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james22

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6 minutes ago, james22 said:

 

Nah.

 

 

If you wish to improve the environment, you need

 

"I didn't murder him.  But if I did, it was in self defense."

 

[I have no position on this issue... I just enjoyed the logic]

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1 hour ago, crs223 said:

 

"I didn't murder him.  But if I did, it was in self defense."

 

[I have no position on this issue... I just enjoyed the logic]

This is what happens when we don’t think in terms of probability ranges and percentages 🙂.

 

How about the following so-called conclusions a century ago 🙂.

 

“If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need energy. Today, that means whale oil.  It's a bad thing to curtail that.”

 

“If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need transportation. Today, that means horses and buggies.  It's a bad thing to curtail that.”

Edited by LearningMachine
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"If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need energy. Today, that means oil & gas."

 

Nah. It means you need sustainable growth, evaluated against ESG metrics. 

Follow the Kuznets curve and we all croak, when we eventually run out of resources (Malthusian). Yeast in a sugar solution either dies from starvation (no more food/resources) or alcohol poisoning (pollution). 

https://en.wikipedia.org/wiki/Malthusianism

 

Of course if you think you're going to croak well before everyone else ....

Then you don't give a sh1te 😀

 

SD

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13 hours ago, LearningMachine said:

This is what happens when we don’t think in terms of probability ranges and percentages 🙂.

 

How about the following so-called conclusions a century ago 🙂.

 

“If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need energy. Today, that means whale oil.  It's a bad thing to curtail that.”

 

“If you wish to improve the environment, you need economic growth (Kuznets curve). For economic growth, you need transportation. Today, that means horses and buggies.  It's a bad thing to curtail that.”

 

I don't believe either whale oil or horses/buggies were curtailed by fiat though. They were replaced by more technologically advanced options when those options became economically viable.

 

 

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21 hours ago, james22 said:

I did a similar bet in 2007 when peak oil was all the rage. I betted a case of Sonoma county wine that crude would go below $50/ brl within 10 years.

I never collected the bet though, moved out of area and I guess my counter-party forgot too. I betted simply based on my assumption that a lot of crazy things happen in commodity markets.

 

I actually would make that bet again that crude will be below $50 within the next 10 years (2032) at some point.

Edited by Spekulatius
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1 hour ago, Spekulatius said:

I did a similar bet in 2007 when peak oil was all the rage. I betted a case of Sonoma county wine that crude would go below $50/ brl within 10 years.

I never collected the bet though, moved out of area and I guess my counter-party forgot too. I betted simply based on my assumption that a lot of crazy things happen in commodity markets.

 

I actually would make that bet again that crude will be below $50 within the next 10 years (2032) at some point.

 

I wouldn't bet against oil dropping by 50% in a 10 year period, without looking I bet nearly every 10 year period has had a drawdown that size.

 

I wouldn't be willing to be against oil doubling to $200 at some point in the next 10 years either.

 

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1 hour ago, Spekulatius said:

I did a similar bet in 2007 when peak oil was all the rage. I betted a case of Sonoma county wine that crude would go below $50/ brl within 10 years.

I never collected the bet though, moved out of area and I guess my counter-party forgot too. I betted simply based on my assumption that a lot of crazy things happen in commodity markets.

 

I actually would make that bet again that crude will be below $50 within the next 10 years (2032) at some point.

@Spekulatius I would agree that price volatility could get oil back to $50 at some point over the next 10 years. The question for me is will oil structurally fluctuate at a higher level than prior cycles?

 

After listening to one of the recent Odds Lots podcasts, it seems that there is significant paucity of individuals interested in this industry and the replacement of tacit knowledge will be challenged. They speak of no students applied to a major Canadian university's petroleum engineering program due to lack of interest. Furthermore, they also speak of many of the existing talent pools retiring in the near term due to age and better oil markets affording an exit. This lack of talent may cap the supply response to demand over a longer time frame than the past. People are still apprehensive in believing that oil companies can sustain profitability and afford to provide well-paying jobs with employment security into the future. I can imagine this will gradually slow down project development velocity (unless technology can reduce the number of engineers needed). There seems to be industry consolidation now which I'm sure is to acquire people as well as property. With fewer players, couped with the EV, ESG, end of oil narrative and resulting financing hesitancy seems be leading to more rational industry behavior. I recall that finance went through a similar cycle in the 70s and early 80s with no one ever wanting to go into this field due to poor job prospects. Over past 3-4 decades, finance has now become the place to be. I wonder if this is an indicator of things to come. 

 

With that said, does anybody have any hard data in this?

 

Finally, I am sure that Buffett's big Occidental bet is a based on his assessment that oil prices will remain elevated for longer than prior cycles. His historical oil track record is not stellar, but I don't think his prior bets were ever this big. Given how much value he places on certainty, I wonder if this may be a valuable data point to adjust your prior base case probabilities. 

 

 

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On 7/7/2022 at 7:53 PM, Viking said:

@Spekulatius If you remove the pandemic low, rig count today is near a HISTORIC low. And it is plagued by a severe labour shortage and extremely long wait times for equipment and steel. So yes, rig count will help grow NA production some; but likely not nearly enough to offset decline rates from existing wells  and the demand growth we are seeing from the rest of the world. 
 

image.thumb.png.e25cf9c03311892e23ae09f44c084573.png

My guess is the 2022 laterals are at least twice as long as the 2014’s, so we don’t need to get back to the same rig count levels to achieve the same productivity. But many factors at play: decline rates, quality of the reservoir, technology advancements, existing infrastructure, location, gas/oil ratios, etc…

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6 hours ago, jfan said:

@Spekulatius I would agree that price volatility could get oil back to $50 at some point over the next 10 years. The question for me is will oil structurally fluctuate at a higher level than prior cycles?

 

After listening to one of the recent Odds Lots podcasts, it seems that there is significant paucity of individuals interested in this industry and the replacement of tacit knowledge will be challenged. They speak of no students applied to a major Canadian university's petroleum engineering program due to lack of interest. Furthermore, they also speak of many of the existing talent pools retiring in the near term due to age and better oil markets affording an exit. This lack of talent may cap the supply response to demand over a longer time frame than the past. People are still apprehensive in believing that oil companies can sustain profitability and afford to provide well-paying jobs with employment security into the future. I can imagine this will gradually slow down project development velocity (unless technology can reduce the number of engineers needed). There seems to be industry consolidation now which I'm sure is to acquire people as well as property. With fewer players, couped with the EV, ESG, end of oil narrative and resulting financing hesitancy seems be leading to more rational industry behavior. I recall that finance went through a similar cycle in the 70s and early 80s with no one ever wanting to go into this field due to poor job prospects. Over past 3-4 decades, finance has now become the place to be. I wonder if this is an indicator of things to come. 

 

With that said, does anybody have any hard data in this?

 

Finally, I am sure that Buffett's big Occidental bet is a based on his assessment that oil prices will remain elevated for longer than prior cycles. His historical oil track record is not stellar, but I don't think his prior bets were ever this big. Given how much value he places on certainty, I wonder if this may be a valuable data point to adjust your prior base case probabilities. 

 

 

 

I did my undergrad at UoC in the 70's, and was of those in the first shut down of the Petroleum Engineering program at UoC. Students simply switch to one of the other engineering disciplines, or do something else entirely. I was one of a few who passed through geology on the way to business.

 

Sure, it hurts, but it's cyclical. In my time things were so bad that engineers with 30+ years of experience couldn't get a job, and a great many people were losing their homes to sheriff sale/foreclosure on a weekly basis. Things were so bad that houses were being auctioned under 1930's depression laws. Social scaring akin to the depression era, should have put people off o/g 'forever'; it didn't, it just made them smarter for the next time around.

 

Second time around, folks were better at boom/bust, but lessons were still being learnt. Hence the famed bumper sticker: “Please God, give me one more oil boom. I promise not to piss it all away next time.”

 

This is third time around, and today folks are a whole lot smarter. There is a reason why the WCSB is so much further ahead than most of the US, and why the 'manufacturing' approach is sticking so well. Been to this rodeo, done that, got my head kicked in, twice! It's all third time survivors/family, with very deep experience

 

As o/g technology changes, so does the o/g engineering, and the need for new o/g engineers. There just may not be as many as they were, and the new engineer will look very different from the old. I would suggest that in a few years the UoC petroleum engineering program will be roughly 1/2 robotics and 1/2 o/g engineering.

 

https://calgary.ctvnews.ca/university-of-calgary-suspends-admission-for-oil-and-gas-engineering-program-1.5502133

 

SD

 

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2 hours ago, SharperDingaan said:

 

I did my undergrad at UoC in the 70's, and was of those in the first shut down of the Petroleum Engineering program at UoC. Students simply switch to one of the other engineering disciplines, or do something else entirely. I was one of a few who passed through geology on the way to business.

 

Sure, it hurts, but it's cyclical. In my time things were so bad that engineers with 30+ years of experience couldn't get a job, and a great many people were losing their homes to sheriff sale/foreclosure on a weekly basis. Things were so bad that houses were being auctioned under 1930's depression laws. Social scaring akin to the depression era, should have put people off o/g 'forever'; it didn't, it just made them smarter for the next time around.

 

Second time around, folks were better at boom/bust, but lessons were still being learnt. Hence the famed bumper sticker: “Please God, give me one more oil boom. I promise not to piss it all away next time.”

 

This is third time around, and today folks are a whole lot smarter. There is a reason why the WCSB is so much further ahead than most of the US, and why the 'manufacturing' approach is sticking so well. Been to this rodeo, done that, got my head kicked in, twice! It's all third time survivors/family, with very deep experience

 

As o/g technology changes, so does the o/g engineering, and the need for new o/g engineers. There just may not be as many as they were, and the new engineer will look very different from the old. I would suggest that in a few years the UoC petroleum engineering program will be roughly 1/2 robotics and 1/2 o/g engineering.

 

https://calgary.ctvnews.ca/university-of-calgary-suspends-admission-for-oil-and-gas-engineering-program-1.5502133

 

SD

 

I earned my B.S. Pet. E in 84 from UT Austin.  The nice thing about a Petroleum Engineering degree is that when hard times hit, unlike an underwater basket weaving degree, all your core hours transfer to another major like mine did when I came back from underemployment later for a CS degree Lots of PE folks landed in non-energy technical jobs. In the "it's a small world department", one of my sons took calculus in HS from someone who graduated in Pet. E a year after me. She switched from unemployment to teaching HS math.  When I entered PE in 1980, we had 350+ freshmen, when I graduated in 1984, the freshman class was about 25.  Maybe 10 out of 200 my class of graduates had jobs at graduation.  In 1988, all the grads had multiple offers.  It will fluctuate.

 

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The great thing with an o/g engineering background, is the foundation it gives you. That ability to easily assess, synthesize, optimize solution/risk, and comfort with developing/evolving technology, is a massive advantage. Compound that with practical field experience amongst the roughnecks, and the typical 'office' experience, and your people skills are up there as well.

 

Of course, you're still an engineer ... so a man/women has to know his/her limitations !

As your spouse will remind you !!

 

We routinely think of GPS as devices linked to geo-stationary satellites.

I would suggest that not that long from now, it will also be drill-heads (in very hostile environments) linked to in-ground acoustics, and directional drilling with the ability to make multiple directional changes. Simply because if you are going to sequester CO2 efficiently, you need a grid of fracked holes in the pay zone, drilled from as few platforms as possible. 3D awareness of where the drill-bit is at all times, and an accurate map of hole in the pay-zone - so that you ONLY frack in YOUR pay-zone. Versions of the same technology being used for fishing, undersea drilling, methyl-hydrate production, and robotic asteroid mining for water components. Obviously .... the future is bright.  

 

SD

 

Edited by SharperDingaan
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Interesting chart from JP Morgan’s quarterly investment letter regarding energy cost. I am surprised how bad coal and nuclear is on the cost curves

https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf

 

 

The more I think about this, the fulcrum energy is NG and not crude oil. Crude oil will more likely than not come down a bit, but I think NG prices will stay elevated due to demand from Europe, mainly because the Ng from Russia  has been taken out of the market for a while.

C6AA4AFB-5DD8-4E9A-AAE9-75EB55AB3F97.png

Edited by Spekulatius
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I understand that the methodology to calculate LCOE is highly tweekable and the outputs from various agencies can also vary. I came across EROI or EROEI as a concept as well for energy sources. It seems that depending on the organization publishing this data, the "value" of various energy sources can vary dramatically. 

 

Just wondering if anyone can give a primer on the difference between the two and what in your opinion is closer to the "truth"?

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46 minutes ago, jfan said:

I understand that the methodology to calculate LCOE is highly tweekable and the outputs from various agencies can also vary. I came across EROI or EROEI as a concept as well for energy sources. It seems that depending on the organization publishing this data, the "value" of various energy sources can vary dramatically. 

 

Just wondering if anyone can give a primer on the difference between the two and what in your opinion is closer to the "truth"?

I looked at both LCOE and EROEI a while back, mostly because a friend pointed me to a slide from Lazard. LCOE and EROEI are incredibly dependent on what assumptions you choose to make. I also looked at this from the other vector - buying energy from a particular source.

 

Renewables are consistently more expensive at wholesale and retail (without subsidies). Even if you take out Block Island PPA which is a total mess, off shore wind will run you at premium to wholesale anytime during the year. Also, most PPA signed by states have this incredibly favorable pricing towards the producer that is frequently tied to an index. Sometimes I think whoever is signing this on behalf of a state  really doesn't understand how bad of a contract this is or they are hell bent on getting renewable. So of LCOE is low and renewable PPAs run so high, you'd think Orstead and others would make bank but that never seems to materialize. 

 

Even if you look at the deal that 8 minute energy signed with LA proclaiming lowest solar PPA in history at ~$20/MWh, once you calculate all the other components (e.g., BESS in/out) it comes out to something like $40/MWh with 4 hour of storage only (because, you know, sun is only gone for 4 hours a night). So, not as cheap as nuclear/nat. gas and still lacks reliability. 

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5 hours ago, SharperDingaan said:

The great thing with an o/g engineering background, is the foundation it gives you. That ability to easily assess, synthesize, optimize solution/risk, and comfort with developing/evolving technology, is a massive advantage. Compound that with practical field experience amongst the roughnecks, and the typical 'office' experience, and your people skills are up there as well.

 

 

lol, the Petroleum Engineering curriculum at my alma mater was akin to industrial engineering or engineering management.  A faux engineering degree for those that couldn't hack real engineering.  The punchline was that when I graduated they were making six figure salaries right out of school.  Most of my Petroleum Engineering friends were looking for jobs within' 4 years of graduation, though.

 

I can't argue with the value of field experience.

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On 7/9/2022 at 6:45 AM, Spekulatius said:

I did a similar bet in 2007 when peak oil was all the rage. I betted a case of Sonoma county wine that crude would go below $50/ brl within 10 years.

I never collected the bet though, moved out of area and I guess my counter-party forgot too. I betted simply based on my assumption that a lot of crazy things happen in commodity markets.

 

I actually would make that bet again that crude will be below $50 within the next 10 years (2032) at some point.

 

On 7/9/2022 at 8:21 AM, bizaro86 said:

 

I wouldn't bet against oil dropping by 50% in a 10 year period, without looking I bet nearly every 10 year period has had a drawdown that size.

 

I wouldn't be willing to be against oil doubling to $200 at some point in the next 10 years either.

 

 

I think case could be made for investing in oil companies to manage your risks, depending on your situation at both extremes, and in between the two extremes: 

 

#1. Folks with 0% of their savings in oil companies, and living on fixed income: One of their biggest worries might be whether they will be able to sustain their livelihood with inflation over a long time, especially if high inflation expectations were to get baked in society's psyche, or more money printing were to happen in the future as a result of calamities, e.g. wars, etc.  It might make rational sense for them to consider hiring OPEC for free to manage that risk by keeping their cashflow somewhat in line with inflation because OPEC has to do that anyway for its member countries. 

 

#2. Folks with 100% savings in oil companies: They would indeed want to worry about the risk of crude going below $50, and try to figure out ways to mitigate that.  This is what OPEC is trying to do for OPEC countries with close to 100% of cashflow coming from oil for some countries.  By investing in oil companies you get to hire OPEC for free with the understanding that OPEC might not be able to deliver at some moments, but that over long long times, OPEC has been getting better at delivering. 

 

If you could pick only one extreme option out of the above two extremes, which extreme option would you pick?

Edited by LearningMachine
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1 hour ago, Ulti said:

Owning Energy Transfer is like owning Citibank. Any blow ups or regulatory issues, and you can bet ET is in the middle of it. 

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35 minutes ago, LearningMachine said:

 

 

I think case could be made for investing in oil companies to manage your risks, depending on your situation at both extremes, and in between the two extremes: 

 

#1. Folks with 0% of their savings in oil companies, and living on fixed income: One of their biggest worries might be whether they will be able to sustain their livelihood with inflation over a long time, especially if high inflation expectations were to get baked in society's psyche, or more money printing were to happen in the future as a result of calamities, e.g. wars, etc.  It might make rational sense for them to consider hiring OPEC for free to manage that risk by keeping their cashflow somewhat in line with inflation because OPEC has to do that anyway for its member countries. 

 

#2. Folks with 100% savings in oil companies: They would indeed want to worry about the risk of crude going below $50, and try to figure out ways to mitigate that.  This is what OPEC is trying to do for OPEC countries with close to 100% of cashflow coming from oil for some countries.  By investing in oil companies you get to hire OPEC for free with the understanding that OPEC might not be able to deliver at some moments, but that over long long times, OPEC has been getting better at delivering. 

 

If you could pick only one extreme option out of the above two extremes, which extreme option would you pick?

 

If I had to pick between 0% energy and 100% energy I'd pick 0 for sure. That is a lot closer to my actual allocation than 100%, and its easier to be reasonably diversified dropping 1 sector than dropping all but 1.

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2 hours ago, bizaro86 said:

 

If I had to pick between 0% energy and 100% energy I'd pick 0 for sure. That is a lot closer to my actual allocation than 100%, and its easier to be reasonably diversified dropping 1 sector than dropping all but 1.

 

@bizaro86, I understand this won't apply to you, but hypothetically, between the following two options, my guess is you would pick (b), right?

  • (a) 100% cashflow from owned treasuries, where treasury won't even try to track inflation and
  • (b) 100% cash flow generated from sale of oil from owned long-term oil reserves, where OPEC will at least try to have oil price not lose out big time to inflation for its member-countries
Edited by LearningMachine
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3 hours ago, LearningMachine said:

 

@bizaro86, I understand this won't apply to you, but hypothetically, between the following two options, my guess is you would pick (b), right?

  • (a) 100% cashflow from owned treasuries, where treasury won't even try to track inflation and
  • (b) 100% cash flow generated from sale of oil from owned long-term oil reserves, where OPEC will at least try to have oil price not lose out big time to inflation for its member-countries

Definitely (b). Because then the comparison is one investment to one investment, and (a) is guaranteed to lose value right now.

 

CNQ isn't a large position for me, but if I had to pick one firm in the sector to have as a permanent 100% position that's who I'd pick. 

 

 

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19 hours ago, Spekulatius said:

Interesting chart from JP Morgan’s quarterly investment letter regarding energy cost. I am surprised how bad coal and nuclear is on the cost curves

https://am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/market-insights/guide-to-the-markets/mi-guide-to-the-markets-us.pdf

 

 

The more I think about this, the fulcrum energy is NG and not crude oil. Crude oil will more likely than not come down a bit, but I think NG prices will stay elevated due to demand from Europe, mainly because the Ng from Russia  has been taken out of the market for a while.

C6AA4AFB-5DD8-4E9A-AAE9-75EB55AB3F97.png


If this cost curve chart is accurate  then renewables shouldn’t need subsidies right?

 

I keep reading that solar is dirt cheap - yet I don’t see any companies printing money due to solar investment.

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