goldfinger

""Petrobras' financial strength has weakened and refinancing risk has increased," said Nymia Almeida, a senior credit officer with Moody's in a statement announcing the downgrade. "Free cash flow will remain negative in the foreseeable future as international oil prices remain weak." Petrobras' plan to raise $15.1 billion from asset sales by the end of 2016 made little progress. Only about three percent of target has been sold and the largest sale faces a court challenge. As a result, it is unlikely Petrobras will substantially reduce its debt, Moody's said. At nearly $130 billion, it is the largest of any oil company. This, Moody's added, also reduces the chance of significant increases in oil output. The review for a possible further downgrade will focus on the company's ability to close its funding gap, Moody's said. Petrobras has been cut off from capital markets since a corruption scandal erupted a year ago. With only about $25 billion of cash on hand $24 billion coming due in 2016 and 2017, Petrobras will need new capital from either asset sales or investors to make capital investments needed for new areas and to maintain existing ones. Petrobras plans to spend about $19 billion on capital investments in 2016, about half the level of previous years."

Some national companies seem to be struggling with debt and costs like here: "State oil companies Pemex and Petrobras are also feeling the pressure. Pemex is reportedly nine months in arrears in paying its service providers, and Petrobras, reeling under a mountain of debt, is trying to sell assets — a strategy workers are opposing. Striking workers cost the company as much as 200,000 bpd of lost production in November." 200k boe/day production loss in Petrobras only and in November this year! EIA was expecting Brazil's production to actually increase decently this year and the next... We haven't even started looking at Venezuela that's getting into a cash crunch as we speak. EIA is also expecting shale to grow again 2H 2016, after 500+k boe/day lost. At these prices the decline will only accelerate... not counting GOM and offshore...

I am just reading "the frackers", seems like this happened in 1980s and 1990s too after the gulf war. How are people so confident that this will turn so quickly this time around? If history is any guide, this can go much lower from here. Geopolitics seems to suggest supply is going to keep going up. I am not really sure if we are going to see firms in america default on their debt. IMO when push comes to shove, most banks and creditors are going to extend and pretend. Everyone knows this is cyclical, so why eat your losses now, when you can extend the maturities/lower coupons and wait for payments in future. Most shareholders though, might get severely hurt.. There is a huge huge difference in between a world with 25% oversupply and massive spare low cost capacity in OPEC (SA, middle east) - the 80s - and today with not even 2% over capacity (if the market is not already balanced as we speak - refer to Hall and others), little spare capacity and 70% of new resources from expensive production... I think the danger down the road is actually the inability to cope with new demand as early as 2017, end 2016 (may be earlier). About bankruptcies let's just see what happens when 2015 hedges expire... given debt levels in shale companies for example... Finally most of the market participants actually see no end is sight to the downturn and prices going potentially to 20$ (and not a reversal of the current situation). It can reach 20$ maybe, because of high inventories, but it will probably clear the excess much much faster than otherwise... I have read a few posters on other boards who follow worldwide storage (not only NA) and came to the conclusion that they are actually globally receding already - USA flat in the last few months at 1.3B barrels with 4-6m propane deficit, Europe - flat, China down by almost 20m barrels. Which seems to indicate that analysts have not yet caught with a potential current reversal of the excess supply situation... Coincidentally Andrew Hall came to similar conclusions... This is a completely different world from the 80s.

Your welcome Cardboard. Nawar does great balanced detailed research from lots of reputable sources and it has great value. Glad it is useful to you!

Do you know if the author has a strong opinion on bitcoin? It seems like he'd have a strong opinion on bitcoin. Sorry I do not follow him, just caught up on the news through different articles...

Same here: http://peakoilbarrel.com/eia-says-shale-continues-to-decline/

Collapse of shale production has started: https://srsroccoreport.com/collapse-of-u-s-shale-oil-production-has-begun/

Market isn't that elastic really. It takes a while for these prices to bring change. http://www.bloomberg.com/news/articles/2015-12-07/opec-unshackled-from-quota-could-add-millions-of-barrels-in-2016 So again I'd say many NA companies and their shareholders are fucked. This likely isn't going to resolved in a few quarters. There should be a wave of bankruptcies early 2016 as 2015 hedges die and current prices are in effect... Production in NA will decrease by more than 500k barrels next year, but yeah it will take next year at least to rebalance the market

Nawar's very detailed analysis on what he calls the twin oil crashes of 2014 and 2015: http://www.authorstream.com/Presentation/nawar295779-2683608-2014-2015-oil-crash/ Highly recommended...

Cash costs of existing production looks like this ww: http://screencast.com/t/rJ8Q0g2q5Fjv below 40$ there is more than 2.5/3M boe/day of production that becomes uneconomic. below 30$ this number increase by 1M to 2M below 20$ there is around 14M boe/day of production that becomes uneconomic. Let alone depletion (>3%/year with maintenance). Companies start shutting in production when it gets uneconomic to produce. Last time I checked the supply/demand equation was at 1M, 1.5M boe/day of excess production at most. So how long does it take to make a dent to stocks at these price levels?

http://www.rigzone.com/news/oil_gas/a/141659/Analyst_Oil_Supply_and_Demand_to_Rebalance_in_2016

I am more focused on oil producers - ISIS is a small part of the issue: SA financed terrorist groups... Iran/SA are in competition in the middle east and the old fight in between Shiites and Sunnis is pretty much going on right now (Look at Syria/Iraq/Yemen etc...). Also what happens when Iraq, Venezuela, Russia etc... and so on have to face budget deficit for a sustained period of time because of oil is another question...

Except that the geopolitical factor is discounted at 0$ in the oil price today... Last time I checked things are heating in the ME and in many producing countries...

Yeah meanwhile OPEC keeps pumping it out of the ground. I cant remember the last time i filled up a whole tank on less than 20$. I paid with cash for the first time in forever because I literally got change back. Contrary to what everyone is saying, today's OPEC meeting talked about focus on inventories and managing potential new prod (Iran) which can be a sign of change in direction during the next quarters. Will see... I wonder how many producers (Iraq, Venezuela) come to mind will be able to maintain prod at current prices?

http://www.businessinsider.com/baker-hughes-rig-counts-december-4-2015-12 Rig counts is relentlessly falling. What's interesting this week is that it is GOM rigs that are now falling more than other areas. 41 last year, 22 now. GOM is the area that slowed down the decline in NA but not next year... Meanwhile shale/deep see will continue to deflate until higher prices come back.

Everyone is pumping the max they can. Years of 100$ oil financed this. Projects still came online in 2015. Now at 40$ it is getting harder just to maintain production in 50+% of prod and what they called a glut has already narrowed down from 2.5mboe/day to 1-mboe/day in the last year. Stocks is the thing that allows for all these shorts to feel confident for now. Shale I think puts a soft cap on prices close to 60+$/boe.

Why do people assume that the oil market is going to behave any different since the gas shale revolution. Perhaps this is a paradigm shift and people are just not accepting the new reality. I know some consider me a perma bear on oil. That is not the case. I have been looking but there is are so few opportunities right now. Why do the bulls think an "eventual recovery" in prices is right on the horizon? The NG market has been in a tailspin since the shale gas revolution took over and today are at record lows. Why is oil going to be any different than the NG market? As I have written elsewhere, I was in total denial when the NG market tanked, not to recover for almost a decade. Until I see something compelling that oil is "different", I will be very, very skeptical. I am not a bull by definition, just think that 40$ is too low as demand has been growing much more quickly ww with these prices and marginal cost of new barrels is way above 40 (shale included). Why should we compare a global market like that with bat gas though?

Well, good luck on his call but doing this with 100% of a portfolio is probably insane even if he turns out to be right. It's one thing if it's your own money, but managing on behalf of others is a different story. At least he's upfront about it so people who are uncomfortable can get out if they want. Huge gutsy move by this guy. Here are some facts that don't support his view of the world, particularly the supply situation. The world neither knows nor cares what we think or what we think "should" happen. 1) Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures. (see Iraq crude import graph below) http://www.bloomberg.com/news/articles/2015-11-11/opec-challenges-shale-afresh-as-iraq-crude-floods-gulf-of-mexico 2) This will hit the market at a time when US storage is bulging and US production is no longer declining. Going long here, when a flood of supply is hitting the market is a gutsy move. (see graph below) 3) Supply is now cheap and plentiful. North Dakota has 1000 wells drilled but not frac'd ready to be turned on. New record. This will keep a hard ceiling on oil prices going forward. https://bakken.com/news/id/248095/north-dakota-oil-well-backlog-eclipses-1000-for-first-time/ By the way last numbers show that american production is still (slowly) declining: http://www.eia.gov/totalenergy/data/monthly/pdf/sec3_3.pdf - look at Aug to Sept. With number of shale DUCs going to 0 and shale productivity numbers showing a plateauing since pre-middle 2015 in NA and average production prices of new barrels at 60+ in the average, I do not see how what you describe is a sustainable trend at all. What has slowed down the decline in NA production is GOM projects (long life) which have been coming online all year long. This is not going to be repeated in 2016 as new projects have all been cancelled due to low prices. We have not yet repealed the "the cure for low prices is low prices" law...

Well, good luck on his call but doing this with 100% of a portfolio is probably insane even if he turns out to be right. It's one thing if it's your own money, but managing on behalf of others is a different story. At least he's upfront about it so people who are uncomfortable can get out if they want. Huge gutsy move by this guy. Here are some facts that don't support his view of the world, particularly the supply situation. The world neither knows nor cares what we think or what we think "should" happen. 1) Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures. (see Iraq crude import graph below) http://www.bloomberg.com/news/articles/2015-11-11/opec-challenges-shale-afresh-as-iraq-crude-floods-gulf-of-mexico 2) This will hit the market at a time when US storage is bulging and US production is no longer declining. Going long here, when a flood of supply is hitting the market is a gutsy move. (see graph below) 3) Supply is now cheap and plentiful. North Dakota has 1000 wells drilled but not frac'd ready to be turned on. New record. This will keep a hard ceiling on oil prices going forward. https://bakken.com/news/id/248095/north-dakota-oil-well-backlog-eclipses-1000-for-first-time/ It is from 2016 forward that things are going to get interesting though: - Libya is actually the next potential supply increase surprise. - Iraq is going to find it hard to increase production substantially at such low prices and with the (geo)political situation there. Iraq's gov cannot pay its people anymore... - consumption has been surprising on the upside almost everywhere in the world (China included) and this trend seems to be continuing as low oil prices persist. - data from most specialized organized (IEA, IEA, OPEC etc...) is showing supply balance by 2H2016. - the Saudi language has changed in the last few weeks as they seem to fear price spikes in 2/3 years as the world is losing its ability to respond to demand increase with the current cancellations. - shale productivity stalled 6 to 9 months ago. The cost of new barrel is around 60$ in the average there - probably putting a ceiling in that viscinity unless demand grows too fast... I am responding with phone and this is making it harder to add the supportive data... Recent world inventory numbers by several orgs are: OPEC IEA STEO May 2905 2905 2839 June 2905 2905 2866 July 2923 2914 2880 August 2943 2975 2920 September 2942 2989 2935 If one takes out the propane build (~= 40M barrels), the build in between May and September seems to be around 15M barrels. It doesn't support the 1M to 1.5M barrels per day of advertised oversupply (which was >2.3M barrels in the middle of 2015...). So that the supply/demand equation is already tightening beyond current expectations/projections... The world might actually be undersupplied as early as 1H 2016 if we follow these data (reckless to bank on that but this shows there is a lot of sentiment in the pricing of oil right now too...). The most balanced view though is 2H 2016. Other than that Iraq has now become a supply risk as their outburst of production is already factored in the recent data/pricing. Beyond their inability to pay people and cope with maintenance costs why is it that everyone ignores the rapidly changing (for the worst) geopolitical situation? Also the fact that Saudis and Russians are getting together to work on oil/gas cooperation as here: http://www.reuters.com/article/2015/11/26/russia-saudi-oil-idUSL8N13L3GO20151126 is a strong signal that they are getting ready to act to ensure more stability in the price of oil - 55/60$ being the pricing where NA cannot ramp up massively yet... Are we about to see some key decisions made in the next OPEC meeting or in June next year?

Well, good luck on his call but doing this with 100% of a portfolio is probably insane even if he turns out to be right. It's one thing if it's your own money, but managing on behalf of others is a different story. At least he's upfront about it so people who are uncomfortable can get out if they want. Huge gutsy move by this guy. Here are some facts that don't support his view of the world, particularly the supply situation. The world neither knows nor cares what we think or what we think "should" happen. 1) Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures. (see Iraq crude import graph below) http://www.bloomberg.com/news/articles/2015-11-11/opec-challenges-shale-afresh-as-iraq-crude-floods-gulf-of-mexico 2) This will hit the market at a time when US storage is bulging and US production is no longer declining. Going long here, when a flood of supply is hitting the market is a gutsy move. (see graph below) 3) Supply is now cheap and plentiful. North Dakota has 1000 wells drilled but not frac'd ready to be turned on. New record. This will keep a hard ceiling on oil prices going forward. https://bakken.com/news/id/248095/north-dakota-oil-well-backlog-eclipses-1000-for-first-time/ It is from 2016 forward that things are going to get interesting though: - Libya is actually the next potential supply increase surprise. - Iraq is going to find it hard to increase production substantially at such low prices and with the (geo)political situation there. Iraq's gov cannot pay its people anymore... - consumption has been surprising on the upside almost everywhere in the world (China included) and this trend seems to be continuing as low oil prices persist. - data from most specialized organized (IEA, IEA, OPEC etc...) is showing supply balance by 2H2016. - the Saudi language has changed in the last few weeks as they seem to fear price spikes in 2/3 years as the world is losing its ability to respond to demand increase with the current cancellations. - shale productivity stalled 6 to 9 months ago. The cost of new barrel is around 60$ in the average there - probably putting a ceiling in that viscinity unless demand grows too fast... I am responding with phone and this is making it harder to add the supportive data... Recent world inventory numbers by several orgs are: OPEC IEA STEO May 2905 2905 2839 June 2905 2905 2866 July 2923 2914 2880 August 2943 2975 2920 September 2942 2989 2935 If one takes out the propane build (~= 40M barrels), the build in between May and September seems to be around 15M barrels. It doesn't support the 1M to 1.5M barrels per day of advertised oversupply (which was >2.3M barrels in the middle of 2015...). So that the supply/demand equation is already tightening beyond current expectations/projections... The world might actually be undersupplied as early as 1H 2016 if we follow these data (reckless to bank on that but this shows there is a lot of sentiment in the pricing of oil right now too...). The most balanced view though is 2H 2016. Other than that Iraq has now become a supply risk as their outburst of production is already factored in the recent data/pricing. Beyond their inability to pay people and cope with maintenance costs why is it that everyone ignores the rapidly changing (for the worst) geopolitical situation?

When one looks at companies like penn west and factors in non core production sales, core production optimizations and exchange rate, one will find out that it will be very profitable at 50/55$ per barrel. Probably as much as if oil was at 70+$/barrel in the recent past. So prices capped by shale will be fine.

Well, good luck on his call but doing this with 100% of a portfolio is probably insane even if he turns out to be right. It's one thing if it's your own money, but managing on behalf of others is a different story. At least he's upfront about it so people who are uncomfortable can get out if they want. Huge gutsy move by this guy. Here are some facts that don't support his view of the world, particularly the supply situation. The world neither knows nor cares what we think or what we think "should" happen. 1) Iraq, the fastest-growing producer within the 12-nation group, loaded as many as 10 tankers in the past several weeks to deliver crude to U.S. ports in November, ship-tracking and charters compiled by Bloomberg show. Assuming they arrive as scheduled, the 19 million barrels being hauled would mark the biggest monthly influx from Iraq since June 2012, according to Energy Information Administration figures. (see Iraq crude import graph below) http://www.bloomberg.com/news/articles/2015-11-11/opec-challenges-shale-afresh-as-iraq-crude-floods-gulf-of-mexico 2) This will hit the market at a time when US storage is bulging and US production is no longer declining. Going long here, when a flood of supply is hitting the market is a gutsy move. (see graph below) 3) Supply is now cheap and plentiful. North Dakota has 1000 wells drilled but not frac'd ready to be turned on. New record. This will keep a hard ceiling on oil prices going forward. https://bakken.com/news/id/248095/north-dakota-oil-well-backlog-eclipses-1000-for-first-time/ It is from 2016 forward that things are going to get interesting though: - Libya is actually the next potential supply increase surprise. - Iraq is going to find it hard to increase production substantially at such low prices and with the (geo)political situation there. Iraq's gov cannot pay its people anymore... - consumption has been surprising on the upside almost everywhere in the world (China included) and this trend seems to be continuing as low oil prices persist. - data from most specialized organized (IEA, IEA, OPEC etc...) is showing supply balance by 2H2016. - the Saudi language has changed in the last few weeks as they seem to fear price spikes in 2/3 years as the world is losing its ability to respond to demand increase with the current cancellations. - shale productivity stalled 6 to 9 months ago. The cost of new barrel is around 60$ in the average there - probably putting a ceiling in that viscinity unless demand grows too fast... I am responding with phone and this is making it harder to add the supportive data...

Are we heading towards a huge miss in forecasts (Goldman especially) and a historic collapse of production in NA?

Ask Europe where they think they are going as we speak. Ask Japan where they are and have been for a long time. 10y treasury yields at 2% in the US, inflation close to 0 after a few rounds of QE american style...

I would suggest that CONeal is absolutely correct here! I was asked to speak to some engineers at Google, and I said that I don't deserve to speak at Google until I've done something noteworthy. I've seen other managers write books about how to be like Buffett, yet their funds or businesses flounder or fail. I've seen a manager I praised highly fall mightily in terms of ethics and respecting shareholders. Shareholders will see us announce many new things over the next 5 months, next 5 years and as long as I can run the company. You are just at the very tip of the beginning...the 1st batter, of the 1st inning of a 9 inning game. Let's get through the first few innings before you think I deserve any sort of section for Premier. I'll do my best to get one though! ;D Cheers and thanks for your support! Parsad, You are such a level headed and honest guy that I have the utmost confidence in your success. Wishing you the very best in your efforts. Charlie Munger I think talks about deserved success and I cannot think of a better person who qualifies. Vinod I feel extremely fortunate being able to be a long term shareholder in Premier with a humble yet incredibly capable CEO at its helm. I am very happy to have joined early and to have been able to follow Sanjeev's opinions and actions in the last decade through this forum in particular - especially in the thick of the great recession and the following banking crisis. I learned or confirmed certain lessons during that time! I also made plenty of money...