Author Topic: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.  (Read 161653 times)

JayGatsby

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I still like High Arctic Energy if people are still following that. Price hasn't moved at all. Recent updates there are:

1. Earthquake in PNG hurt their last quarter... temporary thing.
2. Exxon and Total plan to double the size of the LNG terminal in PNG by 2023/2024. Presumably that means more drilling. Civil unrest toward LNG operators continues in PNG. Unclear what impact that has.
3. Ridiculous levels of management turnover continue. CFO out. 
4. No update on the JV with OSL. Hopefully that means it's just so small that OSL doesn't care to spend the time to execute it. I think the JV economically is a net negative for High Arctic, although it entrenches their position with key customers.

Curious other's views if anyone has looked at this.


sculpin

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http://www.opensquarecapital.com/wp-content/uploads/2018/07/Open-Square-Capital-Investor-Letter-2018-Q2.pdf


Weightless

That’s what the world’s feeling right now.  A moment in time when energy prices are just right, high enough to pull energy producers back to profitability, but not so high as to exacerbate global inflation.  Astronauts have described weightlessness as calming, producing an almost euphoric effect.  For those analyzing the oil market these past few years, we know better. 

For those who’ve bothered to look out the window, we know . . . we’re in free fall.   Despite more recent Wall Street attention, it’s still not obvious yet, and even if awareness is rising, the notion of higher oil prices is met with skepticism if not outright derision.  Look no further than analysts’ oil price decks, albeit revised and elevated from before, still show average prices around $70/barrel.  Many attribute the recent price curve to increasing geopolitical risks, of which there’s been no shortage to choose from (e.g., Iran nuclear deal, Middle East instability, Venezuelan sanctions).  Delve further though and you’ll discover that disappointing non-OPEC/non-US production and lower inventory levels means that the margin for error has narrowed. 

Today, geopolitical risks, operational mishaps and episodic outages that would have caused nary a ripple a few months ago now exacerbate oil price swings.  The current volatility is a symptom of increasingly tighter inventories and highlights the lack of spare capacity from producers willing or able to grow production.    Now surely the market knows this right?  Something as ubiquitous and important as oil, must be well understood, examined and reexamined to the nth degree.  Well, no.  According to the Wall Street Journal since March 2012 the number of commodity funds globally-which trade in oil and other commodities such as wheat or copper-has dropped from 368 to 130.” 

With few left to understand the intricate 1 dynamics of the market, and those remaining shunned because of lagging performance, the clarion calls of an impending shortage went unheeded.   Not that it mattered though because despite the forewarning, personal incentives drove producers of all ilk towards the situation we find ourselves in today.  It’s only now, when a confluence of factors have driven us to a supply shortage is the world beginning to stir, slowly waking to the realization that this is a shortage and it will continue unabated. 

As the energy crisis gathers momentum, it will have far ranging and wider repercussions than even we have ventured to anticipate.  No matter because we’ve known all along that it will only matter when it matters.  For now, enjoy this moment because heavy is the hand of gravity, and heavy is the other shoe that drops.
« Last Edit: July 09, 2018, 07:11:23 AM by sculpin »

SharperDingaan

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Also keep in mind the $2T Aramco IPO, which is being pushed to 2019 (or beyond).
https://www.bloomberg.com/news/articles/2018-07-07/saudi-aramco-s-2-trillion-zombie-ipo

“The timing isn’t critical for the government of Saudi Arabia,” Khalid al-Falih, the energy minister, told an industry conference in June. While “it would be nice if we can do it in 2019,” the minister said, “there is a lot more at stake than just ticking a box and say, ‘We got this out of the way.’ ”

KSA needs to maximize revenue, per PxQ. Today its mostly higher Q but as soon as it becomes apparent that Iranian production ISN'T being totally shut out; to maintain the same revenue on a lower volume will require a higher P.

Iran has evidenced that it has buyers for its crude, and they are nothing like VZ, Libya, and Nigeria;
where there truly is a physical shortage.

SD

« Last Edit: July 14, 2018, 06:33:11 AM by SharperDingaan »

Zorrofan

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Huge draw today, yet oil is down? Trade tariff concerns before everything else?  Maybe I;m wrong but even if there was zero growth in demand next year oil supplies will still be tight as production declines and lack of significant investment finally begin to be felt?

Cardboard

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I wrote this on Stockhouse:

"The EIA report was bullish and zero production growth on Lower 48 States again!

However, the OPEC report was bearish with revised down demand growth in 2019, worry about trade war, while Saudis ran flat out in June at 10.5 million barrels/day.

You also have Libya saying that force majeure is over at their ports. That could mean a big increase in supply.

However, I agree with you that Americans are specialists at manipulating oil down. The media, agencies, administration, they all seem to be on the job. Although, the music will stop at some point.

Keeping the price artificially down only helps temporarily at the pump and this $1 trillion that has not been invested in oil development is starting to show its ugly head. The more they do this, less get invested, fewer investors poor money in the sector.

Already Saudi Arabia is pumping at levels right before its deal in late 2016 and we hear that there is very little spare capacity left. Where is going to come from this extra 1.45 million barrels/day of demand growth in 2019?

Canada? Where are the pipes? U.S. where are the pipes? What about decline rate and lack of appetite to invest. Already we are seeing cracks.

The only thing that can prevent a supply crunch appears to be a global recession due to trade war, late cycle, etc. but, it will just be delayed."

Cardboard

tombgrt

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Geniuses now even considering releasing oil from SPR to lower oil prices if they rise too much. Was to be expected.

Great idea, let's further decentivize everyone from investing more and risk an even higher price spike in the long haul... Best thing all agencies and OPEC members could do today is make it very, very clear to the market that we are running a serious risk of strong undersupply. We need a decent spare capacity buffer that is currently lacking and now they dare to consider using emergency reserves for short term optics. What is the exact emergency here?! Better to get the reality out now to get that capex up again asap. Short term pain for long term gain.

Wouldn't be surprised if we stay range-bound a little longer because of all these shenanigans. Doesn't mean Canadian E&P's can't trade upwards even if oil goes a little lower of course.

sculpin

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https://seekingalpha.com/instablog/48843921-chris-kanaan/5187213-u-s-commercial-crude-inventories-breach-400-million-barrels-first-time-since-2015


U.S. Commercial Crude Inventories Could Breach 400 Million Barrels For The First Time Since 2015

Jul. 16, 2018 9:32 PM Est

Summary

The last time inventories were below 400MMbbl was Feb. 20, 2015.

Will take an EIA draw of 5.249mmbbl to achieve the feat.

Crude inventories have dropped 90MMbbl YoY (July 2017 - July 2018).

It has been a very long time since since U.S. commercial crude inventories saw less then 400,000,000 barrels of inventory.  The week ending for February 20, 2015 was the last time the energy market would realize sub 400,000,000 barrels of crude oil until no sooner then possibly, if reported by the EIA for the week ending July 13, 2018 on July 18, 2018. 

It will take a measly 5.249MMbbl of a crude oil draw to breach the longstanding 400MMbbl handle, which seems about as difficult as taking a cruise ship in the Cayman Islands for this time of year, as the market comes off the busiest holiday for U.S. drivers, the heart of American driving season and at time U.S. refineries are processing feedstock at record breaking capacities week-over-week. 

The beginning of the dreaded 2015s saw a multi-year stretch of the so-called "lower for longer" oil prices and the beginning of an oil glut that didn't start to fade until 2017.  Oil had just collapsed from 3-figures to half that value and chaos in the oilpatch began to ensure as companies started laying off workers, ramping up debt and cutting capex spending

Later in the same month of February 2015, for the week ending 02/27/17 was the first time U.S. commercial crude inventories logged over 400,000,000 barrels of crude oil; just about exactly one year later, U.S. commercial inventories reached 501,517,000, breaking the 500-million handle for the first time in history at a staggering pace as Saudi Arabia flooded the U.S. market alongside domestic shale production. 

As fast as crude inventories built, they have also fallen at a historical pace.  With nearly 100,000,000 barrels of oil drawing from U.S. inventories between July 2017 & July 2018, the market has never experienced such a rapid rate of fall. Most interestingly are the Cushing, Oklahoma crude inventories which have emptied over 50% YoY to an extreme low level of 25,718,000 with a strong prospect of continued largescale draws due to supply disruptions.

Some may attribute the rapid drop of crude to OPEC's cuts, but this may be short-sighted without looking deeper into the problem.  It's also as important not to disregard that U.S. production is at an all-time record for production, defying all odds;  Canadian heavy oil imports to the U.S. are at an all-time high while Venezuelan and Mexican imports continue to dwindle. 

With crude possibly bullishly breaching the long since elusive 400-million handle this week, I think it is important to remain focused on fundamentals in the market while omitting the price reaction.  I predict the market reaction will inevitably be much harsher for the upwind then what the downwind has provided. As Trump flirts with the idea of an SPR release, and the media fixates stories on Saudi Arabia increasing production to appease Trump, most ignore the massive and growing market disruptions which are becoming more powerful and more common at a time the market is becoming more sensitive.

Many market dwellers still fantasize of electric cars seizing the roads and solar power killing demand, the end result is that global oil demand has grown YoY at a rate above and beyond what global organizations such as the IEA have predicted and oil supply has not kept up to demand;  essentially, one could subtract an entire year of global capital expenditures spending since 2015-18 due to price crash. In fact, in 2017 it was reported that never before in history has the world witnesses so few of new oil discoveries. 

While the price of crude will continue to fluctuate and become more volatile in the era of Donald Trump and his tweets, it is this authors opinion that 2018 will see the realization of a multi-year bull market for the oil and and gas industries as the market enters an indisputable supply deficit and disruptions, such as Venezuela, Iran, Iraq, Angola, even Norway and beyond, intensify.

SharperDingaan

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The SPR is both 'paper' and 'physical' oil.
The US summer driving season, stance on Iran, and pending midterm elections all suggest a lower SPR and a much greater 'paper' to 'physical' composition than currently exists. Can't possibly have 'gas-price' complaining motorists voting the wrong way.

We know that shut-ins and non-Iranian production are at the limit, and that in NA the real shortgage is with heavy oil. As pipelines take years to build, the only real NA alternative is more rail from the WCSB; that is vulnerable to derailment, spills, and protest group stoppage. Furtermore WCS is heavy sour oil blended down to 20-21 API and 3.5% sulphur; Iran heavy is 29 API before blending and 1.99% sulphur. Large quantities of easier to refine heavy crude, with no shipping restrictions, in a tight market, that nobody is supposed to use; unless you get an 'exemption' from the US. Charming.
http://www.oilsandsmagazine.com/technical/western-canadian-select-wcs
https://atdmco.com/lub/crude-oil.html

All Iran need do is let the US draw down the SPR, go long on 'paper' oil, and cut off their 'illegal' heavy oil flow for a month ... to attempt a experimental 'compliance' with US sanctions. A temporary heavy oil cut of millions of physical boe/d in a very tight market that would send prices well over US100/barrel. Strike their facilities and the price goes higher. Negotiate, and the global recovery will no longer be at risk of collapse; and the pending Aramco privatization can raise the 2T required.
https://oilprice.com/Latest-Energy-News/World-News/Iran-Urges-Trump-Dont-Tap-SPR-To-Lower-Oil-Prices-Drop-Sanctions-Instead.html

The summer diving season is looking great!

SD

« Last Edit: July 17, 2018, 10:27:21 AM by SharperDingaan »