Energy Sector

[whiterose]

KMI got cut in half, am I missing something?

[KJP]

KMI got cut in half, am I missing something?

 

I was just responding to your specific question.  I agree that all midstream appears to have collapsed, regardless of whether it directly or indirectly relies on domestic oil production.  I don't believe we'll be shutting down power plants or no longer heating our homes in the winter.  So, I expect natural gas to continue to flow, such as it did in the aftermath of the GFC.  So, what's going on with natural gas pipelines? 

 

Perhaps try to invert this, what would have to be true if the market price is correct?  That's what I'm trying to think through.  Can't roll debt?  Don't get paid even if pipes are used? 

[JRM]

Both KMI and WMB have flexibility.  It's not like they on the edge of insolvency.  At this point they should cut the dividend, stop buybacks, and delay any review growth cap ex.  They should preserve cash and wait to see what happens.  I've been trying to stress test the balance sheets of each company and I have a hard time killing either company.  I am asking the same question, what am I missing. 

[Spekulatius]

WMB is mostly demand driven as far as Transco and Northwest pipes are concerned . I think that’s about 55% of their operating earnings. The iffy part is the G&P in the Marcellus and Wyoming that are feeding in Transco and Northwest respectively. A lot of NG producers there are close to bankruptcy, but shutting of NG that is produced as byproduct of crude production might actually help them.

 

In any case, even if producers go down, the demand for NG is still there, minus some from LNG facilities and such perhaps.

[opihiman2]

Holy SHIT!  I was expecting $20 by this summer.  WOW!  $20 WTI today!!  Some MLP pipelines are being priced like they're going out of business: PAA is down 30+% today.

 

This is pure insanity.  Once in a hundred year black swan event: global / US recession was looming late 2018, mass pandemic, and on top of that, an oil price war between three countries with one over-levered one. 

 

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+% 

[SharperDingaan]

Think about this the other way

 

If you had naked puts on some of these companies, your gains are currently so big; that there is a real possibility that counter-parties are not going to be able to make good on them. And in many industries, if you are a wise C-suite manager; you WILL have naked puts on the major competitors in your industry. If you manage to keep your company afloat, via a combination of laying off people and cutting back - how are you going to deal with the fortune you've just made? Can't exactly spend it, even if you had to send friends in low places around to collect  :(

 

SD

 

[KJP]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

[Spekulatius]

Holy SHIT!  I was expecting $20 by this summer.  WOW!  $20 WTI today!!  Some MLP pipelines are being priced like they're going out of business: PAA is down 30+% today.

 

This is pure insanity.  Once in a hundred year black swan event: global / US recession was looming late 2018, mass pandemic, and on top of that, an oil price war between three countries with one over-levered one. 

 

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

 

It seems likes Great Depression, but we had sub $10/brl (might have been as low as $8 ) for a brief time in 1998 and it wasn’t a Depression.

 

https://www.macrotrends.net/1369/crude-oil-price-history-chart

[rb]

It's not gonna be the great depression, but it definitely matters more now. In the 90s low oil prices were good because the US profited from that. But now, they produce a lot of the stuff. So the balance has shifted. It's labour intensive, so it employs a lot of people with good wages. Moreover, these jobs are in some shithole places in the country. If oil wasn't there these guys would be lucky to get a job at Dennys.

 

So it matters more than before. But not anywhere any depression level stuff.

[petec]

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

 

You can’t have a depression in a fiat money system unless politicians and central bankers choose to have one. We are far more likely to have an inflation.

[rb]

Calling it now, this is a Great Depression 2 making event.  Indices are likely to go past 50% down to even 70+%

 

You can’t have a depression in a fiat money system unless politicians and central bankers choose to have one. We are far more likely to have an inflation.

You are correct in your premise, but wrong in your interpretation. You CAN have a depression if your politicians and central bankers are dumb enough. Have you looked around lately....?

 

Though i agree unless there was something seriously wrong with the economy that was papered over (not impossible, I have certain doubts). There is no depression to come.

[opihiman2]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

 

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now. 

[KJP]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

 

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

 

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

 

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into. 

[TwoCitiesCapital]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

 

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

 

What's crazy about the mREITs that they basically are 5-7x leveraged versions of govt bonds. Even before today they were trading @ 20-30% discounts to NAV and then were down another 30% today!!!! NLY is down 50% from its recent highs.

 

To compare w/ 2008 (which was a crisis in their investment product of mortgages), they were up significantly depending on where you start and end you observation. But flat to plus 50% is still significantly better than the minus 50 we're seeing now :/

[compoundinglife]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

 

The Goldman levered MLP CEFs disclosed on March 9th that they were going to zero leverage. The one If I am remembering correctly, the one I looked at had 70m of leverage on a 100m portfolio.

[opihiman2]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

 

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

 

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

 

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into.

 

You should read this paper:

 

https://necsi.edu/the-stock-market-has-grown-unstable-since-february-2018

 

It basically says that the markets were primed for huge price swings.  It didn't predict that swings would happen.  It just said that if there is a crisis (like coronavirus and oil war), the markets will swing wildly like we see now.  It doesn't provide an explanation, though.  Although, maybe having more leveraged ETF's than before is likely causing this issue.  Vehicles like 3x bull / bear ETF's weren't really around pre 2008.

[KJP]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

 

Yeah, I just saw this with mREITs today.  Two UBS leveraged ETF's in mREITS were just liquidated!  Most of these stocks were down 40 to 50%!  HOLY SHIT!  My gawd, man. I'm freaking the fuck out right now.

 

I'm actually encouraged by this.  It provides a plausible (though not necessarily complete or correct) explanation that had previously been lacking, at least on this thread.

 

Also, midstream companies and mREITs are often levered up to their eyeballs.  Is it wise to then lever your investment in them?  I assume part of the answer is that these are retail yield vehicles whose buyers don't understand what they're getting into.

 

You should read this paper:

 

https://necsi.edu/the-stock-market-has-grown-unstable-since-february-2018

 

It basically says that the markets were primed for huge price swings.  It didn't predict that swings would happen.  It just said that if there is a crisis (like coronavirus and oil war), the markets will swing wildly like we see now.  It doesn't provide an explanation, though.  Although, maybe having more leveraged ETF's than before is likely causing this issue.  Vehicles like 3x bull / bear ETF's weren't really around pre 2008.

 

I took a look at the paper.  As you note, it's hard to glean anything from it, but your hypothesis about one of the potential factors makes sense:  The more leveraged investors are, the more forced selling there will be.

[KJP]

Interesting post:  https://catalyst-insights.com/the-virus-infecting-mlps/

 

Here are the fact sheets for the two levered MLP funds discussed in that post:

https://cef.tortoiseadvisors.com/media/1762/tyg-fact-sheet_022920_retail.pdf

https://www.gsam.com/content/gsam/us/en/individual/products/cef-fund-finder/goldman-sachs-mlp-and-energy-renaissance-fund.html#activeTab=holdings

 

They must have been selling at any price, though I doubt they have any assets left at this point. 

 

EDIT:  They also hold shares of the publicly traded C-corps.  See, e.g., this portfolio disclosure from the Tortoise Fund:  https://www.sec.gov/Archives/edgar/data/1268533/000114554920004137/xslFormNPORT-P_X01/primary_doc.xml

 

Here's another levered midstream CEF:  https://kaynefunds.com/wp-content/uploads/KYN-20-02-29-NAV-Press-Release.pdf

 

It's down about 80% so far in 2020. 

 

And another:  https://www.leggmason.com/en-us/products/closed-end-funds/clearbridge-energy-midstream-opportunity-fund-inc.html

 

It's down 90% YTD. 

 

And why not, here's one more:  https://www.leggmason.com/content/dam/legg-mason/documents/en/product-literature/fact-sheet/fact-sheet-cbi-energy-mlp.pdf

 

These funds are now selling at big discounts to NAV, which is no surprise given the recent performance.

 

[KJP]

  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936

[opihiman2]

  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936

 

This is a tough call.  If they agree to cuts and Russia is on board, I think oil pumps up a bit.  But the demand side of the equation.  It's anyone's guess at this point.  I'm still thinking WTI tanks below $20, and Brent goes to about $20.  At that point, I'm starting to buy the majors and some midstreams.  10% of the portfolio goes into this.

[Viking]

  https://www.wsj.com/articles/opec-u-s-shale-producers-open-talks-amid-oil-rout-11584719936

 

This is a tough call.  If they agree to cuts and Russia is on board, I think oil pumps up a bit.  But the demand side of the equation.  It's anyone's guess at this point.  I'm still thinking WTI tanks below $20, and Brent goes to about $20.  At that point, I'm starting to buy the majors and some midstreams.  10% of the portfolio goes into this.

 

Is the news article essentially saying the US is going to join OPEC? Wow. Amazing how fast the world can change.

[opihiman2]

The more I think about it, I think this is all just wishful thinking: US, SA, and Russia forming an alliance and a truce, cut back on production, and bam, we're back to $50 oil.

 

Knowing Russia, they have no qualms with destroying US shale.  I mean, think about it.  Why would Russia HELP US shale recover?  They recover, the mexican beer virus is gone, demand is back up, and Russia is back in the same bullshit as it was a few years ago.  No, this time, they're going to take the pain to crush U.S. oil.  Putin has said many times he think US shale tech  is barbaric.  The timing is absolutely perfect.  Probably 1 in a 100 year event just unfolded, and there's not going to be another oppty for Russia to finally take a deep stab into the heart of US oil. 

 

This is likely going to be a long drawn out battle.  Still, below $20 on brent, I'm starting to buy the oil majors and some mid streams.

[Xerxes]

i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

 

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

 

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

 

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

 

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.

[kab60]

Why not just go with a pipeline operator like Williams which is mostly demand driven from utilities and NG? Decent ROIC, irreplacable assets, fat yield. If rates stay low, essential infrastructure should do pretty great. Otherwise I like the idea of betting on oil by going long the ruble - perhaps through something like Sberbank. Doesn't have to constantly drill holes to keep status quo.

[opihiman2]

i am not sure if that has been stated before, but i mention it anyways. Russia's oil industry has a ruble-based cost structure whereas Saudi's oil industry has a riyal-pegged-to-USD cost structure.

 

What it means is that as the barrel drops in USD, the commodity-based currency ruble plunges and so does Russia's cost base, whereas for the Kingdom, they get fully crushed on their margin, because their production cost are all effectively USD. All this to say that Moscow has a built-in damper that helps it a bit when the barrel drops. Inversely as barrel shots up, ruble may appreciates too much and that would cap their gain as well.

 

Coming out of this, i believe the US shale producers will be consolidating under the banner of non-shale Exxon and Chevron and some of the bigger player in the Permian basin. And that Moscow and Riyadh will be looking at a much stronger opponent down the road in the US.

 

I own both Shell and Exxon and have seem them deteriorate. i hope they cut their CAPEX and focus on share buyback. But i think at this point with how low the barrel is, as new investor, a better directional play on the crude that doesn't involve the headaches of knowing the O&G company would be to go long on RUBLE - the currency itself.

 

When i bought Exxon and Shell some years back in 2017-18, my objective was not capitalize on rising oil price, but on production increase of the super majors. My view has been that the 'risk premium' has long gone since almost 5-6 years ago, we just didn't know it at the time. My bet was that Exxon will become the mega super major through its $35B CAPEX annual spend in the Permian Basin that would expand its production. Whereas Shell would pivot toward the natural gas and in time renewables. 

 

I desperately looking for a Daniel Yergin's follow-on book when it comes out at some point. it has been fascinating journey.

 

That's a very interesting take, and the ruble trade is something I haven't considered.  In fact, I just watched a CNBC video this morning talking about the Russia / SA price war, and they mentioned that the ruble has been tanking.  I compared it to other petro related currencies like CAD, and it's down about 20 to 25%.  Looking longer term from the oil bust after GFC till $60+ oil, it looks like Ruble is down against both CAD and USD.

 

I'll probably just go long oil via the majors.  I'm thinking refinery operations will recover the fastest.  VLO and CVX look good.  I like BP and Shell based on their cash balance sheets. 

 

This Daniel Yergin book sounds interesting.  Care to provide a TL;DR?