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

[Cardboard]

http://money.cnn.com/2018/04/13/news/companies/gm-job-cuts/index.html

 

Cardboard

[jmp8822]

http://money.cnn.com/2018/04/13/news/companies/gm-job-cuts/index.html

 

Cardboard

 

I'd been thinking about this too.  The car companies always seem to be caught one step behind on SUV/compacts and oil prices.

[tombgrt]

https://www.zerohedge.com/news/2018-04-17/gartman-goes-short-oil

 

Contra King himself has spoken!

[tombgrt]

https://www.reuters.com/article/us-venezuela-oil-workers-insight/under-military-rule-venezuela-oil-workers-quit-in-a-stampede-idUSKBN1HO0H9?utm_medium=Social&utm_source=twitter

 

Implosion likely to speed up?

 

 

https://www.dropbox.com/s/o3im17ykb0me3lg/MS%20-%20US%20shale%20oil%20too%20light.pdf?dl=0

 

Shale discount troubles. Still mainly ignored by the market. My heavies should do great!

 

 

API:

 

Crude Inventories:

Crude: -1.047M

Gasoline: -2.473M

Distillates: -0.854M

Cushing: -1.015M

 

[Cardboard]

There is more:

 

https://finance.yahoo.com/news/chevron-says-two-employees-arrested-185657161.html

 

Then there is a growing discount for barrels produced in the Permian because shipping capacity out of there is not in place yet.

 

Cardboard

[tombgrt]

https://www.zerohedge.com/news/2018-04-17/gartman-goes-short-oil

 

Contra King himself has spoken!

 

Guess the fella got stopped out already...

 

 

[Cardboard]

Cannot happen to a nicer guy  ::)

 

https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-saudi-arabia-hopes-to-see-oil-rise-as-high-as-100-a-barrel-sources/

 

https://www.cnbc.com/2018/04/17/tehran-israel-will-be-punished-for-its-strike-on-iranian-drone-base.html

 

Cardboard

[tombgrt]

My CRC options are doing great. Almost didn't buy them because they are crazy expensive. 150% return in a month.

 

Hoping to shift some to ignored small caps at some point.

[Joe689]

Let the draws begin.  10M in oil products were drawn last week.

 

Wouldn't have guessed that the paper market would lead equities in the last year.  Expected equities would have lead expecting the the paper market increase coming.  Had I known, I would have started buying oil equities today or a few weeks ago.  You can get in on basement pricing with oil near 70 with summer driving approaching...

 

What is going to happen with this divergence between equity and oil?  People were thinking one or the other had to cave or jump.  Well oil is jumping, equities should catch up.

 

[Cardboard]

Now this:

 

https://www.cnbc.com/2018/04/18/libyas-most-powerful-military-leader-khalifa-haftar-might-be-dead.html

 

Cardboard

[LR1400]

I just read in a book from a trader that notes producers don’t always track the commodity and often will track the equity market itself. He was mainly referring to gas.

 

In our current situation we have seen neither.

 

Oil equities are largely low, lagging the market despite oil having gained and at least stabilized for the moment.

[sculpin]

"What’s coming around the corner for energy and energy prices will soon disrupt and then dictate the day’s conversation. What’s neglected will command attention and what’s forsaken will be coveted. The world has failed to invest in long-lead oil development projects and the repercussions of that collective failure is now playing out. We believe the coming energy shortage will result in one of the greatest challenges facing our global economy in the coming years, but also one of the greatest investment opportunities in our lifetimes, and as each day passes that conviction grows."

https://seekingalpha.com/article/4163884-open-square-fund-q1-2018-commentary-part-1-2

 

 

[Cigarbutt]

Thanks for the link. Excellent article and looking forward to part 2.

 

Just trying to get the full picture.

 

Recently read this:

 

http://www.sciencemag.org/news/2018/03/meet-vaclav-smil-man-who-has-quietly-shaped-how-world-thinks-about-energy

 

And re-watched this:

 

https://www.mcgill.ca/tised/public-events/past-events/energy-revolution-more-crawl

 

Mr. Smil is a very interesting character. I find him credible because he is data-driven, focuses on fundamentals , bridges well the basic sciences with practical applications,  does not seem to be tied to commercial entities and applies what he teaches.

 

Had my youngest daughter (5th grade) listen to parts of the video. See, I told her, not “everybody has a cell phone”.

 

What’s the point?

 

In the last 20 years, the increasingly visible mis-match between supply and demand has been resolved, temporarily , first, in 2007-9, during the Great Recession and second, when Saudi Arabia flooded the market to get rid of competitors which, in the end, were relatively more resilient than predicted. But, there we go again. What is the range of outcomes?

 

Long term, alternative forms of energy will significantly gain market share. Innovation can surprise but the fundamental factors that Mr. Smil describes tend to convincingly indicate that the transition period will be relatively long. It is also possible that Saudi Arabia/OPEC countries decide to compress social costs and flood the market again. Unlikely scenario for quite some time though, especially given the Aramco IPO venue. The discount factor has been a relative black swan but should eventually be resolved but it is a relative political black box.

 

Short term, the major residual problem I see is a potential cyclical decrease in demand. This has been such a long cycle and a very unusual one but the thing that I find disturbing is the fact that rising oil prices may be the factor that kills the goose that lays the golden eggs. This is a hard topic but it seems to me that rising oil prices has often been a major contributor in inducing or aggravating recessionary conditions.

 

http://www.macrotrends.net/1369/crude-oil-price-history-chart

 

There have been a few periods when rising prices didn’t seem to matter to the consumer or to the industry. From 2002 to 2006, when Mr. Buffett bought PetroChina, prices went up a lot without any obvious consequences. In 2007-8, rising oil prices was not a major causative factor but many have argued with quite reasonable evidence that it had a compounding effect (see James D. Hamilton’s work). Perhaps one way to evaluate the potential impact is to assess the financial shape of the consumer and to remember that oil prices increasing at the gas station is characterized by short-run inelasticity and tend to bite with a lag, only after a few quarters. Things which I’m looking at now are:

 

-% of energy expenditures/GDP

-%energy expenditures/total expenditures

-food price indices

-car sales including SUVs

 

http://www.wsj.com/mdc/public/page/2_3022-autosales.html

http://www.calculatedriskblog.com/2018/03/us-light-vehicle-sales-mostly-unchanged.html

http://www.fao.org/worldfoodsituation/foodpricesindex/en/

 

This has not shown up in statistics yet (need to take into account that the label of cross-over cars may cloud the issue) but I think that a significant decrease in SUV sales may be a relatively strong indicator of things to come.

 

I’m usually an optimist and have been long oil and gas in various circumstances but, at this point, I just think (I may be very wrong here) that the global and US economy cannot sustain much in terms of higher and rising oil prices.

 

An additional longer-term factor that struck me when I watched Mr. Smil’s talk is the amazing amount of energy waste that occurs in developed economies and how this context may put a relative ceiling on higher oil prices as we enter the transition.

 

[sculpin]

“When the well is dry, we know the worth of water.” - Benjamin Franklin

 

Open Square Part Deux...

 

https://seekingalpha.com/article/4164152-open-square-fund-q1-2018-commentary-part-2-2

 

On the other hand we have index investing, akin to shopping and buying everything on the same grocery list every month. In fact, the list says that the more expensive the item, the more of it you should buy. You wouldn't do that in your daily life, but it's now de rigueur in your financial life. Saving 1% on fees can't be more important than buying wisely can it?

[sculpin]

Schlumberger, the world's largest oil services company had this summation of the current state of affairs in oil. The idea that there exists an unlimited number of drill locations in the Permian and elsewhere is about to be challenged...

 

http://investorcenter.slb.com/phoenix.zhtml?c=97513&p=irol-newsArticle&ID=2343687

"Looking at the global oil market, the absence of global stock builds in the first quarter, supported by the OPEC- and Russia-led production cuts, confirm that the oil market is in balance.

 

More importantly, after three consecutive years of dramatic underinvestment in global E&P spending, the worldwide production base has started to show the anticipated signs of weakness with noticeable year-over-year production declines appearing in several countries such as Angola, Norway, Mexico, Malaysia, China, and Indonesia.

 

With Libya and Nigeria producing at near-full capacity, Venezuelan production in free fall, the potential of new sanctions against Iran, and rising geopolitical risks, the only major sources of short-term supply growth to address global production decline and strong worldwide demand are Saudi Arabia, Kuwait, the UAE, Russia, and the US shale oil industry.

 

However, production challenges in US shale are emerging that are linked to infill drilling well-to-well interference, the potential lower production of step-out drilling from Tier 1 acreage, and significant infrastructure constraints.

 

It is, therefore, becoming increasingly likely that the industry will face growing supply challenges over the coming year and a significant increase in global E&P investment will be required to minimize the impending deficit."

 

 

 

[tombgrt]

More reports of attacks in KSA, an attack on a pipeline in Libya, ...

 

Reflexivity is really kicking in last two weeks and with this kind of news, we'll hit $80 WTI soon enough.

[sculpin]

The world risks a full-blown oil shock within months

'We are pretty confident that oil will be in triple digits by next year'

 

http://business.financialpost.com/commodities/energy/oil-shock#comments-area

 

 

 

 

[SharperDingaan]

The take-away here is that the narrative has changed.

The 'chattering' class is now being paid to sell 'anxiety', the physical/paper markets are starting to sing from the same song sheet, and some of the oil markets would appear to be shifting into contango.

 

A lot of people also benefit if sanctions are reimposed on Iran, and somebody 'accidentally' sinks a tanker in the Strait of Hormuz.

US shale ramps up, Iranian production (via sanctions breaking) comes back on line, heavy crude prices rises, & Cdn incremental production (except Newfoundland) remains shut-in for lack of take-away. https://www.eia.gov/todayinenergy/detail.php?id=7830

 

SD

 

[Uccmal]

Well my oil stocks are rising finally.....

 

 

[tombgrt]

Yes, same here.

 

Sold some CRC options for a 200% return. Letting most longer dated options run for now. Looking to reinvest in neglected small caps. Already have too much in GXE so probably buying PPR, IPO or maybe ATU.

[sculpin]

Yes, same here.

 

Sold some CRC options for a 200% return. Letting most longer dated options run for now. Looking to reinvest in neglected small caps. Already have too much in GXE so probably buying PPR, IPO or maybe ATU.

 

Have a look at Journey (TSX - JOY) as well. Significant insider buying & have executed a smart substantial share buyback at very accretive levels.

 

http://www.journeyenergy.ca/images/main-nav/PDF/Presentations/Corporate_Presentation_March_2018_Updated.pdf

 

Journey Energy management update, key highlights below.

 

• Mgmt. noted that its Duvernay acquisition and share buyback were first initiated in Q1/17.

• MIE decided to monetize its non-performing assets in late November 2017 (i.e. pledge JOY shares for financing).

• Mgmt. highlighted a few details of the share buyback – 1) IIROC specified that the buyback had to be less than 25% of the total shares outstanding 2) JOY was required to obtain consent from 50% of disinterested shareholders.

• The company noted that the share buyback was all about ensuring JOY has control over its business plan going forward.

• Mgmt. is currently working on its Reserve Report – NAV should only come down slightly y/y in 2017, considering gas price degradation offset by acquisitions and share buyback.

• Share Buyback Summary:

o MIE elected to reduce its investment in JOY resulting in the company buying back 12.7 M shares for cancellation below PDP NAV.

o MIE will continue to hold 3.7 M, or just under ~10% of the 38.4 M shares outstanding.

o Cost to repurchase the shares is ~$21.3 M @$1.68/sh.

o AIMCo agreed to increase their investment in JOY in order to fund the buy back.

o Pro forma the buyback, JOY will have ~38.5 M shares outstanding / Mgmt. & Directors own ~12.4% (PSP and AIMCO are the largest shareholders).

o Overall, the deal will result in a reduced capital plan over the near to medium term along with targeted asset sales in order to reduce leverage position.

• Duvernay Land Acquisition (See Figure 1):

o JOY has now acquired 102 net sections of Duvernay rights in the Gilby area (100% WI), which is in the general proximity to recent activity in the East Duvernay basin (Raging River, Vesta, Paramount, etc.).

o Mgmt. noted that its Duvernay land position used to resemble a checkerboard, but has now been filled in (enabling JOY to eventually drill 2-mile wells).

o The vast majority of JOY’s Duvernay lands are located in the oil window (condensate increases from West to East in the play).

o JOY’s Duvernay land base has a very thick reservoir, as compared to the Eastern part of the play.

o The area has all season access, inexpensive construction costs and lots of access to water.

o Regarding Infrastructure, JOY is the only player in the area that owns gas plants (note - JOY’s third party revenue for 2018 will likely be in the $2-$2.5 M range and could reach ~$4 M over time). JOY has ~50 mmcf/d of open capacity at the Gilby plant.

o Royalty rates in the play are a mix of crown & freehold (roughly 50/50 split). Mgmt. noted that JOY’s blended royalty rate would be sub 10%.

o Well Economics – Initial Cost = $8 M with a 3 year payback / Development Cost = $6 M with  a 1.6 year payback.

 

[tombgrt]

Thank you Sculpin, I'll look into it. Other suggestions always welcome of course. Kinda sorry I missed out on MEG. Although I'm sure it is still a bargain, i'm held back by a price anchoring bias.

 

Oil sector volatility has been insane YTD. If YE 2017 = 100 for my portfolio, I went to 78 at the low around March and am at 118 today. Insane!

[Cardboard]

Look at ATH or CVE vs MEG.

 

Cardboard

[tombgrt]

I have a small position in CVE. ATH on a roll!

[sculpin]

https://seekingalpha.com/instablog/365869-oil-and-gas-investments-bulletin/5150567-gundlach-bullish-junior-oil

Every spring the elite of the investment world gather in New York for the Ira Sohn Investment Conference. It is a Who’s Who of the hedge fund industry.

This year Jeff Gundlach—who oversees $120 billion for DoubleLine Capital—took the stage and pounded the table for buying one thing….

Shares of oil producers, specifically smaller companies.

Clearly investors have given up on the energy sector….that is the only explanation for why share prices of these companies are so low while the oil price and fundamentals of the oil market are so strong. If (or should I say when) the market accepts the reality that the oil glut gone and that a shortage is emerging the rally in junior oil names is going to be one for the ages.