Energy Sector

[Ulti]

https://podcasts.apple.com/us/podcast/jeff-currie-on-the-volatility-trap-keeping-commodity/id1056200096?i=1000557582351
 

still the best explaination of what’s going on in the commodities market..” long term contracts solve shortages”. This is already starting to happen in Nattie…. And the long term contracts all producers to invest

[CorpRaider]

Thanks Spek.  Yeah it's too early to tell if this will have any impact or will be material (or was over the last 3-5 years).  Cliff Asness @ AQR wrote a paper about the potential larger impacts of ESG on the cost of capital/expected returns, but might be special "moving parts" for oil & gas.  My only exposure is through Berkshire and index funds.

Edited June 3, 2022 by CorpRaider

[lnofeisone]

6 hours ago, SharperDingaan said:

Most o/g companies are currently only paying royalties, and will not be paying income tax for quite some time. All those stranded asset write-downs, and accumulated losses over the last few years - have created $ multi-billion tax pools. Even at USD 120 oil, it is going take a good 6+ quarters before most companies pay income taxes.

Slightly OT and mostly academic: There are 100+  companies that went into BK over the last few years and are sitting on some serious NOLs. At 120 oil an argument can be made that their tier 2 and 3 assets are profitable. An existing non-BK entity can purchase those companies and try to make an argument that the principal purpose of the acquisition is profit and not tax avoidance. Section 269 of IRC has a big bite but with the right lawyers...

[Spekulatius]

Windfall taxes on energy production make no sense. I agree Biden should encourage more production, especially much needed NG.

 

It is odd that the only government that has instituted a Windfall tax, is the conservative UK government under Boris Johnson.

https://www.cnbc.com/2022/05/26/cost-of-living-crisis-uk-slaps-windfall-tax-on-oil-and-gas-giants.html

[SharperDingaan]

17 hours ago, lnofeisone said:

Slightly OT and mostly academic: There are 100+  companies that went into BK over the last few years and are sitting on some serious NOLs. At 120 oil an argument can be made that their tier 2 and 3 assets are profitable. An existing non-BK entity can purchase those companies and try to make an argument that the principal purpose of the acquisition is profit and not tax avoidance. Section 269 of IRC has a big bite but with the right lawyers...

 

Hate to tell you this, but an acquirer would either simply wait for the o/g lease to expire, or buy them out at cents in the dollar - deducting cost of the drilling from the price, as it is a requirement to keep the lease in good standing. The corporate shell containing the tax pool losses, typically just isn't worth the restrictions.

 

The alternative is for existing owners is to put new money in, drill the deposits themselves, pay all the cash flow back to themselves, and abandon as soon as the enterprise is unprofitable. Shareholders lose their investment (Y) and receive (mostly tax free distributions) distributions of X. Sh1tty way of doing business, but keep X > Y, and everyone is happy. Typically sold as a tax shelter, that uses the credibility of the sellers to raise new money.

 

SD   

[SharperDingaan]

The only people bitching about windfall tax are the trading community; short-term, anything that takes away cash from buybacks &/or dividends is bad, therefore this is a terrible idea!!!. Whereas long term, an investor really couldn't be happier.

 

Cash going to windfall tax, reduces cash going to long cycle capex, and ensures that those expensive investments either stay in net depletion, or don't get expanded. Strangle long term supply and oil prices stay higher for longer. What's not to love? 

 

A dollar of tax now for less dollars of tax later, and if you want expansion of long cycle capex - many less dollars of tax later (Cenovus West White Rose?) Again, what's not to love?

 

Government spending has been at war time levels for quite some time. Ultimately it will have to be financed by some kind of new tax - the new tax paying the carry on the modern day version of war bonds. Get tapped first, and you will not get tapped again until everyone else has also made their windfall tax contribution (Wall Street, Big Pharma, etc.). But if that first tap comes with benefits? it's  pretty dumb not to take advantage.

 

Maybe it's really Wall Street that doesn't want to pay? and the strategy is to stop it at the o/g sector? Do what we ask, and we'll help refinance you. Isn't agency great 

 

SD

Edited June 4, 2022 by SharperDingaan

[james22]

Chevron (NYSE:CVX) CEO Mike Wirth said Friday that he does not expect another oil refinery will be built in the U.S. ever again, due to decades of federal government policies.

"We haven't had a refinery built in the United States since the 1970s. My personal view is there will never be another new refinery built in the United States," Wirth said in an interview with Bloomberg.

"You're looking at committing capital 10 years out, that will need decades to offer a return for shareholders, in a policy environment where governments around the world are saying we don't want these products," Wirth said.
 

https://seekingalpha.com/news/3845705-no-new-refineries-likely-ever-built-again-in-the-us-chevron-ceo-warns

 

LOL

[Spekulatius]

2 hours ago, james22 said:

Chevron (NYSE:CVX) CEO Mike Wirth said Friday that he does not expect another oil refinery will be built in the U.S. ever again, due to decades of federal government policies.

"We haven't had a refinery built in the United States since the 1970s. My personal view is there will never be another new refinery built in the United States," Wirth said in an interview with Bloomberg.

"You're looking at committing capital 10 years out, that will need decades to offer a return for shareholders, in a policy environment where governments around the world are saying we don't want these products," Wirth said.
 

https://seekingalpha.com/news/3845705-no-new-refineries-likely-ever-built-again-in-the-us-chevron-ceo-warns

 

LOL

The last major refinery was build in 1976 by what is now Marathon oil. There were a lot of small Ng fractionators build after 2000 to separate propane and high carbon chain components from the shale NG (methane).

It simply does not make sense to build a greenfield refinery, because capacity expansion of existing refineries is much more economical. This has very little to do with government policies, Imo.

Edited June 4, 2022 by Spekulatius

[SharperDingaan]

21 hours ago, james22 said:

Chevron (NYSE:CVX) CEO Mike Wirth said Friday that he does not expect another oil refinery will be built in the U.S. ever again, due to decades of federal government policies.

"We haven't had a refinery built in the United States since the 1970s. My personal view is there will never be another new refinery built in the United States," Wirth said in an interview with Bloomberg.

"You're looking at committing capital 10 years out, that will need decades to offer a return for shareholders, in a policy environment where governments around the world are saying we don't want these products," Wirth said.
 

https://seekingalpha.com/news/3845705-no-new-refineries-likely-ever-built-again-in-the-us-chevron-ceo-warns

 

LOL

 

 

Bit out of date, but there are 5 refineries in Alberta; all of which are relatively young. Suncor (142,000 bpd), Imperial Oil (191,000 bpd), Shell (92,000 bpd), Cenovus (29,000 bpd) and Sturgeon (79,000 bpd). Upgrader capacity is additional, and almost 3x the daily refining bpd processing capacity.

https://open.alberta.ca/dataset/98c15cad-c5d9-4d96-b39c-423210a3050c/resource/7367e817-4fea-4744-a80c-0a81ce5fc907/download/factsheet-upgraders-and-refineries.pdf

 

There is also discussion on a NEW $5 billion Saudi sponsored refinery in Alberta. With Mr. Kenney's recent departure, and the political rhetoric dying down, prospects have markedly improved. 

 https://www.theglobeandmail.com/business/article-saudi-company-eyes-alberta-for-petrochemical-facility-as-province/

 

New refineries are being built in NA; just not on the terms Chevron would prefer.

They are collaborative endeavors with local governments, and with the government as a material partner. A good chunk of Alberta's Sturgeon refinery feedstock is PIK oil, paid in lieu of interest, that would otherwise not be available.

 

Technically, 'refining', now ALSO includes CO2 sequester infrastructure. In the circular economy, crude refined into value add product on the way out - and refined back into inert disposal on the way back. 

 

Times are a changing.

 

SD

Edited June 5, 2022 by SharperDingaan

[james22]

I'm actually optimistic.

 

Policies will change once (now that) their cost is (has been) revealed.

 

"The worse, the better."

[LearningMachine]

On 6/3/2022 at 10:30 AM, Ulti said:

https://podcasts.apple.com/us/podcast/jeff-currie-on-the-volatility-trap-keeping-commodity/id1056200096?i=1000557582351
 

still the best explaination of what’s going on in the commodities market..” long term contracts solve shortages”. This is already starting to happen in Nattie…. And the long term contracts all producers to invest

 

Is it only me, or does Jeff Currie sound like a snake oil salesman at some points in the talk to anyone else also? 

 

How would the futures indexes make you more money if oil price doesn't move much vs. getting cashflow from selling oil even if oil price doesn't move? 

Edited June 5, 2022 by LearningMachine

[Ulti]

Morning LM,

a few things; Currie comes across to me as very well informed( and rehearsed ) and doesn't seem to be selling anything... he recommends the BCOM( which covers energy,ag ,metals etc.) when asked for an investment recommendation in the commodity space and talks about how he wants to own the commodity without owning the company (paraphrasing). He also rec. a heavier weighted energy\ commodity fund for those who wish more energy exposure.

He does an excellent job explaining the current supercycle as he sees it, contrasting it with past history and gives his opinion on what it will take to solve complex issues.

Whether I'm listening to interview with Phil Hodge pine cliff energy\Shubham Garg\Greg Jenson Bridgewater\ Javier Bias from Bloomberg\ Pierre Andurand\or Jeff Currie( and there are many more) or I'm reading this board...everyone is talking their book. I'm just a woefully ignorant investor trying to adopt your name with my reading (haha). All the post here as well as the podcast that I posted

have helped this novice investor stay the course in investing in risky area of commodities.

[LearningMachine]

3 hours ago, Ulti said:

Morning LM,

a few things; Currie comes across to me as very well informed( and rehearsed ) and doesn't seem to be selling anything... he recommends the BCOM( which covers energy,ag ,metals etc.) when asked for an investment recommendation in the commodity space and talks about how he wants to own the commodity without owning the company (paraphrasing). He also rec. a heavier weighted energy\ commodity fund for those who wish more energy exposure.

He does an excellent job explaining the current supercycle as he sees it, contrasting it with past history and gives his opinion on what it will take to solve complex issues.

Whether I'm listening to interview with Phil Hodge pine cliff energy\Shubham Garg\Greg Jenson Bridgewater\ Javier Bias from Bloomberg\ Pierre Andurand\or Jeff Currie( and there are many more) or I'm reading this board...everyone is talking their book. I'm just a woefully ignorant investor trying to adopt your name with my reading (haha). All the post here as well as the podcast that I posted

have helped this novice investor stay the course in investing in risky area of commodities.

 

Thanks @Ulti for sharing the link.  Really appreciate it.  Please keep sharing. 

 

All your links add to my learning as well and in my case, I find that they add to my learning even more if I listen to them critically, and try to poke holes in what they are saying. 

 

I just felt at that some moments in the talk, Currie was stating or implying some logical leaps that I didn't agree with even though he was saying them with so much passion. 

[Ulti]

https://www.currentargus.com/story/news/2022/06/04/nm-oil-and-gas-leases-could-reversed-after-court-ruling/7487820001/

[james22]

When the crap hits the fan, people want return.

 

https://jeffreycarter.substack.com/p/esg-has-a-comeuppance?s=w

[Spekulatius]

There is defiantly a change in climate. Look for example at the Lake a mead reservoir, which is hlf empty now  and the Colorado river system. About 22 million people depend on this water, pretty much Nevada, a good part part Arizona, Colorado and southern California. Many are high growth areas. I am guessing the days that golf courses exist in Phoenix Arizona  soon will be over:

[cubsfan]

^^^ IF the idiots in California cared, they would not release trillions of gallons of fresh water 

into San Francisco Bay to save the precious little Delta Smelt.  California's water problem 

is entirely of their own making. Never underestimate the stupidity of politicians.

[KPO]

15 minutes ago, Spekulatius said:

There is defiantly a change in climate. Look for example at the Lake a mead reservoir, which is hlf empty now  and the Colorado river system. About 22 million people depend on this water, pretty much Nevada, a good part part Arizona, Colorado and southern California. Many are high growth areas. I am guessing the days that golf courses exist in Phoenix Arizona  soon will be over:

Is this climate change or over population in the cities that use Mead and Powell as a water source? Probably some of both, but it’s definitely bad at Mead when bodies start getting exposed from the mob sinking them in the lake back in the day. 

[cubsfan]

^^^ It's definitely poor planning for population growth. Don't build any new reservoirs, tear down

the old dams, cave to the environmentalist over the farmers and residents - and send all the

fresh water out to the sea because you have NOWHERE to store it. The last few winters

you had tremendous snow cap melt from the Nevada Sierras.

 

Where's all the water now?  In the Pacific Ocean

[Spekulatius]

I don’t think states like Arizona have much snow cap melt. Nevada has some but the East side of the Sierras is fairly dry too. These states are screwed LT as far as water is concerned.

If you ever been in summer to Phoenix, you get an idea what hell on earth feels like.

[cubsfan]

There is a tremendous amount of snow melt from the Sierra Nevadas into San Francisco Bay. 

Plenty to solve water problem for the CA Central Valley and agriculture.

But the crazies run the state and so they will ration water just like they ration electricity.

 

Just imagine - shutting down power plants in CA, then importing your energy from Utah

coal burning plants. Just so you can say you are anti-fossil fuel. 

[Gregmal]

The problem in all these places is government, mostly. They purposely don’t solve problems because they run on the hopes of the people thinking they’ll solve them. Look at NJ with marijuana. Big time liberal state. It was voted on years ago. Why did it take so long and why is it still not even really started? Because they hang carrots for voters. The solution is to let private businesses solve the issues via supply and demand. If there’s demand for something, someone will capitalize on it. Leave it to government, and you get 10 cents on the dollar for every measure. 

[SharperDingaan]

The reality is the large numbers of over populated cities located in drought areas. Retire to the sun belt, golf/boat/play in the sun all day, enjoy the good life ... and pass the costs onto someone else - it's the American way!!

 

Water, energy, food - it's rationed folks. Pay up at the supply/demand price, move some place else that you can afford, or croak - your choice. If you have the water and the labour, grow your own food; if you don't have it - import it at a lot less cost from a Mexico/South America.  If you want domestic food/water security, pay the higher cost for the water desalination that it took to get it.

 

You can still have whatever you want, but now you pay the full cost of producing it - including the carbon/plastics pollution that are part of the product. Back in the day Grandpa didn't care, 'cause simply having the product was the reward. But in 2022 Grandson's do, 'cause the cumulative toxic load is killing him and his kids. Grandpa will either be dead, or in a home within 10 years, and doesn't have to live with it.

 

Full cost also includes the exploitation costs of globalization. If you want the supply-chain security of on-shoring more of your product, pay the US cost of producing it. Smaller quantities for the same price, or pay 2x more for same quantity - your choice.

 

So what? Costs rise by BOTH the inflation rate, AND the costs of pollution, AND the cost of onshoring. The screaming is because millions of people are experiencing a permanent reduction in their social status. The middle class person sinking to lower middle class, unless they take on a 2nd job someplace else. The lower class persons status sinking to below that of a migrant - trying very hard to lift themselves up through their own efforts. 

 

When entitlement meets poverty it isn't pretty.

 

SD  

Edited June 7, 2022 by SharperDingaan

[roundball100]

14 hours ago, KPO said:

Is this climate change or over population in the cities that use Mead and Powell as a water source? Probably some of both, but it’s definitely bad at Mead when bodies start getting exposed from the mob sinking them in the lake back in the day. 

 

Isn't the problem really that we are growing lettuce in the desert?

[Pelagic]

An interesting thread on the difficulties surrounding building NG takeaway capacity.

 

 

Another example: https://www.forbes.com/sites/christopherhelman/2022/02/01/why-is-new-england-paying-the-equivalent-of-180-oil-for-natural-gas/?sh=10f5d3a230a7