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

[StevieV]

Interesting that Crescent Point and Whitecap both reported oil realized prices of ~ 63 and 64 respectively.  Thats CDn.

 

That's for Q4 2017 right?  WTI prices in Q4 were improving, but not necessarily that great, particularly earlier in Q4.  Looks to me as though 64/63 CAD is a high single digit discount to WTI.  A little bit higher than I would have thought for the companies, but nothing like WCS pricing.

[Joe689]

WTI averaged around $55 USD so around $70 CAD in Q4. 

WTI to WCS differential averaged $12 in Q4

 

 

So they realized only half of the diff.    But a lot of variables here.

 

Hedge book, individual line apportionments, did they get access to rail?, blending opportunieis,etc....

 

I think the daily print of the differential represents the worse of the worse because it is a spot price.  If I need oil asap, between getting it to you without any commitments will cost X

 

[Cardboard]

https://www.chron.com/business/energy/article/Houston-s-economy-oil-industry-could-get-hit-12723259.php?utm_campaign=twitter-mobile&utm_source=CMS%20Sharing%20Button&utm_medium=social

 

Proposed steel tariffs or an increase of 25% increase the cost per well by $175,000 based on the numbers from this article. It is about 6% assuming a well that costs $3 million to drill, complete and tie-in.

 

However, you also need to add increase to the cost of pipeline collectors, on-site tanks, gas processing facilities, etc. Newer well design also include much longer laterals than the ones drilled just a year or two ago. So, I think it is fair to say that the cost to look for energy in the U.S. could be going up by approximately 10%.

 

Cardboard

[Cardboard]

Interesting that the B.C. hippies did not succeed in blocking Canada's first liquefied petroleum gas (propane/butane) export terminal but, continue to derail LNG facilities and oil pipelines.

 

https://www.altagas.ca/sites/default/files/2018-01/TD%20London%20Investor%20Presentation_FINAL.pdf

 

It is a good report highlighting some key advantages that Canada has to ship energy to Asia.

 

Cardboard

[sculpin]

Interesting that Crescent Point and Whitecap both reported oil realized prices of ~ 63 and 64 respectively.  Thats CDn.

 

That's for Q4 2017 right?  WTI prices in Q4 were improving, but not necessarily that great, particularly earlier in Q4.  Looks to me as though 64/63 CAD is a high single digit discount to WTI.  A little bit higher than I would have thought for the companies, but nothing like WCS pricing.

 

Here are recent prices. WCS now over $47 but still a big discount. Edmonton sweet & Synthetic showing good pricing of $73.62 and $81 Cdn respectively. Another high point is the price of Condensate in Canada which is going for almost $82 Cdn (great for those with substantial Condy production like Paramount (POU) and Delphi (DEE). Also good for many of the Cardium players who produce amounts of Condensate in their NGL streams. The doomsday media coverage of all Cdn production receiving huge discounts has really been fake news.

 

| Average

3/2/18 | 3/2/17 17/18 Price

Crude Oil Close Change | Close Change YTD

—————- ———— ————– ———— ————–

Synthetic Crude (C$/bbl) 80.96 68 ¢ | 71.08 9.88 78.98

Edmonton Mixed Sweet (C$/bbl) 73.62 78 ¢ | 66.00 7.62 70.93

Western Canada Select (C$/bbl) 47.66 1.08 | 51.41 -3.75 45.90

Edmonton Condensate (C$/bbl) 81.74 56 ¢ | 71.01 10.73 78.49

Differential (WTI/WCS) (C$/bbl) 31.24 -47 ¢ | 19.00 12.24 32.86

Differential (WTI/Synthetic) (C$/bbl) -2.06 -7 ¢ | -0.67 -1.39 1.58

|

WTI Cushing Spot (US$/bbl) 61.25 26 ¢ | 52.61 8.64 62.91

Nymex WTI Apr18 (US$/bbl) 61.25 26 ¢ | 52.61 8.64 62.90

Nymex WTI 12 Month Strip (US$/bbl) 59.16 40 ¢ | 53.78 5.38 60.98

Nymex WTI 2019 Strip (US$/bbl) 55.93 41 ¢ | 54.03 1.90 57.19

ICE Brent May18 (US$/bbl) 64.37 54 ¢ | 55.08 9.29 67.36

 

While the information contained in this document was obtained from sources believed to be reliable, GMP FirstEnergy and Petroleum Services Association of Canada do not guarantee its accuracy and completeness.

 

GMP FirstEnergy Logo PSAC Logo

© GMP FirstEnergy, © Petroleum Services Association

A division of GMP Securities L.P. of Canada

1100-311 6th Avenue SW 1150-734 7th Avenue SW

Calgary, Alberta, Canada T2P 3H2 Calgary, Alberta, Canada, T2P 3P8

403-262-0600 403-264-4195

 

 

 

 

[SharperDingaan]

Re gas: Keep in mind that a shale well primarily depletes because of a rising gas cut that is by-product; & we're drowning in gas.

Re CPG & WCP. They reflect the norm for light oil producers, and the diff is about the cost of rail shipment.

 

SD

 

[Cardboard]

U.S. rig count looking for oil -4. Don't expect to find such news in the MSM;

 

http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

 

Devon among many other players is planning for more cash to return to shareholders. Less money for capex has a direct effect on U.S. production growth. With more discipline, only the best wells are drilled which also reduces overall output. Their share price was well rewarded yesterday for such "new" behaviour:

 

https://www.barrons.com/articles/devon-energy-hikes-its-dividend-1520538516?mod=yahoobarrons&ru=yahoo&yptr=yahoo

 

There has been a mine failure at the Aurora site owned by Syncrude/Suncor. This should result in over 100,000 bls/d being curtailed for a month. This by the way exceeds the current restriction of just over 60,000 bls/d on Transcanada Keystone and should provide a boost to WCS. By the time it restarts, more railcars should be moving, Keystone should move back up and is badly needed as Cushing is being emptied out fast:

 

 

Cardboard

[Joe689]

Move along.....

 

I do not get it either. 

 

I am not a big fan of this guy but he sums it up:

 

http://www.ninepoint.com/commentary/commentaries/032018/energy-strategy-032018/

[tombgrt]

. The big boogeyman in the room, US shale, will not grow as quickly as people believe and will be limited to ~1.2MM Bbl/d. This is due to an incredibly important and yet still under appreciated shift in management mindset (and incentive plans with 60%-70% of companies adopting returns based incentive plan in 2018, up from 10% in 2015) to generating acceptable economic rates of return versus absolute production growth (aka “growth for growth’s sake”). In addition, infrastructure, labour, and equipment shortages all are acting as further anchors to growth potential."

 

Anyone actually stating these shortages claims with actual numbers? I would like to believe it but production growth shows otherwise so far.

[sculpin]

https://seekingalpha.com/article/4156080-last-time-energy-stocks-underperformed-bad-went-multi-year-bull-market

 

In a tweet storm from Warren Pies, Energy Strategist at Ned Davis Research, he went to show in a few slide decks of just how bad the underperformance has been and when this level of underperformance took place last time.

 

According to Warren, energy sector's public share of total public equity is now down to 5%, which is lower than where it was in early 2016 when WTI was at $26:

 

What followed the year after was the birth of a multi-year bull period for energy stocks. Of course, the backdrop of the oil market fundamentals need to remain bullish for energy stocks to keep performing, and long-time readers will know that our outlook on oil prices remain very bullish.

 

2003 – 24.81%

2004 – 30.93%

2005 – 40.53%

2006 – 18.21%

2007 – 34.69%

[Cardboard]

Whether you carry oil via railcar in the U.S. or in Canada, you have to go across the Rockies. This is much more risky in terms of spill and containment than any pipeline. Think about all the river crossings, falling rocks, etc. Insane!

 

https://www.bloomberg.com/news/articles/2018-03-14/canadian-crude-is-finding-a-new-way-to-asia-without-a-pipeline

 

Cardboard

[jeffmori7]

Hey Carboard, and others, here is a blog that you could find interesting about oil and its impact on the world economy: https://ourfiniteworld.com/2018/03/13/our-latest-oil-predicament/

[tombgrt]

Sorry, but that article is mostly crap in my opinion. A lot of non-essential trivia and silly conjecture.

[Uccmal]

Sorry, but that article is mostly crap in my opinion. A lot of non-essential trivia and silly conjecture.

 

I agree.  The writer has the cart before the horse.  High oil prices precede recessions, not the other way around.  Jeremy Grantham has gone as far as to say that the 2008 crisis was caused primarily by high oil prices.  Whether he is right or not the idea has some merit to it since oil and gas are the largest raw material inputs into industry. 

[SafetyinNumbers]

FWIW, WCS oil prices have rallied about 10% in the last two days not that you can tell from the prices of stocks most heavily linked to it!

 

http://www.psac.ca/business/GMPFirstEnergy/

[nkp007]

Apparently the only strategy is to buy a basket of these cheap players (U.S. frackers / Canadian oil companies) and don't look at the prices for a few months.

 

The volatility is hilarious.

[tombgrt]

Today is fun but lately you have to be either a stoic or massochist to stay sane as an energy investor...

[Matson125]

Today is fun but lately you have to be either a stoic or massochist to stay sane as an energy investor...

 

Or, to take a page from Munger... a one legged man in an ass kicking contest :)

[Uccmal]

Today is fun but lately you have to be either a stoic or massochist to stay sane as an energy investor...

 

Or, to take a page from Munger... a one legged man in an ass kicking contest :)

 

Yep

[LR1400]

Or don’t look at them for years!!!!

 

I did this side pool of energy buys (so they don’t really affect my real results :)) and it has been terrible watching this languish now for so long.

 

I saw something interesting today where many energy stocks are still priced at a level when oil was roughly $30. Big lag and possibly a time to buy but I’m not sure I have the stomach to add to these things.

 

I really like Boone Pickens and just listened to an interview where he said I’ve almost always been right on direction but my timing is off... no shit. I remember when he said oil would be over $80 by the end of 2015......

[Joe689]

Last call should be approaching.  If oil equities do not respond by Summer time, then we surely have been had, and investing in oil related names is dead.

 

Shoulder season is almost over and we had minimal builds.  Now more draws are approaching.  All Permian production gains thus far have been consumed by demand.    Tech and Tesla finally showing weakness and I hope fundamentals will come back into picture.

 

Giving it four more months!  Reduced my averages for the last time. 

[JayGatsby]

Weird thread.. If the equities have been mispriced, they've been mispriced for some time now, so why would they adjust now? If the cash flows over the next 10 years are better than the market is pricing in it should correct over that time period.

[jmp8822]

Weird thread.. If the equities have been mispriced, they've been mispriced for some time now, so why would they adjust now? If the cash flows over the next 10 years are better than the market is pricing in it should correct over that time period.

 

Oil exploration equities are mispriced because the market has made incorrect assumptions, founded in recency bias.  We had a 'glut' of oil storage the last couple of years.  Shale oil created the glut of inventory. Shale oil production is rising. Therefore, the oil price will not go up, and oil equities should not rise.

 

But, that doesn't cover everything. What did I leave out?  Crude oil inventories have dropped at record rates in the last 12 months, DESPITE shale oil production rising rapidly. This creates the opposite of a 'glut' -  some might call it a 'shortage'. Translation: Daily oil demand is higher than daily oil supply currently.  The oil price increases ($80-$90-$100 per barrel) coming this summer/fall should drive revaluation of oil equities.

[Cardboard]

I don't know if we will see much higher oil prices and I did not think it was necessary for the thesis to play out but, maybe that I am wrong.

 

I did believe for quite a while that $60-$65 WTI, and a similar price for Brent, would be sufficient to balance the market: end of OPEC/non-OPEC cuts next year, continued growth in U.S. shale supply at that price, continued global demand growth and inventories having returned to normal.

 

The math seems to add up. Looking further out, the picture is not as clear with a majority of long lead projects having been cancelled, growth in hybrids/EV's, solar, better efficiency, continued demand for plastics, asphalt, global population growth and wealth etc. However, it seems that $60-$65 long term is not a crazy assumption either.

 

Although, when one looks at some of these companies trading for 2 to 4 times EV/DACF, you have to wonder what the market is telling you? Almost indicating like current price is peak price and bound to return to $50 or even below. A coming recession? Then why is the market so rational with oil equities but, completely irrational with almost anything else?

 

Natural gas is also acting very bizarre. You have U.S. storage sitting currently 33% below last year level and 20% below the 5 year average. This should indicate tightness in the marketplace. You also have very large growth of U.S. LNG exports between now and the end of 2019. Yet, not only is AECO spot down 20% in price from last year but, Henry Hub is also down 7% and NYMEX is down 15%. Again what is going on?

 

I won't get into it but, supply and demand fundamentals for uranium appear excellent and it is non-CO2 producing. Yet the price is also down the toilet.

 

So getting back to oil, it seems to me that simply the realization that today's prices should extend 2-3 years from now simply to maintain some form of equilibrium should be sufficient for these undervalued equities to about double. What will be the catalyst? I don't know. However, it is pretty obvious that there is a general disgust for these equities and commodities in general.

 

Cardboard

[SharperDingaan]

Oil/gas is in a bubble that nobody wants to pop.

We've also seen this kind of thing multiple times before, most recently in the 'Big Short', and know that it is not unusual. However, even with a thumb on the scale, the scale is becoming progressively more unbalanced as we go through time.

 

We're essentially betting on a failure to maintain the illusion; the longer it goes & the more complex it becomes, the better our odds.

Spin the chamber enough times, & eventually it WILL land on the bullet.

 

SD