Energy Sector

[Dalal.Holdings]

"The quicker solution would be to effectively reward drillers for taking a timeout. Under the approach being developed by the Energy Department, the agency would contract with companies to delay production of proven oil reserves for several years, if not indefinitely. When that crude is finally extracted and sold, the proceeds would go to the Treasury. Companies would be selected through an auction, with the government picking the lowest-price bidders."

 

It just indicates how clueless the administration leadership actually is.

We already have this process, it's called bankruptcy (market at work). The treasury just buys the leases out of bankruptcy, and sits on them indefinitely. No paying anybody, not to drill.

 

SD

 

The shale patch and associated votes are worth a lot to this admin's reelection campaign. So are farmers. They will try whatever it takes to bail these sectors out.

 

Remember, as in 2016, you do not need to win the most votes (popular vote) to win the election, you just need to win votes that are in the right places.

[rb]

The shale patch and associated votes are worth a lot to this admin's reelection campaign. So are farmers. They will try whatever it takes to bail these sectors out.

 

Remember, as in 2016, you do not need to win the most votes (popular vote) to win the election, you just need to win votes that are in the right places.

Do you really think that the oil ppl will under any circumstance vote D?

 

Also how is this helping shale patch voters? Last time I checked you don't need a lot of people to not drill.

[Dalal.Holdings]

The shale patch and associated votes are worth a lot to this admin's reelection campaign. So are farmers. They will try whatever it takes to bail these sectors out.

 

Remember, as in 2016, you do not need to win the most votes (popular vote) to win the election, you just need to win votes that are in the right places.

Do you really think that the oil ppl will under any circumstance vote D?

 

Also how is this helping shale patch voters? Last time I checked you don't need a lot of people to not drill.

 

Margins on Pres elections in the U.S. is not very large. Even a low single digit swing either way can change the color of a state. All it takes is economic hardship from shale to trickle to other businesses in those areas to threaten the admin's security in those regions.

 

Farmers + oil folks are key constituents for R's. Even the appearance of doing something--like attempting to broker an OPEC agreement--goes a long way in helping secure votes (even if those attempts fail to stop job losses).

[SharperDingaan]

Drilling companies have few employees, not the land owners, and those drilling companies are the problem.

 

The solution is a tariff, and a swap of industry debt for interest only federal debt, at terms of 5-years plus. Drill if the netback covers the interest and G&A. Set the tariff high enough to get the netback necessary. Employees keep their jobs, states keep earning royalties, and a grateful southern states votes for you.

 

SD

 

[Mephistopheles]

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

[Spekulatius]

Drilling companies have few employees, not the land owners, and those drilling companies are the problem.

 

The solution is a tariff, and a swap of industry debt for interest only federal debt, at terms of 5-years plus. Drill if the netback covers the interest and G&A. Set the tariff high enough to get the netback necessary. Employees keep their jobs, states keep earning royalties, and a grateful southern states votes for you.

 

SD

 

Just put them all on PPP and preserve the resource for future generations. It’s cheaper.

[LC]

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

[TwoCitiesCapital]

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

 

I intend to do this once more bankruptcies hit the sector. No ideas what prices will do in the meantime, but would like more pessimism priced in and more clarity on who the consolidators will be BEFORE I buy.

[Spekulatius]

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

 

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

[plato1976]

I don't even know how to value these big oils

what's the long term oil price should we assume? $40 ?

 

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

 

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

[LC]

To be fair Spek, I took some profits today. My two big concerns are the high capex and potential dividend cut (they have not earned the dividend and doubt they will this year with prices the way they are).

 

Also to add onto this: energy is far, far out of my circle of competence. This is purely a trading bet and maybe describing it as a 5% position is too generous. More like a 2% position that I would hope grows into 5% position? I'm somewhat flying blind here if that wasn't apparent already :D

[Spekulatius]

I don't even know how to value these big oils

what's the long term oil price should we assume? $40 ?

 

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

 

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

 

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.

[plato1976]

what's the reason for the cost elasticity

?

 

I don't even know how to value these big oils

what's the long term oil price should we assume? $40 ?

 

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

 

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

 

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.

[Spekulatius]

what's the reason for the cost elasticity

?

 

I don't even know how to value these big oils

what's the long term oil price should we assume? $40 ?

 

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

 

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

 

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.

 

Labor cost, day rate inflation. Marginal projects getting approved. It’s what happens in industries that like to play on the margin. Typically in the past there was a delay due to long project lead times, but when shale started to dominate, the costs and the prices track each other closer.

[plato1976]

In other words it's a financial discipline issue.

Is there any FCF focused energy company ?

 

what's the reason for the cost elasticity

?

 

I don't even know how to value these big oils

what's the long term oil price should we assume? $40 ?

 

Looking at this from 10,000 feet, I see three things

1. Supply shock: Now there is an output cut from OPEC+. This indicates to me that higher prices are in the long run interest for these countries.

2. U.S. Interests: It's also clear that a thriving domestic oil industry is in the long run national security interest of the U.S, and this also requires higher prices

3. COVID Demand shock: This is what is keeping prices low for the time being

 

#1 and #2 will ensure to keep a floor on prices, so once #3 resolves isn't Crude likely to shoot back up?

 

We will see many bankruptcies among the U.S. producers. Those assets though will likely end up with the majors, who should be able to survive.

 

So then is a good investment idea to buy a basket of the majors at historic low equity values (XOM, CVX, RDS, BP)?

 

This is the small bet I've made with XOM. <5% position but I would like to build to a 5% position in the next month or so.

 

How do you value XOM?  XOM doesn’t look cheap to me, except they go back to peak earnings in 2012 or so. It’s just plain overvalued. So many better options out there (not in energy though)

 

That’s the problem, I am not sure the model works at any crude price. Even the majors had problem living within their ash flows at $80-100/brl. The costs have shown a lot of elasticity , both on the way up, as well as on the way doen. Based on FCF, the majors were never cheap. You have to assume that the future is different than the past in order to be successful and more than just a higher crude price is needed.

 

Labor cost, day rate inflation. Marginal projects getting approved. It’s what happens in industries that like to play on the margin. Typically in the past there was a delay due to long project lead times, but when shale started to dominate, the costs and the prices track each other closer.

[rb]

Anybody else seeing CL1 trade with a $7 handle? Or am i starting to hallucinate from cabin fever?

[matts]

Anybody else seeing CL1 trade with a $7 handle? Or am i starting to hallucinate from cabin fever?

 

CL1 expires this week. so anyone who didn't want to take physical delivery of oil had to sell/roll to next month. Shortly, CL1 will become June contract which is trading at 22.55. The 7 dollar oil is just fodder for the media. Although it makes me wonder how many people were trading these futures without understanding they needed to get out ahead of the crowd to avoid this kind of reverse squeeze.

[rb]

Anybody else seeing CL1 trade with a $7 handle? Or am i starting to hallucinate from cabin fever?

 

CL1 expires this week. so anyone who didn't want to take physical delivery of oil had to sell/roll to next month. Shortly, CL1 will become June contract which is trading at 22.55. The 7 dollar oil is just fodder for the media. Although it makes me wonder how many people were trading these futures without understanding they needed to get out ahead of the crowd to avoid this kind of reverse squeeze.

It's not just fodder for the media. It's at these levels because nobody wants to take these barrels. June contract @22 has more to do with price of storage rather than the price of oil.

 

Apparently the were some idiots that bought about 500.000 barrels of the may contract on Friday. Indicators point toward retail investors.

[ValuePadawan]

I'm seeing WTI at $1 a barrel am I hallucinating or has the world gone mad?

[longlake95]

Brent oil is only down 5%. Someone is playing with WTI futures. July oil $27.

[KJP]

Brent oil is only down 5%. Someone is playing with WTI futures. July oil $27.

 

If you can't take physical delivery, what are you going to do?

[Liberty]

What a time to be alive. Oil down 93%

[rb]

I think brent already switched to the june contract.

 

But if you were a refinery and needed some barrels wouldn't you wanna buy here? Hell if you live around Cushing and have a swimming pool it may be worth it to fill it with WTI. Seems nobody is buying.

 

I think come tomorrow there's gonna be some pissed off brokerages that are gonna start looking into how they go about storing oil.

[Charlie]

What is the best way to profit from this oil price?

[rb]

What is the best way to profit from this oil price?

Have a storage tank at Cushing.

 

Edit: An empty storage tank  ;D