Energy Sector

[opihiman2]

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.

 

WMB is looking interesting, but I still think it's overpriced given the market dynamics.  Even in post GFC and 2016 when oil briefly tanked to 30's, WMB was a bit lower then than it is now.  But, you're right.  WMB is looking more and more interesting.  But, I still think it goes lower.  Not buying until it hits single digits.  My bet is the dividend gets cut or suspended.

[Spekulatius]

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?

 

Pretty much any foreign currency has been taking against the USD, but oil related currencies like MXN or NOk and RUB have done the worst. MXN and NOK are down 20% compared to the USD.

[Xerxes]

His earlier book The Prize finished in the 90s.

He had a subsequent book called The Quest that I actually enjoyed less than The Prize.

 

But in the past year, he has been hinting on Bloomberg TV that he is working on something.

No title nor any release date. I imagine the news flow keeps adding to to that story.

[Mephistopheles]

What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

[finetrader]

It’s a commodity

[Spekulatius]

What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

 

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.

[NewValueinvestor]

yes but you still need to understand the dynamics of energy companies, the more you read the better your prepared.

 

A MLP or pipeline company is quite different from say, a natural gas exploration company.

Here's blog I found useful as a start:

 

https://www.canadianvalueinvestors.com/oil-and-gas-investing-101

 

My understanding is that there are 3 main sections in crude oil:

 

Upstream - Oil exploration, drilling, service providers

 

Midstream - Refiners, pipelines, chemical facilities, etc.

 

Downstream - Oil & Gas distribution, marketing of petrochemicals, gas stations, jet fuel sales, etc.

 

Depending how the energy company operates you need value each one a little differently, like Enbridge would be a little different than say range resources. For integrated majors, supermajors, I think it's a good idea to value their main separate segments listed above then do sum of the parts and add it together.

 

I could be very wrong, but this is how I'm approaching looking at energy companies.

[Mephistopheles]

What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

 

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.

 

Well how else to learn about competitive dynamics for instance? Not only between horizontal competitors but between upstream, mid, and downstream players. I'm sure I can buy a basket of shale producers and if oil shoots back up I can make a killing but I'd rather be able to understand nuances between different companies.

[Spekulatius]

What's the best way to learn about oil and gas for a beginner? I'm trying to read through this massive 400 page primer but it's old from like 2007, I'd like to find something more up to date.

 

Do you even need primers? Just study the income and foremost the cash flow statements and everything else flows from that. Primers tend to get you into rabbit holes that make you blind for collective shortcomings of an industry.

 

Well how else to learn about competitive dynamics for instance? Not only between horizontal competitors but between upstream, mid, and downstream players. I'm sure I can buy a basket of shale producers and if oil shoots back up I can make a killing but I'd rather be able to understand nuances between different companies.

 

I would avoid shalers altogether. If you do invest in upstream at all, stick with majors or those with long live resources like the Canadian oils Sand plays CNQ and SU or perhaps CVE if you like an option like play.

 

The reason why long live resources can survive longer is because they don’t have to reinvest as much once the resources is operating, except for maintenance capital. Shale is a short live resource and thy constantly nerf to drill or the resources are going to run dry.

 

But in a way, that is also obvious through the cash flow statement, if you dig enough, hence my remark. Midstream is similar in this way as are refineries. All of them are better than shale E&P‘s imo.

[opihiman2]

Damn, I think I might have been too optimistic on oil, and I'm now backing out of going long oil under $20.  This damn thing is heading under $10.

[samwise]

Question for those who follow refiners. Does the crack spread get affected by crude prices? I would have thought it shouldn’t.

 

Why are refiners down so much more than the market then ? Is it just an anticipation of lower demand and capacity utilization. Or is something else .

 

Thanks in advance.

[shhughes1116]

Question for those who follow refiners. Does the crack spread get affected by crude prices? I would have thought it shouldn’t.

 

Why are refiners down so much more than the market then ? Is it just an anticipation of lower demand and capacity utilization. Or is something else .

 

Thanks in advance.

 

It is most definitely affected by crude prices.  The crack spread represents the difference between the incoming cost of crude (usually a function of the cost of crude from a particular basin that is accessible to the refinery), and the value of the outbound products (e.g. gasoline, diesel, jet fuel, asphalt).  Light crude and heavy crude produce a different ratio of outputs, and that ratio depends on the complexity of the refinery (e.g. presence of absence of a hydrocracker).

 

Anyways, the cost of crude is falling, and it looks like the value of the outputs is falling as fast, if not faster.  Hence, crack spreads are tightening, which is negative for refiners. 

[opihiman2]

I haven't heard about Kupperman in a LONG time.  I thought Praetorian Capital was doing pretty bad with that whole weird real estate thesis in Mongolia.  Like, what the hell were they thinking?  But, this sounds like a pretty good idea:

 

https://moiglobal.com/crisis20-harris-kupperman/?utm_source=rss&utm_medium=rss&utm_campaign=crisis20-harris-kupperman

 

I haven't looked at bulk shippers since the BDI blew up many years ago and people lost their shirts on companies like DRYS.  But, thoughts on this?  VLCC companies might be getting some huge tailwinds soon.

[sleepydragon]

Is OXY a good buy here?

 

[opihiman2]

Is OXY a good buy here?

 

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.

[Stuart D]

Is OXY a good buy here?

 

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.

 

Might be worth looking at the bonds ranking ahead of BRK’s $10b preferred stock. From memory I think the debt maturing 2022 was selling for 60c.

[sleepydragon]

Is OXY a good buy here?

 

I would avoid it.  Anything in hydrocarbon exploration and drilling is going to get fucked.

 

But over longer term this price is not sustainable. Saudi and Russia will have to work out something so everyone can win. If OXY issue more equity, they might be able to survive. Or now Icahn is on the board, they may sell it to a bigger company— maybe Berkshire?

 

I am a newbie in this. Not much insights.

I bought some OXY but it’s not a big conviction holding.

 

Might be worth looking at the bonds ranking ahead of BRK’s $10b preferred stock. From memory I think the debt maturing 2022 was selling for 60c.

[SharperDingaan]

For those who know squat. TTEN on the TSX

If you think you can do better than this basket, for the same risk, then good on you.

 

SD

[opihiman2]

 

Also, Canadian crude is now cheaper than a fucking pint of beer.  Why the fuck would you go long on Canadian oil?  I wouldn't start making bets on energy / oil until we see some kind of direction from OPEC+.  Anything else is just pure gambling at this point. 

 

I would advise any newbies on here to read the insanely STUPID Sandridge Energy and CHK threads on this forum.  You pretty much could have bypassed the idiocy with one simple question: If these companies can't make money near $100 oil, how the hell are they going to make money at $50 and less?  It was a stupidly long discussion and a big waste of time.  Even Goldman was calling for $200 oil back then.  Fucking retarded.

[montizzle]

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.

 

 

If I follow this right, would it be fair to say Canada is in a similar position as russia, where CAD tanks with the price of oil lowering the cost base of oil sands players?

[ratiman]

Something like 5% of global production will be permanently shut-in and oil declines by 5%+ per year so there are some serious shortages ahead, plus there haven't been any big fields discovered in a long time. Canada with it's non-shale production should be in a good position to provide that supply if it can manage to survive. I know that sounds stupid after a six year bear market in oil but it's not going to last forever.

[opihiman2]

I believe this:

 

https://www.rigzone.com/news/april_to_be_one_of_toughest_months_in_oil_history-01-apr-2020-161597-article/?utm_source=SOCIAL&utm_medium=REDDIT&utm_campaign=ANDREAS

 

Even if Russia and SA cut production massively, oil is going to be oversupplied by the coronavirus.  Estimates are something like by 85% due to demand drop. 

 

Also, we're seeing the beginnings of the bankruptcies:

 

https://www.marketwatch.com/story/whiting-petroleum-files-for-bankruptcy-has-enough-liquidity-to-keep-operating-its-business-2020-04-01

 

Physical crude is already below $10.  It's just a matter of time before WTI / Brent prices reflect reality.  Damn, never thought I would ever see single digit crude again in my lifetime.  Saw it during the Gulf War, and now this.  Holy shit.  Life is nuts.

[BG2008]

Something like 5% of global production will be permanently shut-in and oil declines by 5%+ per year so there are some serious shortages ahead, plus there haven't been any big fields discovered in a long time. Canada with it's non-shale production should be in a good position to provide that supply if it can manage to survive. I know that sounds stupid after a six year bear market in oil but it's not going to last forever.

 

Everytime I think oil is cheap, it finds a way to impress me on the downside. 

[SharperDingaan]

I believe this:

 

https://www.rigzone.com/news/april_to_be_one_of_toughest_months_in_oil_history-01-apr-2020-161597-article/?utm_source=SOCIAL&utm_medium=REDDIT&utm_campaign=ANDREAS

 

Even if Russia and SA cut production massively, oil is going to be oversupplied by the coronavirus.  Estimates are something like by 85% due to demand drop. 

 

Also, we're seeing the beginnings of the bankruptcies:

 

https://www.marketwatch.com/story/whiting-petroleum-files-for-bankruptcy-has-enough-liquidity-to-keep-operating-its-business-2020-04-01

 

Physical crude is already below $10.  It's just a matter of time before WTI / Brent prices reflect reality.  Damn, never thought I would ever see single digit crude again in my lifetime.  Saw it during the Gulf War, and now this.  Holy shit.  Life is nuts.

 

The US, Canada, and Mexico make up roughly 24% of global oil consumption. The EU is another 15%.

Net the two regions together, and they are largely self-sufficient in the supply of oil/gas.

 

Most folks expect the emergence of a tariff wall around these regions within the next few months. Most likely a NA tariff first at around USD 62 WTI. EU to join later at a pegged Brent-WTI spread. We end up with a cartel of supply (Opec+), plus a cartel of demand (The West). Game changer.

 

We live in interesting times.

 

SD

 

 

[james22]

Most folks expect the emergence of a tariff wall around these regions within the next few months. Most likely a NA tariff first at around USD 62 WTI. EU to join later at a pegged Brent-WTI spread. We end up with a cartel of supply (Opec+), plus a cartel of demand (The West). Game changer.

 

Would you buy in anticipation of such a tariff, SD?