Energy Sector

[Ulti]

Excellent podcast on climate change and energy

 

https://podcasts.apple.com/us/podcast/the-science-behind-extreme-heat/id1081481629?i=1000571254119

[Sweet]

Thanks @fareastwarriors

[Viking]

I like listening to different conference calls for oil and gas companies to broaden out my perspective. Just listened to the Shell Q2 Q&A. What really jumps out in the call is Europe is screwed. And the situation is likely to get much worse. 80% of the questions on the call were from media/newspapers. Record profit levels for companies. And historic pain for consumers. ‘War profiteering’ is the new description and this is not a good development for European energy producers. 
 

The Shell CEO had an interesting come back: Europe wants to consume oil and gas… but it doesn’t want to produce it. You can’t cut off supply and use that as the lever to curtail demand. The result of this policy is the current catastrophe (oil and gas prices for consumers at record levels).

 

The more i learn the more i come to understand how absolutely messed the government energy policy is in the West. A building block of this mess is a public that has completely unrealistic expectations of the energy transition. So we are living a fantasy. 

 

The problem has been percolating for years. And there is no easy short term fix. Much higher prices (oil +$150) leading to demand destruction is the only short term solution i can see. 
 

 

Edited July 29, 2022 by Viking

[Sweet]

Yep, Europe’s biggest problem is natural gas, no SPR for that.  Going into winter any power plant / industry that can switch to coal or oil will be doing so.

 

The boom and bust nature of the industry is bad enough and it’s compounded by energy ignorance and arrogance from Western governments.  Shunning reliable energy sources like fossil fuels and nuclear, in favour of internment energy like wind and solar which cannot be easily stored is crazy.

 

Further idiocy is outsourcing our energy production to unreliable and rogue states like Russia, meanwhile the West which produces some of the most ethical energy in the world has tried to kill off home grown production.

 

The generalist media blame oil companies, not the insane government policies.  Leads me to believe that the media is infested climate activists, eager to blame the greedy oil companies and shareholders that got decimated not 2 years ago, not to take a serious look at the root causes.

 

Politicians are at least consistent, it’s nearly always somebody else’s fault.

Edited July 29, 2022 by Sweet

[Sweet]

I’m reminded of this in 2018.

 

Totally mad.

 

And we are doing it with China too.

 

 

Edited July 29, 2022 by Sweet

[lessthaniv]

I’ve reviewed Surge, Baytex, Whitecap and Meg so far. There is a common theme echoing from the board rooms right now wrt cash distribution after debt reduction. Whitecap just did the XTO acquisition granted but they confirmed on the call today the distribution plans remain in tact, simply pushed back a bit. They felt the opportunity offered the greatest long term return potential.  We’ll see, I guess.  I definitely get a different vibe this cycle though. 

[Stuart D]

6 hours ago, Sweet said:

I’m reminded of this in 2018.

 

Totally mad.

 

And we are doing it with China too.

 

 

Great post - Trump was on the money with this comment.

[Spekulatius]

2 hours ago, Stuart D said:

Great post - Trump was on the money with this comment.

Yep, I agree. Very prescient observation from Trump.

[SharperDingaan]

It is worth listening to some of the smaller players, who actually know what they are doing. Add to that the smaller drillers at the PD and ESI levels, where there are deep benches. Comments are typically in-line, but quite a bit different to that of the majors. https://www.obsidianenergy.com/investor-centre/presentations-events/2021-corporate-update-presentation/

 

Governments set directional policy, media sells it. Talking points, data manipulation (EIA report), ignore what doesn't fit the narrative. Most wouldn't believe TASS or Xinhua, western propaganda mechanisms are little different. Time horizons of now, through to the next political event (US Mid-Terms).

 

Industry executes. The majors via lobbying and dispensation, most everyone else by making it happen. Field consolidation, debt repayment, return of capital - but no new infrastructure builds. New capital to green energy or ESG improvements only. To most, it is quite obvious that oil prices must go higher, before policy is achieved.

 

Of  course, the result is dissonance ......

Opportunities everywhere, but only if you're willing to call the BS 

Happy hunting!

 

SD

 

 

 

[shru]

People and government talk about oil companies as they are "wartime profiteers". Overlooking their profit were in making due to their policies. I don't understand why politicians expect altruism from any business, specially from those businesses which has survived hostile policies towards them. 

On the side note, during pandemic when big tech had printed so much cash and increase their valuation to trillions for just providing comfort, why they had not been asked to pay additional taxes? 

Pandemic was a perfect opportunity for oil companies while current geo political crisis are perfect for oil companies. 

Imposing profit taxes on oil companies does not sound fair to them. 

[Ulti]

pretty amazing the reduction in capex

[Ulti]

https://podcasts.apple.com/us/podcast/whats-next-for-oil/id1081481629?i=1000574803464
 

Middle East politics Russia and where the oil markets are headed

[Sweet]

This guy is a clown:

https://www.cnbc.com/2022/08/03/un-secretary-general-urges-governments-to-tax-immoral-oil-profits.html
 

Didn’t hear anyone talking about the greedy oil companies at the bottom of covid.

 

The modern world wouldn’t last too long without O&G.

[james22]

German Chancellor Olaf Scholz said for the first time that his government could postpone the planned closure of its remaining nuclear reactors, as he criticized a decision by Russia to constrain gas flows to Germany—a move that could deal a severe blow to Europe’s largest economy. …

 

On Tuesday, the chancellor broke with a longstanding policy and said for the first time that it “could make sense” to keep Germany’s last three nuclear reactors online. They are due to be shut down in December as part of the country’s transition to renewable energy.

 

https://www.wsj.com/articles/nuclear-power-plants-could-stay-open-says-germany-11659533181?mod=djem_EnergyJournal

 

Heh.

[Spekulatius]

Isn’t this supposed to be the other way around?

https://www.wsj.com/articles/gop-lawmakers-lobby-oil-industry-to-denounce-tax-and-climate-bill-11659778202?mod=hp_lead_pos1

 

[Xerxes]

On 7/28/2022 at 9:38 PM, Sweet said:

I’m reminded of this in 2018.

 

Totally mad.

 

And we are doing it with China too.

 

 

the man nailed it !

[nwoodman]

Morgan Stanley just released their summary of Q2

 

"Early 2023 messaging suggests largely maintenance programs next year, although inflation will still drive higher capex. Across our coverage, most companies reiterated plans for low to no production growth next year and expectations for inflation to persist with constraints on the supply chain and labor. While COP, PXD & EOG did message some shale growth, this was largely consistent with prior messaging and longer-term investment frameworks. Beyond these companies, most US shale E&Ps continue to plan for maintenance investment in 2023. On inflation, we continue to model +10-15% higher costs y/y in 2023 (ex growth) – management commentary generally aligned with this view."

 

Note attached for those interested

OILAMP_20220808_0000.pdf

[Viking]

3 hours ago, nwoodman said:

Morgan Stanley just released their summary of Q2

 

"Early 2023 messaging suggests largely maintenance programs next year, although inflation will still drive higher capex. Across our coverage, most companies reiterated plans for low to no production growth next year and expectations for inflation to persist with constraints on the supply chain and labor. While COP, PXD & EOG did message some shale growth, this was largely consistent with prior messaging and longer-term investment frameworks. Beyond these companies, most US shale E&Ps continue to plan for maintenance investment in 2023. On inflation, we continue to model +10-15% higher costs y/y in 2023 (ex growth) – management commentary generally aligned with this view."

 

Note attached for those interested

OILAMP_20220808_0000.pdf 1.18 MB · 6 downloads

What could possibly motivate energy companies to grow production today? Patriotism? No. That, of course, is stupid. But politicians will try and play that card. (It never works.) SPR release is a short term fix that eventually reverses and becomes a big, big problem (it needs to be re-filled which simply adds to future demand).
 

Oil is a commodity. Want to know where the price of a commodity is going to go? Not that difficult. Follow supply and demand. What is going on with demand? Growing by 1 million barrels per day every year like clock work. Need to re-fill SPR demand (after the election) will add another 800,000 barrels/day to demand in 2023. What is going on with supply? Growing by less than 1 million barrels per day. 
 

Demand growing greater than supply = higher prices. 
 

As we get through Q2 earnings calls what are we learning? $90-100 oil prices are not high enough to solve high oil prices. Oil companies are not growing production. Why?

1.) Labour. No one wants to work in oil and gas…. As the government reminds us every chance it gets… oil and gas is not the future…actually it is the devil… 

2.) ESG: debt and equity continue to flee oil and gas. Money to finance long life producing assets is gone FOREVER.
3.) stock prices are in the toilet. Why invest in new production when you can buy back stock at much better risk/adjusted returns. Oil companies are trading at crazy cheap valuations.

 

What is the solution to the current shortage of oil/high price of oil? THERE IS ONT ONE SOLUTION.. MUCH HIGHER PRICES. 

Edited August 8, 2022 by Viking

[ICUMD]

4 hours ago, Viking said:

What could possibly motivate energy companies to grow production today? Patriotism? No. That, of course, is stupid. But politicians will try and play that card. (It never works.) SPR release is a short term fix that eventually reverses and becomes a big, big problem (it needs to be re-filled which simply adds to future demand).
 

Oil is a commodity. Want to know where the price of a commodity is going to go? Not that difficult. Follow supply and demand. What is going on with demand? Growing by 1 million barrels per day every year like clock work. Need to re-fill SPR demand (after the election) will add another 800,000 barrels/day to demand in 2023. What is going on with supply? Growing by less than 1 million barrels per day. 
 

Demand growing greater than supply = higher prices. 
 

As we get through Q2 earnings calls what are we learning? $90-100 oil prices are not high enough to solve high oil prices. Oil companies are not growing production. Why?

1.) Labour. No one wants to work in oil and gas…. As the government reminds us every chance it gets… oil and gas is not the future…actually it is the devil… 

2.) ESG: debt and equity continue to flee oil and gas. Money to finance long life producing assets is gone FOREVER.
3.) stock prices are in the toilet. Why invest in new production when you can buy back stock at much better risk/adjusted returns. Oil companies are trading at crazy cheap valuations.

 

What is the solution to the current shortage of oil/high price of oil? THERE IS ONT ONE SOLUTION.. MUCH HIGHER PRICES. 

Viking, don't disagree with your logic.  

 

OTOH, it seems that there is a lot of political and manipulative factors at play here.  Sometimes logic and price don't follow simple supply and demand rules.

 

But, I am a logical person. So I have a significant holding in Suncor.

 

 

[Ulti]

4 hours ago, Viking said:

As we get through Q2 earnings calls what are we learning? $90-100 oil prices are not high enough to solve high oil prices. Oil companies are not growing production. Why?

V,

I think there are other factors at play.....cost are rising rapidly for o&g...both in terms of material\ labour as well as an increase in taxes ( either windfall or tax on share buybacks ). From what I've read and listened, it also seems that besides companies not wanting to invest billions in projects that might be null and void in the near\immediate future ; we might be seeing a decade of  a more difficult time in maintaining current supply...its slowly declining.. I think that's why the Canadian sands companies as well as smaller players like VET are the way to go ( vet's leucrotta purchase and increasing stake in Coelacanth come to mind )

 

[SharperDingaan]

An oil company can either drill for new production, buy someone else's, or buy their own via a share repurchase. When you cannot drill, the next best option is to either raise the share price via debt-repayment/dividends/acquisition, or buy back shares. No new capex beyond that to consolidate acquisitions.

 

SD

[LearningMachine]

An interesting tidbit I found just skimming through earnings transcript of Celanese (recent addition to BRK portfolio): Natural gas prices in Europe are currently equivalent of $350 oil.  In other words, if a European natural gas customer can change their feedstock from natural gas to oil, it would make economic sense.   Wonder how much it would impact demand for oil overall?

 

 

Source: https://app.tikr.com/stock/transcript?cid=405277&tid=13679209&e=1789001048&ts=2610225&ref=u8yosp:

Question: With all the volatility in oil, nat gas and coal, has the cost curve changed for acetyls? And do you have a sense on operating rates by region?

 

Answer: Yes, I don't think the cost curve has really switched. I mean, the only place I would say you really see kind of things really out of whack, I mean, things have tended to move in parity, but the thing that's really out of whack, of course, is natural gas in Europe. Compared to oil, if you look at natural gas prices today with the cutback in the Nord Stream and everything, I mean, it's probably the equivalent of $350 oil.

Edited August 10, 2022 by LearningMachine

[nwoodman]

17 minutes ago, LearningMachine said:

An interesting tidbit I found just skimming through earnings transcript of Celanese (recent addition to BRK portfolio): Natural gas prices in Europe are currently equivalent of $350 oil.  In other words, if a European natural gas customer can change their feedstock from natural gas to oil, it would make economic sense.   Wonder how much it would impact demand for oil overall?

 

 

Source: https://app.tikr.com/stock/transcript?cid=405277&tid=13679209&e=1789001048&ts=2610225&ref=u8yosp:

Question: With all the volatility in oil, nat gas and coal, has the cost curve changed for acetyls? And do you have a sense on operating rates by region?

 

Answer: Yes, I don't think the cost curve has really switched. I mean, the only place I would say you really see kind of things really out of whack, I mean, things have tended to move in parity, but the thing that's really out of whack, of course, is natural gas in Europe. Compared to oil, if you look at natural gas prices today with the cutback in the Nord Stream and everything, I mean, it's probably the equivalent of $350 oil.

If you haven't listened to it already you might find a recent podcast with David Hay insightful

 

MacroVoices #335 David Hay: Why US Energy Prices Can Rise Even In Recession

 

He argues that even with a recession the price of oil isn't likely to fall much because of fuel switching (substitution) in Europe.  The energy density of oil makes it a lot easier to transport too.  He suggests that switching from gas to oil will equate to around 1 MMB/D of demand.  

 

Chart pack attached, this one caught my eye in terms of where we are up to with the transition.

 

 

 

MacroVoices Chart.pdf

[nwoodman]

I quite enjoyed this article by Dr Tim Morgan

 

"what we are witnessing now is absolute proof that the economy is an energy system, not a financial one"

 

"It would be a good idea if, whenever anyone suggests a financial ‘fix’ – rate rises, rate cuts, QT, QE, debt-funded tax cuts, more debt – we were to ask them to explain how these measures are going to deliver cheaper energy."   

 

#237. Asking for the moon | Surplus Energy Economics (wordpress.com)

 

Ties into the idea that the price of oil (energy) is the true discount rate or at the very least a leading indicator.  The ultimate "means of production".

Edited August 10, 2022 by nwoodman

[Ulti]

I've got a question.... can the below figures be used to evaluate the worth of O&G companies as well as aquisitions? In a very rough sort of way ? And in US and Canada.

 

 

 

Denver company struck a deal to sell the business and its South Texas oil assets to Devon Energy Corp. for $1.8 billion Tuesday, more than double the price that the oil wells and mineral rights cost 18 months ago.Validus’ wells currently produce about 35,000 barrels of oil and natural gas per day, nearly 70% of which is crude oil. Production is growing on a pace to reach 40,000 barrels per day in 2023, Devon said.

https://www.bizjournals.com/denver/news/2022/08/09/validus-denver-devon-energy-acquisition-oil-texas.html?utm_source=sy&utm_medium=nsyp&utm_campaign=yh