Energy Sector

[SharperDingaan]

US shale production is a function of price, current break-even is around USD 65/bbl. While most would expect Trump to allow fracking, cut regulation/royalty costs on new drilling, and that new drilling to be primarily 'manufacturing' by the majors; it's mostly a wash net of ongoing depletion. All else equal, similar ongoing production, but at a steadily lowering break-even. Not bad.

 

Near/medium term growth largely depends on a new and reliable supply of heavy oil for blending, and Trump allowing the industry to 'flare' surplus gas without penalty. The obvious solutions are 1) Trump reopening the CAD/US Keystone pipeline project, building the remaining relatively short connection piece, and importing tariff free CDN heavy 2) importing tariff free Mexican heavy, and 3) importing sanctioned heavy. Expect a lot of 'real politic'.

 

The 1st mystery is tariffs; if they apply to oil imports, oil for domestic consumption will sell for more, raising domestic production. The 2nd mystery is Russia; Russia/Ukraine war ends, sanctions removed and importation of heavy Russian crude begun, new drilling with western technology permitted. Sanctions on Iranian exports tightened, Iranian production/facilities sabotaged, everyone else takes up their lost production. Price averages out at about the same, even if Iran attacks the facilities of others.

 

Lot of favours need to be repaid; but over the near term, US shale isn't likely to change much.

 

SD

            

 

 

Edited November 11 by SharperDingaan

[fareastwarriors]

Offshore oil is back. At what cost?

[Dalal.Holdings]

2 hours ago, fareastwarriors said:

Offshore oil is back. At what cost?

 

WTI in the 60s and folks going offshore…LMAO

[fareastwarriors]

Oil Glut Set to Thwart Trump’s Call to ‘Frack, Frack, Frack’

[Dalal.Holdings]

 

Can someone tell me if this would be good or bad for energy stocks ? 

 

[Spekulatius]

42 minutes ago, Dalal.Holdings said:

 

Can someone tell me if this would be good or bad for energy stocks ? 

 

How does he get 3 million barrels more? Is he going to set up a national state energy co to produce those?

 

Budget cut from 7% from 3% means we we going to get a nice recession, so not good for any stock.

[Dinar]

10 minutes ago, Spekulatius said:

How does he get 3 million barrels more? Is he going to set up a national state energy co to produce those?

 

Budget cut from 7% from 3% means we we going to get a nice recession, so not good for any stock.

Actually, you are not correct.  First of all, 3% GDP growth by itself should shrink budget deficit as a % of GDP by a full percentage point due to higher taxes and less social spending.  Also, if you bring spending to the 2019 level, you have a budget balance.  Lastly, if you eliminate $400bn+ spent on student loans annually + say tens of billions on illegals, will that really impact GDP?  How much is being spent on subsidizing research abroad?  Didn't Fauci's department subsidize Chinese research into gain of function for bat viruses?  Real value add there.

[Dalal.Holdings]

1 hour ago, Spekulatius said:

How does he get 3 million barrels more? Is he going to set up a national state energy co to produce those?

 

Budget cut from 7% from 3% means we we going to get a nice recession, so not good for any stock.

 

https://abcnews.go.com/US/trumps-drill-baby-drill-fracking-agenda/story?id=115869936

 

Quote

During an interview with Bloomberg in July, Wright suggested that the Trump administration would expand drilling on federal lands and make it easier to permit infrastructure.

 

Frackers are gonna frack. You just gotta give them the land to do it

 

Having a Republican House & Senate will help too

 

https://www.vox.com/politics/386462/trump-fossil-fuels-gas-oil

 

Edited Saturday at 01:50 AM by Dalal.Holdings

[Spekulatius]

22 minutes ago, Dalal.Holdings said:

 

https://abcnews.go.com/US/trumps-drill-baby-drill-fracking-agenda/story?id=115869936

 

 

Frackers are gonna frack. You just gotta give them the land to do it

 

Having a Republican House & Senate will help too

 

https://www.vox.com/politics/386462/trump-fossil-fuels-gas-oil

 

Federal land doesn’t have that much oil. Not even close to get 3M barrels. In addition, the investments in federal would just compete with other investments on non- federal land, so incremental barrels would probably not increase much.

 

That saying drill baby drill won’t do much, but higher prices will.

Edited Saturday at 02:12 AM by Spekulatius

[TwoCitiesCapital]

1 hour ago, Dinar said:

 If you bring spending to the 2019 level, you have a budget balance.

 

How does that happen? When was the last time a president ran a budget the same as 4-years prior? 

 

1 hour ago, Dinar said:

Lastly, if you eliminate $400bn+ spent on student loans annually + say tens of billions on illegals, will that really impact GDP?

 

 

All money from gov are essentially "transfer payments". And those monies are transferred to people who spend them. So if you remove them, doesn't that also remote spending? 

 

GDP is just a measure of spending so would absolutely be impacted. 

 

1 hour ago, Dinar said:

 

 How much is being spent on subsidizing research abroad?  Didn't Fauci's department subsidize Chinese research into gain of function for bat viruses?  Real value add there.

 

I have no debate about the inefficiency of government spending, but sounds like you're focusing on the pennies and Trump needs dollars. But I suppose we have to start somewhere. 

[Dalal.Holdings]

11 minutes ago, Spekulatius said:

Federal land doesn’t have that much oil. Not even close to get 3M barrels. In addition, the investments in federal would just compete with other investments on non- federal land, so incremental barrels would probably not increase much.

 

That saying drill baby drill won’t do much, but higher prices will.

Trump the populist will not let oil prices get too high. He will pull any lever he can (negotiate w Opec, etc). He’s also promised to quickly end Russia-Ukraine. This puts a ceiling on upside to oil prices.

 

Oil guys can’t help themselves and wildcatters will always look for black gold every chance they get. Even now where WTI is 60s-low 70s they are looking offshore claiming they can do it for cheaper now than they used to. Well guess what that means for oil prices?

 

The upside is capped, while the downside is large due to increased supply and if there is any economic slowdown, prices will crater.

Edited Saturday at 02:24 AM by Dalal.Holdings

[Stuart D]

In the past Buffet has said many times (with certainty), that at some point, be it in 5yrs or 50yrs, oil production won’t keep up with demand. At that point the price will go way up.

 

I wonder if he still thinks that’s the likely outcome.

[Dinar]

1 hour ago, TwoCitiesCapital said:

 

How does that happen? When was the last time a president ran a budget the same as 4-years prior? 

 

 

All money from gov are essentially "transfer payments". And those monies are transferred to people who spend them. So if you remove them, doesn't that also remote spending? 

 

GDP is just a measure of spending so would absolutely be impacted. 

 

 

I have no debate about the inefficiency of government spending, but sounds like you're focusing on the pennies and Trump needs dollars. But I suppose we have to start somewhere. 

I disagree with you.  For one, you are assuming that none of the spending finds its way outside the country.  Furthermore, you are assuming that spending is not counterproductive. Say government gives $150K loan to someone to get an MFA in film at Columbia, who will never repay the loan, what is the impact if that loan is never granted?  That person actually has to go and get a job and do something that is productive raising the GDP.  Meanwhile, Columbia has $150K less in revenue.  So it either has to spend more from its endowment, or it spends less, but on what?  On foreign trips for its faculty?  On leather couches that it imports from outside the US?   On foreign graduate students?  

You have millions of people who could be in the labor force who are not because they are subsidized by taxpayers do learn something unproductive in academia. What makes you think that if these people actually worked, they would produce less than $400bn in GDP?

[lnofeisone]

On 11/22/2024 at 9:12 PM, Spekulatius said:

That saying drill baby drill won’t do much, but higher prices will.

This right here is how I view energy will play out. Frackers that can bring 3M barrels of BOE are not going to frack without massive incentives. O&G companies have found a new religion, and investors punish those who don't show discipline swiftly. 

 

Also, I think a keyword is being overlooked here: BOE. That doesn't mean it will be oil only. There is gas in that equation. If European gas prices spike, the US can export natural gas. 

[Dalal.Holdings]

54 minutes ago, lnofeisone said:

This right here is how I view energy will play out. Frackers that can bring 3M barrels of BOE are not going to frack without massive incentives. O&G companies have found a new religion, and investors punish those who don't show discipline swiftly. 

 

Also, I think a keyword is being overlooked here: BOE. That doesn't mean it will be oil only. There is gas in that equation. If European gas prices spike, the US can export natural gas. 

 

Frackers have thus far shown very little discipline. As the Buffett anecdote about "Oil discovered in hell" demonstrates, oil men will always just look for more oil. They can't help themselves. Look at Vicki paying steep prices for M&A when times are good.

 

If gas prices spike, U.S. will export more gas, but guess what else comes up when you frack a well for nat gas in the U.S. ? Liquid hydrocarbons.

[lnofeisone]

3 hours ago, Dalal.Holdings said:

 

Frackers have thus far shown very little discipline. As the Buffett anecdote about "Oil discovered in hell" demonstrates, oil men will always just look for more oil. They can't help themselves. Look at Vicki paying steep prices for M&A when times are good.

 

If gas prices spike, U.S. will export more gas, but guess what else comes up when you frack a well for nat gas in the U.S. ? Liquid hydrocarbons.

Can you name frackers that you think don't have discipline and that will support the +3M of BOE? O&G industry broadly reduced debt by 30%. FCF is prioritized. Rig count is nowhere near 2015 highs. You seemed to be anchored on OXY and while Anadarko purchase wasn't the best, CrownRock story has yet to play out. 

[Dalal.Holdings]

1 hour ago, lnofeisone said:

Can you name frackers that you think don't have discipline and that will support the +3M of BOE? O&G industry broadly reduced debt by 30%. FCF is prioritized. Rig count is nowhere near 2015 highs. You seemed to be anchored on OXY and while Anadarko purchase wasn't the best, CrownRock story has yet to play out. 

 

Instead of looking at U.S. oil production individually, you need to look at the industry in aggregate. The growth in U.S. oil production over the past 10 years is staggering. The U.S. went from net energy importer to producing more oil than any country ever.

 

In 2009, the peak oil production of the 1970s seemed a far cry away...and in very short order thanks to fracking, we smashed through that record

 

In addition to all this, we have Guyana coming online, pipelines transporting more canadian crude, talks of new Alaskan production, and more folks going offshore. Add to that an administration that wants to drill, baby, drill and I'm not excited

 

And you can tell yourself there are fewer rigs or capex, but when I look here, U.S. oil production is up every month the past 6 mo vs last year:

 

https://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=mcrfpus2&f=m

 

https://www.eia.gov/todayinenergy/detail.php?id=61545

 

Edited Sunday at 10:23 PM by Dalal.Holdings

[Spekulatius]

Rigs are getting more efficient, especially shale rigs . The progress in technology and the industrialization of shale are deflationary forces.

 

The US has no Monopoly on shale either, there were many shale fields in the world, the  best know ex US is actually in Argentina which are not just world champions in Soccer, but even more so shooting themselves in the foot. Maybe Mileu can change that and that would like make Argentina a net exporter of energy as well.

 

We also have China massively moving toward alternative energy (solar etc) to become less dependent on hydrocarbons , I presume partly for national security reasons.

 

The power of the OPEC for sure is dwindling.

[lnofeisone]

2 hours ago, Dalal.Holdings said:

 

Instead of looking at U.S. oil production individually, you need to look at the industry in aggregate. The growth in U.S. oil production over the past 10 years is staggering. The U.S. went from net energy importer to producing more oil than any country ever.

 

In 2009, the peak oil production of the 1970s seemed a far cry away...and in very short order thanks to fracking, we smashed through that record

 

In addition to all this, we have Guyana coming online, pipelines transporting more canadian crude, talks of new Alaskan production, and more folks going offshore. Add to that an administration that wants to drill, baby, drill and I'm not excited

 

And you can tell yourself there are fewer rigs or capex, but when I look here, U.S. oil production is up every month the past 6 mo vs last year:

 

https://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=mcrfpus2&f=m

 

https://www.eia.gov/todayinenergy/detail.php?id=61545

 

This doesn't really answer as to which fracker will be able to step in here and bring 3M barrels of oil into the market. Never mind the fact that US demand for oil exceeds what is being produced. You also need to include natural gas that is currently displacing coal and the US is using more and more of that. My views are:

 

1) There will be growth in oil and gas output but it will be more organic and it will be dynamically matched to the price (i.e., if oil trades down to $40, we won't have companies just drilling)

2) Any new BOE will be absorbed by the US's growing economy

3) No company will jump on the opportunity to drill, drill, drill without incentives or price guarantees

4) This is a bit under the radar but PE has been moving in across the board into energy sector (O&G, renewables). I don't think the likes of BX will be very pleased with the drilling of BOE at a loss. 

[Dalal.Holdings]

1 hour ago, lnofeisone said:

This doesn't really answer as to which fracker will be able to step in here and bring 3M barrels of oil into the market. Never mind the fact that US demand for oil exceeds what is being produced. You also need to include natural gas that is currently displacing coal and the US is using more and more of that. My views are:

 

1) There will be growth in oil and gas output but it will be more organic and it will be dynamically matched to the price (i.e., if oil trades down to $40, we won't have companies just drilling)

2) Any new BOE will be absorbed by the US's growing economy

3) No company will jump on the opportunity to drill, drill, drill without incentives or price guarantees

4) This is a bit under the radar but PE has been moving in across the board into energy sector (O&G, renewables). I don't think the likes of BX will be very pleased with the drilling of BOE at a loss. 

 

 

You're off on several points...

 

If you look at individual frackers, you'll miss the forest for the trees. I showed you that in aggregate U.S. oil production is up year over year despite your supposed narrative of "discipline" among frackers (and this with ~$70 WTI)...

 

U.S. economic growth has decoupled from oil consumption. Oil production has grown MUCH faster than consumption which has pretty much flatlined and actually declined over 2 decades (see image). "Any new BOE will be absorbed by the US's growing economy". Just plain wrong. We don't need oil anymore to grow our economy like we used to. "US demand for oil exceeds what is being produced". This is plain wrong. Net imports are negative. We are a net exporter of oil as of 2021.

 

"if oil trades down to $40, we won't have companies just drilling". Then why are they going offshore at $60-70/barrel? Why did they drill so much the past decade when prices were nothing to get excited about? Why is U.S. oil production still growing with WTI at $70?

 

https://afdc.energy.gov/data/10324

 

 

\

 

Edited Monday at 01:57 AM by Dalal.Holdings

[lnofeisone]

1 hour ago, Dalal.Holdings said:

 

U.S. economic growth has decoupled from oil consumption. Oil production has grown MUCH faster than consumption which has pretty much flatlined and actually declined over 2 decades (see image). "Any new BOE will be absorbed by the US's growing economy". Just plain wrong. We don't need oil anymore to grow our economy like we used to. "US demand for oil exceeds what is being produced". This is plain wrong. Net imports are negative. We are a net exporter of oil as of 2021.

 

 

You are conflating petroleum and crude oil. Crude oil is a subset of petroleum and we are still a net importer of crude oil. So re-read what I wrote with that in mind. Here - https://www.eia.gov/energyexplained/oil-and-petroleum-products/imports-and-exports.php

"The United States remained a net crude oil importer in 2022, importing about 6.28 million b/d of crude oil and exporting about 3.58 million b/d. Some of the crude oil that the U.S. imports is refined by U.S. refineries into petroleum products—such as gasoline, heating oil, diesel fuel, and jet fuel—that the U.S. later exports. Also, some of imported petroleum may be stored and later exported."

 

 

 

1 hour ago, Dalal.Holdings said:

 

Look at your own chart. This shows you petroleum and the chart is a bit wonky too (the previous table that you provided was showing crude oil numbers). If we consume say 20 million barrels per day, but we only produce 19 and we are a net exporter, where does the remaining (1 million + whatever we export) come? 

 

 

1 hour ago, Dalal.Holdings said:

"if oil trades down to $40, we won't have companies just drilling". Then why are they going offshore at $60-70/barrel? Why did they drill so much the past decade when prices were nothing to get excited about? Why is U.S. oil production still growing with WTI at $70?

This is proprietary industry data, so I'd be surprised if you can find it readily, but let's give this a try. With WTI trading at $70, Vermillion gets $60 or so in netback per BOE from its Australian Wandoo oil field. This is why you get interest in the offshore. Broadly speaking, offshore production is cheaper than onshore. Numbers I am familiar with are $20/BOE for offshore and $30/BOE for onshore for the cost to operate. 

 

Overall, the average netback (offshore + onshore) is about $25/BOE. So if Oil trades down from 70 to say 45, drillers, on average, will be at cost. If it trades down to $40, they will be losing $ and they will stop drilling. Of course you can get nuanced and factor in hedges, etc. but if you find a 100% price taker, logically, they need to start shutting in their wells at $45.

 

This is all technical and, in my opinion, irrelevant. I think the 3M BOE that Trump will most come from the LNG exports. We got Plaquemines and Corpus Christi III going online soon, so that will basically give him a win without him doing anything. I doubt his base will do a deep dive to figure out where BOEs came from even if gasoline prices go up. 

 

 

 

\

[kab60]

I don't have a strong view on oil prices, but most stuff today is 20-30-40% more expensive than it was back in 2019. Despite technological advances, costs to bring on supply are up (some of the cost benefits from improved tech gets offset by increased labor and material as well as probably lower quality rock). If you look at the Dallas Fed survey, breakeven prices in the Permian has increased to around ~65 USD. Considering the short-cycle nature of shale, it makes sense to me that oil prices might flucturate in a smaller band with less up and downside compared to in the past, where more growth came from longer-cycle supply like offshore. Today, high(er) prices will quickly bring on new supply, while lower prices will take supply out of the market. 65-85 USD oil isn't bad for most produces.

 

As for offshore, just take a look at equities like Transocean, Tidewater etc. It doesn't seem like they're about to enjoy a bonanza of drilling activity. It makes sense to me than investors and companies are cautios, because these projects take a lot of time to come online + you have a threat of spare OPEC capacity.

[Dalal.Holdings]

9 hours ago, lnofeisone said:

Some of the crude oil that the U.S. imports is refined by U.S. refineries into petroleum products—such as gasoline, heating oil, diesel fuel, and jet fuel—that the U.S. later exports. Also, some of imported petroleum may be stored and later exported."

 

 

 

 

Look at your own chart. This shows you petroleum and the chart is a bit wonky too (the previous table that you provided was showing crude oil numbers). If we consume say 20 million barrels per day, but we only produce 19 and we are a net exporter, where does the remaining (1 million + whatever we export) come? 

 

 

This is proprietary industry data, so I'd be surprised if you can find it readily, but let's give this a try. With WTI trading at $70, Vermillion gets $60 or so in netback per BOE from its Australian Wandoo oil field. This is why you get interest in the offshore. Broadly speaking, offshore production is cheaper than onshore. Numbers I am familiar with are $20/BOE for offshore and $30/BOE for onshore for the cost to operate. 

 

Overall, the average netback (offshore + onshore) is about $25/BOE. So if Oil trades down from 70 to say 45, drillers, on average, will be at cost. If it trades down to $40, they will be losing $ and they will stop drilling. Of course you can get nuanced and factor in hedges, etc. but if you find a 100% price taker, logically, they need to start shutting in their wells at $45.

 

This is all technical and, in my opinion, irrelevant. I think the 3M BOE that Trump will most come from the LNG exports. We got Plaquemines and Corpus Christi III going online soon, so that will basically give him a win without him doing anything. I doubt his base will do a deep dive to figure out where BOEs came from even if gasoline prices go up. 

 

 

 

\

 

The U.S. is a net exporter of Crude Oil if you include the refined products as your quote shows. The U.S. has a deep refining base which is why it imports some crude, refines it, and exports the products. Overall, the net effect is an export of the products of a barrel of crude (it is not all consumed by Americans which was your initial statement). So, U.S. demand for crude oil/its products does not exceed its production. U.S. is a net exporter of petroleum's products. Just because we have ample ability to refine crude oil does not mean we are consuming all of it.

 

As I clearly demonstrated, U.S. Oil consumption has decoupled from growth which showed another one of your assertions to be false. U.S. economic growth will not necessarily increase U.S. oil consumption, certainly not to the extent it did in the past.

 

I don't really care about netbacks or what some people claim is their break even on oil wells. I've seen what I've seen the past decade and these people will drill even if oil prices are down in the dumps. It was only the negative prices of covid that got them to slow down, but that was a temporary blip. These guys love finding black gold and that means increased supply.

 

One clear example is if you have already leased the land, it makes financial sense to continue drilling even if the supposed cost is more than the current price (you already paid the lease, now you need cash flows). A lot of these guys have hedged production too which incentivizes continued drilling, so they don't care about the price of oil today. There are many incentives to continue drilling even at low prices.

[lnofeisone]

35 minutes ago, Dalal.Holdings said:

 

The U.S. is a net exporter of Crude Oil if you include the refined products as your quote shows. The U.S. has a deep refining base which is why it imports some crude, refines it, and exports the products.

This is going to be my last post to you on this topic. It's obvious that you have very surface level understanding of the industry and I recommend you spend some time understanding its nuances (for example, difference between petroleum and crude oil and how it is accounted for by EIA and others) before opining.

 

For example, we import oil not because we have some magic refining base. Our refining base isn't set up to process the type of oil we extract in the US. This is why we send out our light sweet out and bring in dirty heavy oil. 

 

While the US has decoupled from oil, it still didn't decouple from natural gas. Do oil + gas consumption and plot that vs. GDP.

 

Anyway, thanks for your opinion. This isn't a very productive conversation for me so I'm going to excuse myself out.

[Dalal.Holdings]

8 minutes ago, lnofeisone said:

This is going to be my last post to you on this topic. It's obvious that you have very surface level understanding of the industry and I recommend you spend some time understanding its nuances (for example, difference between petroleum and crude oil and how it is accounted for by EIA and others) before opining.

 

For example, we import oil not because we have some magic refining base. Our refining base isn't set up to process the type of oil we extract in the US. This is why we send out our light sweet out and bring in dirty heavy oil. 

 

While the US has decoupled from oil, it still didn't decouple from natural gas. Do oil + gas consumption and plot that vs. GDP.

 

Anyway, thanks for your opinion. This isn't a very productive conversation for me so I'm going to excuse myself out.

 

Lol, "surface level"... after I disproved most of your points. Ok bud. Keep taking the Oil Producers' word for it. I'm sure they will find discipline. Good luck.