Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.

[sculpin]

https://seekingalpha.com/article/4230883-oil-headed-2019-just-watch-saudis-want-closely

 

https://oilprice.com/Energy/Crude-Oil/The-New-Oil-Order.html

[sculpin]

Heavy crude differential narrows as Alberta oil cuts take effect

 

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

 

$12.75/bbl WCS-WTI diffs

 

[Cardboard]

It has been quite a "V" reversal. Light discount is similar:

 

https://www.tradingview.com/symbols/NYMEX-WCW1!/?utm_campaign=tickers&utm_medium=widget&utm_source=www.oilsandsmagazine.com

 

Cardboard

[sculpin]

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

 

Summary

 

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

 

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

 

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

 

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

 

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

[sculpin]

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

 

Summary

 

IEA forecasts oil market deficit to return by Q2 2019.

 

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

 

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

 

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

 

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

[tombgrt]

What a fun game this is.

 

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

[Joe689]

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

[tombgrt]

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

[Cardboard]

It is changing slowly guys.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Cardboard

[SharperDingaan]

Keep in mind that industry Q4 earnings start hitting the news headlines in the next few weeks, and it's probably not going to be pretty.

It's also highly likely that there will be an amplification of populist negativism, as we go into election run-up.

Not much positive for o/g share valuations.

 

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

Hence the roars and screams.

 

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

 

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

 

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

 

SD

 

 

 

 

 

 

 

[SharperDingaan]

And this is why we have a peoples rail fleet, even if we have to vote in the 'comrades' to get it done .....

And pretty funny, that it's the ONLY thing that is actually delivering at this point.

 

https://www.cbc.ca/news/canada/calgary/enbridge-line-3-pipeline-delayed-1.5040611

'Enbridge's Line 3 pipeline replacement is being pushed back a year, the company announced Friday. The project, which was initially expected to be in service before the end of 2019, now won't be ready until the second half of 2020.'

 

SD

 

[Spekulatius]

And this is why we have a peoples rail fleet, even if we have to vote in the 'comrades' to get it done .....

And pretty funny, that it's the ONLY thing that is actually delivering at this point.

 

https://www.cbc.ca/news/canada/calgary/enbridge-line-3-pipeline-delayed-1.5040611

'Enbridge's Line 3 pipeline replacement is being pushed back a year, the company announced Friday. The project, which was initially expected to be in service before the end of 2019, now won't be ready until the second half of 2020.'

 

SD

 

As an investor or in Enbridge, it’s unfortunately very sad.

[Cardboard]

That will teach you to support the left.

[Uccmal]

SD, I hope you didn’t really expect Line 3 to be built this year.  I was so sure it would be delayed that I lightened my position during the recent rally (Enbridge that is).  Will buy some up again should the price get south of 44-45. 

 

The stock market is a funny thing.  Enbridge takes a 6 billion bath on its market cap on this news.  In the real world their cash flow is huge and growing without Line 3.  The additional capacity of Line 3 will add around 5% to their present oil movement and 2.5% their total capacity (oil and gas).  That works out to a small increase in cash flow.  They have dozens of mid size gas projects in the works in the US and a near unlimited runway on the gas transport side. 

 

My guess is that in the interim, Enbridge finishes the Canadian Line 3 portion, and uses other pipe as a work around to get more capacity.  They have all sorts of alternatives.  Its really Minnesota’s loss.  The Fond Du Lac band is/was set to get 260 M for the pipe across their land during the contract period. They cant be any to thrilled with the delay. 

 

My position in WCP is moribund and frustrating but they are bringing in more cash than they need so I guess I will live with the 7% dividend for now.

 

 

 

[Spekulatius]

SD, I hope you didn’t really expect Line 3 to be built this year.  I was so sure it would be delayed that I lightened my position during the recent rally (Enbridge that is).  Will buy some up again should the price get south of 44-45. 

 

The stock market is a funny thing.  Enbridge takes a 6 billion bath on its market cap on this news.  In the real world their cash flow is huge and growing without Line 3.  The additional capacity of Line 3 will add around 5% to their present oil movement and 2.5% their total capacity (oil and gas).  That works out to a small increase in cash flow.  They have dozens of mid size gas projects in the works in the US and a near unlimited runway on the gas transport side. 

 

My guess is that in the interim, Enbridge finishes the Canadian Line 3 portion, and uses other pipe as a work around to get more capacity.  They have all sorts of alternatives.  Its really Minnesota’s loss.  The Fond Du Lac band is/was set to get 260 M for the pipe across their land during the contract period. They cant be any to thrilled with the delay. 

 

My position in WCP is moribund and frustrating but they are bringing in more cash than they need so I guess I will live with the 7% dividend for now.

 

I fully expected delays, but not by almost 10 month. I think the fair value reduction is estimated to be $1 and the stock is down $1.4. I also lightened up during the recent rally, but also a bit today. I would buy back when the stock hits $33 again.

[sculpin]

 

Revealed: This Oil Company Might Be Canada’s Cheapest Stock

 

Stock Markets1 hour ago (Mar 20, 2019 14:36)

 

 

I’m constantly amazed at how investor attitude about the energy market changed after the 2014 crash.

 

The sector could do no wrong before 2014. Both speculators and more conservative investors held energy stocks, although in different forms. The speculators crowded into the tiny names, convinced they’d find the next tenbagger. Conventional investors, meanwhile, held the more mature oil operators, most of which paid generous dividends. Getting a 5-8% yield on an oil stock was not uncommon during the glory days of the sector.

 

Much has changed in the last five years. When the price of oil collapsed, so did these producers’ underlying cash flow. This lead almost immediately to big dividend cuts, with many eventually running into balance sheet troubles. Investors left the sector in droves, moving their capital to other high-yield names. And even though crude has recovered significantly off its lows, there’s just no interest in the sector today.

 

This should be music to a value investor’s ears. There are dozens of incredibly cheap oil stocks out there — names that have massive upside should the underlying commodity recover. Let’s take a look at one of the cheapest of all, Crescent Point Energy (TSX:CPG)(NYSE:CPG).

 

Why Crescent Point? Crescent Point is cheap on two major metrics. It owns assets that are being mispriced by the market based on both the value of these assets and potential cash flow generation ability.

 

Let’s start with valuing Crescent Point’s reserves. According to a recent investor presentation, at the end of 2018 the company’s 2P reserves alone were worth more than $13 per share, net of debt and other liabilities. Shares trade at under $4 as I write this. That gives us more than 200% upside potential.

 

Management valued these reserves at US$55 per barrel. The current price of crude oil is just under US$59 per barrel. This pushes the value of reserves into the $14 per share range today.

 

Or, if you like a more traditional value calculation, the stock trades at just one-third of book value.

 

Crescent Point’s reserves are world-class assets, too. The company has focused on loading up on acreage that offers two main advantages. First, it concentrates on light sweet crude, which gets the best prices when it comes time to sell. And management makes sure to buy assets that are cheap to take out of the ground. Crescent Point often posts some of the sector’s highest netbacks because of these two underlying principles. If the price of crude improves even moderately, Crescent Point could post adjusted netbacks of $30/barrel in 2019.

 

All of this translates into a company that trades at a low price-to-cash flow ratio, with the potential for this ratio to get even lower if crude recovers. Assuming crude stays in the US$60 range per barrel for the rest of 2019, I estimate the company could generate excess of $2 billion in cash flow. After capital expenditures of $1.2-1.3 billion, that leaves us with free cash flow in the range of $700-800 million.

 

Crescent Point’s current market cap is $2.2 billion, putting shares at approximately three times 2019’s potential free cash flow. You won’t find many stocks cheaper than that.

 

Yes, there are risks here. There’s no guarantee crude oil will cooperate, of course. Crescent Point’s balance sheet is still stretched, although the company plans to use much of its excess free cash flow to pay down debt. And management is even taking steps to help the stock price, announcing a plan to buy back up to 38.4 million undervalued shares.

 

The bottom line If you believe oil has turned a corner and will remain at US$60 per barrel for the foreseeable future, the time to buy cheap oil shares like Crescent Point is now.

 

Remember, this sub-$4 stock traded higher than $9 per share less than a year ago and flirted with $40 when the sector was really booming. The upside potential here is obvious.

 

https://ca.investing.com/news/stock-market-news/revealed-this-oil-company-might-be-canadas-cheapest-stock-1425712

[sculpin]

World continues to move toward shortage...

 

Venezuela - heavy tar-like oil has begun to clog pipelines

 

https://www.bloomberg.com/news/articles/2019-04-04/venezuela-blackouts-said-to-cut-oil-output-by-half-during-march

 

Near the Orinoco basin in the East, where four out of every five barrels is pumped, heavy tar-like oil has begun to clog pipelines and tanks after the heating system lost power, according to Wills Rangel, a former PDVSA board director and president of the United Workers Federation of Oil, Gas and Related Derivatives of Venezuela. Cleaning or removing the pipes could take months, he said.

 

[Cardboard]

Very similar to what happened to Syncrude last spring/summer when they had a generalized lost of power due to a blown out transformer. Took months to fix and they had access to everything which is not the case for poor Venezuela.

 

There is also a conflict going in Libya right now:

 

https://www.cnbc.com/2019/04/04/libyan-forces-move-on-tripoli-threaten-to-tip-oil-producer-into-war.html

 

Also learned this week that Ghawar is pumping much less than thought which should raise concerns about Saudis true spare capacity.

 

In other news, the oil rig count has gone up 15 in the U.S. in the past week with 8 more in the Permian or a reversal from continued declines in previous weeks. So higher pricing is enticing drillers.

 

Problem is that all the U.S. is pumping additional is ultra light oil which is of no use to replace what is missing on the market or for how refineries are configured, diesel needs, etc.

 

Cardboard

 

 

 

[sculpin]

TPH Boosts Whitecap Resources To Buy On Rising Cash Flows

12:53 PM EDT, 04/04/2019 (MT Newswires) -- .Tudor, Pickering & Holt boosted its rating on the shares of Whitecap Resources (WCP.TO) to Buy from Hold as the oil and gas producer's free cash flow rises.

 

"We are upgrading WCP CN to a BUY, as our preferred name within the CAD SMID oil group," the investment bank said in a note. "The group as a whole is beginning to look increasingly attractive with an avg FCF yield of 16% at strip and avg debt metrics sub 1.5x, but we see WCP as the most attractive risk/reward option. FCF is certainly en vogue, but it's post maintenance FCF that really matters and this is where WCP screens well. We calculate sustaining capital of C$350MM for WCP, or ~50% of 2019 CF, as compared to 51% for TOG, 62% for CPG and 67% for BTE. Additionally, using 2020 EV/FCF (post maint. capex) to normalize for differing maintenance requirements and debt levels, WCP again stands out at 7.5x EV/FCF in 2020, vs CPG at 8.6x, TOG at 9.4x and BTE at 19.9x. We see Q1 shaping up well, with our Q1 production estimate of 70.7mboepd ahead of the Street by ~2% and with crude holding in above $60, leverage looks much more palatable at 1.7x 2019 and 1.4x 2020."

[tombgrt]

Great way to start the day!

 

Looks like KSA is not likely to overproduce now as sources said they will take more of a 'wait and see' attitude regarding Iran's exports. With the issues in Ven & Libia, you have to wonder who is going to pick up the lost production when things detoriate further? KSA inventory already at multi-year lows so flooding the market suddenly seems unlikely anyway.

 

I'll be flabbergasted if oil prices stay were they are and CRC doesn't end the day close to $30. Has been lagging a bit vs last year which is odd given how they have been paying off debt for another year, set up JVs etc. Buena Vista (which is over half of their production) also around $75 already, which should now be around $77 with the increase today.

[SafetyinNumbers]

Another oil bull letter laying out the investment thesis:

 

https://www.islainvest.com/wp-content/uploads/2019/04/LTI_Q1_2019_Final.pdf

 

He does have a slightly negative view on WCS based off of IMO 2020 but I’m not sure how that ties in with all of the VZ barrels that are offline.

 

Also, I’m curious if anyone has looked at Arrow Exploration (AXL.V)? I imagine it won’t participate in the rally initially as there still seem to be some large holders who received the spin off from CNE.TO last year and haven’t quite sold it all. The stock is down over 70% from when it was spun in November and where insiders bought stock.

 

It looks very cheap on every valuation metric traditionally used like EV/BOE (~7k/boe) and EV/DACF (~1x) but has shareholders who can’t own it which has presented this opportunity. I also discovered that TD Waterhouse had it flagged from the spin so potential retail buyers have to call in to make an order and I can see a lot of people giving up if they have to wait on hold for 30 minutes to place an order on a microcap.

 

They expect to report Q4 results by April 30 (the deadline) and we should hear about the bank line then or soon after along with an operational update which could act as catalysts.

 

[tombgrt]

Thanks for the post, SafetyinNumbers! No insights on AXL.V however.

 

Also seems like ATU.V didn't receive the memo yet. Still stuck at 0.46. Incredible!

[SafetyinNumbers]

Thanks for the post, SafetyinNumbers! No insights on AXL.V however.

 

Also seems like ATU.V didn't receive the memo yet. Still stuck at 0.46. Incredible!

 

Looking at GMP’s latest comp sheet, they have ATU.V at 2x EV/EBITDA based on yesterday’s strip pricing. Tough to be a small cap these days.

 

The aforementioned AXL.V just announced it sold 5% of its production for about 40% of its market cap (75 boe/d for US$5m) and net debt is negligible.

[sculpin]

https://www.bnnbloomberg.ca/video/why-this-investor-believes-the-canadian-energy-sector-has-terrific-assets-for-opportunity~1669639

 

 

[SharperDingaan]

Interesting implied timeframes.

SAGD if you're long-term (after pipelines are built), service providers if you're medium term.

 

Seldom spoken of, is just how valuable that shut-in WCS actually is.

In todays evironment of excessive light oil, to raise margins the integrated majors need to raise their heavy/light oil mix. With VZ, Mexico, Brazil, and Iran out (or declining); there just isn't much to go round, almost all the spare capacity is in risky places (Kuwait, Iraq, SA, Russia, etc), and lots of folks are playing with matches. WCS isn't just new supply, it also materially diversifies the geo-political risk. And with a WCS basin second only to SA in size ......

 

Shut ins do not last forever.

 

SD