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

[nkp007]

At any oil price so far, have we seen shale generate FCF?

[Spekulatius]

At any oil price so far, have we seen shale generate FCF?

 

I haven’t. They always spent more than they generate. It’s the American way!

[TwoCitiesCapital]

At any oil price so far, have we seen shale generate FCF?

 

I haven’t. They always spent more than they generate. It’s the American way!

 

Shale is just indicative if the rest of the American markets. Too much capital chasing unproductive and unprofitable ends due to assumptioms that are far too rosy now that we're 10-years into the bull market.

 

For what it's worth, I've started trimming my Russian oil/gas holdings. Ultimately, hard for me to see much better scenario following increased production, increased pricing, and a dramatically reduced currency. They're about the only thing in my portfolio that's performed this year.

 

I think fundmentals for oil are much higher if we avoid a global recession. And very, very volatile of we don't. I'm taking gains here and awaiting more clarity.

 

[Cardboard]

https://www.reuters.com/article/us-schlumberger-outlook/schlumberger-sees-lower-north-american-fourth-quarter-revenues-on-drop-in-fracking-idUSKBN1O32FW

 

Q4 North America revenues to be down 15% from Q3. So it should mean that fracking or completion is down a lot more than 15% since they offer all kinds of other services.

 

So U.S. production has definitely plateaud and should come down quite rapidly with sky high decline rates or as we have seen after the large decline post 2014. Another indication that U.S. shale at $50 is a pipe dream.

 

Then you have Chinese resuming imports of U.S. oil during the 90 day trade negotiating window which should reduce U.S. based inventories of light oil.

 

All in all, $60 U.S. WTI seems to be the number to balance the market but, it means OPEC pumping near flat out with little spare capacity with Brent at around $70 U.S. and no negative surprise such as some conflict, civil war.

 

Tough to say what OPEC will do tomorrow. There has been a lot of rumours around a 1 million to 1.4 million bls/d cut. Trump keeps on pressuring them not to (Tweet again this morning) but, he must be getting calls from Texas, Oklahoma, North Dakota, Colorado that a large number of job cuts are coming. Quite a good chunk of his base. Then you have all kinds of related services, trucking and steel companies in other adjacent States getting hurt.

 

I don't see what is the complaint from the U.S. on gasoline. One of Trump's hallucination? $2.25/gallon is a heck of a bargain and with the strength of the economy, $3 does not affect squat.

 

Cardboard

[John Hjorth]

... For what it's worth, I've started trimming my Russian oil/gas holdings. Ultimately, hard for me to see much better scenario following increased production, increased pricing, and a dramatically reduced currency. They're about the only thing in my portfolio that's performed this year. ...

 

Pardon me for asking a question specifically adressed to TwoCitiesCapital here  [otherwise, my posts in this topic have no merit, frankly]:

 

Have you been trimming both Lukoil & Gazprom?

[TwoCitiesCapital]

... For what it's worth, I've started trimming my Russian oil/gas holdings. Ultimately, hard for me to see much better scenario following increased production, increased pricing, and a dramatically reduced currency. They're about the only thing in my portfolio that's performed this year. ...

 

Pardon me for asking a question specifically adressed to TwoCitiesCapital here  [otherwise, my posts in this topic have no merit, frankly]:

 

Have you been trimming both Lukoil & Gazprom?

 

Trying to.

 

I've sold about 20% of the Lukoil position at $77.50. Will likely let more go if we get up to the $80s.

 

I had limit orders earlier on to sell 20-25% of my Gazprom for $5.25 when it was trading in the 5s. The order never executed and prices collapsed back into the 4s so I continue to hold Gazprom. Will be looking to exit at prices above $5.25 if we get a bump on winter demand/pricing or excitement on the upcoming completion of the Chinese pipeline.

 

 

 

[sculpin]

http://www.canadiandiversifiedinvestor.com/2018/12/where-do-we-invest-in-2019-when-will.html

 

Where do we invest in 2019? When will Canada be once again open for business?

 

Posted: 07 Dec 2018 07:30 PM PST

 

Forecasting stock markets is a money-losing game. Forecasting the economy works only for those who forecast often. But we can extrapolate trends we see in the world. Despite the rise of nationalism and even rightwing extremism, I see Europe to continue its turnaround. I was two weeks ago in Europe and the mood in countries like the Netherlands and Germany has improved and the left seems in retreat. No more liberal democracies but rather centrist or slightly-to-the-right mainstream democracies. Italy being the exception as well as the a-political yellow jackets in France standing up against evermore taxing governments. It seems the French are slow learners while the Italians are looking for the 'black-box' easy solutions. But what do I know?

 

It looks like China has not been doing so well.  For several years now, even before the bear market in Chinese stocks, ex-pats have been leaving the country because of strangling regulations and rising wages. Many once successful entrepreneurs are returning to the U.S. Disney reduced its operations in China because of fears for intellectual property theft and hacking. They are apparently not alone.

 

The current trade war between the U.S. and China did not come out of the blue. China is hurting but so is the U.S. In the meantime, though in the U.S. much of the hurt is offset by record low unemployment. Stories we used to hear about lack of workers in Alberta's Grande Prairie with restaurants closing on weekends due to lack of staff we now hear in the U.S. For example, labor shortage in California’s vineyards.  With such a strong economy, the U.S. is likely to weather the trade war much better than China. Trump may be a pain, and even a guy like Jim Rogers is boohooing him, but the bully seems to be onto something. Lately, he engineered the temporary fall in oil prices through his manipulations of Saudi Arabia and Iran. Was that skill or dumb luck?

 

Even in Canada the economy is doing well except for Alberta and Saskatchewan. Of course, what is going to feed economic growth in B.C. with overseas money and real estate purchases drying up?  Maybe the LNG plant(s) will help but it seems the lefties in B.C. are creating a pipedream for a green economy. Yes, B.C. has a lot of renewable resources, but it also has a mining industry which requires workable regulations and cheap energy. That is about to fall along the wayside. Look no further than Ontario where 12 years of green dreams came to a sudden halt, even during good economic times the people there woke up.  I don’t know about losses in local by-elections, but I suspect that the quiet style of an Andrew Scheer may become a lot more attractive to many Canadians compared to a flamboyant Justin who is intent on destroying Canada’s oil and gas industry. I wonder what Canadians, especially Quebeckers, will say when those transfer payments dry up or even reverse?

 

I suspect that B.C.’s economy will become the basket case it has often been in the past with the left in power. Then Western Canada will likely re-unite and who knows, separatism in the West swill become a real threat. In previous downturns, even Stephen Harper talked about building a ‘Firewall’. This economic downturn is a lot worse than most and Trudeau’s policies are highly divisive. Not only is the man destroying Canada’s golden goose but soon he will destroy a lot of what made us all proud Canadians.  Not to mention large deficits than must be cleaned up just like after his Dad.

 

Will history recognize the real fool: Trump and/or Trudeau? My bet: Canada and Trudeau (who cares about boy-wonder?) will be the real loser. Canadian stalwarts such as Brookfield and the Canadian banks are increasingly turning southwards to the U.S. and International. CGI is basically an international high-tech consultant based in Canada. My guess, next year we will see the U.S. stock markets turn up with 10 to 15% gains, easily papering over the current days of investor pain and ensuring election of Trump for a 2ndterm. Hopefully, by that time Trudeau and his silver-spoon-fed cronies are gone.  Hopefully by 2020 or 21, the two pipelines to the south have been build and the West will once again ride high. But this time it will become more difficult to make the separatist talk disappear.

 

So, I will invest more and more into Canadian companies with a strong U.S. or international presence. I will stay suspicious of China which is turning increasingly belligerent and its labor is no longer cheap. Maybe India’s time or South America and later even Africa’s time has come. Also, more of my money, currently invested in the U.S., will gradually shift to Europe and emerging economies other than China.  Remember it was first Asia without Japan, now it may be Asia without China (and Japan – bad demographics).

 

By the way, due to the one-child policies, China’s population is getting pretty old and just like Russia it may decline in spite of all factors that favor it. With increased automation in manufacturing and ever increasing demand for energy, local manufacturing may pick up near the North American consumers. That should also reduce emissions by a lot. Of course, that is, provided we are open for business. Justin and his liberals really have to go!

[sculpin]

 

 

In recent years, Canada’s focus on being a leading environmental citizen has come into apparent conflict with our desire to responsibly provide clean, affordable energy for a growing world that demands a higher standard of living for all.  In this talk, Mr. Slubicki will discuss the (at times) uncomfortable reality of energy and the environment in Canada and around the world.  Canada’s unique combination of resources, policy and technology position our nation to be a leader in the future energy landscape; if we have the courage to stand up for our industry and our best-in-class way of doing things.

 

Chris Slubicki is the President and CEO of Modern Resources Inc.

[SharperDingaan]

Purely speculation on our part, but 3 things really stand out for us:

 

Short vs Medium/Long timeframe. In the oil-patch, over the next 1-2 years, about the only thing we can say with certainty is that there will be extreme change. All we can do is position ourselves to benefit from both the good and the bad. Medium/Long term offers a more promising outcome, simply because current obstructions will no longer be there.

 

Intermediate QE vs Fiscal spend. Extended record levels of QE worked, and it's why unemployment is at such low levels. But if we're to limit inflation the bulk of that QE is going to have to bleed out as an extended period of infrastructure spend - as roads, rail, pipelines, refining, industrial policy, new industry, etc. In Canada; nation building via coast-coast-coast pipelines, upgraded roads/rail, crude to gasoline refining, industrial CO2 sequesture, and electric generation over smart grid. Canada's open for business, and using infra-structure much the same way that rail was, to buiid the nation.

 

Intermediate demographics. Today we may have a bigoted majority, but in 10 years? they'll be either dead or a minority. Multi-culturalism is a state-of-mind, more recent generations have come from 'all-over' versus primarily Europe, and attudes are quite different. Canada needs people to do the work, it's going to need a lot more if we go into infrastructure building, and it means blunt discussions and a 're-set'of the social contract that every new immigrant to Canada faces. All good.

 

Long-term, we're all being offered a fantastic opportunity.

Short-term, not so much.

 

SD

 

 

 

[Uccmal]

I have a general question for the participants on this thread.  The question is a tthe bottom.  If you go through the thread there are a number of publications posted by Sculpin and others, of third party reviews of the state of the worlds oil supply.  For three years they have been predicting a shortage of oil supply.  Most have been totally wrong.  BTW: Sculpin: I like the posts you put up, dont stop please. 

 

We are getting just the opposite.  Worldwide, supply is increasing.  The major single cause is an ever increasing amount of US Shale oil, particularly from the Permian.  The latest was a video feed on the alleged loss of money in the shale patch.  I skimmed the annual reports of companies referenced by the author of that video and didn't see the losses he was talking about (granted I only skimmed them and my ability to tease out the details is not good). 

 

In short, I no longer believe that most of these forecasts are correct.  I think shale oil production is going to continue to grow and in the pricess keep oil prices low enough to cause the OPECs, amd Canada alot of pain.

 

What are others thoughts on this?  Your own thoughts, not the posts of someone else's biased reports. 

[Packer16]

I think the point the video made was these guys were not generating FCF not earnings & without the FCF the debt will not be repaid.  Given the increased capital intensity of fracking, FCF is the way to look at it vs. earnings.  If you look at 2 of the big frackers EOG & PXD, they are both generating GAAP earnings & EOG is generating FCF but only since Q4 2017.  Oil prices have been over $55/barrel during this period & now they are closer to $50 so EOG may be at FCF breakeven.  If these guys do not generate FCF, the debt will crush most of the frackers.  IMO one thing that has changed is the auto companies are investing in electric car infrastructure which will lead to a decline in oil demand.  If this is the case, then the borrowings of the frackers are creating there own destruction by producing now & driving down the prices with future prices looking dim.  This is laying the groundwork for a huge distressed O&G wasteland in a few years then we may be at a bottom.

 

Packer 

[SharperDingaan]

Using the concensus strip to predict future price is financial doctrine - but entirely rubbish. All you need do is backtest actuals against the strip at the time, whether that be for a commodity (oil, gold, etc) or an interest rate. And the further out in the future you go, the worse it gets. 

 

Realistically all one can do is look at supply/demand in a local area (WCSB, Newfoundland), and what you think the trends in that local area are likely to be over the next 1-3 years. You know your local area best, & make your own conclusions.

 

WCSB:

 

Politicians come & go, but the oil remains land-locked until those rail-cars arrive. The only way US bound pipeline space opens up, is if US production in the lower 48 suddenly collapses - highly unlikely. The shut-in has been popular, it has saved a lot of jobs, and it is paying for itself by raising local prices. Doing another round will raise local prices further, and buy a lot of votes.

 

We have no idea what happens after that, but it seems reasonable that if there are two rounds of Alta shut-in, Sask will pobably have to do something similar. Ultimately the tar-sands/pipeline companies are going to have to either 're-set', or swallow multi-billion dollar write-offs as those assets permanently strand. And federal Canada can achieve its environmental accords a lot easier with those tar-sand assets 'stranded' versus polluting.

 

Alberta's conservative political regime has its balls in a vice, and the grip is tightening. We don't see the blue-eyed sheiks giving up their privilidge gracefully, and ultimately it will be to the detriment of the province and its people.  But it's hard to see how the pipeline companies aren't ultimately forced to guarantee a minimum amount of volume to 'others', and a lower transort rate on that volume. And those big shippers whose volume is being displaced will 'bitch loudly, but voluntarily comply', because the alternative is a time-limited 'take-over' by the province (& much less favourable treatment)- as that oil in the pipe crosses the province at her majesties pleasure.

 

Over the intermediate term it is highly that a coherent industrial policy will be hammered out, it will be a muscular process, there will be a lot of gored oxen; and ultimately Canada will be a lot better off for it. Investment wise it will not be a time to invest, but there will be short-term opportunities.

 

Politics versus business only works in the short-term.

Ultimately the steam-roller runs you over.

 

SD

 

 

 

[sculpin]

RJ Energy Stat today - $100 Brent in 2020

 

Energy Stat: Updating Oil Price Forecast

 

Over the past few weeks we have attempted to explain (link) why the crude markets have experienced such a sharp and violent correction over the past month. Specifically, three main issues that triggered the initial oil selloff included

 

1) Trump “pulling the rug out from under the Saudi’s” by giving Iranian sanction waivers,

 

2) increasing concerns over global oil demand, and

 

3) a surge in U.S. oil production trends.

 

While these three bearish concerns are still at play, the consequences of lower oil prices is now setting the stage for a much tighter oil market next year and the likelihood of sharply higher oil prices in the back half of 2019. Put simply, our global oil supply/demand equation for the next few years is now much more bullish than a month ago because

 

1) 2019 OPEC supply will be lower with the recent OPEC cuts, and

 

2) U.S. oilfield activity will likely slow leading to lower 2020 U.S. oil supply growth.

 

The consequence of these two significant oil supply reductions is that global inventory reductions are now likely to come much sooner and be more severe than our prior model as shown below.

 

In today’s “stat” we will

 

1) “mark-to-market” our near-term oil price assumptions,

 

2) update our U.S. activity and oil supply assumptions,

 

3) update our global oil supply/demand model, and

 

4) show why we are still convinced that oil prices are still headed for $100 Brent in 2020 (as we initially suggested a month ago).

 

It is important to note that we believe the psychological damage created by the extreme oil price sell-off over the past month combined with seasonal oil inventory trends in the U.S. will likely create near-term headwinds for upward oil price moves in the first half of 2019. This is despite the bullish global oil inventory trends that we expect to emerge in early 2019. Accordingly, we are reducing our 2019 average for Brent assumptions from$90 to $72 and WTI down from $77.50 to $62. However, based on our continued conviction in the longer term outlook, we are maintaining our 2020 Brent forecasts of $100/bbl and WTI of $92.50/bbl. We are also keeping our long-term oil price deck at $80/bbl Brent and $75/bbl WTI.

 

[sculpin]

http://adventuresincapitalism.com/2018/12/10/taking-advantage-energy-washout/

 

http://adventuresincapitalism.com/2018/12/03/whos-bullish-natural-gas/

[sculpin]

Canadian oil has made a remarkable comeback

 

https://www.forexlive.com/news/!/canadian-oil-has-made-a-remarkable-comeback-20181210

 

The spread to WTI has dramatically recovered

 

Canadian oil producers are breathing a little easier after emergency measures to curb production through April have dramatically narrowed oil differentials. Western Canada Select is now trading at just a $12.75 discount up from -$52.40 in October.

 

The Bank of Canada highlighted differentials on other blends as well but those have also closed at a similar clip.

 

At the moment, the loonie isn't benefitting and even Canadian oil producers aren't benefitting but if sentiment can stabilize, there's some upside in the pipeline.

[Cigarbutt]

From the tight oil and supply perspectives, the recent period (last few years) has been quite atypical. A lot of the unusual dynamics are related to the breakeven price for frackers which has been more than an accounting definition as there has been a very extraordinary confluence of factors affecting an expanded definition of breakeven: technological, legal, tax, infrastructure, geology/geography (sweet spots), labor and financial (ultra-low interest rates and abundance of capital).

 

All those factors contributed to abnormal circumstances that helped to reach production records while continuing to offer poor return prospects from the free cash flow point of view. If one believes in reversion to the mean, it may be reasonable to expect that the effects of the above mentioned factors (especially some of them) will decrease or even reverse going forward so that tight oil's role as a marginal product becomes clearer but with a higher range of prices, much above present spot prices. The industry is not labeled as boom and bust for no reason.

 

Using the following link as a reference, the industry continues to show an unacceptable return on capital measures, even in late 2017 and early 2018 when debt issuance entered new momentum. Results vary for various reasons including the fact that some players like Pioneer, Concho, Devon and Marathon had relatively high hedged production when entering the 2017-8 transition.

http://ieefa.org/wp-content/uploads/2018/10/Red-Flags-on-U.S.-Fracking_October-2018.pdf

 

Opinion: Under maintained or higher demand scenarios, tight oil supply factors point to higher prices.

 

[sculpin]

Good article on increasing energy intensity of the "new economy"...

 

https://www.c2cjournal.ca/2018/12/03/we-have-met-the-carbon-enemy-and-he-is-us/

 

We Have Met the Carbon Enemy and He is Us

 

·        Steve Larke, Adam Le Dain

 

Back in 2007, the mighty iPhone came into being. That indispensable virtual super computer in your pocket and its host of imitators enabled enormous hydrocarbon-based energy demand growth – and will continue to. The virtual world showed a funny way of triggering real-world activity, nearly all of which requires energy – and in turn causes CO2 emissions.

 

To illustrate, consider the start-up of Airbnb. Not coincidentally, that too occurred in 2007, because it needed the power of the smart phone. In just one decade, Airbnb’s empire has reached about five million rooms globally – more than the five largest hotel chains combined. Tie this to concurrent jet turbine improvements and discount airlines, which now represent 30 percent of global air travel, up from 19 percent of a smaller overall industry in 2007. Then picture a family in Asia who, thanks to their rising income and the falling cost of travel, can now afford to take an international trip together. And reflect upon two statistics. First, global air travel recently hit a record of approximately 202,000 planes airborne on a single day, enough to carry the entire population of Canada. Second, if the “airline industry” were a country, its annual increase in oil demand would rank it second globally, bested only by China. With a few taps on a smart phone, a trip can be arranged and purchased faster, easier and cheaper than at any time in history. Oh, and incidentally there is no electric-plane solution pending – the power to weight ratio doesn’t fly.

 

For most people, air travel only occurs a handful of times per year. But the same smart-phone-driven hydrocarbon demand occurs locally as well, thanks to the arrival of services like Uber and Amazon. Your phone can summon a driver 24 hours a day, generating new CO2 emissions alongside all the benefits. And Uber isn’t merely replacing taxi emissions. In New York City for example, Uber and Lyft have grown by approximately 480,000 trips per day while taxi trips have fallen by only about 150,000 trips per day. This has driven an astounding 62 percent increase in total taxi and ride-sharing trips (and associated air emissions) in that city in just three years.

 

This is not to say that the late, great Steve Jobs should be blamed for the creation of mass emissions. Only that seemingly innocuous technologies lacking the physicality of, say, heavy-duty diesel pickup trucks, play a far larger role than recognized in global energy consumption.

 

Jeff Bezos of Amazon is another prominent figure generating a massive carbon footprint. Picture a university student bouncing out of bed on a Sunday morning and clicking the “Buy now with 1-Click” button before strolling off to a pipeline protest. This click likely prompts a coal-fired factory in China to manufacture the item (67 percent of China’s electricity was generated from coal in 2017), which is then transported via diesel-powered truck or train to an air- or seaport, followed by an oil-fuelled ship or plane ride to North America, yet another leg by diesel-powered truck or train to a distribution centre and, ultimately, a gasoline-fuelled delivery truck doing the “last mile” run. The next day, while that student is in class, that truck drops off items to various students at the university – all one-off, instant-gratification purchases. There is, unsurprisingly, a direct and strong decade-long correlation between Amazon’s revenue and total U.S. trucking miles, both of which continue to break annual records. Then tie that with a recent Amazon press release about the company ordering 20,000 Mercedes-Benz Sprinter vans for last mile delivery.

 

Environmental activists, the news media and millions of people are inclined to blame fossil fuel producers, auto manufacturers and drivers of oversized vehicles for so-called carbon “pollution”. But the real drivers of CO2 emissions growth are the billions of people in developing countries escaping poverty and the technology companies that provide us all with the joys of custom delivery and easy travel at best pricing. Then include the thousands of air-conditioned data centres that hold the terabytes of data needed to support these services. In 2017, data centres used about two percent of the world’s electricity – at a time when all sources of “renewable” energy combined produced only 8 percent of global electricity. And 90 percent of the data they housed had been generated within the prior two years – meaning there is much, much more to come. Consider a forecast that communications could use 20 percent of all the world’s electricity by 2025 and add to that a global population heading toward 9 billion by 2040. And think about all those self-driving cars barreling down the road towards us: replacing less than one percent of the existing U.S. car fleet with autonomous vehicles could within one year generate data roughly equivalent to the existing U.S. server farm storage capacity. For something that doesn’t physically exist, data is awfully energy hungry.

 

Maybe, then, mass hypocrisy on fossil fuels lies with consumers as well as the news media and politicians. Ask yourself, “How many climate change protesters, researchers and officials flew somewhere in the past year while ordering things online they didn’t need right away?” A curious observation was that at the 2015 Paris COP21 climate change conference, Canada sent 382 attendees versus host country France at 395 and the U.S. at 124. Had Canada matched delegates-per-capita attendance of France, it would have sent 222 people, or all of 14 had it matched the US.

 

This all comes before considering the well-documented tech-driven energy impact of Bitcoin mining, recently estimated at 0.5 percent of global electricity demand. The point, which needs to be belaboured, is that CO2 emissions go far beyond people’s desire to drive their own vehicles and heat their homes to a comfortable level; it is all of us and our lifestyles, most definitely including young hipsters on bicycles.

 

 

This level of mass hypocrisy may be unprecedented in human history. Ridding the world of fossil fuels may be a noble idea, but it rests on a lack of understanding that credible alternatives have enormous challenges of scale and their own environmental costs, while the supercomputer in your pocket is adding to energy demand by the second. Hydrocarbons are indispensable not only to our standard of living but to the entire global economy and the aspirations of billions to no longer live in poverty. They are needed to support many of the things thought of as “green”, such as manufacturing and oft’ times generating the power that runs electric vehicles. They’re required to produce high-grade steel, cement and ammonia (a fertilizer constituent that helps feeds an estimated 50 percent of the planet). There are no rapidly scalable replacements pending for planes, trucks, ships or trains – nor recognition that, if there were, the transition will be slow, for existing fleets would be used until obsolete.

 

To illustrate the problem of scale, had we as a planet somehow managed to reduce our use of coal from 27 percent to just 22 percent of global primary energy demand in 2017, it would have required 1.5 times the entire output from existing renewable generation to replace it. Worldwide energy demand continues to increase, is universally forecast to continue doing so, and fossil fuels will continue to fulfill the majority of the need. Renewable energy output will grow significantly in percentage terms, but will not come close to handling the sheer volume of energy required for far, far longer than anticipated. Accordingly, like the growth of digital technology, even the switch-over to electric vehicles won’t bring about a steep reduction in fossil fuel dependency, although it should have local benefits such as cleaner air and less noise.

 

Decreasing oil and gas investment amid growing global energy demand driven by population growth, coincidental with increasing disposable income enabled by technology and industrialization in developing countries, has a real shot at spiking medium term oil and natural gas prices to previously unseen levels. Sadly for Canada, our collective response to this astounding global opportunity appears to be self-flagellation, continuous delay and an ever-increasing regulatory burden, rather than building great, well-thought-out projects, of which Canada could have many. It is no wonder the world’s energy investors are uniformly looking elsewhere – and will continue to.

 

How best to help save the world from carbon while being honest with yourself? Begin by putting down your phone. Travel locally and walk or bike when you can. Deny yourself the instant gratification of online ordering and bundle your buying into a single trip to (gasp!) a traditional store to shed “last mile diesel”. Grow more unfertilized food yourself. Sounds a bit rough, doesn’t it? For your remaining energy use, recognize that Canada is a global leader in environmental stewardship and support the energy companies of this country. They are competing internationally under significantly more stringent domestic rules and practices while ranking 2nd (behind Norway) on environmental and social performance against other energy-rich nations.  The world is moving ahead on energy demand of all types, with or without Canada. We shouldn’t impoverish ourselves to no purpose.

 

Steve Larke, CFA, is a former top-ranked energy equity analyst who has been writing about Canadian and global energy trends for institutional clients for over 20 years. He is a former Managing Director of Peters & Co., and most recently held the role of Advisory Board Member for Azimuth Capital Management. Adam Le Dain, CFA, is an Associate at Azimuth Capital Management.

 

[Lakesider]

At any oil price so far, have we seen shale generate FCF?

 

AR have started producing FCF this quarter. They have said this would be their inflection point, seems the latest release confirms it.

 

Share Repurchase Activity:

 

Repurchased 9.1 million shares for $129 million quarter-to-date

Average repurchase price was $14.10 per share

Share repurchases were funded primarily from free cash flow generated during the quarter

[Cigarbutt]

At any oil price so far, have we seen shale generate FCF?

 

AR have started producing FCF this quarter. They have said this would be their inflection point, seems the latest release confirms it.

 

Share Repurchase Activity:

 

Repurchased 9.1 million shares for $129 million quarter-to-date

Average repurchase price was $14.10 per share

Share repurchases were funded primarily from free cash flow generated during the quarter

-They have recently benefitted from a better price environment for natural gas.

-They have delevered.

-But for the second time in about a year, they have monetized (357M announced today) some of their hedging program (same volume but lower protection).

 

Is this sustainable?

Do you think the upside/downside profile has improved?

 

 

 

[sculpin]

"Saudi Arabia Is Going Bankrupt" Taleb Exclaims After Seeing Kingdom's Latest Budget

 

https://www.zerohedge.com/news/2018-12-18/saudi-arabia-going-bankrupt-taleb-exclaims-after-seeing-kingdoms-latest-budget

 

Oil Bull Thesis Attacked From All Sides As WTI Falls Below $50

 

https://seekingalpha.com/article/4229059-oil-bull-thesis-attacked-sides-wti-falls-50

[Cardboard]

She makes very good points on the current situation:

 

https://www.cnbc.com/video/2018/12/19/warwick-energy-ceo-us-oil-and-gas-companies-cant-like-the-prospect-of-lower-oil-prices-in-2019.html

 

My own thinking is that U.S. shale is the most unreliable supplier out there. It is also the only source of growth in U.S. production as Alaska, Gulf of Mexico and other fields are stagnant at best.

 

First, they produce a very light type of oil that can only be processed by refineries after making expensive changes to their current process which has been in place for decades due to global oil mix or mostly conventional. So that is a big commitment that can't be undone easily.

 

Second, whenever oil goes down below $50 U.S. WTI for any reasonable period of time (see 2015-2017), production can fall anywhere from 1 to 3 million bls/d. So this oil is only available in quantity when prices are high.

 

In economic 101, this should work perfectly: prices lower, produce less and prices higher, produce more. However, the grade of oil certainly introduces a new dynamic at the refining level due to capex. storage, etc. The prior dynamic was shut-in of wells which could come back on on-demand while here we certainly have a 6-12 month lag.

 

Cardboard

 

 

[Lakesider]

-They have recently benefitted from a better price environment for natural gas.

-They have delevered.

-But for the second time in about a year, they have monetized (357M announced today) some of their hedging program (same volume but lower protection).

 

Is this sustainable?

Do you think the upside/downside profile has improved?

 

I think with the significant delivering they are now in a position to accept some extra risk. I think the total hedging was required during the buildup to free cash flow but now can continue to service the debt with the shareholders baring the brunt of price fluctuations.

 

Do you think the upside/downside profile has improved? Due to the recent tank in share price, Yes.

 

[Cardboard]

There we go. End of bravado!

 

https://finance.yahoo.com/news/u-shale-producers-hit-brakes-193310536.html

 

Cardboard

[sculpin]

Browder’s message to security analysts is stark: The truly outstanding practitioner is a solitary creature who works in a depopulated landscape, where they just might stumble across real opportunity.

 

https://blogs.cfainstitute.org/investor/2018/12/18/investing-lessons-from-bill-browder/

 

Depopulated landscape...Cdn energy getting there

[awindenberger]

There we go. End of bravado!

 

https://finance.yahoo.com/news/u-shale-producers-hit-brakes-193310536.html

 

Cardboard

 

With market prices where they are now, if I was a shale producer I'd cancel all my capital spending right now and use the operating cashflows to buyback shares and paydown debt. Sure production would go down next year, but on the other hand production/share would likely go up.

 

Of course this would never actually happen because these management teams are all empire builders.