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

[SafetyinNumbers]

I really hope that they win because when a company is willing to pay 15% interest on 4 year notes to drill mostly for gas at Wheatland to honour a commitment to a royalty company, it is pretty screwed up.

 

If at least they were running a tight ship, the situation could be explainable but, that is not the case. While G&A has somewhat improved it remains too high vs peers.

 

There is value in this company but, I am really unclear on the leadership to make it surface.

 

Cardboard

 

The debt structure is interesting because it is a blended rate of 8.2% but the structure incentivizes having more debt on the balance sheet. Perhaps it's worth having funding security as opposed to having to go back to the banks every 6 months.

 

You are right about management though. I just don't understand why they don't market the Utica Shale opportunity and the NAFTA lawsuit. Just the optionality on those events incorporated into valuation would reduce the cost of capital significantly. One only has to look at Questerre to see what promotion can do for valuation.

 

That being said, I have to think if they are allowed to drill in Quebec, a buyer will show up and put the management team out of its misery.

[LC]

Interesting article

 

https://www.scientificamerican.com/article/drilling-reawakens-sleeping-faults-in-texas-leads-to-earthquakes/

[Cardboard]

Despite the stupid talk that we have heard over the past 2 weeks that Russia would not join into a 9 month extension, that is exactly what they did:

 

https://finance.yahoo.com/news/opec-allies-set-agree-oil-074724500.html

 

Another very large recent move in the energy world is Cameco cutting worldwide uranium mine supply by roughly 10%:

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCCO-2527905&symbol=CCO&region=C

 

Cardboard

 

 

[SafetyinNumbers]

Despite the stupid talk that we have heard over the past 2 weeks that Russia would not join into a 9 month extension, that is exactly what they did:

 

https://finance.yahoo.com/news/opec-allies-set-agree-oil-074724500.html

 

Another very large recent move in the energy world is Cameco cutting worldwide uranium mine supply by roughly 10%:

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCCO-2527905&symbol=CCO&region=C

 

Cardboard

 

Any thoughts on Uranium exposure? I own EFR.DB which is a convertible piece of paper with an 8.5% coupon trading at par. While EFR is still losing money, the debt is small compared to the market cap and it has tons of leverage to the uranium price if it moves. I think the debt protects me from more dilution in the equity. I also bought a little CCO post the announcement.

[Cardboard]

I have not researched the uranium companies recently. From past research, there are very few companies with operational mines worth investing in with CCO being the main player.

 

U or Uranium Participation Corp. is an interesting alternative to gain exposure as they are basically a closed end fund holding uranium inventory trading at a discount to NAV.

 

While you would have no leverage to a rising uranium price, at least you would be more or less guaranteed to have a 1:1 correlation which is often not the case with companies where leverage is often killed by managers stupidity.

 

Since Fukushima in 2011, uranium has been in a bear market. Interestingly, most commodities have seen the same so it does not appear totally related to the incident. There has been very large divestments from large funds of all things related to commodities. You no longer hear about them being an alternative investment, hedge or all the reasons stated for owning them prior.

 

Specifically to uranium, you have Japan restarting its reactors, China adding roughly 30 gW by end of 2020 from today or a double in capacity, India adding some and the supply from disarmement is no more.

 

I own nothing in that area yet but, definitely looking.

 

Cardboard

[Cigarbutt]

Here is an article and a relevant study questioning conventional wisdom of shale "sweet spots" economics.

The cost curve may need some adjustments (up).

 

https://mrtopstep.com/crude-all-fracked-up/

https://erlweb.mit.edu/sites/default/files/23%20Justin%20Montgomery.pdf

 

"If it ever gets cold, you better watch out, you better not cry, you better get long, I’m telling you why..."

Santa Claus may be coming to town.

[Cardboard]

Another very positive EIA report again this morning if you are in the bull camp. Inventories of almost everything are down big time since last year and the trend does not seem to be stopping.

 

And it is certainly not being reversed by EIA arbitrarily indicating Lower 48 States production growth at 20,000 boe/d vs the week before! Almost always like that. Up 20,000 or 0... What a hunk of bs!

 

Unfortunately, if you have been investing in producers, you have likely not seen good returns this year unlike for the price of oil. I would think this should change over coming months if oil stays above $55 WTI and with the end of tax loss selling. On oil, here are some notes from a presentation by Pierre Andurand at the London Sohn conference who has been right on with his calls, including the crash:

 

http://www.marketfolly.com/2017/12/pierre-andurands-presentation-on-oil.html

 

Someone was asking previously about Canadian producers more oriented towards natural gas. I believe that the situation will change with TransAlta's plan to convert its coal-fired power plants to natural gas and eventually this should get reflected at least in future long term prices:

 

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aTA-2542466&symbol=TA&region=C

 

Cardboard

 

[tombgrt]

http://www.petroleum-economist.com/articles/markets/outlook/2017/oil-the-price-is-not-right

 

Good analysis.

[SharperDingaan]

http://www.petroleum-economist.com/articles/markets/outlook/2017/oil-the-price-is-not-right

 

Good analysis.

 

We find it useful to look at the US housing collapse of the mid 2000's, & ask 'why could insiders not see the danger of the widespread securitization of high ratio teaser rate, non-recourse mortgage loans?' We know today, that insiders DID see the dangers; but did little about it - because the money was too good to 'look the other way'. It created a 'bubble', and so long as nobody popped it - there was no reason for the party not to continue.

 

We look at oil/gas today, and can't tell the difference.

Hard to believe that insiders cannot see the developing imbalance, and easy to imagine that the money 'to ignore it' is very good.

More for the astute.

 

SD

 

 

 

 

[SafetyinNumbers]

I really hope that they win because when a company is willing to pay 15% interest on 4 year notes to drill mostly for gas at Wheatland to honour a commitment to a royalty company, it is pretty screwed up.

 

If at least they were running a tight ship, the situation could be explainable but, that is not the case. While G&A has somewhat improved it remains too high vs peers.

 

There is value in this company but, I am really unclear on the leadership to make it surface.

 

Cardboard

 

The debt structure is interesting because it is a blended rate of 8.2% but the structure incentivizes having more debt on the balance sheet. Perhaps it's worth having funding security as opposed to having to go back to the banks every 6 months.

 

You are right about management though. I just don't understand why they don't market the Utica Shale opportunity and the NAFTA lawsuit. Just the optionality on those events incorporated into valuation would reduce the cost of capital significantly. One only has to look at Questerre to see what promotion can do for valuation.

 

That being said, I have to think if they are allowed to drill in Quebec, a buyer will show up and put the management team out of its misery.

 

Article from Sunday. Sounds very constructive on Quebec prospects. QEC.TO and ATI.TO reacted well to the report but PPR.TO did nothing. Perhaps, the last days of tax loss selling. I imagine most tax loss selling will be done this week.

 

http://www.lapresse.ca/actualites/politique/politique-quebecoise/201712/17/01-5147453-les-hydrocarbures-seront-exploites-assure-le-ministre-moreau.php

[tombgrt]

:'(Stockpile dropping nicely.

 

Bought some MCF yesterday at average of $3.50. It's better to be lucky than good. Also picked up some PPR.TO recently.

 

[jimjam]

It appears that the Chicago Mercantile Exchange is tightening the spec for delivery quality and that this might exclude some previously allowed blends (for example those involving Canadian heavy, according to the twitter replies):

 

 

I wonder if anyone here might be able to clarify whether this is a material change or not for WCS? Who wins? Who loses?

 

Thanks

[JayGatsby]

Been doing a lot of research on HWO, Canadian listed driller that mostly operates in Papua New Guinea. Think that creates an interesting dynamic. PNG story is really strong, although there's been some civil unrest related to the LNG exports.

[Cardboard]

I really like HWO here at this price: over 5% yield well covered, no net debt, profitable, cheap. It does not seem to have multi-bagger upside potential but, risk seems quite low.

 

PNG has become a steady operation with continued renewal contracts while Canada is going to be the growth engine in coming years IMO.

 

Cardboard

[Cardboard]

http://www.worldoil.com/magazine/2017/december-2017/features/permian-producers-push-the-envelope-for-output-growth-in-2018

 

This is a very good, balanced article. You can interpret it many ways.

 

My sense looking at the recent U.S. rig count trend and reading multiple Q3 financial reports is that the low hanging fruits have already been harvested in the U.S. and production growth will lag expectations. The oil price has risen but, the rig count is not responding and completion costs are going up. We went from the high $40's to the high $50's on WTI without a corresponding rush in drilling.

 

Investors are also demanding profitability now instead of just growth in production, so this will mean continued harvest of best plays with discipline on IRR.

 

Cardboard

 

 

[JayGatsby]

You may have seen this (may have even been posted here before), but it would support your thesis... interesting regardless: https://www.wsj.com/articles/investors-question-oil-output-in-permian-basin-americas-fastest-growing-field-1502325779

 

Most wells produce natural gas as a byproduct alongside oil, and that gas output tends to rise over time. That is because as a reservoir is depleted, its pressure drops and gas vapors separate from liquid—reaching the “bubble point” at which natural-gas production accelerates.

 

Pioneer last week indicated that some of its Permian wells are reaching this point sooner than it anticipated.

 

“Why everyone’s so concerned is that it could mean at some point in the future, that oil declines are steeper than what company and the investment community thought they would be,” said Ben Shattuck, research director at consultancy Wood Mackenzie. “It raised that big question mark.”

 

The "demanding profitability" thing I find pretty funny... the financials of these companies have shown cash burn for years. Einhorn gave his presentation on Pioneer in 2015. Not sure why they expected different at today's oil prices?

[sculpin]

Sleepwalking toward crisis.....

 

"More worrisome, Passos said, is 2017 discoveries are on pace to replace just 11 percent of the world's production this year."

 

 

Oil discoveries hit lowest point in 70 years

 

Supply shortages and increasing prices may be awaiting as companies spend less on exploration amid the shale revolution

By David HunnDecember 25, 2017 Updated: December 25, 2017 10:32pm

 

Major oil discoveries have fallen to their lowest levels in more than seven decades, as drillers across the world wrestle with stubbornly low prices and the tantalizing draw of quick returns in U.S. shale fields.

 

Global oil companies are projected to end 2017 with discoveries totaling just 7 billion barrels of oil and gas - less than one-quarter of the 30 billion barrels identified in 2012, according to Norwegian research firm Rystad Energy. That falloff eventually could translate into supply shortages and sharply rising prices as global demand diminishes existing reserves.

 

"We haven't seen anything like this since the 1940s," senior Rystad analyst Sonia Mladá Passos said in a report. "We have to face the fact that the low discovered volumes on a global level represent a serious threat to the supply levels some 10 years down the road."

 

Exploration budgets - the cash oil companies spend on finding new fields - have fallen for three consecutive years, Rystad said, dropping by more 60 percent in total. And the shale revolution has further diverted company spending from offshore and conventional exploration to U.S. fields, where hydraulic fracturing unleashed vast and previously unknown oil reserves.

But shale production won't come anywhere close to providing enough oil to satiate the world's growing appetite, rising toward 100 million barrels per day. Energy research firm IHS Markit estimates shale fields account for just 7 percent of global production.

World oil discoveries began falling in 2010, Rystad said. In 2012, companies found fields holding an estimated 30 billion barrels of oil and gas. By 2014, that number had fallen by half, to 15 billion barrels; last year it halved again, to 8 billion barrels.

. More worrisome, Passos said, is 2017 discoveries are on pace to replace just 11 percent of the world's production this year. Average offshore discoveries held just 100 million barrels this year, compared with 150 million in 2012.

 

Oil prices began tumbling in June 2014, after several years of sustained drilling and fracking in U.S. shale fields helped produce a glut of oil. They kept falling into February 2016, bottoming out at about $26 a barrel. More than 300 oil, services and pipeline companies went bankrupt; nearly all cut spending steeply.

 

As prices have rebounded, production has become concentrated in the Permian Basin in West Texas, where companies could drill, frack and pump oil quickly and profitably, leading many to pull out of more expensive offshore and international positions.

 

Oil majors like California-based Chevron Corp. and independents such as Houston's Marathon Oil Corp. and Apache Corp., shifted their focus from offshore and international toward such shale fields. Chevron recently began a multibillion-dollar drilling campaign on 2 million acres in the Permian. Marathon sold its offshore portfolio in Norway to focus almost exclusively on shale. Apache expects to spend about two-thirds of its $3 billion capital budget this year in the Permian.

 

Still, analysts, executives and energy agencies have all warned that low levels of investment in exploration of conventional oil fields could lead supplies to run hundreds of thousands of barrels short by the end of the decade.

 

In 2015, the Houston energy investment bank Tudor, Pickering, Holt & Co. projected oil industry cost-cutting could take 19 million barrels of oil out of daily production in the years that followed. Last year, the consulting firm Deloitte reported that the industry is $2 trillion short on the cash it needs to replace the crude it is pumping today.

 

And in January, Paal Kibsgaard, chairman and CEO of the international oil services giant Schlumberger, said most countries outside the Persian Gulf are depleting their reserves without replacing the oil they produce.

 

Rystad noted a few major discoveries in 2017, including Exxon Mobil's 1-billion-barrel find off Guyana and Dallas-based Kosmos Energy's 15 trillion feet of natural gas in Senegal. In Mexico, the state-owned oil company Pemex discovered about 350 million barrels in the onshore Ixachi field, and Houston's Talos Energy found at least 1.4 billion barrels in the Gulf of Mexico.

 

The research firm said it doesn't expect any other large discoveries this year, but with U.S. crude stockpiles shrinking and oil prices approaching $60 a barrel, companies may be more inclined to increase exploration budgets soon.

 

http://www.houstonchronicle.com/business/article/Oil-discoveries-hit-lowest-point-in-70-years-12454783.php?utm_source=dlvr.it&utm_medium=twitter

 

[tombgrt]

:'(Stockpile dropping nicely.

 

Bought some MCF yesterday at average of $3.50. It's better to be lucky than good. Also picked up some PPR.TO recently.

 

And each day I say: "Too late to buy more now. I'll wait for a pullback."  ;D

[sbalsam]

Regarding High Arctic, anybody know why the CEO resigned so suddenly?

Steve

[sculpin]

Regarding High Arctic, anybody know why the CEO resigned so suddenly?

Steve

 

The rumour is he wanted to make an acquisition (could have been Essential Energy - ESN TSX). Might have been hostile and the Board did not allow him to move forward with it.

[JayGatsby]

Regarding High Arctic, anybody know why the CEO resigned so suddenly?

Steve

 

The rumour is he wanted to make an acquisition (could have been Essential Energy - ESN TSX). Might have been hostile and the Board did not allow him to move forward with it.

 

Which CEO was that? It's an odd pattern for sure. Tim Braun retired when they acquired Tervita. The other more recent CEOs were titled as interim. 

 

CEO:

Bruce Thiessen, 2008 - 2013

Dennis Sykora (interim), 2013-2014

Tim Braun, 2014-2016

Thomas Alford (interim CEO) 2016-2017

Michael Binnion (interim CEO). 2017

Cameron Bailey, 2017 - Present

 

CFO:

Morley Myden, 2008 - 2011

Robert Morin, 2011 - 2012

Dennis Sykora, 2012 - 2013

Ken Olson, 2013 - 2015

Brian Peters, 2015 - Present

 

Been some turnover in VP, Operations as well. Normally this would be a flag to me. What gives me some comfort is Cyrus Capital Partners has been invested since 2007 (converts), and invested more in 2012 and 2014. Although I don't know much about them, but they manage $4B of assets and co-founded Virgin America. The company has no debt and cash distributions from PNG (where cash is generated) are approved by the PNG government. Their customers are large oil companies (Oil Search Limited, Exxon, Total) . Long story short, I'm not sure what to make of it?

[sbalsam]

Thanks Sculpin.

 

JG - I was referring to Thomas Alford. While he was an interim rather than full-time CEO, he retired as both CEO and a director at the same time without the hiring of a full-time CEO which seemed unusual and sudden. And while he was an interim CEO, I thought he sounded pretty committed and involved based on the conference calls.

 

For what it is worth, I have owned shares through the round trip of the past couple of years and remain so today.

 

Steve

[Joe689]

So far this story/thread is coming to fruition and just day 1 of 2018 cuts.  The Russians and SA have showed a lot of resolve to accomplish a supply crunch.  Staying strong with some of my canadian oil names despite the increase in wcs/light discount as of late.  They appear to be the most undervalued.  Many well under book value...a book value that likely increase with some YE reports.

[sculpin]

The various pundits, media show boaters and strategists are turning bullish on energy after by and large being negative for several years. Probably one of the most under owned sectors in the market. Most of the Cdn energy stocks have a long way to move up.

Byron Wein...

 

Headline -  $80 oil and 9 other surprises that Byron Wien is bracing for in 2018

Link - https://www.marketwatch.com/story/80-oil-and-9-other-surprises-that-byron-wien-is-bracing-for-in-2018-2018-01-02

 

Key quote - "He also calls for West Texas Intermediate crude CLG8, +0.00% to top $80 a barrel due to continued world growth and unexpected demand from developing markets. On the production side, he expects shale production to disappoint, diminished inventories, discipline on output by the Organization of the Petroleum Exporting Countries, and only modest production rises by Russia, Nigeria, Venezuela, Iraq and Iran."

 

Also here is a link to the original press release on the Blackstone site:

 

https://www.blackstone.com/media/press-releases/byron-wien-announces-ten-surprises-for-2018

 

CNBC clown show turning positive....

 

https://www.cnbc.com/video/2018/01/02/cramer-shares-his-top-energy-stock-picks-as-oil-prices-rise.html

 

Nine Themes and Predictions 2018  (accuracy not guaranteed) from Acumen...

 

A new year, some more forecasts.  Stock picks to follow.

 

The oil market rebalances in 2018 and WTI tickles $70/bbl.  So are those who are calling for higher oil prices just inveterate bulls, stopped clocks or will this be the year?  The global economy is in a synchronized growth phase and as a result demand growth will be stronger than consensus estimates (1.3 mb/d), OPEC will take this the distance and grind stocks down the extra 100 mm bbl they need to get down to the 5 yr average level.  Moreover, new oil discoveries are at near all time lows with just under 7 b boe discovered in 2017 with the avg size of a new field falling by 33% to 100 mmboe.  In other words, US shale BETTER perform because the industry is not replacing production and hasn’t since 2012.  There will be a lot of heavy breathing around US shale growth and indeed it will grow again Y/Y.

 

But consider this:  the IEA serially underestimates demand and with nothing changing on the economic front – it may even be better in 2018 – it isn’t wild to think that demand will be 200 – 300k b/d HIGHER in 2018.    And on the supply side, IEA is most bullish on US shale growth at 1.1 mb/d.  It is also possible that this disappoints by 200 – 400k b/d.  Either of these scenarios results in a balanced market next year and that is without considering any other supply disappointments elsewhere (Venezuela, China, Brazil come to mind).

 

Oil stocks going higher will be the rally everyone will hate, doubt and pooh pooh because expectations of the Street and most investors are anchored around $50/bbl with recurring nightmares of $26/bbl still top of mind.  But if OPEC hits their goal of the 5 year average, oil will be $70/bbl.  As a result, the Canadian stock market will have a surprisingly good year.

 

[tombgrt]

Momentum is turning. Except for PPR.to of course. :D