Author Topic: Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.  (Read 196258 times)

TwoCitiesCapital

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... For what it's worth, I've started trimming my Russian oil/gas holdings. Ultimately, hard for me to see much better scenario following increased production, increased pricing, and a dramatically reduced currency. They're about the only thing in my portfolio that's performed this year. ...

Pardon me for asking a question specifically adressed to TwoCitiesCapital here  [otherwise, my posts in this topic have no merit, frankly]:

Have you been trimming both Lukoil & Gazprom?

Trying to.

I've sold about 20% of the Lukoil position at $77.50. Will likely let more go if we get up to the $80s.

I had limit orders earlier on to sell 20-25% of my Gazprom for $5.25 when it was trading in the 5s. The order never executed and prices collapsed back into the 4s so I continue to hold Gazprom. Will be looking to exit at prices above $5.25 if we get a bump on winter demand/pricing or excitement on the upcoming completion of the Chinese pipeline.




sculpin

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http://www.canadiandiversifiedinvestor.com/2018/12/where-do-we-invest-in-2019-when-will.html

Where do we invest in 2019? When will Canada be once again open for business?

Posted: 07 Dec 2018 07:30 PM PST

Forecasting stock markets is a money-losing game. Forecasting the economy works only for those who forecast often. But we can extrapolate trends we see in the world. Despite the rise of nationalism and even rightwing extremism, I see Europe to continue its turnaround. I was two weeks ago in Europe and the mood in countries like the Netherlands and Germany has improved and the left seems in retreat. No more liberal democracies but rather centrist or slightly-to-the-right mainstream democracies. Italy being the exception as well as the a-political yellow jackets in France standing up against evermore taxing governments. It seems the French are slow learners while the Italians are looking for the 'black-box' easy solutions. But what do I know?

It looks like China has not been doing so well.  For several years now, even before the bear market in Chinese stocks, ex-pats have been leaving the country because of strangling regulations and rising wages. Many once successful entrepreneurs are returning to the U.S. Disney reduced its operations in China because of fears for intellectual property theft and hacking. They are apparently not alone.

The current trade war between the U.S. and China did not come out of the blue. China is hurting but so is the U.S. In the meantime, though in the U.S. much of the hurt is offset by record low unemployment. Stories we used to hear about lack of workers in Alberta's Grande Prairie with restaurants closing on weekends due to lack of staff we now hear in the U.S. For example, labor shortage in California’s vineyards.  With such a strong economy, the U.S. is likely to weather the trade war much better than China. Trump may be a pain, and even a guy like Jim Rogers is boohooing him, but the bully seems to be onto something. Lately, he engineered the temporary fall in oil prices through his manipulations of Saudi Arabia and Iran. Was that skill or dumb luck?

Even in Canada the economy is doing well except for Alberta and Saskatchewan. Of course, what is going to feed economic growth in B.C. with overseas money and real estate purchases drying up?  Maybe the LNG plant(s) will help but it seems the lefties in B.C. are creating a pipedream for a green economy. Yes, B.C. has a lot of renewable resources, but it also has a mining industry which requires workable regulations and cheap energy. That is about to fall along the wayside. Look no further than Ontario where 12 years of green dreams came to a sudden halt, even during good economic times the people there woke up.  I don’t know about losses in local by-elections, but I suspect that the quiet style of an Andrew Scheer may become a lot more attractive to many Canadians compared to a flamboyant Justin who is intent on destroying Canada’s oil and gas industry. I wonder what Canadians, especially Quebeckers, will say when those transfer payments dry up or even reverse?

I suspect that B.C.’s economy will become the basket case it has often been in the past with the left in power. Then Western Canada will likely re-unite and who knows, separatism in the West swill become a real threat. In previous downturns, even Stephen Harper talked about building a ‘Firewall’. This economic downturn is a lot worse than most and Trudeau’s policies are highly divisive. Not only is the man destroying Canada’s golden goose but soon he will destroy a lot of what made us all proud Canadians.  Not to mention large deficits than must be cleaned up just like after his Dad.

Will history recognize the real fool: Trump and/or Trudeau? My bet: Canada and Trudeau (who cares about boy-wonder?) will be the real loser. Canadian stalwarts such as Brookfield and the Canadian banks are increasingly turning southwards to the U.S. and International. CGI is basically an international high-tech consultant based in Canada. My guess, next year we will see the U.S. stock markets turn up with 10 to 15% gains, easily papering over the current days of investor pain and ensuring election of Trump for a 2ndterm. Hopefully, by that time Trudeau and his silver-spoon-fed cronies are gone.  Hopefully by 2020 or 21, the two pipelines to the south have been build and the West will once again ride high. But this time it will become more difficult to make the separatist talk disappear.

So, I will invest more and more into Canadian companies with a strong U.S. or international presence. I will stay suspicious of China which is turning increasingly belligerent and its labor is no longer cheap. Maybe India’s time or South America and later even Africa’s time has come. Also, more of my money, currently invested in the U.S., will gradually shift to Europe and emerging economies other than China.  Remember it was first Asia without Japan, now it may be Asia without China (and Japan – bad demographics).

By the way, due to the one-child policies, China’s population is getting pretty old and just like Russia it may decline in spite of all factors that favor it. With increased automation in manufacturing and ever increasing demand for energy, local manufacturing may pick up near the North American consumers. That should also reduce emissions by a lot. Of course, that is, provided we are open for business. Justin and his liberals really have to go!

sculpin

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https://www.youtube.com/watch?v=raMwTUjB224&feature=share&fbclid=IwAR1KYTHbA

In recent years, Canada’s focus on being a leading environmental citizen has come into apparent conflict with our desire to responsibly provide clean, affordable energy for a growing world that demands a higher standard of living for all.  In this talk, Mr. Slubicki will discuss the (at times) uncomfortable reality of energy and the environment in Canada and around the world.  Canada’s unique combination of resources, policy and technology position our nation to be a leader in the future energy landscape; if we have the courage to stand up for our industry and our best-in-class way of doing things.

Chris Slubicki is the President and CEO of Modern Resources Inc.

SharperDingaan

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Purely speculation on our part, but 3 things really stand out for us:

Short vs Medium/Long timeframe. In the oil-patch, over the next 1-2 years, about the only thing we can say with certainty is that there will be extreme change. All we can do is position ourselves to benefit from both the good and the bad. Medium/Long term offers a more promising outcome, simply because current obstructions will no longer be there.

Intermediate QE vs Fiscal spend. Extended record levels of QE worked, and it's why unemployment is at such low levels. But if we're to limit inflation the bulk of that QE is going to have to bleed out as an extended period of infrastructure spend - as roads, rail, pipelines, refining, industrial policy, new industry, etc. In Canada; nation building via coast-coast-coast pipelines, upgraded roads/rail, crude to gasoline refining, industrial CO2 sequesture, and electric generation over smart grid. Canada's open for business, and using infra-structure much the same way that rail was, to buiid the nation.

Intermediate demographics. Today we may have a bigoted majority, but in 10 years? they'll be either dead or a minority. Multi-culturalism is a state-of-mind, more recent generations have come from 'all-over' versus primarily Europe, and attudes are quite different. Canada needs people to do the work, it's going to need a lot more if we go into infrastructure building, and it means blunt discussions and a 're-set'of the social contract that every new immigrant to Canada faces. All good.

Long-term, we're all being offered a fantastic opportunity.
Short-term, not so much.

SD


« Last Edit: December 08, 2018, 12:50:38 PM by SharperDingaan »

Uccmal

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I have a general question for the participants on this thread.  The question is a tthe bottom.  If you go through the thread there are a number of publications posted by Sculpin and others, of third party reviews of the state of the worlds oil supply.  For three years they have been predicting a shortage of oil supply.  Most have been totally wrong.  BTW: Sculpin: I like the posts you put up, dont stop please. 

We are getting just the opposite.  Worldwide, supply is increasing.  The major single cause is an ever increasing amount of US Shale oil, particularly from the Permian.  The latest was a video feed on the alleged loss of money in the shale patch.  I skimmed the annual reports of companies referenced by the author of that video and didn't see the losses he was talking about (granted I only skimmed them and my ability to tease out the details is not good). 

In short, I no longer believe that most of these forecasts are correct.  I think shale oil production is going to continue to grow and in the pricess keep oil prices low enough to cause the OPECs, amd Canada alot of pain.

What are others thoughts on this?  Your own thoughts, not the posts of someone else's biased reports. 
GARP tending toward value

Packer16

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I think the point the video made was these guys were not generating FCF not earnings & without the FCF the debt will not be repaid.  Given the increased capital intensity of fracking, FCF is the way to look at it vs. earnings.  If you look at 2 of the big frackers EOG & PXD, they are both generating GAAP earnings & EOG is generating FCF but only since Q4 2017.  Oil prices have been over $55/barrel during this period & now they are closer to $50 so EOG may be at FCF breakeven.  If these guys do not generate FCF, the debt will crush most of the frackers.  IMO one thing that has changed is the auto companies are investing in electric car infrastructure which will lead to a decline in oil demand.  If this is the case, then the borrowings of the frackers are creating there own destruction by producing now & driving down the prices with future prices looking dim.  This is laying the groundwork for a huge distressed O&G wasteland in a few years then we may be at a bottom.

Packer   

SharperDingaan

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Using the concensus strip to predict future price is financial doctrine - but entirely rubbish. All you need do is backtest actuals against the strip at the time, whether that be for a commodity (oil, gold, etc) or an interest rate. And the further out in the future you go, the worse it gets. 

Realistically all one can do is look at supply/demand in a local area (WCSB, Newfoundland), and what you think the trends in that local area are likely to be over the next 1-3 years. You know your local area best, & make your own conclusions.

WCSB:

Politicians come & go, but the oil remains land-locked until those rail-cars arrive. The only way US bound pipeline space opens up, is if US production in the lower 48 suddenly collapses - highly unlikely. The shut-in has been popular, it has saved a lot of jobs, and it is paying for itself by raising local prices. Doing another round will raise local prices further, and buy a lot of votes.

We have no idea what happens after that, but it seems reasonable that if there are two rounds of Alta shut-in, Sask will pobably have to do something similar. Ultimately the tar-sands/pipeline companies are going to have to either 're-set', or swallow multi-billion dollar write-offs as those assets permanently strand. And federal Canada can achieve its environmental accords a lot easier with those tar-sand assets 'stranded' versus polluting.

Alberta's conservative political regime has its balls in a vice, and the grip is tightening. We don't see the blue-eyed sheiks giving up their privilidge gracefully, and ultimately it will be to the detriment of the province and its people.  But it's hard to see how the pipeline companies aren't ultimately forced to guarantee a minimum amount of volume to 'others', and a lower transort rate on that volume. And those big shippers whose volume is being displaced will 'bitch loudly, but voluntarily comply', because the alternative is a time-limited 'take-over' by the province (& much less favourable treatment)- as that oil in the pipe crosses the province at her majesties pleasure.

Over the intermediate term it is highly that a coherent industrial policy will be hammered out, it will be a muscular process, there will be a lot of gored oxen; and ultimately Canada will be a lot better off for it. Investment wise it will not be a time to invest, but there will be short-term opportunities.

Politics versus business only works in the short-term.
Ultimately the steam-roller runs you over.

SD

   
« Last Edit: Today at 08:25:25 AM by SharperDingaan »

sculpin

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RJ Energy Stat today - $100 Brent in 2020

Energy Stat: Updating Oil Price Forecast

Over the past few weeks we have attempted to explain (link) why the crude markets have experienced such a sharp and violent correction over the past month. Specifically, three main issues that triggered the initial oil selloff included

1) Trump “pulling the rug out from under the Saudi’s” by giving Iranian sanction waivers,

2) increasing concerns over global oil demand, and

3) a surge in U.S. oil production trends.

While these three bearish concerns are still at play, the consequences of lower oil prices is now setting the stage for a much tighter oil market next year and the likelihood of sharply higher oil prices in the back half of 2019. Put simply, our global oil supply/demand equation for the next few years is now much more bullish than a month ago because

1) 2019 OPEC supply will be lower with the recent OPEC cuts, and

2) U.S. oilfield activity will likely slow leading to lower 2020 U.S. oil supply growth.

The consequence of these two significant oil supply reductions is that global inventory reductions are now likely to come much sooner and be more severe than our prior model as shown below.

In today’s “stat” we will

1) “mark-to-market” our near-term oil price assumptions,

2) update our U.S. activity and oil supply assumptions,

3) update our global oil supply/demand model, and

4) show why we are still convinced that oil prices are still headed for $100 Brent in 2020 (as we initially suggested a month ago).

It is important to note that we believe the psychological damage created by the extreme oil price sell-off over the past month combined with seasonal oil inventory trends in the U.S. will likely create near-term headwinds for upward oil price moves in the first half of 2019. This is despite the bullish global oil inventory trends that we expect to emerge in early 2019. Accordingly, we are reducing our 2019 average for Brent assumptions from$90 to $72 and WTI down from $77.50 to $62. However, based on our continued conviction in the longer term outlook, we are maintaining our 2020 Brent forecasts of $100/bbl and WTI of $92.50/bbl. We are also keeping our long-term oil price deck at $80/bbl Brent and $75/bbl WTI.


sculpin

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Canadian oil has made a remarkable comeback

https://www.forexlive.com/news/!/canadian-oil-has-made-a-remarkable-comeback-20181210

The spread to WTI has dramatically recovered

Canadian oil producers are breathing a little easier after emergency measures to curb production through April have dramatically narrowed oil differentials. Western Canada Select is now trading at just a $12.75 discount up from -$52.40 in October.

The Bank of Canada highlighted differentials on other blends as well but those have also closed at a similar clip.

At the moment, the loonie isn't benefitting and even Canadian oil producers aren't benefitting but if sentiment can stabilize, there's some upside in the pipeline.