Energy Sector

[LearningMachine]

7 hours ago, SharperDingaan said:

Oilsands production is almost all oil and no gas, has a higher crack spread, and a ESG footprint that is a work in progress. It's the 3rd largest oilfield in the world, now primarily just maintenance capex and consolidation, and over time both the differential and 'dirty-oil' discounts will fall materially as egress and C02 sequester improve. We aren't getting rid of the virgin chemicals produced any time soon, and it's hard to find a better 20-30 year asset.

 

The Permian are primarily GAS fields that produce light oil in their early stages of production. The light oil depletes quickly and pays back the infrastructure costs, thereafter the paid-off pipe is repurposed to gas collection and distribution for the next 20-30 years. One of the biggest (and cheapest to produce) gas fields in the world, the transition fuel of the next 20-30 years, but a fuel with material quantities of substitute (methyl hydrate) around the globe.

 

Different business models for different fuels.

 

SD

 

Thanks @SharperDingaan for sharing your thoughts here.  You're thinking Berkshire is interested in Permian for cash flows further out in the future from gas instead of cash flows near term from oil?

As LNG market gets developed, wonder what are your thoughts on whether a cartel similar to OPEC+ will get formed based on global distribution of gas reserves and production share?  Looks like Russia and Iran signed an agreement recently, but wondering if it will extend further to create an OPEC+ like cartel for gas, and likelihood of that or whether that would be just speculation? 

Edited February 18, 2023 by LearningMachine

[SharperDingaan]

We would expect that the BRK interest in the permian is primarily for ALM purposes. Long term permian asset matching long term liabilities from the insurance side. A strong presence in the permian enabling the insurance side to expand long-tail liabilities, and BRK to move into global warming related weather/crop insurance. Smart.

 

Smarter still, were the permian also diversified against oilsands and replacement NA electric grid. Hence, most would also expect a significant BRK acquisition in the oilsands once TMP begins line fill, simply because oilsands can currently be bought at 50c in the dollar. Were BRK to simply wait until linefill began, and paid 20% above the current market, they would still be buying at just 60c in the dollar. Highly doubtful that has escaped WEBs attention.  

 

Many talk about potential natural gas buyer/seller cartels, but it is very unlikely. Natural Gas Hydrates (Methyl Hydrate) are widely distributed around the world's coasts, and it is relatively straightforward to produce them; there is also a great deal of it in the high arctic, and off the coasts of both India and China. Most would expect widespread use of ice-breaking LNG carriers transiting the clearing North-West and North-East passages, and much more continental vs global markets for LNG. https://pubs.usgs.gov/fs/fs021-01/fs021-01.pdf

 

Lots of opportunity, but it's on the business side - NOT the trading side,

 

SD

 

Edited February 19, 2023 by SharperDingaan

[JRM]

On the topic of metals and minerals undersupply; remember that not only are we going to replace existing sources of energy (oil, natural gas, coal) with renewables, but the EXISTING renewables will need to be replaced or upgraded after 25 years approximately.  Wind turbines and solar panels installed 20 years ago are nearing end of life.  That's not to mention growth in energy requirements in places like India.

[LearningMachine]

2 hours ago, JRM said:

Wind turbines and solar panels installed 20 years ago are nearing end of life.  That's not to mention growth in energy requirements in places like India.

 

Those should be recyclable, no?

 

I still question the claim that metals needed will be 10X of what energy tonnage is today.  I'd like it to be true not for any investment in metals, but because that would be positive for energy needed for production & movement of that much metal, but I just don't see it. 

 

Investing in metal miners is way way harder because there is no cartel to protect the price by controlling supply.  Oil is the only commodity where a cartel is working on your behalf to at least keep somewhat inflation adjusted cashflow for its member countries.

Edited February 19, 2023 by LearningMachine

[bizaro86]

1 hour ago, LearningMachine said:

 

Those should be recyclable, no?

 

I still question the claim that metals needed will be 10X of what energy tonnage is today.  I'd like it to be true not for any investment in metals, but because that would be positive for energy needed for production & movement of that much metal, but I just don't see it. 

 

Investing in metal miners is way way harder because there is no cartel to protect the price by controlling supply.  Oil is the only commodity where a cartel is working on your behalf to at least keep somewhat inflation adjusted cashflow for its member countries.

 

Potash has similar cartel characteristics imo.

[LearningMachine]

53 minutes ago, bizaro86 said:

 

Potash has similar cartel characteristics imo.

 

Thanks @bizaro86 for raising that.  I think the difference is that NTR & MOS (who together own CanPotex 50% each), and BHP are still within the reach of U.S. antitrust law if they tried to signal to each other to reduce supply to keep prices high.  On the other hand, OPEC+ is not under U.S. antitrust law's reach & thus can openly discuss & announce production cuts to support prices. 

 

This is why NTR's two predecessors & MOS (three of who together owned CanPotex 1/3rd at the time) chose to pay $100M to settle the last antitrust lawsuit. 

 

I don't think NTR & MOS would want another antitrust lawsuit, and thus wouldn't be able to legally signal to each other to allocate production share to cut down supply when potash prices start coming down while BHP's new potash mine Jansen starts producing more.  They will be wary of the fact that any announcement of production cut by either to support prices could be used as evidence of signaling. 

Edited February 19, 2023 by LearningMachine

[JRM]

19 hours ago, LearningMachine said:

Those should be recyclable, no?

 

 

Turbine blades, no.  Batteries and solar panels, partially but requires energy to recycle and there's waste to dispose of.

[Pelagic]

https://www.bloomberg.com/news/articles/2022-02-25/offshore-wind-auction-raises-4-4-billion-to-topple-u-s-record

 

Some serious money being spent for these leases. I have to wonder what the timeline looks like for companies that just won. How long until they're achieving full production from the leases they just won, much less what their payback time looks like. Certainly a long road ahead both in terms of regulatory approval and actual construction and installation. On the flip side, could this be like the Ghawar Field of offshore wind? Relatively shallow depth, well understood wind patterns, and most importantly, close to massive demand.

 

 

Quote

Bids mounted rapidly over the three days and 64 rounds of bidding, ultimately reaching an average price per acre of $8,951 -- more than eight times the previous record of $1,043 set in a December 2018 auction of leases near Massachusetts, when three tracts were sold for $405 million. Still, the sums are well below what oil companies historically have paid for drilling rights in U.S. waters -- as much as $33,780 per acre -- with no similar assurance those plots will contain the crude they’re searching for.

 

[Gregmal]

Is it odd to anyone else how oil prices keep getting whacked on reports indicating consumer strength? 

[SharperDingaan]

27 minutes ago, Gregmal said:

Is it odd to anyone else how oil prices keep getting whacked on reports indicating consumer strength? 

 

China news is being 'actively' suppressed; China has been aggressively buying what Russia isn't selling to Europe, and then some (the six-week out 500K boe/d production cut has been quietly 'dropped'). 

https://oilprice.com/Energy/Energy-General/Europe-Hikes-Diesel-Imports-From-Middle-East-Asia-After-Russian-Ban.html

 

It is also a mystery as to how well the shipping restrictions have been working; most would think, not as well as expected. To some extent, there are also the possibilities around Ukraine rearming and air-cover.

 

A two-seater state-of-the-art plane flown by a Ukrainian pilot, launching state-of-the-art long range missiles at a key Russian oil facility could be very useful. Hence, GS USD 100 oil is not unrealistic 

 

SD     

 

Edited February 24, 2023 by SharperDingaan

[Spekulatius]

I think Russia is selling more crude than what they are telling. They were touting cuts in production but likely do just the opposite.

Edited February 24, 2023 by Spekulatius

[Xerxes]

Now that the European restrictions for refined petroleum products from Russia has kicked in, Russia has more incentive to refine less and sell more crude (unrefined) 

 

it is a lot easier to defy sanction through sea-based crude carrier phantom fleet than it is on refined products (supposedly)

[RadMan24]

Another clear disruption from the Ukraine war is the supply of ammonia to Europe, which is impacting the LPG trading market, and has been benefiting handysize shipping companies like NVGS. Of course, the overall LPG shipping industry is notorious for overbuilding and that is exactly the case right now for the VLGS ships (20% of order book), which is a risk investors need to look at, even though a company like NVGS is largley handysize (and there are various mitigators to consider including petro-capable ships vs fully refridge). Just throwing this plug out there for anyone familiar with these markets. 

[Ulti]

https://oilprice.com/Latest-Energy-News/World-News/Department-Of-Energy-Says-Its-Preparing-For-SPR-PurchasesNext-Year.html

[Sweet]

27 minutes ago, Ulti said:

https://oilprice.com/Latest-Energy-News/World-News/Department-Of-Energy-Says-Its-Preparing-For-SPR-PurchasesNext-Year.html

Is oil likely to be at the price they want to purchase at, especially sour crude?  Not sure I see prices at that level for a while.

[Ulti]

27 minutes ago, Sweet said:

Is oil likely to be at the price they want to purchase at, especially sour crude?  Not sure I see prices at that level for a while.

I kinda agree... they sold low and they might be buying higher next year. And this administration wants to buy it in the 60's so they look good.

[Sweet]

3 minutes ago, Ulti said:

I kinda agree... they sold low and they might be buying higher next year. And this administration wants to buy it in the 60's so they look good.

If they are expecting oil to hover around $70 - which I understand is their upper limit for purchase - I think they will be disappointed.

 

They should put a giant bid at $70 and just let it sit.

[Saluki]

57 minutes ago, Sweet said:

If they are expecting oil to hover around $70 - which I understand is their upper limit for purchase - I think they will be disappointed.

 

They should put a giant bid at $70 and just let it sit.

 

If they did that, I would quit my job and just sell $69 puts until I'm so rich that I can buy my own penis shaped rocket ship like Elon and Bezos. 

 

A lot of majors have their own trading desks.  Shell has Coral Energy trading for instance. Those guys lose money sometimes, and they are the ones drilling it and selling it, and they are talking to people everyday in that business.  If they can't predict the price of oil reliably, what edge does some GS14 employee in Washington, who comes into work at 9am and leaves at 5pm have? 

 

The SPR is supposed to be for emergencies, not for smoothing out inflation. They made a mistake selling.  And they probably will compound that by buying it back wrong.  

[Sweet]

EIA providing an explanation as to why the US oil weekly, and to a lesser extent the monthly, are all messed up, and what they intend to do about it:

 

[Spekulatius]

Oops:

https://finance.yahoo.com/news/windfall-tax-wipes-north-sea-120711857.html

[Sweet]

3 hours ago, Spekulatius said:

Oops:

https://finance.yahoo.com/news/windfall-tax-wipes-north-sea-120711857.html

Came to post this article.

 

From the BBC: 

 

“Harbour Energy posted pre-tax profits of $2.5bn (£2.1bn) for 2022.

 

But tax - including $1.5bn set aside for the Energy Profits Levy - left the company with $8m in post-tax profit.

 

The company has not revealed how many jobs may go, but it is understood hundreds of posts are under threat.”

 

Scandalous, from a supposedly free market government.

[Spekulatius]

7 minutes ago, Sweet said:

Came to post this article.

 

From the BBC: 

 

“Harbour Energy posted pre-tax profits of $2.5bn (£2.1bn) for 2022.

 

But tax - including $1.5bn set aside for the Energy Profits Levy - left the company with $8m in post-tax profit.

 

The company has not revealed how many jobs may go, but it is understood hundreds of posts are under threat.”

 

Scandalous, from a supposedly free market government.

I think this article is a bit misleading. There is more than meets the eye. $1.3B was a "deferred EPL charge" (what ever that is, but it looks like non-cash). Harbour had quite a bit of FCF. Taxes actually paid were a fraction of the nominal tax indicated.

 

[Sweet]

It’s an 35% energy profit levy which the UK government announced and which the company will have to pay this year or in the near future on any oil extracted in the UK.

 

This is in addition to a 40% corporation tax applied to UK oil and gas companies.

 

Therefore the combined tax rate on any oil extracted in the UK is 75% until 2028 when the levy expires.

 

https://www.gov.uk/government/publications/changes-to-the-energy-oil-and-gas-profits-levy/energy-oil-and-gas-profits-levy

 

Why this is a non-cash deferred charge I don’t understand.

 

Edited March 9, 2023 by Sweet

[mcliu]

1 hour ago, Sweet said:

Why this is a non-cash deferred charge I don’t understand.

Isn't this just accrual accounting?

If the EPL charge was due on Jan 1st, your financials for Dec 31 will not reflect the cash outlay (since it wasn't paid yet) but you need to accrue that expense since it was incurred in the previous period. And that's reflected on the balance sheet by a credit to deferred taxes.

[Sweet]

1 hour ago, mcliu said:

Isn't this just accrual accounting?

If the EPL charge was due on Jan 1st, your financials for Dec 31 will not reflect the cash outlay (since it wasn't paid yet) but you need to accrue that expense since it was incurred in the previous period. And that's reflected on the balance sheet by a credit to deferred taxes.

Perhaps, I’m really not sure.