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General Category => General Discussion => Topic started by: james22 on January 09, 2020, 05:34:15 AM

Title: Energy Sector
Post by: james22 on January 09, 2020, 05:34:15 AM
You've recently been writing some very bullish thoughts on the oil and energy sector. What's your case there?

When people get excited about this ongoing cyclical trade, they should look at oil as the ultimate distressed value asset out there. To me, oil stocks are incredibly cheap.

There are technical reasons for that, because of the large passive investment flows, and oil is a smaller and smaller part of the index. Also, there are more and more institutional investors who can’t buy oil stocks anymore because of ESG limitations.

On the other side, there is no sign that oil demand is weakening. Consumption in emerging markets continues to grow, while conventional oil investments have been reduced significantly, precisely because of all this talk that the fossil fuel era is ending.

So in your view, energy the one remaining cheap sector out there?

Yes, without a doubt. But I will freely admit that there are all sorts of technical issues because as I said many investors can’t buy oil stocks anymore. We have this bizarre situation where people can’t buy oil stocks, but people continue to consume oil.


https://themarket.ch/interview/oil-stocks-are-incredibly-cheap-ld.1384

Anyone else see an opportunity?

I'm thinking of making Energy (VGELX) a 5% position.
Title: Re: Energy Sector
Post by: lnofeisone on January 09, 2020, 06:20:02 AM
I have been slowly accumulating energy in the form of VGELX + select names + prefs. + debt and very much overweight in the sector.

My valuations cap oil at 75 (on WTI). My rationale is that outside of a really major disruption (Saudi field bombing, Iran flare-up are meaningless in today's world) it's just too easy to get the spigot going. Because of this, I think E&P companies (especially 2nd and 3rd tier) are not going to do well as they will pump with every price pop just to cover drilling + debt. Though their stock might be much more volatile and can probably outperform...or go to 0 (e.g., Sanchez). My other reasons, in no particular order, are:
1) I love the fact that ESGs are getting rid of their stocks (though don't really alter their energy use behavior).
2) Across the board, there is a super disgruntled and pessimistic shareholder base. Performance, MLP structure, MLP conversions, GP take unders, take your pick.
2) Demand is still growing.
3) Couple that with newfound religion of debt paydown by many energy companies (e.g., KMI) and stricter capital allocation. Markets are also not very kind to companies trying to raise debt.
4) Trash assets are being idled or being severely discounted (there is a reason why SMLP is trading where it is). This is a net positive for opportunistic buyers.

Edited for grammar.
Title: Re: Energy Sector
Post by: Sullivcd on January 09, 2020, 06:37:21 AM
Care to share any of your specific name valuations? I would love to grab some exposure here but can't get a handle on what any of these companies are actually worth.
Title: Re: Energy Sector
Post by: JRM on January 09, 2020, 03:05:10 PM
I've been focussing on the natural gas segment and specifically pipeline companies.  I think there are some incredibly cheap companies paying very high (and safe) dividend yields that have a feasible growth trajectory.  I've been in Kinder Morgan (KMI) for about a 20% gain, but I think it easily should have another 50% in it over the next year or two.  I also like Williams (WMB) with good natural gas exposure.  Worldwide natural gas consumption is expected to grow until around 2050 according to EIA.  I keep hearing 50% growth in worldwide consumption from 2020 to 2030.  Kinder Morgan is my largest position.  Rich Kinder is still somewhat involved and heavily invested in the company personally.  Listening to him talk I get the impression he knows what he is talking about.

I recently sold Cheniere (LNG) for a decent return because the situation was getting too complicated for me, but there is probably opportunity in LNG exporting.  I'm going after the LNG shippers.

Risk in natural gas pipelines is primarily counter-party risk as we saw in the last downturn.  The new integrity regulations aren't too burdensome.  Another risk that I'm heavily discounting is that Elizabeth Warren bans fracking.  Doesn't seem possible to me.
Title: Re: Energy Sector
Post by: lnofeisone on January 09, 2020, 03:37:55 PM
Care to share any of your specific name valuations? I would love to grab some exposure here but can't get a handle on what any of these companies are actually worth.

In the pipeline space I rotated into EPD (great management, interests align with Duncan family), ET (amazing assets that trade at Kelcy Warren discount), WMB (amazing assets at good price...and eventually NY will figure out that they need to expand their pipelines), and tiny bit of AM. I think all these names can trade up 30-50%. I like selling KMI puts when it dips to 20s. Wouldn't mind getting some shares assigned to me. I like CNXM but don't love the price.

For prefs. I have TGPpA (this one is a shipper so I generally don't buy common but it's worth a look) and CEQPp. For debt I bought some Sanchez bonds when they were trading at 5 cents on the dollar (mostly learning/entertainment value of going through BK). Currently they are trading at 3.75 cents on the dollar  ;D.
Title: Re: Energy Sector
Post by: james22 on January 09, 2020, 08:29:13 PM
Morningstar:

The energy sector is the most undervalued heading into the new year: The median stock in our coverage universe trades at a 10% discount to fair value, says director David Meats in his quarterly wrap-up. Oilfield-services stocks look particularly attractive, trading at a 16% discount to fair value. But we see buying opportunities among all industries.

https://www.morningstar.com/articles/961514/33-undervalued-stocks-for-2020

https://www.morningstar.com/articles/961161/energy-most-undervalued-sector-heading-into-the-quarter

They like Cheniere, Unbridle, and Schlumberger.
Title: Re: Energy Sector
Post by: james22 on January 09, 2020, 08:47:48 PM
Reason number one to be bullish on energy stocks is their relative cheapness. The sector looks extremely undervalued as institutional investors have abandoned their positions in energy stocks and systematic funds are shorting oil.

https://www.investopedia.com/5-reasons-energy-stocks-could-surge-4772280

Craig Johnson, senior technical research analyst and managing director at Piper Jaffray, said Thursday he had “no question” that now was the time to do a “bottom-fishing exercise.”

“Talking to all these institutional accounts, they do not like energy. They don’t want to touch energy. They’ve been burnt in energy for so long. And fundamentally, they’re going to point out all the problems with it,” Johnson said on CNBC’s “Trading Nation.” “But, as a guy that likes to look at charts, these stocks tend to lead the market six to nine months ahead of time.”


https://www.cnbc.com/2019/11/22/energy-stocks-to-invest-in-as-worst-performing-sp-500-sector-turns-up.html
Title: Re: Energy Sector
Post by: Palantir on January 19, 2020, 04:55:00 PM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?
Title: Re: Energy Sector
Post by: DooDiligence on January 19, 2020, 05:59:08 PM
Institutional interests wax & wane over time & across sectors.

http://pages.stern.nyu.edu/~adamodar/New_Home_Page/dataarchived.html#corpgov

It seems like just yesterday that we were going to run out of oil soon,
and then we were awash in the stuff.

Predicting supply & demand is like predicting hurricane tracks.
Better to just say there will be hurricanes.

Energy will go down & it will go up, and down & up, and down & up...

I like my chances with VDE.
I was an idiot for buying CLB.
Title: Re: Energy Sector
Post by: Spekulatius on January 19, 2020, 06:51:39 PM
RDS is an oiled major that seems to become more like an utility over time. At least that’s the ghost I am getting from the management presentations. The bull case is probably that it is way cheaper than any utility one can buy, with a dividend yield of ~6%+ and improving financial performance, I can see the stock retreating over time.
Title: Re: Energy Sector
Post by: james22 on January 20, 2020, 01:29:15 AM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?

...economic theory suggests the share prices of “sin” businesses will become depressed if a large enough proportion of investors choose to avoid them.

Such stocks would have a higher cost of capital because they would trade at a lower price-to-earnings (P/E) ratio, thus providing investors with higher expected returns.

...as more investors express their personal beliefs through their investments, shunning sin stocks, it seems likely their prices would be further depressed, further raising their forward-looking return expectations.

Thus, it is possible the sin stock premium (relative to the market) could not only persist, it could increase...


https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1
Title: Re: Energy Sector
Post by: tede02 on January 20, 2020, 07:28:23 AM
I was just looking at a company that has usecured bonds, maturing in 2021, trading at $0.55. Although I know hardly anything about energy, the deep discount and the fact that an investor I highly respect holds the bonds made me look into it. The company is generating free cash flow and has been gradually paying down its highly leverage balance sheet the last few years. Upon closer look, as much as 60% of the long-term debt comes due in 2021. Obviously the company will have to refinance a huge amount of debt for the bonds, which only represent 2% of the debt, to be paid at par. I don't think I'll touch this because I just don't really understand all the dynamics. But I may follow it to conclusion out of curiosity. At the end of the day, it seems like the question is how likely is it the company is able to refinance.

The energy patch in general confuses me. I'm generalizing, but most of the companies generate no profit or cash-flow for shareholders. All the capital is just plowed back into the ground. From a stockholder's perspective, it's like, what's the point in expending all this energy (no pun intended), on companies that make no money. Is Fed policy (low rates) the driving reason why banks and the bond market continue to lend?
Title: Re: Energy Sector
Post by: Jurgis on January 20, 2020, 10:23:53 AM
All the capital is just plowed back into the ground. From a stockholder's perspective, it's like, what's the point in expending all this energy (no pun intended), on companies that make no money.

A company that produces no money can still be very valuable.

The trivial example is a company that acquires appreciating asset that does not throw off cash. Its value still rises as the asset's value rises.

Coming closer to E&Ps, if a company acquires land with potential oil reservoir, drills couple wells and discovers the oil, they have not made any money, but they are worth more than before they discovered the oil.

Now, the real life is more complicated. No company just acquires the land, drills for oil, discovers the oil and sells itself. Usually it starts producing the oil - so producing some cash - but then plowing it into discovering more oil. If done well, the FCF still might be zero - "All the capital is just plowed back into the ground" like you say - but the company's value might be rising as it has more reserves. OTOH, due to capex, low oil prices, etc., it's possible that the value of the company actually drops even as it discovers more oil. Practically every E&P CEO expects (or at least pretends to expect) that plowing money into the ground is gonna grow the company. Depending on exploration results, oil prices, etc., these expectations might be right or totally wrong.

Anyway, yes, E&Ps are usually not FCF gushers and are not valued per FCF.

This is all very simplified.
Title: Re: Energy Sector
Post by: BG2008 on January 20, 2020, 11:03:55 AM
Guys,

I think there are enough Midstreams that are trading at distressed prices.  If you are looking at Energy, look for ways to get paid in the interim.  Many of these MLPs used to be valued at 4-6% yield.  Now they are high quality one that are valued at 7-10% and the more trailer types paying mid teens.  You get the distribution and an optionality that it re-rates to a 6% yield.  If oil goes to $100, you probably do better owning the E&P.  IMHO, E&P are uninvestable, yes, likely "famous last words."  But I have never owned an E&P ever.  That rule has applied for the last decade of my investing.   
Title: Re: Energy Sector
Post by: TwoCitiesCapital on January 21, 2020, 05:48:13 PM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?

...economic theory suggests the share prices of “sin” businesses will become depressed if a large enough proportion of investors choose to avoid them.

Such stocks would have a higher cost of capital because they would trade at a lower price-to-earnings (P/E) ratio, thus providing investors with higher expected returns.

...as more investors express their personal beliefs through their investments, shunning sin stocks, it seems likely their prices would be further depressed, further raising their forward-looking return expectations.

Thus, it is possible the sin stock premium (relative to the market) could not only persist, it could increase...


https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1

+1

If you're holding for the long-term, you don't need a re-rating if you have a low multiple and you, or the company, can reinvest those earnings at a sufficiently high return.

If you're getting a 20% return per annum by buying a company at 5x it's earnings - you don't need it to relate relative to it's book or earnings. Just that those earnings continue to be retained and redeployed at attractive returns OR paid out as a dividend for you to reinvest for more shares.

No turnover. No transaction charges. Few taxes. And 20+% compounded pending how well you/company did on reinvesting the earnings.

The problem is precisely when it DOES re-rate and then you need to pay to sell it, pay the taxes on it, and find another opportunity worthy of the capital.
Title: Re: Energy Sector
Post by: John Hjorth on January 29, 2020, 03:14:05 PM
My question is - if there's diminishing institutional investor interest in these names, how can you have a position that's going to rerate upwards in terms of valuation?

I don't dispute that these names are quantitatively cheap. But I would think that for good returns, you would want to be in a name that sees the potential for multiple expansion. What is the case for multiple expansion in energy?

...economic theory suggests the share prices of “sin” businesses will become depressed if a large enough proportion of investors choose to avoid them.

Such stocks would have a higher cost of capital because they would trade at a lower price-to-earnings (P/E) ratio, thus providing investors with higher expected returns.

...as more investors express their personal beliefs through their investments, shunning sin stocks, it seems likely their prices would be further depressed, further raising their forward-looking return expectations.

Thus, it is possible the sin stock premium (relative to the market) could not only persist, it could increase...


https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1 (https://www.etf.com/sections/index-investor-corner/swedroe-sin-stocks-are-profitable?nopaging=1)

+1

If you're holding for the long-term, you don't need a re-rating if you have a low multiple and you, or the company, can reinvest those earnings at a sufficiently high return.

If you're getting a 20% return per annum by buying a company at 5x it's earnings - you don't need it to relate relative to it's book or earnings. Just that those earnings continue to be retained and redeployed at attractive returns OR paid out as a dividend for you to reinvest for more shares.

No turnover. No transaction charges. Few taxes. And 20+% compounded pending how well you/company did on reinvesting the earnings.

The problem is precisely when it DOES re-rate and then you need to pay to sell it, pay the taxes on it, and find another opportunity worthy of the capital.

I agree totally with TwoCitiesCapital here. If you have a high reported ROE combined with a low P/E at the point in time of purchase, you don't really need some kind of rerating, nor even expected/projected growth in the investment, to get good returns. If you actually can see growth, more icing on the cake.

The issue at hand is, that the combination of a high ROE and low P/E for an investment almost always imply, that there is "some hair" on the investment, that one has to relate to. There are not two persons who have the same limit for start puking for "hair", on individual "hairy" investments, nor the identical ability to stomach total amount of "hair" on total portfolio level. That part of it is about individual position sizing.
Title: Re: Energy Sector
Post by: Foreign Tuffett on January 30, 2020, 11:05:40 AM
Guys,

I think there are enough Midstreams that are trading at distressed prices.  If you are looking at Energy, look for ways to get paid in the interim.  Many of these MLPs used to be valued at 4-6% yield.  Now they are high quality one that are valued at 7-10% and the more trailer types paying mid teens.  You get the distribution and an optionality that it re-rates to a 6% yield.  If oil goes to $100, you probably do better owning the E&P.  IMHO, E&P are uninvestable, yes, likely "famous last words."  But I have never owned an E&P ever.  That rule has applied for the last decade of my investing.   

I agree about shale E&Ps being almost a hard pass for anyone without near-expert level knowledge about factors like lateral length, EURs, acerage quality, downspacing, etc. A few quick reasons why:

1) Price takers for both inputs (oilfield services like drilling and completions, pipeline capacity) and outputs (literally commodities)

2) Rarely have the balance sheet strength or investor base to invest counter cyclically. This means they more-or-less all move in the same direction at the same time, thus doing the reverse of value investing.

To give you an idea what I mean by this, XOM is intentionally outspending operating cash flow in an attempt to increase its upstream production by ~25% over the next four or five years. Whatever you think about XOM as an investment, it is at least attempting to invest counter cyclically by spending more when competitors are spending less.

E&Ps can rarely, if ever, do this. Peyto is the only one I am aware of that, historically, invested counter cyclically to lock in lower service costs, but lower for longer Canadian NG prices + debt blew up its business model.
Title: Re: Energy Sector
Post by: james22 on February 01, 2020, 07:58:06 AM
"They're Done": CNBC's Jim Cramer Says Fossil Fuel Industry "In the Death Knell Phase"

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer.

Climate campaigners drew attention to CNBC's Jim Cramer's comments Friday that he's "done with fossil fuels" because they're "in the death knell phase."

Cramer added that "the world's turned on" the industry as they did with tobacco.

"They're done," Cramer said of fossil fuels on the network's "Squawk Box." "We're starting to see divestment all over the world. We're starting to see... big pension funds saying, 'We not going to own them anymore."

"The world's changed," Cramer continued. While companies like BP still mark profits, "nobody cares," because "new money managers want to appease younger people who believe that you can't ever make a fossil fuel company sustainable."

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer. "You're seeing divestiture by a lot of different funds. It's going to be a parade... that says look, 'These are tobacco, and we're not going to own them.'"


https://www.commondreams.org/news/2020/01/31/theyre-done-cnbcs-jim-cramer-says-fossil-fuel-industry-death-knell-phase

https://www.cnbc.com/video/2020/01/31/jim-cramer-fossil-fuels-oil-energy-squawk-box.html
Title: Re: Energy Sector
Post by: DooDiligence on February 01, 2020, 10:20:08 AM
"They're Done": CNBC's Jim Cramer Says Fossil Fuel Industry "In the Death Knell Phase"

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer.

Climate campaigners drew attention to CNBC's Jim Cramer's comments Friday that he's "done with fossil fuels" because they're "in the death knell phase."

Cramer added that "the world's turned on" the industry as they did with tobacco.

"They're done," Cramer said of fossil fuels on the network's "Squawk Box." "We're starting to see divestment all over the world. We're starting to see... big pension funds saying, 'We not going to own them anymore."

"The world's changed," Cramer continued. While companies like BP still mark profits, "nobody cares," because "new money managers want to appease younger people who believe that you can't ever make a fossil fuel company sustainable."

"You can tell that the world's turned on them, and it's actually kind of happening very quickly," said Cramer. "You're seeing divestiture by a lot of different funds. It's going to be a parade... that says look, 'These are tobacco, and we're not going to own them.'"


https://www.commondreams.org/news/2020/01/31/theyre-done-cnbcs-jim-cramer-says-fossil-fuel-industry-death-knell-phase

https://www.cnbc.com/video/2020/01/31/jim-cramer-fossil-fuels-oil-energy-squawk-box.html

Right or wrong, I'm feeling energy too.

I'm not capable of meaningful analysis so I simply added to VDE this week.

Cramer's a putz. He'll shift to shilling energy co's when the wind starts blowing that direction again.
Title: Re: Energy Sector
Post by: stahleyp on February 01, 2020, 10:48:47 AM
As Twain said, "the past doesn't repeat itself but it does rhyme."

https://www.nytimes.com/2000/10/29/business/investing-diary-calpers-puts-tobacco-behind-it.html

https://www.ai-cio.com/news/calpers-decision-divest-tobacco-costly/
Title: Re: Energy Sector
Post by: Gregmal on February 01, 2020, 11:29:20 AM
I dont buy Cramer's argument. It is valid, but meaningless IMO. Wall Street is filled with money obsessed whores. Add to the list the plethora of underperforming hedge funds and money managers who preach a "value investing" style. If there's money to be made in energy, they'll go there. Just look at the activity on sites like this with the tobacco stocks and lately even stuff like XOM.

While its admirable on the surface(but also more a manipulative look at me Im woke or whatever move by the pension funds and such) it won't hold. If its green, buyers will go there. If, over the long run, pension fund managers underperform they'll face pressure and ultimately start letting the things that matter dictate their investments. Its just easy right now when you can buy Tesla and claim to be a socially responsible fund.
Title: Re: Energy Sector
Post by: rb on February 01, 2020, 04:43:54 PM
Yeah, I think that Cramer's wrong on all counts (as usual?). He's mainly talking about E&P majours being cheap and making this bizarre, no testable thesis about snowflakiness of wall street types (really?) that's affecting the sector.

Well I've looked quite a bit lately at the sector and I don't buy it. Yes, the E&P majours have made great strides in financial discipline. They actually have real free cash flow now. All the money isn't going "back into the ground anymore". Koodos for them. But by any normal company standard they're not anywhere close to a bargain. Let's not forget that what we're talking here is really a commodity - so supply and demand dominates. The demand, while a tad weaker has been there. Yea you can talk about Tesla and the electric revolution, blah blah, but Tesla's vehicle count is in the hundreds of thousands - TOTAL! while Detroit 3 pump out say 10 million trucks a year. Meanwhile all over the world people are switching from their Toyota Corollas and Volkswagen Golfs to crossovers which use more gas. So that's about for the demand side.

Now let's look at supply. Over the past decade essentially Iran and Venezuela have dropped off the oil map. These are/were 2 of the largest producers of oil with some of the largest reserves on the planet. Oil prices did what? They went down! This summer you had the attack on Aramco facilities. At any point in the past 30 years this would have been a majour event. This time it was basically a global yawn. All of this points to a very, very well supplied market of oil. So I think tat E&Ps are in a very tight spot right now.

MID STREAM

In my view this is where it's at.

They call mid stream energy. I have no idea why since it looks very different than up stream. People buy trucks and crossovers, but do you see any new refineries popping up? There's a massive switch from coal to nat gas. Yea you can frack the hell of of the soil and bring the price of nat gas to naught.  But there's only one way to bring nat gas to a nat gas power plant.

Then you have the infinite wisdom of index funds. Where you direct capital flow by sector and a nat gas regulated mainline is the same thing as an E&P and they get dumped at the same rate. I mean, you just gotta love these guys!

Out of the whole bunch what I find most interesting is EPD followed by PSX. EPD being more pure play. The only reason why I haven't backed the truck on EPD is that I'm still doing research to understand their recent profitability spike and whether it can be reversed or it's here to stay. But it sure looks that most of mid stream is undervalued to some degree. And that's actually saing something in a time when it's hard to find anything that's undervalued.
Title: Re: Energy Sector
Post by: mcliu on February 01, 2020, 05:00:44 PM
Isn’t Cramer usually a contrarian indicator?
Title: Re: Energy Sector
Post by: Spekulatius on February 01, 2020, 05:22:11 PM

MID STREAM

In my view this is where it's at.

They call mid stream energy. I have no idea why since it looks very different than up stream. People buy trucks and crossovers, but do you see any new refineries popping up? There's a massive switch from coal to nat gas. Yea you can frack the hell of of the soil and bring the price of nat gas to naught.  But there's only one way to bring nat gas to a nat gas power plant.

Then you have the infinite wisdom of index funds. Where you direct capital flow by sector and a nat gas regulated mainline is the same thing as an E&P and they get dumped at the same rate. I mean, you just gotta love these guys!

Out of the whole bunch what I find most interesting is EPD followed by PSX. EPD being more pure play. The only reason why I haven't backed the truck on EPD is that I'm still doing research to understand their recent profitability spike and whether it can be reversed or it's here to stay. But it sure looks that most of mid stream is undervalued to some degree. And that's actually saing something in a time when it's hard to find anything that's undervalued.

I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Title: Re: Energy Sector
Post by: SharperDingaan on February 02, 2020, 05:04:27 AM
You might want to keep in mind that location and investment horizon matters.
If you're US based, and just trading, it's hard to see past the pending shale BKs, falling nat gas prices, and the various reporting 'spins'. To you, the whole industry is sh1te, and getting worse - because you're trading headlines, not fundamentals. And you do so as you've no intent in holding long enough for changing fundamentals to matter.

Nothing wrong in that. But you're the gambler in the casino, and addicted to 'the trade'.
Not a good combination.

SD

 
Title: Re: Energy Sector
Post by: rb on February 02, 2020, 06:52:52 AM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?
Title: Re: Energy Sector
Post by: Spekulatius on February 02, 2020, 07:26:57 AM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.
Title: Re: Energy Sector
Post by: DooDiligence on February 02, 2020, 07:57:11 AM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.

Are you forced to sell & pay the taxes in a C corp conversion?

Why would they consider such a move?
Title: Re: Energy Sector
Post by: Lance on February 03, 2020, 02:38:01 PM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.

Are you forced to sell & pay the taxes in a C corp conversion?

Why would they consider such a move?


Changes to the tax code and a broader base of potential investors (some investors can't invest in MLPs).

Thanks
Lance
Title: Re: Energy Sector
Post by: james22 on February 03, 2020, 02:46:16 PM
Bought a little VGELX today.
Title: Re: Energy Sector
Post by: thepupil on February 03, 2020, 04:25:47 PM
Tempted to buy some MMP. I unwittingly made a spectacular stock pick when I suggested my parents buy this in 2010 or so. The pitch was “these MLP thing seem cool. , sell side says this one is high quality”. I sold it in 2013 at a sub 4% (maybe even sub 3% yield) and a huge gain and a huge tax bill. After going nowhere stock wise for 7 years but raising distro’s It’s almost at a 7% yield with 1.25x coverage , very low cost and long term debt.

No IDR’s, pretty much self funded through its history, some long term secular concerns (refined products pipeline), not at a discount to space or relatively cheap though.

I bought a dumb money starter position in XOM to start my “i kind of don’t want to have 0% energy” allocation, may buy similar dumb money starters in DMLP and BSM as my “ooo cool royalties down a lot but no idea how to value this” allocation
Title: Re: Energy Sector
Post by: Spekulatius on February 03, 2020, 07:01:40 PM
I bought some PSX today. My rationale is that this is really a diversified midstream, basics chemical , marketing and refining company that is trading for a refining business multiple. The glut in NG and crude supplies is a headwind rather than a tailwind for them. Strong FCF supports a rising dividend and share buybacks. since the spinoff from COP, they reduced sharecount from ~630M shares to 445M shares now, so it is a cannibal as well.

They had a weak quarter and missed earnings due to more refinery turnarounds and weaker chemical business earnings. I think next quarter will be stronger at least for refining earnings.
Title: Re: Energy Sector
Post by: sbalsam on February 04, 2020, 09:15:50 PM
I own some WMB, which I consider undervalued, despite the noise around bankruptcies impacting their G&P operations. I like EPD, but I don’t like dealing with MLP, unless I absolutely have to and I am willing to make a larger and long term commitment. For me PSX is the most interesting as their midstream and chemical business becomes a larger part of their cash stream, yet it still is largely valued as a refiner. it has the Buffet seal of approval (despite the fact that he exited) and their share buybacks truly identify it as a cannibal. In the CC, they mentioned that thy have ~900M annual EBITDA thwt could be dropped down into their MLP. Do this at 10x EBITDA while the stock trades at 7x and we are talking about serious value accreditation.
Why don't you like MLPs? Is it just the tax implications or are there other issues?

I prefer c-Corp over MLP mostly due to ease of dealing with them (no K-1). Energy and even midstream is cyclical and volatile, so one can benefit from buying and selling at the “right time “. MLP are a pain in the butt when dealing with partial sales, distribution recapture etc. Also, 60% + of my assets are in tax deferred accounts, which are no-go for MLP (UBTI concern).
I would consider an MLP (and indeed own one) for a long term holding only, preferably something I never intend to sell. I think only EPD is really of high enough quality and even there are rumbling about converting to a c-Corp.

I know you were focused on midstream and not the royalty sector but since you are talking MLPs, I wanted to point out that DMLP has structured its business so that it can be owned by a non-taxable account such as an IRA. DMLP is a partnership but its income is not considered UBTI (it is UBTI that causes a problem for non-taxable investors). It avoids UBTI because (i) it has no debt and (ii) it has structured its mineral interests as royalties so that it is not considered to be actively operating a business. DMLP commits to continue to avoid UBTI.
Steve
Title: Re: Energy Sector
Post by: james22 on February 11, 2020, 01:04:18 AM
Energy vs Tech could be the monster mean reversion of a lifetime

https://thereformedbroker.com/2020/02/05/energy-vs-tech-could-be-the-monster-mean-reversion-of-a-lifetime/

Energy Stocks Might Finally Have Hit Bottom. It’s Time for Investors to Get In.

https://www.barrons.com/articles/energy-stocks-might-finally-have-hit-bottom-51581114825
Title: Re: Energy Sector
Post by: JRM on February 11, 2020, 04:56:48 AM
My gut is telling me the turning point will be when there are more bankruptcies, reorganizations, and re-consolidation in the E&P space.  I don't we're at the inflection point yet.  Maybe we are.
Title: Re: Energy Sector
Post by: lnofeisone on February 11, 2020, 06:44:21 AM
My gut is telling me the turning point will be when there are more bankruptcies, reorganizations, and re-consolidation in the E&P space.  I don't we're at the inflection point yet.  Maybe we are.

I think the mean reversion argument based on charts is flawed. I agree that there will be few BKs in E&P but it will be localized to mostly small E&P. My position is that energy will start turning around in 2021 or so. My rationale is that many of the CAPEX programs are funded through 2020-2021 and debt markets are basically off limits/very expensive for anything energy. This will force major E&P, mid-stream, etc. to focus on internal funding. As this happens, stocks will rerate. KMI is an example of what the playbook will look like. The trick is to discern quality players (e.g., WMB, MPLX, etc. vs. SMLP) vs. those that are too constrained by debt. You do get paid decent (largely sustainable) dividends/distributions while waiting.

I'm a bit overweight (compared to the rest of my holdings) in energy and (very) slowly adding.
Title: Re: Energy Sector
Post by: Jurgis on February 18, 2020, 09:10:15 AM
What do people think about GPOR 2023-2026 bonds? Trading at ~22% YTM ($65 on 2023s).
http://finra-markets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C639579&symbol=GPOR4303427

Cashflows for GPOR don't seem to be horrible although they are spending most of CF to acquire additional properties. A big question is whether they are forced to acquire or are doing it opportunistically. Is the company really as distressed as bonds seem to imply?

Edit: it's pretty clear that the panic is due to natgas pricing falling to floor and expectations that it will be given away for free in foreseeable future. GPOR production is almost purely natgas, so there's that.

Any other ideas for energy sector bonds?
Title: Re: Energy Sector
Post by: Foreign Tuffett on February 27, 2020, 11:24:02 AM
In Jan. 2015 the S&P Oil & Gas Exploration & Production ETF (XOP) was at ~$46. Now it's $15.10. That's a huge, huge loss over a ~5 year time frame. There may be some more pain ahead given that XOP still holds OAS, WLL, CRC, and CHK, all of which are probably headed for bankruptcy.
Title: Re: Energy Sector
Post by: Foreign Tuffett on February 27, 2020, 11:35:49 AM
XOP actually peaked in early 2014 at a little over $80, so it has actually performed even worse than my previous post outlined. Incredible.
Title: Re: Energy Sector
Post by: mcliu on February 27, 2020, 11:42:10 AM
Pretty crazy sector. Apparently production is still going up even as everyone's going bankrupt?!
Title: Re: Energy Sector
Post by: rb on February 27, 2020, 11:48:52 AM
I just don't understand why midstream is getting hit so hard.
Title: Re: Energy Sector
Post by: KJP on February 27, 2020, 12:50:12 PM
I just don't understand why midstream is getting hit so hard.

I've also been intrigued by this.  Enterprise Products and Magellan Midstream, for example, are approaching 8% current distribution yields (and higher DCF yields).  And, needless to say, spreads between midstream MLPs and Treasuries are getting quite wide.

What midstreams, in particular, most interest you now?
Title: Re: Energy Sector
Post by: kab60 on February 27, 2020, 01:18:27 PM
I think WMB looks most interesting. Transco is great, and they take advantage of public vs private discrepanies. Seems close to sell a chunk of gathering pipes for 5b or probably around/plus 10xebitda while they trade below and the total company due to transco should be worth more. They should sell 49 pct of all their gathering pipes, get leverage down to their target and buyback shares.
Title: Re: Energy Sector
Post by: james22 on February 27, 2020, 10:58:52 PM
Bought a little VGELX today.

Lucky I limped in (only because I was without the cash to take a larger position):

VGELX -7% since then, -17% since the beginning of this thread.

A little bothered that Howard Marks believes energy isn't a bargain (unlike healthcare, he believes it has an uncertain future), but still looking to take a larger position.
Title: Re: Energy Sector
Post by: RadMan24 on March 02, 2020, 06:05:07 PM
MLPs may be getting hit hard because there are a lot of concerns of Capex cuts, and demand drops (China for example shutdown, if US and travel shuts down oil demand falls). MLPs need oil and gas to flow. If it flows less, they get paid less. It's the worst case for MLPs.

That said, ever since Peter Lynch mentioned energy services and oil were interesting industries in Barron's a month ago or so, It's been looking even better of late. Oil has dropped like a rock, but if you buy the big names or ETFs, 2-3 years from now, the situation will work itself out. SLB is also working on the biggest shale formation in Saudi Arabia for gas, so the demand for energy services and technical know-how is key longer term.

If you buy the weaker names, you would need a stronger and quicker recovery. It's like the banks after the crisis, a double dip would have killed the small ones, but the big ones would have come out okay. But since there was no double dip, smaller banks did tremendously well (and big ones did well too).

Title: Re: Energy Sector
Post by: lnofeisone on March 04, 2020, 05:44:14 AM
Bought a little VGELX today.

Lucky I limped in (only because I was without the cash to take a larger position):

VGELX -7% since then, -17% since the beginning of this thread.

A little bothered that Howard Marks believes energy isn't a bargain (unlike healthcare, he believes it has an uncertain future), but still looking to take a larger position.

The beatdown isn't pleasant but I'm continuing to (slowly and selectively) add. CAPEX cuts and restricted cash access will continue to forcing MLPs to focus on balance sheets. I'm watching the demand side and for now cautiously optimistic.
Title: Re: Energy Sector
Post by: rb on March 06, 2020, 09:47:51 AM
The selloff in some of the midstream names has been relentless. Is the coronavirus really going to render pipelines obsolete?
Title: Re: Energy Sector
Post by: JRM on March 06, 2020, 02:36:29 PM
Most of the pipelines have been in service for over 50 years, and I expect many to be in service for at least another 50.
Title: Re: Energy Sector
Post by: opihiman2 on March 06, 2020, 05:13:25 PM
This board seems to be a glutton for punishment when it comes to energy / oil investments.  I thought people here would have learned their lesson by now with Sanridge Energy.  Oil has and will be in a multi-year bear market.  Until the shale producers get completely wiped out, there's going to be a ton more pain.  I've talked to and read a lot of stories from oil/gas workers in the patch, and everyone is saying it's absolutely brutal out there.

Oil is heading to the 30's.  NG is being given away for free.  And they are still pumping the oil out of the ground like there is no tomorrow.  The industry has a dumb habit of drilling and producing at all costs.  It's like the snake that eats its own tail.
Title: Re: Energy Sector
Post by: SharperDingaan on March 06, 2020, 06:59:25 PM
Most investors hold their investments for < 1 year. 
Trading, that is largely based on anticipated results, catalysts, etc. over the next 1-2 quarters at best. Hence o/g is terrible, getting worse, and how does anyone just not get this. And totally ignores the fact that an investor can SIMULTANEOUSLY have both a SEGMENTED short AND long term view, on the same sector, at the SAME time. HUh? :o

US shale is in truly sh1te shape. Production is rapidly declining as capital discipline is being imposed, drill target quality declines, and the water/gas cuts rise. Can't produce without producing gas, can't flare the gas, hence little choice but to dump it in the pipelines; driving gas prices to record lows that go lower every day. When gas proceeds no longer cover transportation costs, or pipelines reduce volumes due to reduced demand (corona virus), the wells shut in; and for many it will be permanent.

Then there's Alberta. Just as video was supposed to kill the radio star, oil prices were supposed to kill the oil sands mega-projects. The latest being the proposed Frontier mine, along with roughly 19 other proposals. However oil sands isn't dead, it's now stronger. Now, if you want to play in the space you have to do it via an expansion of an existing player, raising the market value of all existing mega-projects, reducing the financial risks of any existing party, and creating an oligopoly over the flow of any new oil sands production above existing levels. But unlike the US, that rising gas cut from Alberta's shale has a nearby market, as oil sands is a hungry beast.     

Same industry, same timeframe. Night and day difference.
But over the long term the Canadian pipelines eventually will get built; permanently improving both egress, and value for the product. US shale has nowhere to go but down.

SD

   
Title: Re: Energy Sector
Post by: JRM on March 07, 2020, 05:28:09 AM
Older generation combustion turbine generator plants can run in non-peaking situations now with low natural gas prices.  I was told years ago that these plants only ran when prices were over $100/MW.  That number stuck in my head, and it wasn't until I talked to an operator a few months ago that the break even price is now around $38/MW.  They run a lot more than I thought.

The newer generation combined cycle plants will continue to be built with the better economics of cheap gas.

I guess my point is low prices encourage more consumption of natural gas.
Title: Re: Energy Sector
Post by: opihiman2 on March 07, 2020, 04:23:12 PM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!
Title: Re: Energy Sector
Post by: DooDiligence on March 07, 2020, 08:35:06 PM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

All aboard the fear train.
Title: Re: Energy Sector
Post by: scorpioncapital on March 08, 2020, 01:55:32 AM
I feel commerical real estate and oil both have very pronounced boom bust cycles but oil is more political and global , with sources only in some places and not others. Real estate on the other hand is more local and less dramatic I think. I guess oil is for those who love extreme volatility.
Title: Re: Energy Sector
Post by: JRM on March 08, 2020, 06:43:02 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Good.  I hope this flushes out some of the nonsense in the oil sector.  Just to be clear, natural gas is not the same thing as oil.  As long as there is demand for NG then the midstream companies will be in business.  Contracts may be renegotiated, but companies like KMI and WMB appear to have operational flexibility to withstand some short term pain.
Title: Re: Energy Sector
Post by: SharperDingaan on March 08, 2020, 06:58:05 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Consolidation is not a bad thing, particularly in NA, and US shale.
Thousands of analysts will disagree but the reality is, that at the margin, prices have long been driven more by politics than by change in supply/demand. Nobody makes money at these levels, so we will not be here for long. However, MbS is the royal who drove the failed Aramco IPO, the royal who ordered the botched Khashoggi killing, the royal who botched today's OPEC+ price support, and the royal driving the Yemen thing. It would be a lot better for literally everyone if the Saudi/Iran conflict ceased, and MbS has just put down what he thought was a US backed coup d'etat - including putting 3 more very senior royals (including his brother) in the Hilton.

To a great many in the NA industry, fracking has to go. It has severely disrupted the economics of literally trillions in capital investment, and severely damaged landholder relations throughout the industry. The only positive is that shale fields are really GAS fields that happen to CURRENTLY produce light oil/liquids; manage the current flow in a consolidated fashion, and you get decades of production of cheap, land-based, largely local, and clean gas as the dividend. In the US that means either kill shale via legislation (new president), or via bankruptcy and consolidation. Again, politics being the major driver.

Obviously, depending on your risk tolerance, volatility is either your friend or foe.
Hence, o/g, commodities, etc. is not for everyone.

SD

       
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 07:47:49 AM
The thing about energy hydrocarbon markets is that prices are very sensitive to supply. You're a little under supplied and prices skyrocket - the 2000s. You're a little oversupplied and prices plummet - the 2010s.

I don't see why the midstream systems have to be affected much by what's going on upstream. You only have to cut production by a little in order to balance the market so volumes won't be greatly affected. The locations of production will still stay the same. So if you have gas coming out of field A and you have power plant B that needs that gas and I am midstream guy C that has a pipe from A to B then why should I cut my tolls??

These midstream businesses also have chemical operations which would appear to be more volatile. But to me look like NGL export businesses. US NGLs are cheap and the world wants it and it's it's cheaper and safer to ship polyethylene and polypropylene than the NGLs themselves. So you process the NGLs over here. If there's a demand shock I suspect that the low cost producer (the US) will be ok.

This is basically how i look at it. I welcome people that know more about the space to tell me why I am wrong.

Title: Re: Energy Sector
Post by: Spekulatius on March 08, 2020, 07:50:13 AM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 08:44:18 AM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
I disagree that it has to do with the relatives. It looks like he wants to punish Russia for not going along with the cut. The biggest discount is for NW Europe - Russia's market.

The question is if MBS can actually do it. It didn't work very well the first time he tried it. NA producers have proven to be very resilient. Who would have thought back in 2015 when he tried to pull this sort of crap that it was going to be the Saudis that are going to back off and not crappy producers from Oklahoma? I certainly didn't.

So I don't think that we can have a protracted period of 20 and 30 dollar oil. As you say the whole system just doesn't work at that level. So the system re balances itself either through an OPEC+ cut, or bankruptcies in NA or both. My guess is that it's gonna be OPEC+ cuts because it seems that they have less of a stomach for those kind of prices than NA producers.

But I think at the end of all of it you're gonna have hydrocarbons coming out from exactly the same basins that are coming out of today.
Title: Re: Energy Sector
Post by: DooDiligence on March 08, 2020, 09:18:15 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Consolidation is not a bad thing, particularly in NA, and US shale.
Thousands of analysts will disagree but the reality is, that at the margin, prices have long been driven more by politics than by change in supply/demand. Nobody makes money at these levels, so we will not be here for long. However, MbS is the royal who drove the failed Aramco IPO, the royal who ordered the botched Khashoggi killing, the royal who botched today's OPEC+ price support, and the royal driving the Yemen thing. It would be a lot better for literally everyone if the Saudi/Iran conflict ceased, and MbS has just put down what he thought was a US backed coup d'etat - including putting 3 more very senior royals (including his brother) in the Hilton.

To a great many in the NA industry, fracking has to go. It has severely disrupted the economics of literally trillions in capital investment, and severely damaged landholder relations throughout the industry. The only positive is that shale fields are really GAS fields that happen to CURRENTLY produce light oil/liquids; manage the current flow in a consolidated fashion, and you get decades of production of cheap, land-based, largely local, and clean gas as the dividend. In the US that means either kill shale via legislation (new president), or via bankruptcy and consolidation. Again, politics being the major driver.

Obviously, depending on your risk tolerance, volatility is either your friend or foe.
Hence, o/g, commodities, etc. is not for everyone.

SD

     

Interesting points.
Title: Re: Energy Sector
Post by: opihiman2 on March 08, 2020, 10:13:32 AM
I feel like oil will be in a long sideways bear market.  You have to trade it.  But, if oil heads into the $20's, I'm a buyer. 

I've posted about it in the past around 2015 when oil tanked to $30/bbl, and I think everyone on here said the best way to get exposure to oil prices is via the majors and mid streams.  Is that still the consensus?  All the oil futures based ETF's have sucked ass in getting direct exposure to oil prices.
Title: Re: Energy Sector
Post by: Spekulatius on March 08, 2020, 11:22:57 AM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
I disagree that it has to do with the relatives. It looks like he wants to punish Russia for not going along with the cut. The biggest discount is for NW Europe - Russia's market.

The question is if MBS can actually do it. It didn't work very well the first time he tried it. NA producers have proven to be very resilient. Who would have thought back in 2015 when he tried to pull this sort of crap that it was going to be the Saudis that are going to back off and not crappy producers from Oklahoma? I certainly didn't.

So I don't think that we can have a protracted period of 20 and 30 dollar oil. As you say the whole system just doesn't work at that level. So the system re balances itself either through an OPEC+ cut, or bankruptcies in NA or both. My guess is that it's gonna be OPEC+ cuts because it seems that they have less of a stomach for those kind of prices than NA producers.

But I think at the end of all of it you're gonna have hydrocarbons coming out from exactly the same basins that are coming out of today.

I think the issue with killing shale is that it’s like trying to kill weed. You can kill it temporarily, but once you stop weeding, it grows back very quickly. It is different thank Killing offshore oil, if you kill of an deep water oil project, it may take up to 10 years to get it up and running again. Shale will probably be back in 12 month or so.

However all the above does not prevent equity to be wiped out in shale E&P’s. Where I could be wrong is  NG. NG is partly depressed because Ng is produced as a byproduct of oil production, depressing prices. if oil production goes away, the associated NG production will as well and that may actually boost gas prices.

Then on the other hand we have LNG which competes with oil and Russian pipeline gas. It may become roadkill too, especially if NG in NA rises and oil prices world wide fall, thr spread will be reu Ed and many will become uneconomic.

Interesting times. I will stay away from E&P’s, but I am rebuy WMB and possibly buy EPD for the first time. I have no idea who this plays out other than it will be messy and most likely a bloodbath for shale E&P equity

There could be interesting opportunities in midstream credit. I was able to buy some 10% bonds in 2015 (OKE, BB+ rating and they were money good), I look forward to similar opportunities. I don’t think I will mess with E&P credit, the FCF to service debt just isn’t there, because of the decline rates.
Title: Re: Energy Sector
Post by: ValueArb on March 08, 2020, 12:34:51 PM
The whole thing looks pretty deflationary. If we indeed get $20 or even just $30/ brl crude, not just shale, but oil sands won’t even generate cash flow, much less return on capital and even the oil majors are going to be unprofitable.  Midstream /LNG will see collateral damage as well. Huge losses in credit markets for energy, much higher than what we have seen in 2015.

I agree with SD that this seems somehow related with thr Saudi MbS putting 3 fellow princes on ice. I wonder if his “saw” crew gets more jobs...
I disagree that it has to do with the relatives. It looks like he wants to punish Russia for not going along with the cut. The biggest discount is for NW Europe - Russia's market.

The question is if MBS can actually do it. It didn't work very well the first time he tried it. NA producers have proven to be very resilient. Who would have thought back in 2015 when he tried to pull this sort of crap that it was going to be the Saudis that are going to back off and not crappy producers from Oklahoma? I certainly didn't.

So I don't think that we can have a protracted period of 20 and 30 dollar oil. As you say the whole system just doesn't work at that level. So the system re balances itself either through an OPEC+ cut, or bankruptcies in NA or both. My guess is that it's gonna be OPEC+ cuts because it seems that they have less of a stomach for those kind of prices than NA producers.

But I think at the end of all of it you're gonna have hydrocarbons coming out from exactly the same basins that are coming out of today.

Doesn't lower prices mostly just hurt (or delay) additional investment in the fields? Exploration and development are typically the expensive parts, when prices drop existing fields are mostly still going to pump and process similar amounts of oil, gas and shale.

I think this is just Mr. Market running around in a tizzy begging us to buy his half of the business. The Saudi's can't run their country, let alone a war, on $20 oil without massive spending cuts. Putin needs higher oil prices to prop up his regime.

In interests of full disclosure, I have zero track record in predicting the future, but I can't see lower prices lasting long. Months sure, but not years. 
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 12:49:14 PM
I agree with spek on most of what he said above. I think that upstream will be a shit show for a long time.

As I wrote above, I don't think that you can have production at $30 bbl. So I don't think we'll be there or below for a long time. If we do get there I'm just gonna do what I should have done last time. Buy physical oil futures. Not mess around with ETF but the actual futures.

In the future after a protracted unfavourable price environment you may see consolidation in the industry. But the oilman is a special breed. And the oilmen of today are not just gonna become accountants they're gonna shuffle around in the industry. So there'll still be the same guys there after consolidation. So what will the do when they see $60 a barrel prices? Drill Baby Drill!! Then prices get bonked again.

The only way you see significant money upstream is through supply and demand shocks. The 80s were great because of the decline in the conventional Texas oil fields (supply). The 90s sucked because OPEC decided to stop being a dick (or perhaps they got tired of tomahawk missile showers). The noughts were great because of India and China came alive (demand). But right now we're out of Indias and we're out of Chinas. It doesn't seem that field depletion is an issue, and at $80 you can get your fill of oil sands barrels and boy there's a lot of that stuff. So there's no demand or supply shocks as far as the eye can see.

But we still need lots of oil and NG (especially) for the foreseeable future. To me that's why midstream is interesting. I see it like owning a bridge. You want to get from A to B? Well you'll have to use my bridge. The only negative that anyone has brought about midstream seems to be along the lines of "you can't do well if your customers are hurting". But there have been businesses that have been making tons of money off of poor people for years. For example credit card companies (I know, not a perfect analogy).

Now taking the bridge analogy further. The only way the bridge is not a good investment is if you pay too much money for the bridge. The opportunity and folly comes from categorizing these companies as "energy" companies. So their prices are correlated with prices for pure play and integrated producers. Lately with indexing and ETFs this is probably more so. But they're not energy companies, they're infrastructure companies. You wouldn't link the price of a bridge with the price of GM stock, would you? So the opportunity and folly comes from this correlation. When energy is doing well these companies become really expensive relative to their economics. But you can pick them up cheap when energy is doing poorly - such as today.

Or I don't understand the space, these aren't bridges and i'm whistling Dixie out of my ass.
Title: Re: Energy Sector
Post by: rb on March 08, 2020, 01:05:10 PM
Doesn't lower prices mostly just hurt (or delay) additional investment in the fields? Exploration and development are typically the expensive parts, when prices drop existing fields are mostly still going to pump and process similar amounts of oil, gas and shale.
The way I understand it is that in the world we are today with shale you have to do more drilling because a fracked well has a shorter life than a conventional well. So you have to continuously invest in drilling to be able to fracture new wells. If you don't the production of the field declines.

So you can't drill because you're broke and the capital markets are telling you to buzz off then you should see production declines.
Title: Re: Energy Sector
Post by: Viking on March 08, 2020, 01:36:01 PM
Perhaps we will see capitulation in energy shares if we see oil fall to the low 30’s. i have owned Suncor in the past and will continue to follow. Canadian $ futures are trading down 1%...

Is shale an important part of the American economy? Need to brush up on what happened in 2014-2016...

Saudi Arabia flooding market with oil, prompting predictions of further decline Monday
- https://www.washingtonpost.com/business/2020/03/08/saudi-arabia-flooding-market-with-oil-prompting-predictions-further-decline-monday/

Saudi Arabia is making a 180 degree turn and moving to flood a market depressed by the coronavirus with hundreds of thousands of barrels of additional oil per day. And it is offering steep discounts to refineries around the world.

It’s the beginning of an oil price war between the Saudis and Russia – but it’s going to put a tight squeeze on American shale oil producers, as prices are expected to head sharply downward. While it lasts, of course, that’s good news for oil consumers but a concern in areas of the country that rely on jobs in the energy sector.

West Texas International crude, one of the industry’s price benchmarks, fell 10 percent Friday before the Saudi announcement, closing at $41.28 a barrel. Analysts expect it to fall into the $30’s – perhaps deeply into the $30’s – when markets open Monday. The last time West Texas Intermediate fell below $40 was in August 2016.
Title: Re: Energy Sector
Post by: Gamecock-YT on March 08, 2020, 04:58:15 PM
WTI $32

Brent $36


Face-ripper
Title: Re: Energy Sector
Post by: SharperDingaan on March 08, 2020, 05:00:17 PM
This isn't going to last long.

Nobody makes enough money at this level, and it isn't going to bankrupt US shale unless it goes on for at least 4-6 months. All it does is allow the refineries to max out their on-land and at-sea storage, while borrow costs and storage are dirt cheap. Then as/when prices rise it will be on diminished volume until the storage is worked off. Friends helping friends, ensuring lots of cheap gasoline is available just before the US election?

However, Aramco is down 19% since issue, and continuing to fall. At some point Aramco is going to buy the issue back, and the lower the price, the better. It'll be a very profitable swing trade, and will go some way to offsetting the opportunity cost of flooding the market. The Russians either do as asked, when asked, or take the opportunity loss; which do you think is the more likely? 

SD
Title: Re: Energy Sector
Post by: cherzeca on March 08, 2020, 05:05:54 PM
these oil prices are [cue crazy Eddie] insane!!!!!
Title: Re: Energy Sector
Post by: meiroy on March 08, 2020, 05:28:31 PM
With the current administration, why is it expected that they -- foreign governments -- be allowed to destroy local industries? 

Who knows what's going to happen but it seems to me, as reasonable speculation, to assume a proactive action to protect and support local shale/oil companies.

(I'm completely clueless about the energy sector, just looking at the macro)
Title: Re: Energy Sector
Post by: Spekulatius on March 08, 2020, 05:55:51 PM
With the current administration, why is it expected that they -- foreign governments -- be allowed to destroy local industries? 

Who knows what's going to happen but it seems to me, as reasonable speculation, to assume a proactive action to protect and support local shale/oil companies.

(I'm completely clueless about the energy sector, just looking at the macro)

If he protects the energy industry with higher prices, he will destroy related industries like chemicals, refineries, as they become uncompetitive. So I don’t think the energy industry can be saved via higher prices in the US only. It is also not fair to let the consumer bear the costs. Tough to know how long it lasts. In 1998, crude went to <$10/brl for a short time. Also note that the OPEC is basically a cartel and has tried to fix prices for a long time. So maybe  what we are seeing now are true market prices, if such a thing even exists with the energy markets.

I think the sector just needs to dramatically shrink. The interesting question is what happened to NG, which still is more or less landlocked, except form LNG export capacity. It could benefit from less NG being produced as a byproduct. That on the other hand creates a problem for the US chemical industries since they have benefited for a long time from cheap NG compared to crude input. With that advantage gone, This industry could get squeezed.

Glad to be watching this from the sidelines for now.
Title: Re: Energy Sector
Post by: mcliu on March 08, 2020, 06:09:32 PM
Low oil prices are probably a net positive for US economy, so bailout seems unlikely..
The strongest players will survive, consolidate and probably be better positioned for next upturn.
Maybe a new cartel will form, Middle East+Russia+US.
Title: Re: Energy Sector
Post by: Gregmal on March 08, 2020, 06:15:40 PM
I am hardly an energy expert and have avoided the sector like the plague, but I would agree lower oil prices are a net positive for consumers. Its also probably relief for airlines, who right now could use every break they can get. At least the ones who dont hedge/modestly hedge.
Title: Re: Energy Sector
Post by: thepupil on March 08, 2020, 06:20:13 PM
https://fred.stlouisfed.org/series/SAUPZPIOILBEGUSD

I will likely add to my “I’m dumb and don’t want zero energy” basket tomorrow (XOM,MMP, BSM)

If we stay down here in the $30’s my biggest fear is the political instability, not the <5% in energy stocks I’ll have.

Title: Re: Energy Sector
Post by: meiroy on March 08, 2020, 06:51:06 PM
Low oil prices are probably a net positive for US economy, so bailout seems unlikely..


This rationale cannot be applied to the current administration based on its previous actions.
Title: Re: Energy Sector
Post by: SharperDingaan on March 08, 2020, 07:41:16 PM
As at 10:31 pm EST the Apr price for WTI futures is USD 30.65, down USD 10.54, or 25% !!!
And the pre-market DOW futures is down 1,254 points, or 4.86%
https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html
https://money.cnn.com/data/afterhours/

Good luck to us all.

SD

Title: Re: Energy Sector
Post by: RadMan24 on March 08, 2020, 09:40:22 PM
Well, if you invested in the stronger energy names, you have nothing to worry about.

In fact, tomorrow is likely to be a great buying opportunity for stronger energy names 2-3 years from now.

Energy services will get hit, but those companies that are able to survive the next 1-2 years will have flourishing business going forward.
Title: Re: Energy Sector
Post by: mcliu on March 08, 2020, 09:57:16 PM
Gg. It’s gonna be a bloodbath tmr. I’ve somewhat lucked out with only a 5% position in mostly integrated, but it still sucks.
Title: Re: Energy Sector
Post by: KJP on March 09, 2020, 06:16:02 AM
I'm fairly dumb when it comes to energy, but I would think low oil prices have little to no effect on businesses that primarily transport non-associated gas.  Moreover, low gas prices may help them by increasing demand for gas, and thus volume of it that needs to be transported.  On the other hand, I assume a natural gas transmission company could be hurt if it has invested in gathering associated gas.  And, of course, a slowdown in economic activity could affect volumes.

So, what natural gas midstream company is least exposed to a potential decline in associated gas? Is it Williams, despite some of its gathering assets?
Title: Re: Energy Sector
Post by: opihiman2 on March 09, 2020, 07:15:57 AM
You guys are gonna get fucked:

https://www.reuters.com/article/us-saudi-oil-prices/saudi-arabia-slashes-april-crude-oil-prices-after-opecs-supply-pact-collapsed-idUSKBN20U0Y4

Sorry for the bad news.  My prediction is there's going to be a decade long bear market for oil.  Shale will consolidate, many producers will get wiped off the planet with the majors taking over assets, and it will keep a permanent lid on prices. 

edit: holy shit, I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

WTI crude traded down to $28 today.  Wow. 
Title: Re: Energy Sector
Post by: james22 on March 09, 2020, 11:24:28 AM
I'm now hearing predictions that WTI is likely to go sub $20/bbl in a few months.  LOL!  Time to go short, even now!

Maximum pessimism?
Title: Re: Energy Sector
Post by: rb on March 09, 2020, 11:55:05 AM
Maybe the Saudis will stat giving the stuff away for free lol
Title: Re: Energy Sector
Post by: SharperDingaan on March 09, 2020, 01:14:23 PM
The obvious solution is to make the US part of OPEC+, and settle on both a price and a supply quota agreement. Maybe USD 60/bbl. so that everyone who supplies makes some money, and those that don’t, go out of business.

It seems pretty clear that Russia is concerned about gas market share, and that OPEC is concerned about the volume of light liquids. Shut in some of the US shale, and both go down in a big way. More importantly, the remaining US shale consolidates under the majors, and ongoing production stays down as long as the USD 60/bbl. is maintained.

Until the end of the month, there is still 1.7M bbl/d of supply being held off the market. OPEC claim they need an additional cut of 1.5M bbl/d, however the market believes that the entire 3.2M bbl/d plus surplus is already in the market, hence the contango. Negotiate an agreement between now and the end of the month, and we’re going back up.

If you want to get re-elected in November … you are going to negotiate. 

SD
Title: Re: Energy Sector
Post by: Castanza on March 09, 2020, 01:25:08 PM
The obvious solution is to make the US part of OPEC+, and settle on both a price and a supply quota agreement. Maybe USD 60/bbl. so that everyone who supplies makes some money, and those that don’t, go out business.

It seems pretty clear that Russia is concerned about gas market share, and that OPEC is concerned about the volume of light liquids. Shut in some of the US shale, and both go down in a big way. More importantly, the remaining US shale consolidates under the majors, and ongoing production stays down as long as the USD 60/bbl. is maintained.

Until the end of the month, there is still 1.7M bbl/d of supply being held off the market. OPEC claim they need an additional cut of 1.5M bbl/d, however the market believes that the entire 3.2M bbl/d plus surplus is already in the market, hence the contango. Negotiate an agreement between now and the end of the month, and we’re going back up.

If you want to get re-elected in November … you are going to negotiate. 

SD

Good thing we have the Negotiator in Chief!  ;D
Title: Re: Energy Sector
Post by: Spekulatius on March 09, 2020, 01:39:08 PM
Between Trump, hacksaw MBS, and “dick” Putin, comrade Maduro they should be able hammer away a nice deal . Maybe invite the Ayatollah to the table and call it the “chosen five”.
Title: Re: Energy Sector
Post by: Gregmal on March 09, 2020, 02:08:46 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!
Title: Re: Energy Sector
Post by: DooDiligence on March 09, 2020, 02:12:04 PM
Between Trump, hacksaw MBS, and “dick” Putin, comrade Maduro they should be able hammer away a nice deal . Maybe invite the Ayatollah to the table and call it the “chosen five”.

Has the world ever been run by a bigger bunch of assholes?
Title: Re: Energy Sector
Post by: Spekulatius on March 09, 2020, 03:24:27 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.
Title: Re: Energy Sector
Post by: Gregmal on March 09, 2020, 03:30:53 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.

I had a costly mistake in this sector(now almost a decade ago) that stays with me to this day. You can get 99/100 things right with these and still just get blasted. Way to many moving parts and things out of the control of management/company. The toll collectors sounded like a solid idea as well, but often the capital structures just made them too much of a pain. I fuckin hate energy. Drill, baby, drill, should be explained to the shareholder as kill, baby, kill. Cuz thats what happens with your capital. That, and the cyclical nature of many, almost guarantee repurchases or dividends are done peak cycle...not appealing.
Title: Re: Energy Sector
Post by: Spekulatius on March 09, 2020, 04:55:54 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.

I had a costly mistake in this sector(now almost a decade ago) that stays with me to this day. You can get 99/100 things right with these and still just get blasted. Way to many moving parts and things out of the control of management/company. The toll collectors sounded like a solid idea as well, but often the capital structures just made them too much of a pain. I fuckin hate energy. Drill, baby, drill, should be explained to the shareholder as kill, baby, kill. Cuz thats what happens with your capital. That, and the cyclical nature of many, almost guarantee repurchases or dividends are done peak cycle...not appealing.

I have been investing (if you wan to cal, it that ) in midstream since 2008. The issue is capital structure as you mentioned which makes the sector vulnerable to stress in credit markets (seen in 2008 and 2016j, but it is wrong or right correlated with energy prices. For the most part, it doesn’t really make sense, because the midstream are toll keepers, but to some extend they are tied to the mast , so to speak. If shale really goes to hell, a lot (but not all) midstream will go to hell with it, because E&P  bankruptcies will impact the midstream as well.

WMB has two sides of the coin - the Transco/Northwest piper , which is basically and utility and demand driven, but they also own G&P assets (which tie into Transco and Northwest pipes). If the producers will go bankrupt, one can see that the economic of the G&P asserts will be impacted to some extend. While it is correct, that the  G&P contract is third to the land, not the E&P entity it could still occur that the next owner drills much less and hence pays much less for G&P toll fees.

What we are seeing now is most likely an overreaction in midstream, but I think we are seeing  looking at an extremely unfavorable newsflow with some economic impact on the midstream said too. Maybe it is priced in,  but in my experience those things are nice priced in before they actually happen. For example, CHK looks quite distressed and they own many NG producing asset that feed into WMB pipes in the Northwest (WMB actually bought them from CHK a couple of years ago). What will happen when CHK inevitably raises the white flag and declares bankruptcy? There is no way they can survive with the current capital structure.
Title: Re: Energy Sector
Post by: opihiman2 on March 09, 2020, 09:45:08 PM
If this isn't blood in the streets then I dont know what is. I dont really pay much attention to most of these names on a regular basis, but my god what carnage!

Unfortunately when there is a lot of blood in the streets almost everyone is dead. I frame it that way - politics determines the price here, so it makes sense if things don’t make sense.

I had a costly mistake in this sector(now almost a decade ago) that stays with me to this day. You can get 99/100 things right with these and still just get blasted. Way to many moving parts and things out of the control of management/company. The toll collectors sounded like a solid idea as well, but often the capital structures just made them too much of a pain. I fuckin hate energy. Drill, baby, drill, should be explained to the shareholder as kill, baby, kill. Cuz thats what happens with your capital. That, and the cyclical nature of many, almost guarantee repurchases or dividends are done peak cycle...not appealing.

Exactly. Drill baby drill no matter what is what will kill the industry.  This board should sticky the Sandridge Energy thread as the poster child of how these non-sense multi year value analysis can end up, especially in the energy sector.  B&M retail and energy are two sectors value investors should just avoid from now on.
Title: Re: Energy Sector
Post by: rb on March 10, 2020, 07:24:33 AM
I'm less of an alarmist that Spek here. I don't think that shale is going anywhere anytime soon. A little rationalization sure, but nowhere close to extinction.

The way I see it the system is very complex and has a lot of inertia. A lot of money and time has been invested to use shale production. Think of the Houston petochemical complex. That used to be fed by shipbourne oil. Now a lot of it is fed by shale product and Canadian stuff. So they actually need the shale. I don't see that complex flipping back to shipbourne feed stock.

In the case of CHK/WMB that speck was talking about. CHK may very well go bankrupt. But CHK's customers are not gonna stop needing gas. Are they gonna use Quatar LNG? No they're still gonna use gas from the same old field, coming through the existing pipe that they have.

Then there's also the political aspect of all of this. There are a lot of jobs in shale. These are well paying jobs too and you don't need a university degree for it. Good high paying jobs for regular folk. The kind that politicians hate to loose. And they're in red states and blue states. This basically means that there is zero political will to let the sector die. Especially is said death comes from a dick measuring contest between Russia and Saudi Arabia.

Now whether the names of the companies that own the fields will be the same or different remains to be seen. But those fields will pump. Whether the ones doing the pumping will make money, that's another matter. But think of it another way. For most of its existence air travel has been an uneconomic endeavour (I'm not sure it still isn't). Yet we still had planes, and airports, and airlines, and we didn't stop flying.
Title: Re: Energy Sector
Post by: SharperDingaan on March 10, 2020, 12:32:24 PM
The obvious solution is to make the US part of OPEC+, and settle on both a price and a supply quota agreement. Maybe USD 60/bbl. so that everyone who supplies makes some money, and those that don’t, go out of business.

It seems pretty clear that Russia is concerned about gas market share, and that OPEC is concerned about the volume of light liquids. Shut in some of the US shale, and both go down in a big way. More importantly, the remaining US shale consolidates under the majors, and ongoing production stays down as long as the USD 60/bbl. is maintained.

Until the end of the month, there is still 1.7M bbl/d of supply being held off the market. OPEC claim they need an additional cut of 1.5M bbl/d, however the market believes that the entire 3.2M bbl/d plus surplus is already in the market, hence the contango. Negotiate an agreement between now and the end of the month, and we’re going back up.

If you want to get re-elected in November … you are going to negotiate. 

SD

And today we have this .....
White House likely to pursue federal aid for shale companies hit by oil shock, coronavirus downturn
https://www.washingtonpost.com/business/2020/03/10/trump-oil-bailout/

Money talks. You do what your biggest donors tell you to do. Exxon, etc.
What are the odds the message is to 'negotiate' a stable price, and lend them the money, to consolidate the industry. There will be some employment loss, but everybody goes back to making money, and Trump can be the hero.

Campaign contributions are for a reason, and its collection time.

SD
Title: Re: Energy Sector
Post by: DooDiligence on March 10, 2020, 01:34:27 PM
I'm less of an alarmist that Spek here. I don't think that shale is going anywhere anytime soon. A little rationalization sure, but nowhere close to extinction.

The way I see it the system is very complex and has a lot of inertia. A lot of money and time has been invested to use shale production. Think of the Houston petochemical complex. That used to be fed by shipbourne oil. Now a lot of it is fed by shale product and Canadian stuff. So they actually need the shale. I don't see that complex flipping back to shipbourne feed stock.

In the case of CHK/WMB that speck was talking about. CHK may very well go bankrupt. But CHK's customers are not gonna stop needing gas. Are they gonna use Quatar LNG? No they're still gonna use gas from the same old field, coming through the existing pipe that they have.

Then there's also the political aspect of all of this. There are a lot of jobs in shale. These are well paying jobs too and you don't need a university degree for it. Good high paying jobs for regular folk. The kind that politicians hate to loose. And they're in red states and blue states. This basically means that there is zero political will to let the sector die. Especially is said death comes from a dick measuring contest between Russia and Saudi Arabia.

Now whether the names of the companies that own the fields will be the same or different remains to be seen. But those fields will pump. Whether the ones doing the pumping will make money, that's another matter. But think of it another way. For most of its existence air travel has been an uneconomic endeavour (I'm not sure it still isn't). Yet we still had planes, and airports, and airlines, and we didn't stop flying.

Lucid.
Title: Re: Energy Sector
Post by: TwoCitiesCapital on March 10, 2020, 05:04:07 PM
I'm less of an alarmist that Spek here. I don't think that shale is going anywhere anytime soon. A little rationalization sure, but nowhere close to extinction.

The way I see it the system is very complex and has a lot of inertia. A lot of money and time has been invested to use shale production. Think of the Houston petochemical complex. That used to be fed by shipbourne oil. Now a lot of it is fed by shale product and Canadian stuff. So they actually need the shale. I don't see that complex flipping back to shipbourne feed stock.

In the case of CHK/WMB that speck was talking about. CHK may very well go bankrupt. But CHK's customers are not gonna stop needing gas. Are they gonna use Quatar LNG? No they're still gonna use gas from the same old field, coming through the existing pipe that they have.

Then there's also the political aspect of all of this. There are a lot of jobs in shale. These are well paying jobs too and you don't need a university degree for it. Good high paying jobs for regular folk. The kind that politicians hate to loose. And they're in red states and blue states. This basically means that there is zero political will to let the sector die. Especially is said death comes from a dick measuring contest between Russia and Saudi Arabia.

Now whether the names of the companies that own the fields will be the same or different remains to be seen. But those fields will pump. Whether the ones doing the pumping will make money, that's another matter. But think of it another way. For most of its existence air travel has been an uneconomic endeavour (I'm not sure it still isn't). Yet we still had planes, and airports, and airlines, and we didn't stop flying.

Lucid.

Agreed. Very interesting perspective and comparison to airlines. I'll have to chew on that one.
Title: Re: Energy Sector
Post by: opihiman2 on March 16, 2020, 12:08:35 PM
HOLY SHIT WTI AT $28! 
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 08:08:10 AM
Keeps going down.  Below $25 / bbl.  We'll be seeing $20.  When does this turn around?  I don't think we're going to see oil turn around until coronavirus is over or Russia / SA burn Texas to the ground.  And if neither are over, oil is going to go below $20 / bbl.  Man, never ever thought I would see this in my lifetime: oil back to the Gulf War prices.  Holy shit.
Title: Re: Energy Sector
Post by: james22 on March 18, 2020, 08:42:02 AM
Anyone else see an opportunity?

Nailed it!
Title: Re: Energy Sector
Post by: whiterose on March 18, 2020, 08:45:29 AM
Crazy valuations.. are the pipelines a going concern(?)
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 08:47:36 AM
Crazy valuations.. are the pipelines a going concern(?)

Which ones?  A pipeline that transports Marcellus gas to a power plant in New York versus a gathering system geared to oil.
Title: Re: Energy Sector
Post by: whiterose on March 18, 2020, 09:27:52 AM
KMI got cut in half, am I missing something?
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 09:38:30 AM
KMI got cut in half, am I missing something?

I was just responding to your specific question.  I agree that all midstream appears to have collapsed, regardless of whether it directly or indirectly relies on domestic oil production.  I don't believe we'll be shutting down power plants or no longer heating our homes in the winter.  So, I expect natural gas to continue to flow, such as it did in the aftermath of the GFC.  So, what's going on with natural gas pipelines? 

Perhaps try to invert this, what would have to be true if the market price is correct?  That's what I'm trying to think through.  Can't roll debt?  Don't get paid even if pipes are used? 
Title: Re: Energy Sector
Post by: JRM on March 18, 2020, 09:45:17 AM
Both KMI and WMB have flexibility.  It's not like they on the edge of insolvency.  At this point they should cut the dividend, stop buybacks, and delay any review growth cap ex.  They should preserve cash and wait to see what happens.  I've been trying to stress test the balance sheets of each company and I have a hard time killing either company.  I am asking the same question, what am I missing.   
Title: Re: Energy Sector
Post by: Spekulatius on March 18, 2020, 10:47:54 AM
WMB is mostly demand driven as far as Transco and Northwest pipes are concerned . I think that’s about 55% of their operating earnings. The iffy part is the G&P in the Marcellus and Wyoming that are feeding in Transco and Northwest respectively. A lot of NG producers there are close to bankruptcy, but shutting of NG that is produced as byproduct of crude production might actually help them.

In any case, even if producers go down, the demand for NG is still there, minus some from LNG facilities and such perhaps.
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 10:55:08 AM
Holy SHIT!  I was expecting $20 by this summer.  WOW!  $20 WTI today!!  Some MLP pipelines are being priced like they're going out of business: PAA is down 30+% today.

This is pure insanity.  Once in a hundred year black swan event: global / US recession was looming late 2018, mass pandemic, and on top of that, an oil price war between three countries with one over-levered one. 

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+% 
Title: Re: Energy Sector
Post by: SharperDingaan on March 18, 2020, 11:21:37 AM
Think about this the other way

If you had naked puts on some of these companies, your gains are currently so big; that there is a real possibility that counter-parties are not going to be able to make good on them. And in many industries, if you are a wise C-suite manager; you WILL have naked puts on the major competitors in your industry. If you manage to keep your company afloat, via a combination of laying off people and cutting back - how are you going to deal with the fortune you've just made? Can't exactly spend it, even if you had to send friends in low places around to collect  :(

SD
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 04:32:21 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml
Title: Re: Energy Sector
Post by: Spekulatius on March 18, 2020, 04:47:32 PM
Holy SHIT!  I was expecting $20 by this summer.  WOW!  $20 WTI today!!  Some MLP pipelines are being priced like they're going out of business: PAA is down 30+% today.

This is pure insanity.  Once in a hundred year black swan event: global / US recession was looming late 2018, mass pandemic, and on top of that, an oil price war between three countries with one over-levered one. 

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

It seems likes Great Depression, but we had sub $10/brl (might have been as low as $8 ) for a brief time in 1998 and it wasn’t a Depression.

 https://www.macrotrends.net/1369/crude-oil-price-history-chart (https://www.macrotrends.net/1369/crude-oil-price-history-chart)
Title: Re: Energy Sector
Post by: rb on March 18, 2020, 05:23:10 PM
It's not gonna be the great depression, but it definitely matters more now. In the 90s low oil prices were good because the US profited from that. But now, they produce a lot of the stuff. So the balance has shifted. It's labour intensive, so it employs a lot of people with good wages. Moreover, these jobs are in some shithole places in the country. If oil wasn't there these guys would be lucky to get a job at Dennys.

So it matters more than before. But not anywhere any depression level stuff.
Title: Re: Energy Sector
Post by: petec on March 18, 2020, 05:32:41 PM
Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

You can’t have a depression in a fiat money system unless politicians and central bankers choose to have one. We are far more likely to have an inflation.
Title: Re: Energy Sector
Post by: rb on March 18, 2020, 05:58:54 PM
Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

You can’t have a depression in a fiat money system unless politicians and central bankers choose to have one. We are far more likely to have an inflation.
You are correct in your premise, but wrong in your interpretation. You CAN have a depression if your politicians and central bankers are dumb enough. Have you looked around lately....?

Though i agree unless there was something seriously wrong with the economy that was papered over (not impossible, I have certain doubts). There is no depression to come.
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 06:05:20 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now. 
Title: Re: Energy Sector
Post by: KJP on March 18, 2020, 06:12:30 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into. 
Title: Re: Energy Sector
Post by: TwoCitiesCapital on March 18, 2020, 06:35:28 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

What's crazy about the mREITs that they basically are 5-7x leveraged versions of govt bonds. Even before today they were trading @ 20-30% discounts to NAV and then were down another 30% today!!!! NLY is down 50% from its recent highs.

To compare w/ 2008 (which was a crisis in their investment product of mortgages), they were up significantly depending on where you start and end you observation. But flat to plus 50% is still significantly better than the minus 50 we're seeing now :/
Title: Re: Energy Sector
Post by: compoundinglife on March 18, 2020, 07:10:59 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

The Goldman levered MLP CEFs disclosed on March 9th that they were going to zero leverage. The one If I am remembering correctly, the one I looked at had 70m of leverage on a 100m portfolio.
Title: Re: Energy Sector
Post by: opihiman2 on March 18, 2020, 09:57:29 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into.

You should read this paper:

https://necsi.edu/the-stock-market-has-grown-unstable-since-february-2018

It basically says that the markets were primed for huge price swings.  It didn't predict that swings would happen.  It just said that if there is a crisis (like coronavirus and oil war), the markets will swing wildly like we see now.  It doesn't provide an explanation, though.  Although, maybe having more leveraged ETF's than before is likely causing this issue.  Vehicles like 3x bull / bear ETF's weren't really around pre 2008.
Title: Re: Energy Sector
Post by: KJP on March 19, 2020, 05:45:44 AM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into.

You should read this paper:

https://necsi.edu/the-stock-market-has-grown-unstable-since-february-2018

It basically says that the markets were primed for huge price swings.  It didn't predict that swings would happen.  It just said that if there is a crisis (like coronavirus and oil war), the markets will swing wildly like we see now.  It doesn't provide an explanation, though.  Although, maybe having more leveraged ETF's than before is likely causing this issue.  Vehicles like 3x bull / bear ETF's weren't really around pre 2008.

I took a look at the paper.  As you note, it's hard to glean anything from it, but your hypothesis about one of the potential factors makes sense:  The more leveraged investors are, the more forced selling there will be.
Title: Re: Energy Sector
Post by: KJP on March 19, 2020, 07:14:51 PM
Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

Here are the fact sheets for the two levered MLP funds discussed in that post:
https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf
https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

They must have been selling at any price, though I doubt they have any assets left at this point. 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

Here's another levered midstream CEF:  https://kaynefunds.com/wp-content/uploads/KYN-20-02-29-NAV-Press-Release.pdf

It's down about 80% so far in 2020. 

And another:  https://www.leggmason.com/en-us/products/closed-end-funds/clearbridge-energy-midstream-opportunity-fund-inc.html

It's down 90% YTD. 

And why not, here's one more:  https://www.leggmason.com/content/dam/legg-mason/documents/en/product-literature/fact-sheet/fact-sheet-cbi-energy-mlp.pdf

These funds are now selling at big discounts to NAV, which is no surprise given the recent performance.
Title: Re: Energy Sector
Post by: KJP on March 20, 2020, 02:28:00 PM
  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936
Title: Re: Energy Sector
Post by: opihiman2 on March 20, 2020, 05:47:40 PM
  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936

This is a tough call.  If they agree to cuts and Russia is on board, I think oil pumps up a bit.  But the demand side of the equation.  It's anyone's guess at this point.  I'm still thinking WTI tanks below $20, and Brent goes to about $20.  At that point, I'm starting to buy the majors and some midstreams.  10% of the portfolio goes into this.
Title: Re: Energy Sector
Post by: Viking on March 20, 2020, 06:09:42 PM
  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936

This is a tough call.  If they agree to cuts and Russia is on board, I think oil pumps up a bit.  But the demand side of the equation.  It's anyone's guess at this point.  I'm still thinking WTI tanks below $20, and Brent goes to about $20.  At that point, I'm starting to buy the majors and some midstreams.  10% of the portfolio goes into this.

Is the news article essentially saying the US is going to join OPEC? Wow. Amazing how fast the world can change.
Title: Re: Energy Sector
Post by: opihiman2 on March 21, 2020, 10:31:00 AM
The more I think about it, I think this is all just wishful thinking: US, SA, and Russia forming an alliance and a truce, cut back on production, and bam, we're back to $50 oil.

Knowing Russia, they have no qualms with destroying US shale.  I mean, think about it.  Why would Russia HELP US shale recover?  They recover, the mexican beer virus is gone, demand is back up, and Russia is back in the same bullshit as it was a few years ago.  No, this time, they're going to take the pain to crush U.S. oil.  Putin has said many times he think US shale tech  is barbaric.  The timing is absolutely perfect.  Probably 1 in a 100 year event just unfolded, and there's not going to be another oppty for Russia to finally take a deep stab into the heart of US oil. 

This is likely going to be a long drawn out battle.  Still, below $20 on brent, I'm starting to buy the oil majors and some mid streams.
Title: Re: Energy Sector
Post by: Xerxes on March 21, 2020, 10:46:41 AM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.
Title: Re: Energy Sector
Post by: kab60 on March 21, 2020, 10:58:33 AM
Why not just go with a pipeline operator like Williams which is mostly demand driven from utilities and NG? Decent ROIC, irreplacable assets, fat yield. If rates stay low, essential infrastructure should do pretty great. Otherwise I like the idea of betting on oil by going long the ruble - perhaps through something like Sberbank. Doesn't have to constantly drill holes to keep status quo.
Title: Re: Energy Sector
Post by: opihiman2 on March 21, 2020, 11:58:02 AM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.

That's a very interesting take, and the ruble trade is something I haven't considered.  In fact, I just watched a CNBC video this morning talking about the Russia / SA price war, and they mentioned that the ruble has been tanking.  I compared it to other petro related currencies like CAD, and it's down about 20 to 25%.  Looking longer term from the oil bust after GFC till $60+ oil, it looks like Ruble is down against both CAD and USD.

I'll probably just go long oil via the majors.  I'm thinking refinery operations will recover the fastest.  VLO and CVX look good.  I like BP and Shell based on their cash balance sheets. 

This Daniel Yergin book sounds interesting.  Care to provide a TL;DR? 

Title: Re: Energy Sector
Post by: opihiman2 on March 21, 2020, 12:05:15 PM
Why not just go with a pipeline operator like Williams which is mostly demand driven from utilities and NG? Decent ROIC, irreplacable assets, fat yield. If rates stay low, essential infrastructure should do pretty great. Otherwise I like the idea of betting on oil by going long the ruble - perhaps through something like Sberbank. Doesn't have to constantly drill holes to keep status quo.

WMB is looking interesting, but I still think it's overpriced given the market dynamics.  Even in post GFC and 2016 when oil briefly tanked to 30's, WMB was a bit lower then than it is now.  But, you're right.  WMB is looking more and more interesting.  But, I still think it goes lower.  Not buying until it hits single digits.  My bet is the dividend gets cut or suspended.
Title: Re: Energy Sector
Post by: Spekulatius on March 21, 2020, 01:30:29 PM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.

That's a very interesting take, and the ruble trade is something I haven't considered.  In fact, I just watched a CNBC video this morning talking about the Russia / SA price war, and they mentioned that the ruble has been tanking.  I compared it to other petro related currencies like CAD, and it's down about 20 to 25%.  Looking longer term from the oil bust after GFC till $60+ oil, it looks like Ruble is down against both CAD and USD.

I'll probably just go long oil via the majors.  I'm thinking refinery operations will recover the fastest.  VLO and CVX look good.  I like BP and Shell based on their cash balance sheets. 

This Daniel Yergin book sounds interesting.  Care to provide a TL;DR?

Pretty much any foreign currency has been taking against the USD, but oil related currencies like MXN or NOk and RUB have done the worst. MXN and NOK are down 20% compared to the USD.
Title: Re: Energy Sector
Post by: Xerxes on March 21, 2020, 02:36:45 PM
His earlier book The Prize finished in the 90s.
He had a subsequent book called The Quest that I actually enjoyed less than The Prize.

But in the past year, he has been hinting on Bloomberg TV that he is working on something.
No title nor any release date. I imagine the news flow keeps adding to to that story.
Title: Re: Energy Sector
Post by: Mephistopheles on March 21, 2020, 04:42:36 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.
Title: Re: Energy Sector
Post by: finetrader on March 21, 2020, 05:06:44 PM
It’s a commodity
Title: Re: Energy Sector
Post by: Spekulatius on March 21, 2020, 05:14:38 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.
Title: Re: Energy Sector
Post by: NewValueinvestor on March 21, 2020, 05:31:56 PM
yes but you still need to understand the dynamics of energy companies, the more you read the better your prepared.

A MLP or pipeline company is quite different from say, a natural gas exploration company.
Here's blog I found useful as a start:

https://www.canadianvalueinvestors.com/oil-and-gas-investing-101

My understanding is that there are 3 main sections in crude oil:

Upstream - Oil exploration, drilling, service providers

Midstream - Refiners, pipelines, chemical facilities, etc.

Downstream - Oil & Gas distribution, marketing of petrochemicals, gas stations, jet fuel sales, etc.

Depending how the energy company operates you need value each one a little differently, like Enbridge would be a little different than say range resources. For integrated majors, supermajors, I think it's a good idea to value their main separate segments listed above then do sum of the parts and add it together.

I could be very wrong, but this is how I'm approaching looking at energy companies.
Title: Re: Energy Sector
Post by: Mephistopheles on March 22, 2020, 03:55:50 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.

Well how else to learn about competitive dynamics for instance? Not only between horizontal competitors but between upstream, mid, and downstream players. I'm sure I can buy a basket of shale producers and if oil shoots back up I can make a killing but I'd rather be able to understand nuances between different companies.
Title: Re: Energy Sector
Post by: Spekulatius on March 22, 2020, 05:03:32 PM
What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.

Well how else to learn about competitive dynamics for instance? Not only between horizontal competitors but between upstream, mid, and downstream players. I'm sure I can buy a basket of shale producers and if oil shoots back up I can make a killing but I'd rather be able to understand nuances between different companies.

I would avoid shalers altogether. If you do invest in upstream at all, stick with majors or those with long live resources like the Canadian oils Sand plays CNQ and SU or perhaps CVE if you like an option like play.

The reason why long live resources can survive longer is because they don’t have to reinvest as much once the resources is operating, except for maintenance capital. Shale is a short live resource and thy constantly nerf to drill or the resources are going to run dry.

But in a way, that is also obvious through the cash flow statement, if you dig enough, hence my remark. Midstream is similar in this way as are refineries. All of them are better than shale E&P‘s imo.
Title: Re: Energy Sector
Post by: opihiman2 on March 22, 2020, 06:57:13 PM
Damn, I think I might have been too optimistic on oil, and I'm now backing out of going long oil under $20.  This damn thing is heading under $10.
Title: Re: Energy Sector
Post by: samwise on March 25, 2020, 09:06:09 PM
Question for those who follow refiners. Does the crack spread get affected by crude prices? I would have thought it shouldn’t.

Why are refiners down so much more than the market then ? Is it just an anticipation of lower demand and capacity utilization. Or is something else .

Thanks in advance.
Title: Re: Energy Sector
Post by: shhughes1116 on March 26, 2020, 05:00:17 AM
Question for those who follow refiners. Does the crack spread get affected by crude prices? I would have thought it shouldn’t.

Why are refiners down so much more than the market then ? Is it just an anticipation of lower demand and capacity utilization. Or is something else .

Thanks in advance.

It is most definitely affected by crude prices.  The crack spread represents the difference between the incoming cost of crude (usually a function of the cost of crude from a particular basin that is accessible to the refinery), and the value of the outbound products (e.g. gasoline, diesel, jet fuel, asphalt).  Light crude and heavy crude produce a different ratio of outputs, and that ratio depends on the complexity of the refinery (e.g. presence of absence of a hydrocracker).

Anyways, the cost of crude is falling, and it looks like the value of the outputs is falling as fast, if not faster.  Hence, crack spreads are tightening, which is negative for refiners.   
Title: Re: Energy Sector
Post by: opihiman2 on March 27, 2020, 11:50:03 PM
I haven't heard about Kupperman in a LONG time.  I thought Praetorian Capital was doing pretty bad with that whole weird real estate thesis in Mongolia.  Like, what the hell were they thinking?  But, this sounds like a pretty good idea:

https://moiglobal.com/crisis20-harris-kupperman/?utm_source=rss&utm_medium=rss&utm_campaign=crisis20-harris-kupperman

I haven't looked at bulk shippers since the BDI blew up many years ago and people lost their shirts on companies like DRYS.  But, thoughts on this?  VLCC companies might be getting some huge tailwinds soon.
Title: Re: Energy Sector
Post by: sleepydragon on March 28, 2020, 06:38:40 AM
Is OXY a good buy here?
Title: Re: Energy Sector
Post by: opihiman2 on March 28, 2020, 11:12:01 AM
Is OXY a good buy here?

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.
Title: Re: Energy Sector
Post by: Stuart D on March 28, 2020, 05:44:23 PM
Is OXY a good buy here?

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.

Might be worth looking at the bonds ranking ahead of BRK’s $10b preferred stock. From memory I think the debt maturing 2022 was selling for 60c.
Title: Re: Energy Sector
Post by: sleepydragon on March 29, 2020, 06:16:06 AM
Is OXY a good buy here?

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.

But over longer term this price is not sustainable. Saudi and Russia will have to work out something so everyone can win. If OXY issue more equity, they might be able to survive. Or now Icahn is on the board, they may sell it to a bigger company— maybe Berkshire?

I am a newbie in this. Not much insights.
I bought some OXY but it’s not a big conviction holding.

Might be worth looking at the bonds ranking ahead of BRK’s $10b preferred stock. From memory I think the debt maturing 2022 was selling for 60c.
Title: Re: Energy Sector
Post by: SharperDingaan on March 29, 2020, 06:42:14 AM
For those who know squat. TTEN on the TSX
If you think you can do better than this basket, for the same risk, then good on you.

SD
Title: Re: Energy Sector
Post by: opihiman2 on March 29, 2020, 01:09:49 PM
https://www.youtube.com/watch?v=DSBl70-3euY

Also, Canadian crude is now cheaper than a fucking pint of beer.  Why the fuck would you go long on Canadian oil?  I wouldn't start making bets on energy / oil until we see some kind of direction from OPEC+.  Anything else is just pure gambling at this point. 

I would advise any newbies on here to read the insanely STUPID Sandridge Energy and CHK threads on this forum.  You pretty much could have bypassed the idiocy with one simple question: If these companies can't make money near $100 oil, how the hell are they going to make money at $50 and less?  It was a stupidly long discussion and a big waste of time.  Even Goldman was calling for $200 oil back then.  Fucking retarded.
Title: Re: Energy Sector
Post by: montizzle on March 29, 2020, 10:01:36 PM
i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.


If I follow this right, would it be fair to say Canada is in a similar position as russia, where CAD tanks with the price of oil lowering the cost base of oil sands players?
Title: Re: Energy Sector
Post by: ratiman on March 29, 2020, 11:39:37 PM
Something like 5% of global production will be permanently shut-in and oil declines by 5%+ per year so there are some serious shortages ahead, plus there haven't been any big fields discovered in a long time. Canada with it's non-shale production should be in a good position to provide that supply if it can manage to survive. I know that sounds stupid after a six year bear market in oil but it's not going to last forever.