Energy Sector

[Sweet]

@SharperDingaan we will see in a few months with the 914 for October is released.

 

Yes rig and fracs lower but the Shale bros have been finding ways to get more - somehow.

[Ulti]

https://oilprice.com/Latest-Energy-News/World-News/Trans-Mountain-Oil-Pipeline-90-Complete.html
 

did I read correctly that the Canadian gov is building and then going to sell? What happens if no one buys it?

[Spekulatius]

5 hours ago, Sweet said:

@SharperDingaan we will see in a few months with the 914 for October is released.

 

Yes rig and fracs lower but the Shale bros have been finding ways to get more - somehow.

This has been the case for two decades since the shale got started in the Barnett. The productivity growth in terms of drilling have been enormous while some people just think you can look at the rig count to determine drilling activity.  

[fareastwarriors]

US oil is back, and ExxonMobil’s $60 billion deal isn’t even the biggest signal

[SharperDingaan]

Permian producers have been able to achieve 40% more production at 20% less cost; once they consolidated and went into manufacturing mode; Exxon-Pioneer is just the latest consolidation. What isn't mentioned is that 13M boe/d of US production depleting at an average 10%/year (conservative guess) is a loss of 1.3M boe/d (13M x .10). Consolidation in the Permian needs to deliver spectacular results in < 1 year, just for daily US production to remain flat.

 

Governments don't run pipelines, operators do. Most of the time the sale will be to an operating P3 using public sector accounting, and most of the P3 will be owned by domestic special interests, pension and infrastructure funds, etc. No loss recognition upon sale as it will be recovered via a legislated rate-regulated charge to users.

 

SD

 

 

 

Edited October 15, 2023 by SharperDingaan

[fareastwarriors]

deal season 

 

Chesapeake Considers Acquisition of Rival Southwestern Energy

[Ulti]

great podcast with an overview on energy from a rational viewpoint 

[SharperDingaan]

'great podcast with an overview on energy from a rational viewpoint'

 

Notable is that the executable takeaway is to generally oppose the news headline. Factoids presented out of context, let the reporter/presenter off the ethical/fact-check hook, and are exploitable. It also gets increasingly reliable as the demands of the 24/7 news cycle drive content towards factoid + filler (cheap), presented by the least experienced (cost saving). 

 

Also notable is that a supposedly high-risk position (per the head-line), is nowhere near the risk perceived; the adverse press release will drive the price of the item below what it should be, and keep it there until either the sentiment/story-line changes. When the carrot says something stupid enough to generate a one day 2,000 point drop in the index, doing a buy later in the day - is not the risk it is perceived to be. The only question is how long until the story-line changes ... 

 

It is not hard to maintain a solid ongoing understanding of an industry (context), or recognise over-reaction. It simply requires that the investor invests some time in developing WEB's circles of competence. Not a big ask.

 

SD   

Edited October 18, 2023 by SharperDingaan

[Gamecock-YT]

Chevron buys Hess, consolidation is a go

[Spekulatius]

1 hour ago, Gamecock-YT said:

Chevron buys Hess, consolidation is a go

This is also an all stock deal. CVX also pays no premium although I think HES had already an takeover premium build in

https://finance.yahoo.com/news/chevron-buy-hess-corp-53-090551430.html

 

HES interesting assets are their exploration assets in Guyana, the biggest oil finds of the last decades if you don’t count shale.

[SharperDingaan]

That USD 53 billion share issue also ranks up there on the top 25 list of the largest in history, Petrobas leading the pack at 70 billion.

https://www.irmagazine.com/reporting/worlds-biggest-share-issue

 

SD

[Spekulatius]

7 hours ago, Spekulatius said:

This is also an all stock deal. CVX also pays no premium although I think HES had already an takeover premium build in

https://finance.yahoo.com/news/chevron-buy-hess-corp-53-090551430.html

 

HES interesting assets are their exploration assets in Guyana, the biggest oil finds of the last decades if you don’t count shale.

It is remarkable that the two largest oil majors do a merger only a week apart and paid for in stock, not cash. I am guessing they don't think their stocks are all that undervalued and probably are unwilling to lever up.

 

Both XOM and CVX have very little net debt, so they could have easily done the merger in cash without really encumbering their balance sheet much.

[KPO]

10 minutes ago, Spekulatius said:

It is remarkable that the two largest oil majors do a merger only a week apart and paid for in stock, not cash. I am guessing they don't think their stocks are all that undervalued and probably are unwilling to lever up.

 

Both XOM and CVX have very little net debt, so they could have easily done the merger in cash without really encumbering their balance sheet much.

In the case of Hess I suspect the family preferred CVX stock for tax reasons. 

[Xerxes]

Strange. On the CNBC interview, both CEOs alluded to the fact that Chevron has a dividend yield of 6%. Wirth said “twice there nearest peer”

 

wierd. 
Chevron dividend yield is at +3%

[Ulti]

https://www.cnbc.com/2023/10/25/why-exxon-chevron-are-doubling-down-on-fossil-fuel-energy.html

[NnnnotSoSmart]

“A Forecast, Not A Scenario” Featuring Chris Birdsall, Exxon Mobil Corporation

 

"Today we had the pleasure of visiting with Chris Birdsall, Director of Economics and Energy at Exxon Mobil Corporation. Chris joined Exxon as an engineer in 1996 and has served in several areas of the organization including manufacturing, technology, and commercial roles over the past 27 years. For the last five years, Chris has lead a team of economists, modelers, and researchers responsible for the research and data that shapes Exxon Mobil’s Global 2050 Outlook report (linked here). It was our pleasure to visit with Chris and learn more about his team, their views on long-term energy demand and supply, and have a chance to discuss all of the inputs and assumptions in an ambitious undertaking like this report."

 

https://veriten.com/stream/cobt-203/

Edited October 26, 2023 by NnnnotSoSmart

[james22]

We are betting that petrochemical prices are going up. Here is why:

 

https://vitaliy.substack.com/p/our-investments-in-oil-and-natural

[Spekulatius]

1 hour ago, james22 said:

We are betting that petrochemical prices are going up. Here is why:

 

https://vitaliy.substack.com/p/our-investments-in-oil-and-natural

his bullish on O&G not petrochemicals. Petrochemical is a spread business - they make a margin buying O&G and producing petrochemical products from them. High O&G prices are not necessarily good for them.

[Ulti]

good overview of Canadian Energy and current/ future mergers…. Would be interested in the more expert opinion…. As a suncor investor , much more interested in return of capital than company acquisitions ( with the exact of their recent sands addition 

 

[Castanza]

https://www.ft.com/content/7fe07a25-9a76-4777-9178-c6756bb04c2f

 

 

Edited November 1, 2023 by Castanza

[Ulti]

Counterpoint to the "merger to grow " theme

 

BP Plc doesn’t believe it needs to bolster US shale activities following Exxon Mobil Corp. and Chevron Corp.’s giant oil deals last month. If anything, its American rivals may have overpaid.

“We’d much rather be counter-cyclical than buy at a high point in the market,” BP interim Chief Executive Officer Murray Auchincloss told Bloomberg News in an interview after the London-based company posted earnings on Tuesday. 

Since taking over the helm of BP after the shock resignation of former CEO Bernard Looney, Auchincloss has said the company will stick to its strategy of steering toward low-carbon technologies. That perhaps isn’t much of a surprise, as it would be unusual for someone in an interim position to shake up a company.

Still, the 53-year old Canadian was adamant that he didn’t need more barrels when questioned about the lack of BP’s scale compared to its North American competitors. “If I’m honest,” Auchincloss said, the firm is really focused on low-carbon, energy “transition growth engines and not the oil-and-gas side” when it comes to M&A.

Murray Auchincloss Photographer: Christopher Pike/Bloomberg

In the past month, Exxon and Chevron agreed on a pair of takeovers together worth more than $100 billion, both of which are intended to boost fossil fuel production growth.

The wedge between the two sides of the Atlantic has inevitably led to more speculation on whether BP is exposed as a takeover target, something Auchincloss wouldn’t address.

Instead, he voiced confidence on driving returns back to shareholders and narrowing the valuation gap versus the US oil majors through other means.

Auchincloss noted that BP’s share price multiples are trading in line with its European peers and closed the gap with US competitors by about a third in the last year. When looking at price-to-earnings multiples, however, the gap remains stubbornly wide. Exxon’s are about 40% higher.

There’s never a good time for a company to be without a permanent leader. But being rudderless at a time when peers are making historic deals will only keep the questions on BP’s stability coming. 

Chart of the day

[SharperDingaan]

Keep in mind that most all public M&A discussion are vested interests promoting their various books. Nobody wins unless there are deals, and M&A season is a melting ice cube. The WCSB ice cube will have roughly 9 months to run, starting from when the new egress begins line fill.

 

At the senior level, most would expect the bigger partners to continue buying out their smaller partners; as many with ESG reporting issues need a liquidity event to exit. The mystery will be whether the company itself concurrently executes on a NCIB, to facilitate the transaction and minimise/avoid the buyout tax.

 

At the mid-cap level most would expect primarily share swaps, and field consolidation, concurrent with a follow up NCIB execution (deal structure). Over the last 5-10 years there have been few opportunities by which to issue 9-10 digit equity; it's tax efficient, balance sheets remain strong, cash remains for development/distribution, and a concurrent NCIB will avoid tax. All about production 'manufacturing', at the lowest possible cost/bbl.

 

At the junior level most would expect outright sale vs transacting for scraps. Similar preference for the shares/NCIB combination, as it is better to hold slices of the bigger pizza vs all of a small one. Also easier for the bigger owners to simply sell their shares, and buy the scraps through private vehicles.

 

Once the bulk of share swap/NCIB deals are underway; expect a switch to reverse-splits to eliminate the buyback tax, and a return to primarily drilling/special dividends. Carbon capture, refining, and green energy projects largely put on ice until there is a change in government.

 

We live in interesting times.

 

SD 

 

 

 

 

Edited November 1, 2023 by SharperDingaan

[Jaygo]

21 minutes ago, SharperDingaan said:

The WCSB ice cube will have roughly 9 months to run, starting from when the new egress begins line fill.

Hey SD, I really appreciate you knowledge here so can you expand on this a bit. 

 

Are you implying that once that extra capacity is gone ( as in the pipe is filled and pumping) the market would cool off for WCSB

 

The mid caps like WCP seem hungry to buy, rumours of a SU or CVE purchase of MEG. Seems like the whole return all money to shareholders and not grow thing has changed. 

 

Im pretty happy with what ive made in the Canadian names, some like wcp and cnq (the safer bets have doubles or triples since ) I am cautiously optimistic and would like to dabble in the TVE, BTE, SGY, SES of the world but hate to give it all back over a bit of greed at the top.

[SharperDingaan]

M&A window. There will be a lot of market disruption once both pipes are delivering, toll charges settle, and demand forecasts play out (or not). It will also take time for the new run-rate economics to settle, and the excess egress capacity to emerge. However, you're basically correct - M&A until the majority of the new capacity is spoken for.

 

It's remains money back to the shareholder (minority partners are also shareholders), but its also inventory optimisation. Buy/develop where you have advantage, divest where you do not, and reinvest proceeds in your best prospects. Buybacks used to brute-force valuation comparables to 'norms', and reduce pressure on drilling costs.

 

You might want to look at OBE

 

SD 

 

  

[Cor]

SD, what’s your take on how M&A activity affects Ensign and PD? On the recent Ensign earnings call leadership called out weaker demand for their rigs as a result of M&A activity and it looks like their share price took a dive on this news? 
 

Trying to figure out if it’s maybe worth exiting Ensign now if this trend will continue say into 2025?

 

Or is there a reasonable chance someone offers to buy Ensign and rig utilization becomes a moot point?