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

[tombgrt]

Equities anyone?  anyone?  Bueller.    This will be like this all summer.  This should be the tip of rush into energy.  been saying that for a year lol

 

Nah, let's endlessly debate whether Brk is 12% of 17% undervalued as there clearly are no undervalued stocks around. :X

 

People claiming beating the market is impossible lately but if they have to jump in some ugly ponds for once (after being spoiled for years), they steer clear. Same with EM equities two years back.Then last year these stocks jumped 30%. Bank stocks couple years back too. At least with those many did well. Greece, .... . Ah well...

 

There is a distinct lack of humility creeping into this thread.....  :-)

 

No, I'm still humble and know this market could crash down any moment, erasing all gains. Just frustrated at people claiming there are no bargains and then turning around and thinking BRK offers them the best value. Aside from a few regulars, oil stocks get zero love on this board, big surprise! I bought BRK.B under $70 years ago and it was cheap for years. But now people fall over each other arguing over little price moves and valuation differences. And I'm up 120% over last 18 months with 10+ names up over 50%. Very very lucky but also calling bs on people claiming outperforming is nearly impossible or that value is dead for now.

[Uccmal]

Equities anyone?  anyone?  Bueller.    This will be like this all summer.  This should be the tip of rush into energy.  been saying that for a year lol

 

Nah, let's endlessly debate whether Brk is 12% of 17% undervalued as there clearly are no undervalued stocks around. :X

 

People claiming beating the market is impossible lately but if they have to jump in some ugly ponds for once (after being spoiled for years), they steer clear. Same with EM equities two years back.Then last year these stocks jumped 30%. Bank stocks couple years back too. At least with those many did well. Greece, .... . Ah well...

 

There is a distinct lack of humility creeping into this thread.....  :-)

 

No, I'm still humble and know this market could crash down any moment, erasing all gains. Just frustrated at people claiming there are no bargains and then turning around and thinking BRK offers them the best value. Aside from a few regulars, oil stocks get zero love on this board, big surprise! I bought BRK.B under $70 years ago and it was cheap for years. But now people fall over each other arguing over little price moves and valuation differences. And I'm up 120% over last 18 months with 10+ names up over 50%. Very very lucky but also calling bs on people claiming outperforming is nearly impossible or that value is dead for now.

 

I was kidding.  We have been through the wringer for sure.  Its good to see some success.  And I agree with you re: faux value investing. 

[tombgrt]

Ah, didn't read into that well then, my bad. Of course, even mentioning it jokingly, you are correct to remind people to stay humble. It is certainly a reminder I can use after the last few months.

 

I've methodically sold off my calls as to lower risks, although I would have been far better off if I had kept them all. I hope I keep that common sense and partly reinvest future winnings into simple etfs and the like. Buffett's quote on risking what you have for something you don't need comes to mind.

[sculpin]

And the Canadian energy stocks go down as WTI goes > $73...

 

Edmonton Mixed Sweet (C$/bbl) 88.34 +3.16

 

We must be near C$90 to for PAR

 

I could probably find this realized pricing in 2012-2013 when C$ was near par and discounts hit -$25- $35 for Brent vs Par

 

CPG was probably $39 then instead of $9 today...OG stocks down? Not kept up again with WTI and especially not PAR. We must be at the all time cheapest multiples in the history of this sector.

 

Maybe 20% dividend if prodn kept flat using FCF at C$88 Par, most were already at 15% FCF in a flat prodn scenario.

 

Major shake up of sector needed with new mgt teams who surface value...get rid of the bums like SPE & RRX who are self serving mgt teams.

 

Sure brokers are using strip $10 lower then current spot pricing....but why use strip when its always wrong and doesn't reflect current reality. Strip for last 12 months has been horrible as 12 months ago forward contracts delivered today would be under $50 wti. Year ago strip is wrong by $25! Even still the future strip shows major FCF for many OG names....

[tombgrt]

Yes Sculpin, ridiculous price action. Patience! I'm at the point where I wish I could do more work to finetune portfolio but honestly believe I'll just mess it up if I do something. Need to sit on my hands and find some other sector/region or entirely different hobby to focus on.

 

Did pick up some more ATU at 0.57 Friday though, had some cash. What a bargain if they execute!

[JayGatsby]

I still like High Arctic Energy if people are still following that. Price hasn't moved at all. Recent updates there are:

 

1. Earthquake in PNG hurt their last quarter... temporary thing.

2. Exxon and Total plan to double the size of the LNG terminal in PNG by 2023/2024. Presumably that means more drilling. Civil unrest toward LNG operators continues in PNG. Unclear what impact that has.

3. Ridiculous levels of management turnover continue. CFO out. 

4. No update on the JV with OSL. Hopefully that means it's just so small that OSL doesn't care to spend the time to execute it. I think the JV economically is a net negative for High Arctic, although it entrenches their position with key customers.

 

Curious other's views if anyone has looked at this.

[sculpin]

http://www.opensquarecapital.com/wp-content/uploads/2018/07/Open-Square-Capital-Investor-Letter-2018-Q2.pdf

 

 

Weightless

 

That’s what the world’s feeling right now.  A moment in time when energy prices are just right, high enough to pull energy producers back to profitability, but not so high as to exacerbate global inflation.  Astronauts have described weightlessness as calming, producing an almost euphoric effect.  For those analyzing the oil market these past few years, we know better. 

 

For those who’ve bothered to look out the window, we know . . . we’re in free fall.  Despite more recent Wall Street attention, it’s still not obvious yet, and even if awareness is rising, the notion of higher oil prices is met with skepticism if not outright derision.  Look no further than analysts’ oil price decks, albeit revised and elevated from before, still show average prices around $70/barrel.  Many attribute the recent price curve to increasing geopolitical risks, of which there’s been no shortage to choose from (e.g., Iran nuclear deal, Middle East instability, Venezuelan sanctions).  Delve further though and you’ll discover that disappointing non-OPEC/non-US production and lower inventory levels means that the margin for error has narrowed. 

 

Today, geopolitical risks, operational mishaps and episodic outages that would have caused nary a ripple a few months ago now exacerbate oil price swings.  The current volatility is a symptom of increasingly tighter inventories and highlights the lack of spare capacity from producers willing or able to grow production.    Now surely the market knows this right?  Something as ubiquitous and important as oil, must be well understood, examined and reexamined to the nth degree.  Well, no.  According to the Wall Street Journal since March 2012 the number of commodity funds globally-which trade in oil and other commodities such as wheat or copper-has dropped from 368 to 130.” 

 

With few left to understand the intricate 1 dynamics of the market, and those remaining shunned because of lagging performance, the clarion calls of an impending shortage went unheeded.  Not that it mattered though because despite the forewarning, personal incentives drove producers of all ilk towards the situation we find ourselves in today.  It’s only now, when a confluence of factors have driven us to a supply shortage is the world beginning to stir, slowly waking to the realization that this is a shortage and it will continue unabated. 

 

As the energy crisis gathers momentum, it will have far ranging and wider repercussions than even we have ventured to anticipate.  No matter because we’ve known all along that it will only matter when it matters.  For now, enjoy this moment because heavy is the hand of gravity, and heavy is the other shoe that drops.

[SharperDingaan]

Also keep in mind the $2T Aramco IPO, which is being pushed to 2019 (or beyond).

https://www.bloomberg.com/news/articles/2018-07-07/saudi-aramco-s-2-trillion-zombie-ipo

 

“The timing isn’t critical for the government of Saudi Arabia,” Khalid al-Falih, the energy minister, told an industry conference in June. While “it would be nice if we can do it in 2019,” the minister said, “there is a lot more at stake than just ticking a box and say, ‘We got this out of the way.’ ”

 

KSA needs to maximize revenue, per PxQ. Today its mostly higher Q but as soon as it becomes apparent that Iranian production ISN'T being totally shut out; to maintain the same revenue on a lower volume will require a higher P.

 

Iran has evidenced that it has buyers for its crude, and they are nothing like VZ, Libya, and Nigeria;

where there truly is a physical shortage.

 

SD

 

 

[Zorrofan]

Huge draw today, yet oil is down? Trade tariff concerns before everything else?  Maybe I;m wrong but even if there was zero growth in demand next year oil supplies will still be tight as production declines and lack of significant investment finally begin to be felt?

[Cardboard]

I wrote this on Stockhouse:

 

"The EIA report was bullish and zero production growth on Lower 48 States again!

 

However, the OPEC report was bearish with revised down demand growth in 2019, worry about trade war, while Saudis ran flat out in June at 10.5 million barrels/day.

 

You also have Libya saying that force majeure is over at their ports. That could mean a big increase in supply.

 

However, I agree with you that Americans are specialists at manipulating oil down. The media, agencies, administration, they all seem to be on the job. Although, the music will stop at some point.

 

Keeping the price artificially down only helps temporarily at the pump and this $1 trillion that has not been invested in oil development is starting to show its ugly head. The more they do this, less get invested, fewer investors poor money in the sector.

 

Already Saudi Arabia is pumping at levels right before its deal in late 2016 and we hear that there is very little spare capacity left. Where is going to come from this extra 1.45 million barrels/day of demand growth in 2019?

 

Canada? Where are the pipes? U.S. where are the pipes? What about decline rate and lack of appetite to invest. Already we are seeing cracks.

 

The only thing that can prevent a supply crunch appears to be a global recession due to trade war, late cycle, etc. but, it will just be delayed."

 

Cardboard

[tombgrt]

Geniuses now even considering releasing oil from SPR to lower oil prices if they rise too much. Was to be expected.

 

Great idea, let's further decentivize everyone from investing more and risk an even higher price spike in the long haul... Best thing all agencies and OPEC members could do today is make it very, very clear to the market that we are running a serious risk of strong undersupply. We need a decent spare capacity buffer that is currently lacking and now they dare to consider using emergency reserves for short term optics. What is the exact emergency here?! Better to get the reality out now to get that capex up again asap. Short term pain for long term gain.

 

Wouldn't be surprised if we stay range-bound a little longer because of all these shenanigans. Doesn't mean Canadian E&P's can't trade upwards even if oil goes a little lower of course.

[sculpin]

https://seekingalpha.com/instablog/48843921-chris-kanaan/5187213-u-s-commercial-crude-inventories-breach-400-million-barrels-first-time-since-2015

 

 

U.S. Commercial Crude Inventories Could Breach 400 Million Barrels For The First Time Since 2015

 

Jul. 16, 2018 9:32 PM Est

 

Summary

 

The last time inventories were below 400MMbbl was Feb. 20, 2015.

 

Will take an EIA draw of 5.249mmbbl to achieve the feat.

 

Crude inventories have dropped 90MMbbl YoY (July 2017 - July 2018).

 

It has been a very long time since since U.S. commercial crude inventories saw less then 400,000,000 barrels of inventory.  The week ending for February 20, 2015 was the last time the energy market would realize sub 400,000,000 barrels of crude oil until no sooner then possibly, if reported by the EIA for the week ending July 13, 2018 on July 18, 2018. 

 

It will take a measly 5.249MMbbl of a crude oil draw to breach the longstanding 400MMbbl handle, which seems about as difficult as taking a cruise ship in the Cayman Islands for this time of year, as the market comes off the busiest holiday for U.S. drivers, the heart of American driving season and at time U.S. refineries are processing feedstock at record breaking capacities week-over-week. 

 

The beginning of the dreaded 2015s saw a multi-year stretch of the so-called "lower for longer" oil prices and the beginning of an oil glut that didn't start to fade until 2017.  Oil had just collapsed from 3-figures to half that value and chaos in the oilpatch began to ensure as companies started laying off workers, ramping up debt and cutting capex spending

 

Later in the same month of February 2015, for the week ending 02/27/17 was the first time U.S. commercial crude inventories logged over 400,000,000 barrels of crude oil; just about exactly one year later, U.S. commercial inventories reached 501,517,000, breaking the 500-million handle for the first time in history at a staggering pace as Saudi Arabia flooded the U.S. market alongside domestic shale production. 

 

As fast as crude inventories built, they have also fallen at a historical pace.  With nearly 100,000,000 barrels of oil drawing from U.S. inventories between July 2017 & July 2018, the market has never experienced such a rapid rate of fall. Most interestingly are the Cushing, Oklahoma crude inventories which have emptied over 50% YoY to an extreme low level of 25,718,000 with a strong prospect of continued largescale draws due to supply disruptions.

 

Some may attribute the rapid drop of crude to OPEC's cuts, but this may be short-sighted without looking deeper into the problem.  It's also as important not to disregard that U.S. production is at an all-time record for production, defying all odds;  Canadian heavy oil imports to the U.S. are at an all-time high while Venezuelan and Mexican imports continue to dwindle. 

 

With crude possibly bullishly breaching the long since elusive 400-million handle this week, I think it is important to remain focused on fundamentals in the market while omitting the price reaction.  I predict the market reaction will inevitably be much harsher for the upwind then what the downwind has provided. As Trump flirts with the idea of an SPR release, and the media fixates stories on Saudi Arabia increasing production to appease Trump, most ignore the massive and growing market disruptions which are becoming more powerful and more common at a time the market is becoming more sensitive.

 

Many market dwellers still fantasize of electric cars seizing the roads and solar power killing demand, the end result is that global oil demand has grown YoY at a rate above and beyond what global organizations such as the IEA have predicted and oil supply has not kept up to demand;  essentially, one could subtract an entire year of global capital expenditures spending since 2015-18 due to price crash. In fact, in 2017 it was reported that never before in history has the world witnesses so few of new oil discoveries. 

 

While the price of crude will continue to fluctuate and become more volatile in the era of Donald Trump and his tweets, it is this authors opinion that 2018 will see the realization of a multi-year bull market for the oil and and gas industries as the market enters an indisputable supply deficit and disruptions, such as Venezuela, Iran, Iraq, Angola, even Norway and beyond, intensify.

[SharperDingaan]

The SPR is both 'paper' and 'physical' oil.

The US summer driving season, stance on Iran, and pending midterm elections all suggest a lower SPR and a much greater 'paper' to 'physical' composition than currently exists. Can't possibly have 'gas-price' complaining motorists voting the wrong way.

 

We know that shut-ins and non-Iranian production are at the limit, and that in NA the real shortgage is with heavy oil. As pipelines take years to build, the only real NA alternative is more rail from the WCSB; that is vulnerable to derailment, spills, and protest group stoppage. Furtermore WCS is heavy sour oil blended down to 20-21 API and 3.5% sulphur; Iran heavy is 29 API before blending and 1.99% sulphur. Large quantities of easier to refine heavy crude, with no shipping restrictions, in a tight market, that nobody is supposed to use; unless you get an 'exemption' from the US. Charming.

http://www.oilsandsmagazine.com/technical/western-canadian-select-wcs

https://atdmco.com/lub/crude-oil.html

 

All Iran need do is let the US draw down the SPR, go long on 'paper' oil, and cut off their 'illegal' heavy oil flow for a month ... to attempt a experimental 'compliance' with US sanctions. A temporary heavy oil cut of millions of physical boe/d in a very tight market that would send prices well over US100/barrel. Strike their facilities and the price goes higher. Negotiate, and the global recovery will no longer be at risk of collapse; and the pending Aramco privatization can raise the 2T required.

https://oilprice.com/Latest-Energy-News/World-News/Iran-Urges-Trump-Dont-Tap-SPR-To-Lower-Oil-Prices-Drop-Sanctions-Instead.html

 

The summer diving season is looking great!

 

SD

 

 

[sculpin]

Seems as though Prairie Provident (PPR - TSX - $0.44)has potential to significantly exceed their production forecasts. This should be a catalyst along with the pending arbitration decision on the Quebec Utica acreage...

 

Prairie Provident Resources (PPR-T, Buy) – Analyst Kirk Wilson was on the horn this morning regarding PPR as the share price is up about 30% in the past month or so… So, what’s driving the price movement? Production appears to have moved considerably higher from what were weak Q1 results -> Q1 = 4,609 boe/d  (down 5% Q/Q). Since then, a couple of key wells have been placed on production in the Princess area of southern AB ( The 2nd well PPR has apparently increased production to 6,000 boe/d). Expect an operational update shortly…. They will talk about the Princess wells and corporate production above 6,000 boe/d, I expect. Right now, guidance is for 2018 prod to avg between 5200 – 5600 boe/d so look for upward revisions to models. Finally taking a quick look at valuation currently, PPR trades at 2.8x on an EV/DACF basis for 2018 and 2.6x based 2019… Its peer group for 2018 is at 5.7x.

 

 

Significant Potential Cash Windfall from Quebec Settlement Could Rerate Stock: PPR is seeking damages of US$188.9 million dollars related to the termination of the rights to one of the company’s licences in Quebec. The final hearing concluded in November 2017 and a ruling in the dispute and potential damages could be announced in Q2/18. Over a five year period PPR committed a significant amount of time and capital to securing the exploration licences, acquiring and interpreting seismic and drilling wells. We feel damages of between US$25 million to US$60 million would certainly be in the realm of possibility. Damages at the low end of this range would allow the company accelerate growth through drilling or acquisitions, and could re-rate the stock.

 

[Lakesider]

Prairie Provident Resources (PPR-T, Buy) – Analyst Kirk Wilson was on the horn this morning regarding PPR as the share price is up about 30% in the past month or so…

 

After falling about 30% in the prior month or so?

[SafetyinNumbers]

Prairie Provident Resources (PPR-T, Buy) – Analyst Kirk Wilson was on the horn this morning regarding PPR as the share price is up about 30% in the past month or so…

 

After falling about 30% in the prior month or so?

 

There was nothing priced in for Quebec but the stock got hammered for it. QEC and ATI certainly haven’t bounced back.

 

I would not expect an increase in the guidance. Whoever wrote that didn’t look at how weak Q1 was. It’s almost mathematically impossible to increase guidance unless production soars above 6000 boe/d.

 

That being said, I get cash flow around $10m for the quarter before the impact of hedges (commodity and F/X) and there should be improvements in the back half if commodity prices and production hold up. That annualized number looks big versus the EV.

 

Be warned, I am no expert on modeling oil companies!

[Cardboard]

Where is the risk premium?

 

http://news.trust.org//item/20180725210847-sl75c/

 

Cardboard

[SharperDingaan]

Re the EIA, there are 4 choke points on ME oil. Bab el-Mandeb, Strait of Hormuz, Suez Canal, and the SUMED pipeline (2.43M boe/d). There are actually 5 if you include the Strait of Malacca. The largest tanker that can transit the Suez is a Suezmax, at 1,000,000 boe. Re comparatives: a single VLCC does 2,000,000 boe.

https://www.eia.gov/todayinenergy/detail.php?id=32352

http://alloiltank.com/oil-tanker-ship/

 

Choke both Bab el-Mandeb, & the Strait of Hormuz, and you will shut-in the bulk of ME production. Oil prices would spike, and the only player with any significant capacity left would be Iran ... who you are not supposed to buy from.

 

SD

 

[Joe689]

Regarding this topic:

 

http://images.financial-risk-solutions.thomsonreuters.info/Web/ThomsonReutersFinancialRisk/%7Bd7aebd7b-3094-4e69-a9c3-42a675a52853%7D_Strait_of_Hormuz_-The_aorta_of_global_oil_flows.pdf

 

Good read. 

 

If Iran tries to close, it give US the go ahead to punch them hard.  Trump would love a reason to punch them. 

[Uccmal]

Regarding this topic:

 

http://images.financial-risk-solutions.thomsonreuters.info/Web/ThomsonReutersFinancialRisk/%7Bd7aebd7b-3094-4e69-a9c3-42a675a52853%7D_Strait_of_Hormuz_-The_aorta_of_global_oil_flows.pdf

 

Good read. 

 

If Iran tries to close, it give US the go ahead to punch them hard.  Trump would love a reason to punch them.

 

And what would the US do exactly? 

 

Attack Iran? With 82 million people, diverse economy, likely support of Russia.  Unlimited internal energy supply.  An outright war with Iran would make Iraq, Afganistan, and Vietnam look like walks in the park.  Not to mention the speed with which they would acquire Nuclear capability, of they dont already have it. 

[SharperDingaan]

SA exports through Yanbu would be choked off at Bab El-Mandeb, and why yesterdays attack was more strategic than normal. Iran has also mined the Strait of Hormuz on more than one occassion, without starting a shooting war.

 

Go at them and all you do is drive up oil prices, with nice pictures of smoking wells accompaning the daily risk premium. To keep the lights open Europe just takes Iranian oil instead, creating incentive not to hit the oil infrastructure. If Trump loses it we all do very well, should cooler heads prevail we still do well.

 

It's also hard to start a shooting match without congressional approval.

Therefore he either needs to start early, or be sure of a win in the upcoming mid-terms. Risk premium.

 

SD

 

[Joe689]

Maybe take offensive  to open the port back up is better than attack Iran.  After all, it sounds like UN law so all our allies would be in support to uphold the law?  Russia would have to go against the UN.  Not a first for them obviously. 

[SharperDingaan]

Just to point out the realities of todays technology.

There are many versions of the ATACMS, they are made by many nations, and they all work very well at sinking ships from great distances. They have been used in the Gulf before, and are effective at enforcing  'blockades'; hence it's not hard to temporarily stop tanker flow.

https://www.wired.com/2017/03/army-converting-missiles-ship-killers-china/

 

"Army Tactical Missile System (ATACMS), a weapon typically fired from a truck-mounted rocket launcher, that can strike targets at distances of about 186 miles." "The weapon already has a proven combat record from the 1991 Gulf War and the post-9/11 wars in Iraq and Afghanistan."

 

"The shoot-and-scoot mobility of rocket trucks is just one advantage of the land-based missile systems. Land-based weapons (also) have "deep magazines," with no serious physical limitation on the number of missiles available." "A 2013 RAND report sponsored by the US Army suggested that "the strategic placement of anti-ship missile systems" could "be used to form a full blockade of critical waterways in times of war."

 

SD

 

 

[Gamecock-YT]

Q2 Goehring & Rozencwajg commentary is out, always a good read:

 

 

BEWARE THE COLLAPSE IN NON-OPEC OIL SUPPLY

 

https://cdn2.hubspot.net/hubfs/4043042/Commentaries/Commentary%20Graphics/2018.Q2%20Commentary/2018.Q2%20Goehring%20&%20Rozencwajg%20Market%20Commentary.pdf

[SharperDingaan]

China's big arrow.

"China and the U.S. seem to be going tit-for-tat with each other, but as Dan Flynn of the PRICE Futures Group explains, China has a disadvantage: "The Chinese are running out of U.S. imports to put a tariff on." The one big arrow left in their quiver, of course, is oil. The U.S. exports more than 300,000 barrels a day to China — about $1 billion US worth a month. http://www.cbc.ca/news/business/china-opec-oil-tariffs-1.4713944

 

The gist is that China puts a 25% tariff on US oil, & buys direct from Iran instead. Everybody gets to shaft Trump, & the US suffers a 300,000 boe/d reduction in oil exports. Protest and China simply pulls back from the US bond window, forcing up US interest rates.

 

SD

 

And that arrow is now being used  https://ca.reuters.com/article/businessNews/idCAKBN1KO27S-OCABS

 

"China included LNG for the first time in its list of proposed tariffs on Friday, the same day that its biggest U.S. crude oil buyer, Sinopec, suspended U.S. crude oil imports due to the dispute, according to three sources familiar with the situation."

 

“The U.S. gas industry will be much harder hit by this as China imports only a small volume whereas U.S. suppliers see China as a major future market,” said Lin Boqiang, professor on energy studies at Xiamen University in China. "With LNG demand expected to skyrocket over the next 12 to 18 months, there are still some two dozen firms seeking to build new LNG export terminals in the United States and tariffs may limit their ability to secure sufficient buyers to finance their proposed projects."

 

"Meanwhile, according to Kpler, crude exports to China dropped to an estimated 226,000 barrels per day (bpd) in July, after reaching a record 445,000 bpd in March. Sinopec, through its Unipec trading arm, is the largest buyer of U.S. crude. China would likely hike purchases from Saudi Arabia, Russia, the United Arab Emirates and Iraq if the tariffs slowed U.S. flows, said Neil Atkinson, head of the oil industry and markets division at the International Energy Agency. There will be “others who will be offering barrels to China, so it could find itself able to replace lost volumes from the U.S.,” Atkinson said."

 

...

 

Supposedly the US sells the 226K bpd to Saudi Arabia, Russia, the United Arab Emirates and Iraq - who just sells it on to China.

OR, China just's FU's the chump and buys it direct from Iran - who needs friends against the US instigated unrest.

Your enemy is my enemy, etc.

 

SD