricanes, then a pipeline shutdown in Scotland, but, then you see the XL pipeline down and the huge draw that you observed and no change in that gap???

The report published by EIA this morning also showed big draws in almost all categories or a total of 13.3 million barrels of oil/products in 1 week!

This is unheard of for this time of year.

Then we have this crap from EIA that said that Lower 48 States production was down 293,000 bls/d last week, then up 267,000 bls/d this week  :o

What are they trying to do? Truth is that production was down 26,000 bls/d over this 2 week span (if we are still to believe at all their numbers) in what should be a never ending supply glut of shale oil according to the prediction from that agency.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jmp8822 on January 18, 2018, 12:55:06 PM
Does anybody have a sense of what is behind the huge draws at Cushing? Cushing is currently at 42M barrels compared to 64M barrels on November 3rd.

The Keystone outage began on November 16th and the pipeline resumed operations at reduced pressure on November 27th. I can't find the date of full capacity coming back online. I'm sure that had a major impact but hard to believe that it is still causing such a huge impact over the past two reports of huge draws at Cushing.

Steve

I don't have a good explanation for Cushing draws either, but the total crude inventory draws nationwide are worth watching.  Crude inventories during 2011-2014 in the US swung in the mid-300M barrels range (310M-370M approx) when prices were $100+ per barrel.  If you include some new pipeline fill (permanent working inventory) from recent infrastructure build-outs, anything in the 360M-390M crude barrels inventory range (and lower) could produce substantially higher prices, toward that $100 2011-2014 inventory/price figure.  At the rate of crude draws the last several months, we might be there sooner than consensus expectations.
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: jmp8822 on January 18, 2018, 02:05:22 PM
Does anybody have a sense of what is behind the huge draws at Cushing? Cushing is currently at 42M barrels compared to 64M barrels on November 3rd.

The Keystone outage began on November 16th and the pipeline resumed operations at reduced pressure on November 27th. I can't find the date of full capacity coming back online. I'm sure that had a major impact but hard to believe that it is still causing such a huge impact over the past two reports of huge draws at Cushing.

Steve

Here is the EIA's take on the matter - FWIW.

https://www.eia.gov/petroleum/weekly/
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 18, 2018, 02:30:11 PM
11 days down x 590,000 bls/d = 6.49 million barrels

Assume 30 days at 80% (which is too much IMO and rail shipments had already increased during that whole period to keep oil flowing) and we are talking another: 30 x 590,000 x 20% = 3.54 million barrels

So overall impact 10.03 million barrels on the high side. A far cry from 22 million barrels!

Reading the amateurish explanation from the EIA, they can`t even explain with an estimate or just basic arithmetic as I did up here the impact of that shutdown... These guys are either incompetent or involved in a scheme to hide the truth that they are way off on their production estimates and making it look like these abnormal draws are totally normal.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: Cardboard on January 23, 2018, 06:49:18 AM
http://business.financialpost.com/commodities/energy/oils-rout-is-over-hail-the-return-of-100-crude-maybe-gadfly

The bear or IEA is calling for demand of 100 million barrels/day by the end of this year! Who would have thought?

However, based on more reasonable forecasts, it should happen quite a bit earlier this year as the IEA has always under-predicted demand.

Then if one thinks of 2019 and for fun just adds another 1 to 2 million barrels/day in demand growth, we all of a sudden need all of OPEC and non-OPEC cuts to still end up in a world with a deficit in production. And with long lead projects having been shelved for 3 years, the only solutions to prevent run-away prices are U.S. shale which is now seeing some cracks and Saudi Arabia spare capacity.

Of course, the above is based on today`s situation or continued economic growth, Venezuela that does not implode, continuation of Iran deal, etc.

Cardboard
Title: Re: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.
Post by: sculpin on January 23, 2018, 07:06:54 AM
http://business.financialpost.com/commodities/energy/oils-rout-is-over-hail-the-return-of-100-crude-maybe-gadfly

The bear or IEA is calling for demand of 100 million barrels/day by the end of this year! Who would have thought?

However, based on more reasonable forecasts, it should happen quite a bit earlier this year as the IEA has always under-predicted demand.

Then if one thinks of 2019 and for fun just adds another 1 to 2 million barrels/day in demand growth, we all of a sudden need all of OPEC and non-OPEC cuts to st