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

[HJ]

Interesting perspective on finding alpha in energy investing

 

http://toppodcast.com/show-detail/?showId=2484609

[tombgrt]

Sold 1/4th of my oil leaps yesterday and today. Ran up a bit steep and didn't want to see it all lost again in a matter of days if things turn south.

[tombgrt]

Angola now also surprising to the downside.

 

Imo, OPEC and especially KSA in the last few months has really struggled with the problem of trying to convince others that we need more investments to keep supply growing to meet demand. Only a high enough oil price will entice producers to start new multi year projects. Stopping the cut at this point would simply lower oil prices again and in that case you can forget about big projects anytime soon. This would add further to future instability as the market realizes too late that supply is coming up short. Keeping cuts in place helps to get the price up sooner and incentivises others to make bigger investments asap. Of course, it seems like we are too slow to react to changing market dynamics anyway. But it would be far worse without the cut. Overcutting is thus the lesser evil. Oil majors also don't seem encouraged enough to boost production and are focussing on lowering debt first and providing shareholder returns. They simply aren't willing to risk it yet as the trauma's are still too fresh. OPEC is eyeing sector investments closely and it plays an important role in them deciding when they will end the cut. In any case, we need some decent spare capacity to counter various risks as well. KSA now has stability as a number one priority, not price or market share. "Don't fight the Fed KSA" as someone said recently... Most OPEC members realize the damage that has been done to the sector over the last few years and what additional disruptions this will cause in the coming years. But most also don't have much real capacity to increase production. Compliance levels of over 100% are not reached out of kidness for other producers but simply because of declines and underinvestment. Market seems to believe otherwise. At worst they are achieved by total choas and a vicious cycle where trend changes seem very unlikely. Here too, the market seems to underestimate risks. Will be interesting to see how this evolves.

 

Just my simplistic reading of things of course!

 

[jmp8822]

Compliance levels of over 100% are not reached out of kidness for other producers but simply because of declines and underinvestment. Market seems to believe otherwise. At worst they are achieved by total choas and a vicious cycle where trend changes seem very unlikely. Here too, the market seems to underestimate risks. Will be interesting to see how this evolves.

 

This is a great point and perhaps one of the most misunderstood parts of the current oil market. The declines that the media describes as the "cuts" will not magically come back without substantial new capex. The incentives of "over-cutting" are illogical, and not happening in my opinion.

[tombgrt]

It is especially illogical because OPEC production is going down increasingly faster as oil prices increase.

 

That's like voluntarily working less hours after receiving an big wage increase and arguing that you do it so that your collegues can take over your hours at an even higher hourly wage. Meanwhile, you realize that you can't pay your bills...

 

I know little of game theory but that hardly makes sense. If anything, those that cheat reap big rewards. Market should be more worried that we don't see more cheating despite reaching inventory averages.

[SharperDingaan]

The real 'miss' is the failure to recognize the degree of corruption in all these nations experiencing production collapse.

The usual solution is new investment, through a new regime; and an oil 'cut' against the improved flow. Today it's far cheaper and much less risky - to maintain flow by simply buying up existing NA production. Consolidate versus develop, and let the corrupt collapse under their own weight.

 

It also has the advantage of destabilization. Forcing a premium for the 'secure supply' - that happens to be controlled by?

And tends to ensure that price stays up for a very long time.

 

SD

 

[tombgrt]

Indeed.

 

Meanwhile in Canada, GXE and co are transporting oil by truck. I guess this was what environmentalists where after all along!

[siddharth18]

Interesting perspective on finding alpha in energy investing

 

http://toppodcast.com/show-detail/?showId=2484609

 

Looks like it got deleted? Anyone have a link that works?

[HJ]

Interesting perspective on finding alpha in energy investing

 

http://toppodcast.com/show-detail/?showId=2484609

 

Looks like it got deleted? Anyone have a link that works?

 

Ok. Try this one. For some reason it doesn’t show up on his own website, but if you subscribe to his podcast the Deep Basin interview comes up as a rebroadcast on April 3rd.

 

https://itunes.apple.com/us/podcast/invest-like-the-best/id1154105909?mt=2#episodeGuid=265aa45ff6bc0e9193fc38156adca96b

 

 

[siddharth18]

Interesting perspective on finding alpha in energy investing

 

http://toppodcast.com/show-detail/?showId=2484609

 

Looks like it got deleted? Anyone have a link that works?

 

Ok. Try this one. For some reason it doesn’t show up on his own website, but if you subscribe to his podcast the Deep Basin interview comes up as a rebroadcast on April 3rd.

 

https://itunes.apple.com/us/podcast/invest-like-the-best/id1154105909?mt=2#episodeGuid=265aa45ff6bc0e9193fc38156adca96b

 

 

 

I don't see it on iTunes under April 3, or Google Play podcast or his website. Websites that previously had it, also show as 404: https://traffic.libsyn.com/bounce?url=http%3A%2F%2Fhwcdn.libsyn.com%2Fp%2Fd%2F2%2Fc%2Fd2c4e45e5a24aabc%2FEP.81_-_Deep_Basin_FINAL.mp3%3Fc_id%3D20060881%26expiration%3D1522752647%26hwt%3D082d7f696b81d5c9430cb8e4ec3a22df

 

https://syndicated.today/podcasts/business/invest-like-the-best/deep-basin-earning-alpha-in-energy-invest-like-the-best-ep-81/

 

https://player.fm/series/invest-like-the-best

 

https://podtail.com/podcast/invest-like-the-best/deep-basin-earning-alpha-in-energy-invest-like-the/

 

 

Seems like it was deliberately deleted from everywhere?

[tombgrt]

Yes, had the same issue.

 

 

This is great too: https://www.dropbox.com/s/uhk2xxq9vfzdknt/Burggraben%20Crude%20Oil%20Presentation%20041818.pdf?dl=0

[tombgrt]

Angola now also surprising to the downside.

 

Imo, OPEC and especially KSA in the last few months has really struggled with the problem of trying to convince others that we need more investments to keep supply growing to meet demand. Only a high enough oil price will entice producers to start new multi year projects. Stopping the cut at this point would simply lower oil prices again and in that case you can forget about big projects anytime soon. This would add further to future instability as the market realizes too late that supply is coming up short. Keeping cuts in place helps to get the price up sooner and incentivises others to make bigger investments asap. Of course, it seems like we are too slow to react to changing market dynamics anyway. But it would be far worse without the cut. Overcutting is thus the lesser evil. Oil majors also don't seem encouraged enough to boost production and are focussing on lowering debt first and providing shareholder returns. They simply aren't willing to risk it yet as the trauma's are still too fresh. OPEC is eyeing sector investments closely and it plays an important role in them deciding when they will end the cut. In any case, we need some decent spare capacity to counter various risks as well. KSA now has stability as a number one priority, not price or market share. "Don't fight the Fed KSA" as someone said recently... Most OPEC members realize the damage that has been done to the sector over the last few years and what additional disruptions this will cause in the coming years. But most also don't have much real capacity to increase production. Compliance levels of over 100% are not reached out of kidness for other producers but simply because of declines and underinvestment. Market seems to believe otherwise. At worst they are achieved by total choas and a vicious cycle where trend changes seem very unlikely. Here too, the market seems to underestimate risks. Will be interesting to see how this evolves.

 

Just my simplistic reading of things of course!

 

 

From the presentation in my previous post:

 

Surplus  stocks  eliminated:  Our  data  from  Energy  Aspects  and  PIRA  suggest  that  the  3  major  OECD  markets  are  balanced  in  terms  of  their  5-year  commercial  inventory  average  today,  especially  when  taking  into  account  increased  required  inventory  because  of  new  infrastructure.  As  of  December  2017,  OECD  crude  and  product  (gasoline,  diesel,  distillates)  stocks  were  about  2,500  million  barrels.  Incomplete  reporting  will  keep  such  numbers  arbitrary.  But  we  more  or  less  know  that  of  the  1,100  million  barrels  of  crude  stock  today,  the  OECD  consumes  39  million  barrels  per  day  (excluding  NGLs),  resulting  in  roughly  28  days  of  supply.  That  is  well  within  the  5-average  numbers  of  26  to  33  days  of  crude  inventory  supply.  And  this  is  precisely  what  benchmark  crude  oil  spot  prices  (Brent  &  WTI)  have  been  signalling  starting  in  October  2017  when  they  recovered  from  below  $50  to  near  $70  in  January  2018.  Consequently,  we  forecastthat  the  OPEC  agreement  to  continue  cutting  2supply  by  some  1.8  Mb/d  as  announced  on  1  December  2017  will  assure  that  a  US  production  response  will  not  significantly,  if  at  all,  lower  inventory  levels  and  thus  spot  prices  in  2018. Much  rather,  OPEC  risks  to  under-estimate  the  tightness  of  the  market  that  already  exists  today,  pushing  spot  prices  higheras  the  year  advances  and  new  inventory  data  with  2-3  months  delay  become  publicly  available.  But  OPEC  would  rather  keep  cuttingand  risk  a  higher  price  (and  consequently  a  US  supply  response)  than  end  the  cuts  and  risk  a  drop  while  sentiment  for  oil  markets  remain  as  feeble  astoday,  in  our  view.  In  sum,  inventory  levels  drive  spot  prices  and  support  Brent  at  $60  a  barrel  through  2018  while  the  expectation  for  overhang  in  the  future  willcontinue  keeping  Future  prices  in  backwardation,  clearing  any  inventory  build  immediately  as  there  is  no  incentive  to  hoard  oil  for  the  future.  Long  term,  the  Vienna  Group  producers  (OPEC  and  its  new  non-OPEC  allies,  led  by  Russia)  are  not  betting  on  shale  to  swing.  Saudi  oil  minister  Khalid  al-Falihhas  stepped  up  warnings  in  late  2017  that  insufficient  supply  and  above-consensus  demand  are  likely  to  severely  tighten  markets  in  the  coming  years,  despite  shale.  So  let  us  do  the  balances...

 

As I said in the above post.  8) Really odd that market is not yet seeing this reality and believes that we are - or soon will be again - oversupplied. In my view, this could lead to serious price shocks (well above $100) at some point. This is preferable from the alternative: oil prices well above $100 for prolonged periods because the sector didn't invest sufficiently for another 2-3 years.

[HJ]

I guess my question would be why is Canadian oil the right instrument for this macro view?  With pipeline issue continue to be unresolved, doesn't it look like meaningful Canadian liquids discount will persist?

[SharperDingaan]

I guess my question would be why is Canadian oil the right instrument for this macro view?  With pipeline issue continue to be unresolved, doesn't it look like meaningful Canadian liquids discount will persist?

 

Long term it's a great investment that should value at a premium for both longevity (Tar Sands) & security of supply. IF tidewater access is actually built (4 yrs+ to delivery), IF material coordinated rail is added, IF, IF, IF, etc ... Good for the corporate acquirer, not so much for the individual investor. Obviously, a bit different if you are looking at dividend payers & have a longer horizon.

 

Then there is Newfoundland which doesn't have the discount problem - but requires investment in the service industries instead.

Higher peaks and valleys - but perhaps a better choice for some aplications.

 

SD

 

[tombgrt]

http://info.gorozen.com/2018-1q-goehring-and-rozencwajg-commentary

 

Gorozen always a good read, Q1 commentary is out.

 

--

 

CRC released earnings tonight. I sold 1/3th of options and stock in the last two weeks for risk management purposes. Still my largest holding but sleeping well was getting harder with 20% of my portfolio in calls of a single, highly levered oil producer with 8 months (some until 2020) left until expiry... Better to take some off the table. Putting predetermined price goals on your holdings certainly helps to take the emotion out of it a little but it still stings when you see the stock up nearly 10% AH. Before March CRC was a very small position and I was initially against going with highly leveraged producers but the sell-off gave a great opportunity.  :)

[tombgrt]

There is an oil god! Up 25%. Options again 25% of portfolio value. Selling some again (500% gains in a month :o), also common stock.

[LR1400]

There is an oil god! Up 25%. Options again 25% of portfolio value. Selling some again (500% gains in a month :o), also common stock.

 

 

Can you describe what you did here in more detail?

[tombgrt]

There is an oil god! Up 25%. Options again 25% of portfolio value. Selling some again (500% gains in a month :o), also common stock.

 

 

Can you describe what you did here in more detail?

 

CRC is highly levered to oil prices and has a very high debt load. So that is double leverage and kinda an assymetric bet. First I held just common during the sell-off. Then figured I might as well buy some jan 2019/2020 options to get leverage on leverage considering this was either going kaput or through the roof. My thesis was for >$75 oil during the next few years and then CRC would be a multibagger. Would have been happy with $30 by YE. Was just very lucky with timing this speculative bet, nothing else.

 

Investing is also the game of endless regret. You win big and you still kick yourself for selling part of your position way too soon and "losing" many thousands. While I could just as well not have bought a single call option for various reasons...

 

 

GXE running away from me. Yesterday at C$0.87, now $0.98. Efficient markets my ass.

[LR1400]

There is an oil god! Up 25%. Options again 25% of portfolio value. Selling some again (500% gains in a month :o), also common stock.

 

 

Can you describe what you did here in more detail?

 

CRC is highly levered to oil prices and has a very high debt load. So that is double leverage and kinda an assymetric bet. First I held just common during the sell-off. Then figured I might as well buy some jan 2019/2020 options to get leverage on leverage considering this was either going kaput or through the roof. My thesis was for >$75 oil during the next few years and then CRC would be a multibagger. Would have been happy with $30 by YE. Was just very lucky with timing this speculative bet, nothing else.

 

Investing is also the game of endless regret. You win big and you still kick yourself for selling part of your position way too soon and "losing" many thousands. While I could just as well not have bought a single call option for various reasons...

 

 

GXE running away from me. Yesterday at C$0.87, now $0.98. Efficient markets my ass.

 

Thanks. So, no oil futures themselves.

[Uccmal]

Tom, thanks for posting  the article above.  Their thesis is well thought out. 

 

Congrats  on your options win. 

 

I dont have any options but did buy some Baytex in my Wife's account in the winter which is up about 70%.  And of course I hold a big position in Whitecap which is still exasperating, but looking up.  They just released their earnings and had a loss from hedging, but cash flow was way up, and they raised the dividend for the third time in six months. 

 

Alot of these companies are eating losses this quarter and probably next Q on hedges.  Pain in the neck but if they didn't hedge and oil dropped off a cliff we would get skewered. 

 

 

[tombgrt]

Exactly. Hindsight is 20/20. We can repeat this ad nauseum but we'll never look at these things completely rational.

 

Congratz on BTE. I was foolish enough to sell my position for a small profit a few months back. Don't remember why exactly. Think I thought I found something better. ;)

 

--

 

Definitely a short squeeze going on now in CRC. For all I know we are back sub $30 next week.

[LR1400]

Exactly. Hindsight is 20/20. We can repeat this ad nauseum but we'll never look at these things completely rational.

 

Congratz on BTE. I was foolish enough to sell my position for a small profit a few months back. Don't remember why exactly. Think I thought I found something better. ;)

 

--

 

Definitely a short squeeze going on now in CRC. For all I know we are back sub $30 next week.

 

I 100% agree on having a mental sell price and mental trailing stop loss % of the high. I know that is more moderate term investor or momentum investor mentality, but I have had my ass bit multiple times adhering to an "own it forever" mentality exclusively. 

[tombgrt]

https://www.wsj.com/articles/oil-costs-how-much-how-the-oil-rally-took-forecasters-by-surprise-1525608000

 

Lol!

 

--

 

Oil now above 70 and 75. Clear skies ahead, ladies and gentlemen!

 

WCS now USD $55, >$20 above 2018 lows I believe.

GXE on track to print cash like crazy the next few years. If they don't increase capex considerably, they will have tens of millions in cash and no debt before YE 2020.

[SafetyinNumbers]

FWIW, Based on GMP FirstEnergy numbers, they have a 2019E of cash flow per share at $0.45 for GXE with a net cash position of $16m at the end of 2019E. It's important to note that they are using a WCS of $61.57 (and WTI of US$67.57) next year to create that estimate. WCS was $68.88 on the close Friday.

[tombgrt]

Another fun day! And API numbers =  8)

 

FWIW, Based on GMP FirstEnergy numbers, they have a 2019E of cash flow per share at $0.45 for GXE with a net cash position of $16m at the end of 2019E. It's important to note that they are using a WCS of $61.57 (and WTI of US$67.57) next year to create that estimate. WCS was $68.88 on the close Friday.

 

That's... a lot of money! Earnings afer close tomorrow. Don't expect too much given low prices, bottlenecks (and continued hedges). But Q2 (and hopefully beyond) should be a blast!