Energy Sector

[Gregmal]

Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.

 

They already do much of the same with utilities. So there’s steps that can be taken without completely turning everything upside down. Berkshire, the ultimate capitalist company, finds this setup compelling enough to represent a significant portion of their business portfolio. Bottom line is O&G is and has been a shit show for sometime. It’s volatile, for many actually massively value destructive, and probably outside of auto, run by the worst types of people.

 

I don’t invest in this space for much of these reasons, but I mean to at the least, be able to understand why certain measures are currently being taken to protect things(irrespective of agreeing or disagreeing with the action) is not hard. But of course, here’s Dalal again with his Trump conspiracies and loudmouth rambling, foaming at the mouth just waiting to accuse all others of the same things.

 

Governments, especially in times of crisis, have demonstrated they will do whatever is necessary to prop up the country. Yes, bailouts, subsidies, money printing, etc. You don’t have to like it, but you’re a fool if you don’t understand that this is what they do. Pretty much every time. Energy is on the brink, so expect them doing and saying whatever it takes.

[Dalal.Holdings]

Agree guys, clearly this is a thread about "Energy Sector" and Trump has nothing to do with going ons of energy sector these days so please stop discussing conspiracy theories and let's talk about something more relevant like Hunter Biden and Burisma or her e-mails.

 

Energy is "on the brink" and we must save it -- all those junk bond creditors are worth saving for the sake of America. We all know oil industry cannot survive Chapter 11. After all, bankruptcy will erase all those wells and drills and we'll have to start anew. They must be bailed out, it's all a natural part of the American capitalistic process.

[SharperDingaan]

There will be US shut-ins. Neither free market trade, or a tariff wall, will change that. A substantial portion of NA production (off-shore) is currently operating at a cash flow loss, and is 2-3 months from shut-in at best. All in addition to US Shale.

 

Bluff is just that, bluff. 'Walk' talks, and 'proof of commitment' can take many forms. All it takes is a twitter post and 'heads up' on a pending announcement ... that's going to be big, very big. The Friday WH meeting with the oil industry was for a reason; an implementation is coming, we just don't know what.

 

'Proof of commitment'. Show us the walk, not the talk.

The Twitter finger is getting itchy.   

 

SD

 

Excuse me if I misunderstand your post--always takes me a few reads of your posts and even then I'm not 100% sure...lol

 

Trump has already exercised his "heads up" announcement and tweets and it moved oil up substantially. What more can he do with tweets/announcements that doesn't shatter whatever shred of credibility he may have left?

 

He's just started on the selective tweeting of 'behind closed door' discussion. 'Leaks' to selective media, to move a discussion along, is a long-standing diplomatic process. Trump just does it by Twitter, but same objective.

 

Aside from the oil industry colluding like a cartel to take a hit and all cut production (and actually abide by it), what else is going to fill the 20-30 million barrel/day hole?

 

The global production cut IS ALREADY THERE. We just don't see it yet because producers are eating the cost (MC>MR) to maintain market share. Stop eating the loss, shut-in instead, and a magical production cut appears.

 

And Russia says they'll only cut if U.S. cuts, but:

 

The thing about U.S. producers is it is a capitalist system unlike many others and colluding/price fixing *like a cartel* is not legal. Furthermore, if U.S. drillers go bankrupt, their wells do not stop pumping--they keep pumping for the creditors and/or shareholders in bankruptcy and they will keep pumping after CH 11 because now the breakeven cost of that well is lower. Drilling may stop, but the existing wells will likely keep producing.

 

Our sandbox, our rules, we change as we want. Put the shale leases in the hands of the majors (via $QE funded asset purchases out of BK), and the production stops. There will still be some, but now it'll be a responsible bleed off.

 

I don't see how U.S. cuts production...Trump (in addition to crude imports) would have to ban/tariff refined product exports to achieve this? But lots of second/third order negative effects from doing so.

 

NA can export whatever it wants, the exports just get world price (lower). Exporters to the US pay the tariff difference, & there's still a profit as long as long as the product is not available in NA. Tariff $ collected pay towards offsetting affects. It's just terrifying to many, because it's unpredictable change. We have markets for that.

 

 

Replies are in red.

The take-away from this is that the industry is 'resetting the game', and that 'change' events like this are fairly common. The US going off the gold-standard, WW's, pandemics. Brexit, Trumps election, advent of crypto-currency, etc. We just don't want to hear it.

 

SD

[Gregmal]

These are just politics inspired assumptions you’ve made. Should bailouts happen? The answer varies depending on ones beliefs. Will they happen? Absolutely. And if you can’t acknowledge that, or that it has little to do with who is in office, then there’s not much else to say.

 

With bankruptcies and junk bonds tied to E&Ps, they should all be wiped out. But this obviously conflates Wall Street problems and normal every day normal person problems. There’s ways to wipe out one without the other, but often there is overlap. It’s just odd you can’t comprehend this. Trump really does seem to occupy quite a lot of space in your head and elicit some pretty severe expressions of those feelings. Let it go. If nothing else but for your own wellbeing. My life was good under Trump and good under Obama. I cant imagine running around fueled with such constant animosity over something that really isn’t in your control or worth festering over...

[Dalal.Holdings]

 

Replies are in red.

The take-away from this is that the industry is 'resetting the game', and that 'change' events like this are fairly common. The US going off the gold-standard, WW's, pandemics. Brexit, Trumps election, advent of crypto-currency, etc. We just don't want to hear it.

 

SD

 

Thanks--agree it's a reset mode, but think it's just the beginning. The resetting will be painful for the industry for a long while and IMO Trump cannot stop it. I'm sure the super majors are hoping to pick at the carcasses of all those shale firms down the road as well. Only after wide consolidation may more "rational production" take hold out of U.S. oil output, but will take time.

[rb]

Sure. So nationalize the oil industry and regulate output. Wouldn't even cost very much right now.

 

They already do much of the same with utilities. So there’s steps that can be taken without completely turning everything upside down. Berkshire, the ultimate capitalist company, finds this setup compelling enough to represent a significant portion of their business portfolio. Bottom line is O&G is and has been a shit show for sometime. It’s volatile, for many actually massively value destructive, and probably outside of auto, run by the worst types of people.

 

I don’t invest in this space for much of these reasons, but I mean to at the least, be able to understand why certain measures are currently being taken to protect things(irrespective of agreeing or disagreeing with the action) is not hard. But of course, here’s Dalal again with his Trump conspiracies and loudmouth rambling, foaming at the mouth just waiting to accuse all others of the same things.

 

Governments, especially in times of crisis, have demonstrated they will do whatever is necessary to prop up the country. Yes, bailouts, subsidies, money printing, etc. You don’t have to like it, but you’re a fool if you don’t understand that this is what they do. Pretty much every time. Energy is on the brink, so expect them doing and saying whatever it takes.

Except they're not talking about any of that. They're talking about a tariff. Which is direct financing from the consumer to the oil companies without any responsibility. It's the ultimate money grab for these guys.

 

If you get a $20/bbl tariff tomorrow there will be so much green on O&G equity and credit it'll look like Ireland on St. Patrick's day. Where did that money come from? From the pocket of the consumer. Who gets nothing for generating so much value for these guys.

 

You see it's not that the sector shouldn't be helped. It's that they don't want to pay anything. Even the banks had to pay. This is basically the most corrupt bullshit I've seen and I've seen a lot.

[Dalal.Holdings]

You see it's not that the sector shouldn't be helped. It's that they don't want to pay anything. Even the banks had to pay. This is basically the most corrupt bullshit I've seen and I've seen a lot.

 

It is bullshit and amusing at the same time how rapidly "free market" principles are (temporarily) thrown out by their most ardent proponents. They'll be back to talking about free market principles and personal accountability once things are better.

 

Trump looking to bail out his core voters--does not have any principles, and only motivated by self interest.

[james22]

Where did that money come from? From the pocket of the consumer. Who gets nothing for generating so much value for these guys.

 

Well, some of those consumers will keep their Energy sector and related jobs of course.

 

And did this not register at all?

 

If the industry is protected when oil prices are low, the public ought to be protected when oil prices are high. If in the future the oil price were to rise above a specified level, the public should share in the proceeds through the progressive taxation of those profits. Call it a public-private partnership, with advantages for both parties.

[Dalal.Holdings]

If the industry is protected when oil prices are low, the public ought to be protected when oil prices are high. If in the future the oil price were to rise above a specified level, the public should share in the proceeds through the progressive taxation of those profits. Call it a public-private partnership, with advantages for both parties.

That is a form of nationalization and will never happen and you know it. The GOP, whenever in power (good times will keep on going brah), will always erode any government intervention/taxes/share of the profits (e.g. Trump tax cuts during growing economy).

 

So over the long term you end up with capitalism for the upside, socialism for the downside.

[ValuePadawan]

I don't understand why the gov't can't just take small equity stakes in companies that will be struggling in the short term but will be successful in the long term. The equity would be without voting rights totally passive and rolled into a sovereign wealth fund for the people to profit off of when the world gets back to normal.

 

Good companies get liquidity.

 

The public gets the value of providing capital when it is badly needed.

 

Win-win

[minten]

I don't understand why the gov't can't just take small equity stakes in companies that will be struggling in the short term but will be successful in the long term. The equity would be without voting rights totally passive and rolled into a sovereign wealth fund for the people to profit off of when the world gets back to normal.

 

Good companies get liquidity.

 

The public gets the value of providing capital when it is badly needed.

 

Win-win

 

and who decides what companies that struggle short term will be succesful long term? i see huge potential for nepotism here.

 

also, a structure like this would become a self-fulfilling prophecy, with the market trusting companies that get the government on-board, and distrusting those that don't, regardless of fundamentals. 

[RichardGibbons]

I'm perplexed as to why anyone other than an oil worker or politician would see any benefit to bailing out the oil industry (or even the aviation industry, for that matter). They're not like the banks, where multiple failures can potentially break the economy.

 

The productive physical assets will still be there after bankruptcy. So, let the companies die, and give the next guy a go. (I think this is probably true for almost any industry that derives its production primarily from physical assets.)

[minten]

For me the biggest bullish indicator for oil last week was not an OPEC+ meeting, but that Trump seems to want the oil price up at all. I wasn't too sure if he really wanted too, as he'd been pretty silent on the topic and always insisted in the past he actually wanted a low oil price.

 

And I personally think Trump is an idiot, but he's also very simplistic in always wanting to win something he considers to be a battle, and he's completely unpredictable. By throwing his weight at oil, sending off random tweets that proved to be false, speculating about tariffs, he will no doubt scare everyone around him. Because god knows what moronic destructive course of action Trump might take, just to win a fight he has now picked. Basically this forces everyone around him to have to walk on their toes, because they know the guy sitting on the other end of the negotiation table is a mad-man. It is kind of brilliant actually if it was on purpose.

[SharperDingaan]

 

Replies are in red.

The take-away from this is that the industry is 'resetting the game', and that 'change' events like this are fairly common. The US going off the gold-standard, WW's, pandemics. Brexit, Trumps election, advent of crypto-currency, etc. We just don't want to hear it.

 

SD

 

Thanks--agree it's a reset mode, but think it's just the beginning. The resetting will be painful for the industry for a long while and IMO Trump cannot stop it. I'm sure the super majors are hoping to pick at the carcasses of all those shale firms down the road as well. Only after wide consolidation may more "rational production" take hold out of U.S. oil output, but will take time.

 

Once lit, this will happen rapidly, 3-6 months at most.

Assume the only buyers are those on the WH conference call, and funded with 0% long-term $QE. Debt bought from the banks at X cents in the dollar, swapped into majority equity interests, and the wells shut-in. Moratorium on squeezing out the minority interests, for Y years. Bails the banks out, the oil industry out, delivers the promised cuts, executes rapidly, and everybody can plan again.

 

Phaze 2, a NA/EU tariff wall to ensure security of supply. Cooperate, and we do it after the elections.

Fcuk with us, and we do it now. Demonstrate your 'proof of commitment'  by announcing cuts, we'll demonstrate ours by NOT announcing a tariff.

 

SD

 

[opihiman2]

I find another forum I often visit much more insightful that this one when it comes to discussion of the oil/gas industry.  I think this is pretty appropriate to the discussion of tariffs:

 

"I struggle to see how import tariffs will have any impact on WTI pricing. What we import and what we produce are essentially two different products, even though we call them both crude oil.

 

US refiners are already using as much light sweet crude as possible. They're tooled up to run primarily heavy sour crude. That's why we export so much crude. So an import tariff doesn't mean the refiners will be more inclined to run more domestic oil to help the shale producers.

 

Tariffs on imported crude will just raise the price of gasoline, not WTI... We live in a world where the international markets are going to weigh heavily on the price of WTI, in part due to large volumes of exports. Trump's tariff does nothing to alter international pricing. As long as OPEC keeps flooding the international market, WTI is along for the ride. Saddle up boys..."

 

As an aside, I didn't know this, but apparently Trump didn't know semi's run off of diesel:

 

https://www.businessinsider.com/trump-trucking-shortage-elds-leaked-audio-2020-1

 

Anyways, I think this thread has completely derailed.  I don't think I or anyone else on here has any real edge in oil investments.  I've looked at Deep Basin Capital's recent filings, and even these guys have been making pretty bad bets on the sector.  But what I do know is this:

 

1) There's a shit ton of oil out there -- peak oil was stupid

2) For the next few years, oil demand is going to stay low

3) NA oil / gas production will likely be decimated

4) The only real long term bet is integrated majors and some midstreams.  But, even refiners will have a hard time.  Midstream MLP's will likely get wiped out or their dividends will get crushed.

 

My bets are going to be: BP, RDS, CVX, VLO, and maybe PSX.  Shorting all things shale related.

 

[KJP]

I find another forum I often visit much more insightful that this one when it comes to discussion of the oil/gas industry.  I think this is pretty appropriate to the discussion of tariffs:

 

"I struggle to see how import tariffs will have any impact on WTI pricing. What we import and what we produce are essentially two different products, even though we call them both crude oil.

 

US refiners are already using as much light sweet crude as possible. They're tooled up to run primarily heavy sour crude. That's why we export so much crude. So an import tariff doesn't mean the refiners will be more inclined to run more domestic oil to help the shale producers.

 

Tariffs on imported crude will just raise the price of gasoline, not WTI... We live in a world where the international markets are going to weigh heavily on the price of WTI, in part due to large volumes of exports. Trump's tariff does nothing to alter international pricing. As long as OPEC keeps flooding the international market, WTI is along for the ride. Saddle up boys..."

 

As an aside, I didn't know this, but apparently Trump didn't know semi's run off of diesel:

 

https://www.businessinsider.com/trump-trucking-shortage-elds-leaked-audio-2020-1

 

Anyways, I think this thread has completely derailed.  I don't think I or anyone else on here has any real edge in oil investments.  I've looked at Deep Basin Capital's recent filings, and even these guys have been making pretty bad bets on the sector.  But what I do know is this:

 

1) There's a shit ton of oil out there -- peak oil was stupid

2) For the next few years, oil demand is going to stay low

3) NA oil / gas production will likely be decimated

4) The only real long term bet is integrated majors and some midstreams.  But, even refiners will have a hard time.  Midstream MLP's will likely get wiped out or their dividends will get crushed.

 

My bets are going to be: BP, RDS, CVX, VLO, and maybe PSX.  Shorting all things shale related.

 

You don't predict that natural gas demand will crater.  So, regarding (3), why is gas production going to get hit?  I understand why associated gas may decrease and potentially decrease substantially.  But the US has plenty of high-quality areas for gas-directed drilling, and won't those areas be helped by a decline in associated gas? 

[Dalal.Holdings]

https://www.ft.com/content/c4121d80-0815-4d7d-b43f-582f55ad2892

 

Some of the world's largest oil companies  have raised more than $32B in recent weeks to ensure they have the cash to deal with the economic effects of the coronavirus while preserving dividends, the Financial Times reports.

 

LOL! Let's bail these guys out, hit consumers/refiners with tariffs that raise the price of WTI/gas so these companies can keep paying their shareholders divis! No moral hazard here.

 

Daddy Trump to the rescue!

[Spekulatius]

Capitalism on the upside, socialism on the downside sounds like a great company slogan.

 

Personally, I absolute think we should save our crude, not the E&P industry for later. If the latter goes broke, the rocks with shale oil will still be there in the future. No reason to exploit them when crude is plentiful.

 

But I am not running the country and I think Trump will do something. It’s just his nature to meddle in stuff.

[rb]

Where did that money come from? From the pocket of the consumer. Who gets nothing for generating so much value for these guys.

 

Well, some of those consumers will keep their Energy sector and related jobs of course.

 

And did this not register at all?

 

If the industry is protected when oil prices are low, the public ought to be protected when oil prices are high. If in the future the oil price were to rise above a specified level, the public should share in the proceeds through the progressive taxation of those profits. Call it a public-private partnership, with advantages for both parties.

 

Well very few of those consumers will keep their energy jobs.

 

Your quote about what should happen when prices rise is also bullshit.

 

1. Nobody is talking about that except guy on the internet. Right now it's straight tariff. Straight subsidy.

 

2. You notice how there is full backstop when oil prices are low, but only progressive taxation when oil prices are high. Why progressive? Why not progressive backstop when shit hits the fan.

 

3. Even if something like that were to be implemented it will be bullshit. Because after x amount of years you'll have a Republican administration that will come in (invariably when oil prices are higher) and remove it because it's "socialism". Of course that will last until oil prices crater again and they'll need a little more sacrifice from the consumer in order to save jobs. If you need more proof look at Dodd-Frank. You bail out the banks. Huger protests, Tea Party movement. We put in Dodd-Frank to prevent banks fro doing that shit again. Republican administration comes in. What do those Tea Party dudes do? Vote en-mass to weaken Dodd-Frank.

 

4. The oil companies will never go for it or work to weaken it the moment they don't need it (see 3). What is described around here is roughly the equivalent of Canada's National Energy Program way back when. These days of course the oil companies would benefit greatly from a National Energy Program and would love to have one in place. Back the Alberta's (Canada's Texas) answer to the NEP was "Let the Eastern Bastards Freeze in the Dark". That about summarizes the goodwill of the energy producers.

 

5. It's been amazing for me for this past couple of weeks to discover this new species. The bleeding heart Conservative. Socialism is horrible. That is until oil companies are loosing money. At that point we must put away our differences and work together to save hard working oil patch jobs. But aside from that, special attention should be paid to the  extremely vulnerable high yield-bond holders, oil investors, and oil executives. After all they're also someone's mommy and daddy.

[Gregmal]

IDK, fuck the energy investors. For the most part, sure its anecdotal, but they're get rich quick fools. And Lee Cooperman.

 

Stupid liberals get rich quick in penny stock biotechs, conservatives try with penny stock e&p's.

[SharperDingaan]

4. The oil companies will never go for it or work to weaken it the moment they don't need it (see 3). What is described around here is roughly the equivalent of Canada's National Energy Program way back when. These days of course the oil companies would benefit greatly from a National Energy Program and would love to have one in place. Back the Alberta's (Canada's Texas) answer to the NEP was "Let the Eastern Bastards Freeze in the Dark". That about summarizes the goodwill of the energy producers.

 

Seem to recall that it was a little different .....

https://en.wikipedia.org/wiki/National_Energy_Program

The bitch was two-fold 1) those Eastern Bastards were nationalizing 50% of 'our' well-head production, and making 'us' pay for it!, and 2) those Eastern Bastards were smarter and bigger bastards than we were!! Lot of drama, but ultimately it came down to our patch, our rules, we can change them whenever we want, and have done so.

 

"The main elements of the program included:

 

(a) a blended or 'made-in-Canada' price of oil, an average of the costs of imported and domestic oil, which will rise gradually and predictably but will remain well below world prices and will never be more than 85 per cent of the lower of the price of imported oil or of oil in the US, and which will be financed by a Petroleum Compensation Charge levied on refiners...;

 

© a petroleum and gas revenue tax of 8 per cent applied to net operating revenues before royalty and other expense deductions on all production of oil and natural gas in Canada...;

 

(e) a federal share of petroleum production income at the wellhead which will rise from about 10 per cent in recent years to 24 per cent over the 1980-83 period, with the share of the producing provinces falling from 45 to 43 per cent and that of the industry falling from 45 to 33 per cent over the same period;

 

(g) a Canadian ownership levy to assist in financing the acquisition of the Canadian operations of one or more multinational oil companies, with the objective of achieving at least 50 per cent Canadian ownership of oil and gas production by 1990, Canadian control of a significant number of the major oil and gas corporations, and an early increase in the share of the oil and gas sector owned by the Government of Canada."

 

SD

[LC]

Stupid liberals get rich quick in penny stock biotechs, conservatives try with penny stock e&p's.

 

Don't forget weed stocks - they're the great equalizer  ;D

[Xerxes]

Saudis Take Big Stakes in European Oil Companies

Looks like PIF is finally able to put money to work on tangible assets at depressed prices as oppose to Masa Son's intangible

 

https://www.wsj.com/articles/saudis-take-big-stakes-european-oil-companies-11586382353?mod=hp_lista_pos1

 

 

[james22]

So much for diversifying their oil industry risk.

[ValuePadawan]

Smells like insider trading to me but for a whole nation.

 

Step 1 Pump as much oil as possible dropping oil prices and oil stocks

 

Step 2 Cut production and get the upside when the stocks rebound