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

[tombgrt]

I think that you should consider T-CJ and T-CONA instead of T-GXE.

 

Both have retreated a fair bit over the last 2 to 3 weeks. All these players are into heavy oil but, EV/PDP NAV is much lower for CJ/CONA, similar price per flowing, much larger/respected players and their decline rate is much lower too. And CJ pays you nicely to wait!

 

Bought some more CJ this morning.

 

Cardboard

 

Oddly enough, I specifically like GXE because of how small and nimble they are. Their strategy works great on current scale. Just look at the latest montly report on Paradise Hill. Great operators in current markets and their lower leverage doesn't make higher prices a must. More likely to do ok in most environments than many competitors.

 

Valuation versus a year ago is getting absurd but it is what it is. Last year in December was a perfect storm combining higher oil prices, portfolio window dressing and some euforia. Should have taken some of the table then as a trade. I've started to learn (very slowly) that is generally a good idea to sell some whenever I start to check on my exact profits on a stock.  ::)

[Paarslaars]

I've started to learn (very slowly) that is generally a good idea to sell some whenever I start to check on my exact profits on a stock.  ::)

 

Same here... but I get greedy.  ::)

[tombgrt]

https://www.wsj.com/articles/oil-prices-are-up-why-arent-energy-shares-1508930616

 

This article sums it up nicely. I don't see anything excessive happening price wise either but some companies are simply decently profitable at current prices and absolutely ignored by the market.

 

 

[JayGatsby]

https://www.reuters.com/article/us-oil-prices-kemp/oil-market-set-to-move-from-rebalancing-to-tightening-kemp-idUSKBN1CZ0UE

 

The current rebalancing process is already therefore fairly mature and at some point in the next six to nine months will be more accurately described as tightening.

[Cigarbutt]

Many moving variables.

 

Following on a link with PetroChina.

 

Helpful sometimes to look back and to see “patterns” in this cyclical game that has a speculative twist to it.

 

Market conditions now are, in many ways, similar to the 2002-3 period, when Mr. Buffett bought into PetroChina.

 

Here’s a link that exposes an interesting perpective on the elasticity of supply:

 

http://euanmearns.com/oil-price-scenario-for-2017/

 

My take is that the elasticity of supply looks quite favorable in the next few months especially if you factor in the impact of OPEC trying not to flood the market until the Aramco IPO gets underway.

 

Here’s another retrospective link:

 

http://www.fticonsulting.com/~/media/Files/emea--files/insights/reports/fti-oil-price-drivers-report.pdf

 

It’s relevant because I find the report is well researched and well done. Interestingly, as of June 2016, the author did predict higher prices despite not factoring in a high likelihood of a turnaround in strategy for Saudi Arabia.

 

However, my take is that we are far into the global economic cycle and from an analysis (and probably biases), I am bearish on the global economy and therefore, I find that the favorable supply side factors are not enough to balance (on a weighted probability basis), the potentially negative impact on demand from a global slowdown.

 

If you don’t have these macro concerns however, the speculative outlook looks positive.

 

BTW, saw a video this morning which, somehow, may be related.

From King Salman's Future Investment Initiative:

They want to "show the Planet how it's done".

When dreams become reality. ???

[JayGatsby]

If you don’t have these macro concerns however, the speculative outlook looks positive.

Is demand really that elastic?  Looking at this chart (http://www.indexmundi.com/energy/), demand went from 86.2mbpd in 07 to 84.5mbpd in 09. Before that there really weren't any noticeable dips since 1983.

[sculpin]

Could be panic buying into this sector over next few months. Pretty much everyone (retail, pension, public funds, hedgies ) way way underweight energy with mainstream mantra of conventional hydrocarbons going to be cheap forever and EV's, solar, wind going to solve all of our problems.

http://www.gorozen.com/static/assets/pdf/ql/GRAQuarterlyLetter3Q2017.pdf

 

But now another important point has emerged in our oil bull market journey that must be highlighted. As demonstrated by the energy analyst Mike Bodell on Chart 2, the inventories have now drawn down to critical points where further inventory reductions will result in severe upward price pressure. As you can easily see from our modeling, we have marked where inventories will stand by both year end and by the first quarter of 2018. If our inventory extrapolation is correct and inventories reach these levels (and they should—our modeling has been correct over the past nine months), then prices have historically surpassed $100 per barrel.

[Uccmal]

Many moving variables.

 

Following on a link with PetroChina.

 

Helpful sometimes to look back and to see “patterns” in this cyclical game that has a speculative twist to it.

 

Market conditions now are, in many ways, similar to the 2002-3 period, when Mr. Buffett bought into PetroChina.

 

Here’s a link that exposes an interesting perpective on the elasticity of supply:

 

http://euanmearns.com/oil-price-scenario-for-2017/

 

My take is that the elasticity of supply looks quite favorable in the next few months especially if you factor in the impact of OPEC trying not to flood the market until the Aramco IPO gets underway.

 

Here’s another retrospective link:

 

http://www.fticonsulting.com/~/media/Files/emea--files/insights/reports/fti-oil-price-drivers-report.pdf

 

It’s relevant because I find the report is well researched and well done. Interestingly, as of June 2016, the author did predict higher prices despite not factoring in a high likelihood of a turnaround in strategy for Saudi Arabia.

 

However, my take is that we are far into the global economic cycle and from an analysis (and probably biases), I am bearish on the global economy and therefore, I find that the favorable supply side factors are not enough to balance (on a weighted probability basis), the potentially negative impact on demand from a global slowdown.

 

If you don’t have these macro concerns however, the speculative outlook looks positive.

 

BTW, saw a video this morning which, somehow, may be related.

From King Salman's Future Investment Initiative:

They want to "show the Planet how it's done".

When dreams become reality. ???

 

Re: recession risk.  I think the risk of recession will be become much greater as the oil prices rise.  Looking back in history, most major recessions followed oil price spikes.  Jeremy Grantham wrote a dissertation on this a couple of years ago blaming the 2008 crash at least partly on the high oil prices leading up.  It just makes sense that the largest input into world manufacturing and consumption would have an outsize effect in the economy. 

[SharperDingaan]

Could be panic buying into this sector over next few months. Pretty much everyone (retail, pension, public funds, hedgies ) way way underweight energy with mainstream mantra of conventional hydrocarbons going to be cheap forever and EV's, solar, wind going to solve all of our problems.

http://www.gorozen.com/static/assets/pdf/ql/GRAQuarterlyLetter3Q2017.pdf

 

But now another important point has emerged in our oil bull market journey that must be highlighted. As demonstrated by the energy analyst Mike Bodell on Chart 2, the inventories have now drawn down to critical points where further inventory reductions will result in severe upward price pressure. As you can easily see from our modeling, we have marked where inventories will stand by both year end and by the first quarter of 2018. If our inventory extrapolation is correct and inventories reach these levels (and they should—our modeling has been correct over the past nine months), then prices have historically surpassed $100 per barrel.

 

This is a very good report, thank's for posting. Couple of add-on's.

 

The level 2 targets will all use longer shot lengths (up to 5 miles in some cases) to make up for the depletion on the level 1 bores. You don't just need 2 (or more) rigs, they are also drilling for a longer distance & taking more time to drill - for a higher total cost. The best level 2 targets will also drill first, boosting production more than expected.

 

A good many of the big GLOBAL fields have ALSO peaked - it isn't JUST lower than anticipated US production. Part of the rising Brent -WTI spread is because the North Sea (& connecting pipes) just does not have the 'on-line' production anymore. Sucking on US inventory harder, for longer.

 

Alberta Syncrude also locks up tighter - the higher WTI goes, as its the last fill in the pipe. Absent Venezuela, & US refiners are going to have to pay enough rail freight to displace other fills in the pipe. Cost pushes AS WELL AS supply pushes. 

 

All good, but PLEASE don't tell anybody  ;)

 

SD     

 

[Cigarbutt]

"Is demand really that elastic?  Looking at this chart (http://www.indexmundi.com/energy/), demand went from 86.2mbpd in 07 to 84.5mbpd in 09. Before that there really weren't any noticeable dips since 1983."

 

That's exactly the point. The demand for oil is quite inelastic (vertical line). Small changes in demand will cause a relatively large change in price. Combine that with sentiment and you get the price curve in 2007-9. Perhaps the interesting part is that you get the opposite effect with only slightly higher demand (especially if unexpected).

 

A practical application of this. I don't know if this happens in your area but sometimes, in my area, with higher gas prices, there are attempts to "boycott" gas stations on a particular day only to see line-ups the next day. ::)

 

As far as the Goehring & Rozencwajg Associates, I understand that they find that present conditions are similar to the 2005-6 period which I find interesting. I would find them even more convinving if they were able to predict or least protect themselves from the 2014-6 price decline.

 

[Cigarbutt]

"Re: recession risk.  I think the risk of recession will be become much greater as the oil prices rise.  Looking back in history, most major recessions followed oil price spikes.  Jeremy Grantham wrote a dissertation on this a couple of years ago blaming the 2008 crash at least partly on the high oil prices leading up.   It just makes sense that the largest input into world manufacturing and consumption would have an outsize effect in the economy."

 

Who knows what will happen?

I certainly don't.

 

But, if you compare the global economy to a boxing match, I figure that we are in the late rounds and it might not take a big punch.

Have you seen the tight correlation of the oil and food price index?

Looking for substitution may not be limited to extractable ressources.

May we all do well.

 

 

[JayGatsby]

"Is demand really that elastic?  Looking at this chart (http://www.indexmundi.com/energy/), demand went from 86.2mbpd in 07 to 84.5mbpd in 09. Before that there really weren't any noticeable dips since 1983."

 

That's exactly the point. The demand for oil is quite inelastic (vertical line). Small changes in demand will cause a relatively large change in price. Combine that with sentiment and you get the price curve in 2007-9. Perhaps the interesting part is that you get the opposite effect with only slightly higher demand (especially if unexpected).

Fair point.. overall differences being discussed between supply and demand are pretty small, so even a 2mbpd difference could easily swing it the other direction.

 

As far as the Goehring & Rozencwajg Associates, I understand that they find that present conditions are similar to the 2005-6 period which I find interesting. I would find them even more convinving if they were able to predict or least protect themselves from the 2014-6 price decline.

Fair point as well. I can't read this whole article but doesn't look like they fared well: https://www.bloomberg.com/news/articles/2016-02-10/chilton-said-to-close-commodity-hedge-fund-as-manager-retires

 

Surprisingly I've heard of very few who were betting against oil in 2014. Looking back it seems like such an obvious trade, but I guess that's true of a lot of investments.

[tombgrt]

https://www.bloomberg.com/news/articles/2017-11-01/fracking-boom-hits-midlife-crisis-as-investors-geologists-see-shale-limits

 

Piece on sustainability of US oil output.

[SharperDingaan]

https://www.bloomberg.com/news/articles/2017-11-01/fracking-boom-hits-midlife-crisis-as-investors-geologists-see-shale-limits

 

Piece on sustainability of US oil output.

 

Interesting tidbit on the gas. Explains why crude stocks are drawing down - & gas prices are both gradually falling, & expected to remain low for quite some time. The gas is landlocked, storage is full, & old shale wells are getting shut-in as additional storage. In times past the gas would have been flared.   

 

SD

 

[SafetyinNumbers]

https://www.bloomberg.com/news/articles/2017-11-01/fracking-boom-hits-midlife-crisis-as-investors-geologists-see-shale-limits

 

Piece on sustainability of US oil output.

 

Interesting tidbit on the gas. Explains why crude stocks are drawing down - & gas prices are both gradually falling, & expected to remain low for quite some time. The gas is landlocked, storage is full, & old shale wells are getting shut-in as additional storage. In times past the gas would have been flared.   

 

SD

 

Natural gas storage is actually below the 5 year average and well below last year and of course LNG exports is an option so gas isn’t landlocked any more. There is definitely a view (and it may be correct) that it is very easy to turn on more gas production in response to price improvement.

[JayGatsby]

Natural gas storage is actually below the 5 year average and well below last year and of course LNG exports is an option so gas isn’t landlocked any more. There is definitely a view (and it may be correct) that it is very easy to turn on more gas production in response to price improvement.

$9/mmbtu in China: http://www.reuters.com/article/us-china-lng/as-china-faces-winter-gas-crunch-lng-prices-soar-idUSKBN1D30EH?rpc=401&

 

Good spread in there for somebody. Think I read somewhere that the cost to liquify/transport is ~$1.50/mmbtu on average.

 

My biggest oil holding (HNZ Group) announced a sale to the CEO (Canadian assets) and PHI (South Pacific assets). Nice IRR, but lowball offer in my opinion. They're buying the company basically for asset value right as a few contracts are starting to ramp up and the oil market is clearly turning. Last quarter was better than it looked because they had start-up costs for these big contracts. Canadian ownership laws for these types of companies make the competition pretty limited. Time to find the next one..

 

[Joe689]

And just like that, the narrative seems to be changing.    If oil stock declines keep up, the new narrative could be here to stay. 

 

And we got the big OPEC meeting end of November.  Seems like market is betting on extending throughout 2018. 

 

It started over a year ago, but there is a good chance that a multi year oil bull run is upon us. 

 

Macro-wise, this could really support the global market rally for more years to come...

 

 

 

 

[Paarslaars]

For a while, then recession.  :D

[Joe689]

Well something is up....  really large move.   

[Cardboard]

Venezuela default, turmoil inside Saudi Arabia with multiple high profile arrests, Saudi Arabia accusing Iran of helping the Houthis launch a ballistic missile towards Riyad's airport that was intercepted and then improving oil fundamentals...

 

So actually, lots of things are up  ;D

 

Cardboard

[HJ]

I got interested in the disconnect between the Canadian E&P's and oil price recently.  But 1) there seem to be so many different Canadian companies to look through, that it's such a big exercise to compare one vs. another, and 2) How does one think through the take away constrains now that some of contemplated pipelines got canceled?  Are there publicly available resources / discussions that people care to share?

 

Thank you.

[Joe689]

I got interested in the disconnect between the Canadian E&P's and oil price recently.  But 1) there seem to be so many different Canadian companies to look through, that it's such a big exercise to compare one vs. another, and 2) How does one think through the take away constrains now that some of contemplated pipelines got canceled?  Are there publicly available resources / discussions that people care to share?

 

Thank you.

 

 

 

[Uccmal]

I got interested in the disconnect between the Canadian E&P's and oil price recently.  But 1) there seem to be so many different Canadian companies to look through, that it's such a big exercise to compare one vs. another, and 2) How does one think through the take away constrains now that some of contemplated pipelines got canceled?  Are there publicly available resources / discussions that people care to share?

 

Thank you.

 

1) Yes, alot of companies. 

2) Doesn't matter to incumbent oil producers.  There is plenty of pipe, and if that doesn't work rail can be used. 

 

Read PWE thread, this thread, Foresight Energy.  There are tons of links. 

 

I have been at this for three years reading every day, on top of having previously invested years ago in O&G.  So have Cardboard, SD, Sculpin, and a few others. 

 

Maybe a bit late to the game. 

[SharperDingaan]

You might want to read some of the posts on the IV 'energy' thread, particularly those from the Lebanese community.

 

It is highly likely that the KSA's MBS Project has begun encountering opposition, and that it is entering some of its more persuasive phases. It is also unlikely that Saturdays rocket attack was a coincidence - and there will be consequences. As has been recently reported, some of the KSA helicopters seem to have an unhealthy habit of suddenly falling out of the air.

 

There are also a lot of empty tankers currently in the LOOP, looking for a fill-up. Trump is selling weapons for oil in Asia, the clock is ticking on NK (2018 Winter Olympics), and at a average 2M bbl a pop - the draws could be significant over the next few weeks.

 

..... Buy a tanker of US crude, in return for 2-3 Patriot missile systems?

 

All of it good for price.

 

SD           

[tombgrt]

I'm having mixed feelings. Fully stocked on oil stocks (well, GXE mainly) but these kind of moves feel very unnatural after getting used to seeing such low oil prices. Sentiment has completely shifted in a matter of two weeks, very odd. You'll see that this post coincides with the medium term top! ;)

 

I did add some GXE even today (after it was already up 4%) as expected CF just rose circa 10% based on current prices (which is of course premature!). Hard to buy though... Valuation gap stays as wide as it was weeks ago at $0.70.