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

[Nebraska]

I was previously on a frac crew until getting laid off in 2015. Received a phone call earlier this week from a recruiter for one of the major oilfield service companies looking to hire experienced hands.  Definitely think some people are wanting to up production again, how it will all play out in the markets is anyones guess.

[Paarslaars]

Watch the results of the Iranian election tomorrow. If Rouhani is out it could mean more agressivity and a return of sanctions or worst.

 

Cardboard

 

He won easy.

[Uccmal]

I was previously on a frac crew until getting laid off in 2015. Received a phone call earlier this week from a recruiter for one of the major oilfield service companies looking to hire experienced hands.  Definitely think some people are wanting to up production again, how it will all play out in the markets is anyones guess.

 

So, are you going, or have you had enough?

[SharperDingaan]

It’s useful to remind yourself that o/g drilling is tough on its crews, it’s a young man’s game, and it’s a very specialized business. Even using crews from off-shore (US Gulf), or non-NA on-shore rigs (Nigeria, Venezuela, etc.); it’s only a 50% proposition at best. Crews also age like dogs, and good rig bosses are business partners; it’s just another part of the business. 

 

To lock in a rig you pay up gladly, and stand behind your commitment. It’s a dance, and there will be many turns on the dance-floor; develop a reputation and you will not get past the bouncers at the door. Everybody at the dance has the money.

 

There is already a developing shortage of talent for freeze up; there are only so many bosses willing to defer retirement for pay and friendship, and installing the new case linings will extend well completion times. You either get fewer wells for the same number of drilling days, pay the overtime (and add new grunts) to lengthen the days and increase the well count, or find additional crews.

 

PWT has been in the business for a long time; so has PD. Yet PWT has built a 10% cost inflation into its forecast numbers, and PD has made statements that it expects fall/winter drilling activity to pick up. The people who hire the crews, the people who provide them, and the people who find them – all pointing to developing shortage.

 

The dance partners are lining up, and the smaller players are getting squeezed out.

 

SD   

 

 

[Nebraska]

I was previously on a frac crew until getting laid off in 2015. Received a phone call earlier this week from a recruiter for one of the major oilfield service companies looking to hire experienced hands.  Definitely think some people are wanting to up production again, how it will all play out in the markets is anyones guess.

 

So, are you going, or have you had enough?

 

I'm not going to lie it is pretty tempting. Said I would be working 70-90 hours a week on a 15 day on 6 day off schedule. If there was a guarantee not to be a swing in prices that would shut almost everything down again for at least 2-3 years I would do it in a heartbeat. I really enjoyed the job before even though it can completely suck at times.

[Cardboard]

"He won easy."

 

And they were calling it too close to call  ::)

 

So no change from the current supply fundamentals around Iran.

 

Cardboard

[Joe689]

Well OPEC's big meeting is tomorrow.  Always promises to deliver full entertainment.  What a group of characters.    I like  Kemp's OPEC Bingo. 

 

 

As for the gambling part.  Looks like 90% chance that we get an additional 9 month cut.    5% things go miserably wrong.  5% they surprise with something like deeper cuts. 

 

Nonetheless, I feel the 9 months is not a small extension.  50% more than December's extent.    It should surely expedite the re balancing. 

 

[Cardboard]

That is a 9 month extension and if you count June: 10.

 

We had a very large move up on the first 6 month and now 9 month is nothing... Plus EIA reported a pretty big draw all accross the board yesterday (gasoline, distillates too) and Lower 48 added an "estimated" grand total of 20,000 barrels/day.

 

Hard to explain a 5% drop other than the media and shorts pushing for 12 months and deeper cuts in recent days while a few weeks ago everybody wondered if 6 months would work out and if Iraq would stick with the group...

 

Can't make that shit up. These guys like Kilduff are good manipulating this oil market. Almost seems like a conspiracy to orchestrate a huge move up in oil due to a short term supply crunch to push their electric vehicles and war on CO2.

 

Cardboard

 

 

 

 

[goldfinger]

That is a 9 month extension and if you count June: 10.

 

We had a very large move up on the first 6 month and now 9 month is nothing... Plus EIA reported a pretty big draw all accross the board yesterday (gasoline, distillates too) and Lower 48 added an "estimated" grand total of 20,000 barrels/day.

 

Hard to explain a 5% drop other than the media and shorts pushing for 12 months and deeper cuts in recent days while a few weeks ago everybody wondered if 6 months would work out and if Iraq would stick with the group...

 

Can't make that shit up. These guys like Kilduff are good manipulating this oil market. Almost seems like a conspiracy to orchestrate a huge move up in oil due to a short term supply crunch to push their electric vehicles and war on CO2.

 

Cardboard

 

The problem is that US storage has stayed high in H1 2017 - and unless SA/Russia decreases exports to US, that stuff is going allow bears to party for a while longer...

[JayGatsby]

Fundamentals seem to be there:

 

That's with high OPEC exports to the US. I thought I saw a quote that SA is actually going to reduce exports this time around. Also if I remember right I thought GoM production will peak right about now from projects that were started before the downturn, but there's very little after that. I think North Sea has a pretty similar curve, so I'd imagine the rest of world offshore is similar.

 

If you take a long-term view and don't have balance sheet risk, isn't a lower for longer scenario preferable? My biggest oil related position is HNZ Group (helicopters). They're growing market share and the longer the prices stay low the better their market share will be on the back end. Meanwhile Bristow's shares are down 50% in the last two days, at a price that implies a heavy bankruptcy risk. That's the glass half full look I guess. Also depends on the position... at some point some of these E&Ps pump all their oil and have to raise more capital at the risk of dilution or capital markets being closed.

[Matson125]

I found this interesting:

 

 

Crude Stocks Change (000 barrels)

YTD Build '15 100,408

YTD Build '16 54,615

YTD Build '17 37,300

 

 

[Uccmal]

Fundamentals seem to be there:

 

That's with high OPEC exports to the US. I thought I saw a quote that SA is actually going to reduce exports this time around. Also if I remember right I thought GoM production will peak right about now from projects that were started before the downturn, but there's very little after that. I think North Sea has a pretty similar curve, so I'd imagine the rest of world offshore is similar.

 

If you take a long-term view and don't have balance sheet risk, isn't a lower for longer scenario preferable? My biggest oil related position is HNZ Group (helicopters). They're growing market share and the longer the prices stay low the better their market share will be on the back end. Meanwhile Bristow's shares are down 50% in the last two days, at a price that implies a heavy bankruptcy risk. That's the glass half full look I guess. Also depends on the position... at some point some of these E&Ps pump all their oil and have to raise more capital at the risk of dilution or capital markets being closed.

 

Jay, What's GoM production? 

 

I have only ever seen anecdotal data on the actual amount of money being spent on big long term project development.  It all seems to trend way down, leaving a large supply crunch somewhere down the road.  Its hard to verify but logical if one compares it to any other commodity. 

 

Part of my concern is that we get a worldwide recession before prices recover meaningfully.  Then we wait 3-4 more years with dead money and little or no dividends.  OTOH, Grantham has presented data that show that large recessions are caused by high energy costs (Recession as distinct from a stock market correction). 

[clutch]

Just for fun... thinking along the line of paradigm shifts in technologies and oil use... and uber long-term.

 

Imagine Elon Musk and Jeff Bezos (and others) have successfully paved the path to space colonization. And they have discovered energy sources out there that are more than enough for the mankind for foreseeable future. However, this requires extracting all of Earth's energy resources to support space colonization efforts, mainly in the form of rocket fuel...

 

A possible scenario to peak oil?  ;D

[sculpin]

“The Other Guys In The Oil Market”

 

Snippet from BCA Commodity & Energy Strategy...

 

This week, we are reprising and updating “The Other Guys In The Oil Market” from our

sister service Energy Sector Strategy (NRG), because it so well captures the state of oil production outside the U.S. shales, Middle East OPEC and Russia. “The Other Guys” account for ~ half of global supply. Next week, we’ll publish a joint report with NRG analyzing today’s OPEC meeting.

 

The aptly named “Other Guys” account for ~ 42mm b/d of production, which they are

struggling to maintain at current levels, let alone increase. These producers supply nearly half of global production, and have been stuck in a pattern of slow decline for years despite high oil prices. Beginning in 2019, we expect production declines to accelerate. This will put enormous pressure on the three primary growth regions, which markets likely will start pricing in toward the end of next year

 

U.S. Onshore, Middle East OPEC (ME OPEC),

and Russia combine to produce ~43 MMb/d

of oil plus another ~11 MMb/d of other liquids

(NGLs, biofuels, refinery gains, etc.). Combined,

these producers increased crude production by

5 MMb/d plus another 1 MMb/d of other liquids

production over the past three years (2014-

2016), creating the oversupply that crashed

prices. We expect these producers to add another

1.60 MMb/d of oil plus 1.14 MMb/d of other

liquids by 2018 (over 2016 levels), dominated

by nearly 2.0 MMb/d of oil and NGLs from the

U.S. shales.

 

Oil production from the other 100+ global oil

producers also represents about ~42 MMb/d,

but on balance has been slowly eroding since

2010, failing to grow even when oil prices were

$100+/bbl. Despite some 2017 recovery from

Libya, we expect total production to continue to

fall in both 2017 and 2018.

 

The few recently expanding producers among the Other Guys are running out of growth. Canada, Brazil, North Sea and GOM account for ~13 MMb/d of oil production in 2016, adding ~1.5 MMb/d over the past three years (2014-2016). North Sea production is projected to resume declines starting in 2017; GOM will reach it peak production sometime in 2017 or 2018, then start to ebb; large new

Canadian oil sands projects will add ~310k b/d in 2017-2018, but scarce additions are scheduled beyond that; and Brazil’s once-lofty growth plans have slowed to a crawl in 2016-2018.

 

Global deepwater drilling activity and exploration spending have collapsed, lowering the reserve base, and undermining the stability of current production levels.

 

 

[Cardboard]

Only 2 oil rigs added in the U.S. this week or a continuation of the plateauing that has been happening in recent weeks: the rate of addition is certainly slowing.

 

Seems to indicate that at current price, all profitable areas are or have been tapped and/or the availability of rigs and crews is in short supply and with it higher costs.

 

Cardboard

[JayGatsby]

Fundamentals seem to be there:

 

That's with high OPEC exports to the US. I thought I saw a quote that SA is actually going to reduce exports this time around. Also if I remember right I thought GoM production will peak right about now from projects that were started before the downturn, but there's very little after that. I think North Sea has a pretty similar curve, so I'd imagine the rest of world offshore is similar.

 

If you take a long-term view and don't have balance sheet risk, isn't a lower for longer scenario preferable? My biggest oil related position is HNZ Group (helicopters). They're growing market share and the longer the prices stay low the better their market share will be on the back end. Meanwhile Bristow's shares are down 50% in the last two days, at a price that implies a heavy bankruptcy risk. That's the glass half full look I guess. Also depends on the position... at some point some of these E&Ps pump all their oil and have to raise more capital at the risk of dilution or capital markets being closed.

 

Jay, What's GoM production? 

 

I have only ever seen anecdotal data on the actual amount of money being spent on big long term project development.  It all seems to trend way down, leaving a large supply crunch somewhere down the road.  Its hard to verify but logical if one compares it to any other commodity. 

 

Part of my concern is that we get a worldwide recession before prices recover meaningfully.  Then we wait 3-4 more years with dead money and little or no dividends.  OTOH, Grantham has presented data that show that large recessions are caused by high energy costs (Recession as distinct from a stock market correction).

Gulf of Mexico. Here's the article / graph I had looked at: http://www.epmag.com/new-projects-will-contribute-growth-1540016 . Assuming this is right, you see production continue to increase through 2017 and then decline as projects under development don't fully replace depletion. You see production continue to increase through 2017 though as projects that were commissioned at higher prices come online. I think that's part of why we haven't seen production decline as much as we'd expect... the bulk of the market is still long-term projects with 30+ years from start to finish that were still coming online. (EDIT: Just read Sculpin's article... sounds like that says something similar)

 

I started the cycle with positions with balance sheet risk... learned my lessons there. Hard to find unlevered companies in the sector.

[SafetyinNumbers]

How much leverage do you consider acceptable?

[Cardboard]

http://www.marketwatch.com/topics/organizations/american-petroleum-institute

 

8.7 million barrels inventory drop vs expectations for 2.8 million barrels. Gasoline also down 1.7 million barrels while distillates up 124,000 barrels.

 

The jerks have done a good job: drop the oil price as much as possible over the last 2 days to minimize the impact of the rebound on this much better than expected news. Make a market so beaten up that it does not know how to react on positive news.

 

Cardboard

[JayGatsby]

How much leverage do you consider acceptable?

Key to me is that the company has the balance sheet to ride them through the cycle from a cash flow and maturity perspective assuming a longer than expected cycle. I got burned on low P/B companies early in the cycle where I misjudged one of those elements. Buffett talks about how for companies he likes that are repurchasing shares he'd rather have the shares be lower for longer because they'll repurchase more. For some of the servicing companies market share can work in a similar fashion I think... the longer prices are low the weaker their competitors. When I say "some" I've only identified one I believe is in this position, although I know others are out there. These companies are also the better long-term capital allocators. Do you want to invest with the guy who took on a ton of debt to expand at the peak of the cycle or the guy who stockpiled cash to be strong at the trough? There's a good discussion of this in Capital Returns... they've done really well investing in cyclical industries by focusing on supply. Most investors focus on demand.

 

I haven't looked at the E&P companies because I don't really understand them, particularly on the fracking side.

   

[Uccmal]

http://www.marketwatch.com/topics/organizations/american-petroleum-institute

 

8.7 million barrels inventory drop vs expectations for 2.8 million barrels. Gasoline also down 1.7 million barrels while distillates up 124,000 barrels.

 

The jerks have done a good job: drop the oil price as much as possible over the last 2 days to minimize the impact of the rebound on this much better than expected news. Make a market so beaten up that it does not know how to react on positive news.

 

Cardboard

 

What do you expect.  Its the largest and most manipulated market in the world.  You can see it in the news feed.  Prices go up, and then there is a slew of articles on how production is increasing, OPEC is no longer relevant, and US shale is taking over the planet.  The price backs off, and then the opposite occurs.  High end quant shops are making out like bandits parsing, and generating the news feed.  Makes Trumps fake news look look like childs play. 

[Liberty]

https://www.bloomberg.com/graphics/2017-oil-projections/

[Cardboard]

The EIA report did match somewhat with API: less crude drawdown, more gasoline drawdown. Sum of draws for both is near identical in both reports.

 

What is noticeable this week is that: crude oil stocks (including SPR), gasoline, distillates and total stocks are now all below last year level at same date.

 

The OPEC/non-OPEC cuts are definitely starting to work despite the U.S. manipulation of numbers with vessels off-loading, traders shifting oil from one market to another, stocks of products vs oil, media, etc.

 

The demand for vessels must also be diminishing. Look at the stock prices of TK, FRO, TNP, NAP to get a flavour of the sector.

 

As the trend starts to firm up for inventory decline, we should see an improvement in the oil price. I would think  ::) but, I have been humbled before. However, it can't go on indefinitely with production in the U.S. certainly not advancing as people make it to be (abitrary 20,000 bls/d gain per EIA this week again), offshore and long lead projects dead and so many countries in the red including Venezuela on the verge of collapse.

 

I found interesting this threat to Goldman Sachs this week by the opposition in Venezuela. The optics for the bank of holding Maduro's debt, getting a very high yield on it and supporting the regime while people starve is really bad.

 

Cardboard

[Cardboard]

LOL!

 

It is funny but, I see no change in demand from today until 2025 in all your Bloomberg graphs. Then we have a climb between now and then. And if IEA is so wrong with them always low balling demand then why would I trust any of the other graphs proposed?

 

So you believe that oil will keep trading at $50 in a supply crunch scenario which will undoubtedly develop between now and then or over a period of 8 years?

 

Go back to your bubble threads with AMZN and TSLA!

 

Cardboard

[Liberty]

LOL!

 

It is funny but, I see no change in demand from today until 2025 in all your Bloomberg graphs. Then we have a climb between now and then. And if IEA is so wrong with them always low balling demand then why would I trust any of the other graphs proposed?

 

So you believe that oil will keep trading at $50 in a supply crunch scenario which will undoubtedly develop between now and then or over a period of 8 years?

 

Go back to your bubble threads with AMZN and TSLA!

 

Cardboard

 

I'm just posting a link, I don't believe anything to specific about commodities, especially not about where they'll trade. The only thing I know is that the secular trend over the long-term will be for fossil fuels to go away because EVs/batteries are improving and solar is improving year after year after year. At some points the trends cross and it just doesn't make sense to have ICEs or operate coal plants and eventually gas plants. I don't know when that'll be, but it's coming, and it won't be a linear change. There will also be at some point a price put on carbon, or at least a removal of fossil fuel subsidies, that will accelerate their demise.

 

BTW, did you predict the oil crash a couple of years ago?

[Cardboard]

"And Cardboard, you do realize that Trump pulling out of this accord is torpedoing the price of oil, and your oil stocks along with it."

 

Al my friend, this is about to end. I can't wait to see the Baker Hughes rig count today. My guess is that very little if any rig was added in the U.S. this week or maybe 2 like last week.

 

The market will work in due time. Trump leaving the Paris Accord has nothing fundamental to do with the oil price going down. This is some kind of over-reaction. A fear that U.S. shale will now start producing like crazy. Why? What has changed? Are the economics of shale going to get any better? No.

 

If the environmentalists such as Obama truly want to get rid of oil, the key is to ensure that the price goes crazy high. And maybe that their current manipulation to keep it low is part of their grandiose plan or conspiracy to orchestrate a massive supply crunch?

 

All inventories are now down from 12 months ago and it is not going to change next week or next month. The trend is now in place and we have seen what is max U.S. shale supply capacity in the $48 to $54 WTI range. This is going to get way too big to ignore.

 

Cardboard