Stocks Discussed At the FFH Dinner

[oldye]

Its just that roughly 250m of that FCF needs to go toward paying interest and then you have about 22% depletion so more than 100 wells need to be drilled to maintain production each year before cashflow is really free.  Whatever money they make from hedging will go toward drilling and they'll probably need to borrow a little extra to see any incremental FCF which of course increases how much they have to drill each year to maintain that production.  Like they said at the dinner, at 6$ gas this is a home run but with costs to drill going down I see everyone saying the same exact thing, other companies are on the verge of cutting production but we'll be fine just as long as we double ours every few years.  All the while total U.S consumption will probably drop by 1.5 tcf a year between now and 2014. 

 

 

[Zorrofan]

Oldye

 

Why do you think consumption is going to drop? As far as energy security, reducing the trade deficit and greenhouse gas emissions it makes more sense to switch from oil to natural gas ala Pickens and his natural gas vehicles. Curious about why you're thinking consumption is going down?

 

thanks

Zorro

[gaf63]

Wondered about Oldye's comment also.  However it is backed up by the annual energy outlook,

 

 

Overall, natural gas consumption grows by about 0.2

percent per year from 2008 to 2035, despite declines

of about 1.5 percent per year from 2008 through 2014,

when coal-fired power plants now under construction

or planned begin operation, and Federal tax credits

and State RPS programs spur additions of new elec-

tricity generation capacity fired by renewable fuels.

Coal consumption increases by 0.4 percent per year in

the Reference case. Several coal-fired power plants,

with combined capacity totaling 15.6 gigawatts, are

planned to come on line by 2012. More coal is

consumed for heat and power in the CTL process, off-

setting declines in coal consumption for coking and

other industrial uses.

http://www.eia.doe.gov/oiaf/aeo/pdf/trend_2.pdf

 

Here is a very  detailed report on the Natural gas market,

 

http://www.ferc.gov/market-oversight/st-mkt-ovr/som-rpt-2009.pdf

 

And, also in this mammoth report, they highlight why NG  in heavy trucks will be a long time coming:

 

there is no infrastructure , and the outlays for NG fuel systems in trucks are very expensive,

 

http://www.eia.doe.gov/oiaf/aeo/natgas_fuel.html

[Uccmal]

I was reading a fascinating, but brief article on the weekend where the author suggested that the Eurozone, and the US, will try to drive down the price of oil one way or another.  The rationale for this is that they will save enough in a couple of years to pay for all of the stimulus packages, deficits, etc.  30-40/bbl oil will save the collective EU/US a couple of trillion over a couple of years.  China would also benefit. 

 

At these prices I am staying clear of direct investments in O&G companies.  The time to buy will be when Oil is at < $30 and Gas < $2.00.  That being said I carry smallish positions in Mullen Group and Precision Drilling.  These guys will get the cash either way if drilling on the continent picks up. 

 

When FFH structures deals with companies such as Sandridge they look out for FFH and FFH shareholders.

[omagh]

This may be the article.  Definitely unconventional thinking...

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/the-buy-side/is-austerity-the-future-for-the-west-not-if-the-generals-can-be-useful/article1577027/

 

I was reading a fascinating, but brief article on the weekend where the author suggested that the Eurozone, and the US, will try to drive down the price of oil one way or another.  The rationale for this is that they will save enough in a couple of years to pay for all of the stimulus packages, deficits, etc.  30-40/bbl oil will save the collective EU/US a couple of trillion over a couple of years.  China would also benefit.

[Uccmal]

Yeah, that's it.  The author is a bit of a strange character but he is a value investor.  He has taught at the Value Investing school at Western that FFH endows. 

[Rabbitisrich]

This may be the article.  Definitely unconventional thinking...

http://www.theglobeandmail.com/globe-investor/investment-ideas/features/the-buy-side/is-austerity-the-future-for-the-west-not-if-the-generals-can-be-useful/article1577027/

 

I was reading a fascinating, but brief article on the weekend where the author suggested that the Eurozone, and the US, will try to drive down the price of oil one way or another.  The rationale for this is that they will save enough in a couple of years to pay for all of the stimulus packages, deficits, etc.  30-40/bbl oil will save the collective EU/US a couple of trillion over a couple of years.  China would also benefit.

 

I enjoyed the article and the odd turns of mind of the author. Cui bono speculations tend towards specious arguments, but the author's point about the relationship between global risk premium and trade deficits is well taken.

[Myth465]

I was reading a fascinating, but brief article on the weekend where the author suggested that the Eurozone, and the US, will try to drive down the price of oil one way or another.  The rationale for this is that they will save enough in a couple of years to pay for all of the stimulus packages, deficits, etc.  30-40/bbl oil will save the collective EU/US a couple of trillion over a couple of years.  China would also benefit. 

 

At these prices I am staying clear of direct investments in O&G companies.  The time to buy will be when Oil is at < $30 and Gas < $2.00.  That being said I carry smallish positions in Mullen Group and Precision Drilling.  These guys will get the cash either way if drilling on the continent picks up.   

 

When FFH structures deals with companies such as Sandridge they look out for FFH and FFH shareholders.

 

 

This is the most interesting post I have read all week. May have to rethink a few things, I work in oil and gas so I might have to hedge a bit. I see nat gas falling off the face of the earth. All the solutions are loooooooooooooonnnnnnnnnnnnnggggggggggg term and the drillbit is very short term. Oil I think has longer legs but this Greece / Korea thing has killed prices in a matter of weeks.

[oldye]

 

You are right, I was using the department of energy projections, I hope they have a relatively good handle what near term demand will look like. 

 

 

Awesome Ted Talk by Bill Gates that makes me think that we'll be a lot closer to the high technology outcome and energy consumption per capita will drop by 40% in the U.S by 2030.  I hope by the time China has 200 million cars on the road, I'll be driving an electric car because I don't see why they won't be as widespread as hybrids are today as early as 2020. 

[biaggio]

interesting article by Avner Mandleman noted above.

 

I can t see how government can manipulate energy prices down. Other than promoting technology that decreases consumption.

 

Everything I see makes be think that we re in for higher prices in US dollars (government printing $$$ to pay for bailouts, developing countries using more energy, North American's relunctant to give up SUV's). This is my conventional wisdom which is probably wrong, so I appreciate the thoughts of UCCMAL, and those posed in article.

[Uccmal]

Biaggio, I honestly have no idea.  It is just my opinion that if you are buying a company based on the commodity price rising, then that could turn out to be a less than lucrative proposition.  Sandridge by some estimates needs at least the prevailing price of natural gas (c. $4.00), probably higher to break even. 

 

I can suggest as many reasons why oil & gas can go down in price, as reasons why it should go up:

 

1) Down:

- Government intervention in the form of war (could have opposite effect as well), taxation, direct pressure (this is not the 1970s anymore, OPEC is far more fractured). 

- Greater fuel efficiency across the spectrum

- greater use of coal

- greater use of other alternatives - each adding a minor effect but in aggregate having a sign. effect.

- switching to gas which we seem to have an abundance of on the continent

- Vastly greater use of tar sands

 

2) Up

- Opec

- declining production (oil)

- increasing demand - so far this is proving elusive but could be the product of a recession

- Geopolitics

 

3) Price up but cash flow drops

- drilling costs rising - less return/well

- processing costs rise (Recall summer of 2007 or was in 2008)

- refining shortages

 

All of these are unknowable so unless you are dead sure that oil & gas wont go down in price then basing a purchasing decision on the extraction price right now or at some point in the future is a weak proposition. 

[biaggio]

Thanks UCCMAL.

 

Probably best to stay in non commodity type of investments within our circle of competence.