Energy Sector

[Dalal.Holdings]

 

So the incoming President, Treasury Secretary, and Energy secretary all want cheap energy as the foundation of the economy the next 4 years.

 

Don't worry guys, I'm sure this is bullish oil

 

[SharperDingaan]

Interesting discussion ...

 

Keep in mind that today, much of US shale is owned and/or controlled by the majors; business is a lot more rational that it used to be.

 

Of course there will be more drilling; but in existing fields it will very likely be fewer wells with longer laterals, in manufacturing mode, and with multiple bores from the same pad. Royalty and tax holidays on the new wells, environmental forgiveness if specific metrics are achieved, etc. NG exports ramped up, and multiple gas powered generating stations built to give the rising gas cut a market, end the electricity brownouts, and provide the power should EV develop further.

 

Of course everybody wants new blocks of virgin land; but it doesn't mean they are immediately going to drill beyond delineating what they get. Can't come up with a plan when you don't actually KNOW what you're working with; and even then ... immediate production may not be the optimum approach.

 

Everybody exports/imports various grades of oil; some of it purely because of geography, most of it purely because of production and consumption mismatch. For the most part, the US has too much light and not enough heavy for refining purposes. Trump guarantees a sizeable new gulf coast refinery that processes primary light, and there will be material change.

 

Different PoV.

 

SD

 

 

 

[Dalal.Holdings]

I keep hearing people talk about oil producers are getting more rational, reducing production, etc. But then you actually look at one...Here is OXY:

 

 

So from Q1 22 to Q2 24 (before CrownRock closed) Permian went from 472 to 587 MBOE per day. Total firmwide went from 1079 to 1258 MBOE. Oh, and what did oil prices do over this period? They went down...

 

 

OXY bought CrownRock and took on more debt. Guess what they have to do in order to pay off all the interest/debt costs even if oil prices move down? That's right, they gotta keep the oil flowing.

Edited November 26 by Dalal.Holdings

[SharperDingaan]

Before you post .... you might want to read the press releases.

Occidental bought Crown Rock in December 2023, adding 170 MBOE/day. Your 729 MBOE/day was actually 559 MBOE/day before purchase .... Oxy added just 87 MBOE/day net of depletion over 11 quarters - or basically flat after burning through 2 1/2 years of inventory. Their growth is from consolidation, not new drilling.

https://www.oxy.com/news/news-releases/occidental-to-acquire-crownrock-strengthening-its-u.s.-onshore-portfolio-with-premier-permian-basin-assets/

 

Quite a bit different.

 

SD

[Dalal.Holdings]

30 minutes ago, SharperDingaan said:

Before you post .... you might want to read the press releases.

Occidental bought Crown Rock in December 2023, adding 170 MBOE/day. Your 729 MBOE/day was actually 559 MBOE/day before purchase .... Oxy added just 87 MBOE/day net of depletion over 11 quarters - or basically flat after burning through 2 1/2 years of inventory. Their growth is from consolidation, not new drilling.

https://www.oxy.com/news/news-releases/occidental-to-acquire-crownrock-strengthening-its-u.s.-onshore-portfolio-with-premier-permian-basin-assets/

 

Quite a bit different.

 

SD

I used Q2 figure of 587 MBOE per day for permian as CrownRock deal closed in Q3 of 2024.

That’s a 24% increase in 9 quarters (Q2 24 vs Q1 22) of permian production despite falling oil prices. I would not call that “flat”.

Now let’s get to the meat of my argument and tell me if these guys are so rational why they make more oil when the price of oil goes down?

[mcliu]

Isn't that table consistent with the narrative?

Prices were high Q1 to Q4 of 2022 so they increased production. 472 to 565

As prices declined, production has stayed essentially flat since Q4 2022. 565 to 585

[Dalal.Holdings]

Well the narrative I’ve been hearing is:

 

Shale wells deplete quickly and production should fall with prices (not stay flat or even grow as it has).

 

Also: Vicki Hollub at OXY is unlike most other oil CEOs: she’s cutting capex/drilling and focused on shareholder returns unlike all her peers in the industry (isn’t that why Warren likes her?).

 

The fact that OXY can be used to prove the first narrative wrong speaks volumes to me. The U.S. in aggregate has grown production YoY every month this yr except Jan.

 

I’m sure there will be thesis creep/moving of the goalposts now and folks will say “well flat production is ok”…

[SharperDingaan]

The Crown Rock acquisition was completed Aug 01, 2024. Results were included in the Q3 2024 numbers.

Back out the acquisition and the conclusion remains; after 2 1/2 years of drilling their better Permian prospects, production is barely outstripping depletion - whether we want to hear it or not. https://www.oxy.com/news/news-releases/occidental-completes-acquisition-of-crownrock/

 

It's a similar story across most of the US basins. Growth is now primarily a function of consolidation, economies of scale, and 'manufacturing' from multi-stacked plays. Via control positions in the fields themselves, drilling services/materials, collection facilities, gas processing, egress, etc.  A game of local oligarchs, not wildcatters.

 

To make the purchases, the buyers have to be big ... producing from multiple sources, and maximising FCF across their entire portfolio. If the aim is to maintain production; add in differentials and replacement capex, and shale ain't that cheap. If the aim is to blow down production, it's the source of buyback dollars.

 

SD

 

 

 

 

 

Edited November 26 by SharperDingaan

[Spekulatius]

How are the 25% tariffs working for Canadian crude exports via pipelines in the U? I don’t think Canadian producers are going to eat a 25% tariff tax. Can they move the crude elsewhere or do they have to shut in wells . each would be tough to do short terms.

 

Also this would lead to product shortages in the US and some US refineries may need to shut down until they retool for different crude grades. I wonder if this has been thought through?

Mr Market seems to think that none of this is going to happen, but I am not so sure.

[bizaro86]

44 minutes ago, Spekulatius said:

How are the 25% tariffs working for Canadian crude exports via pipelines in the U? I don’t think Canadian producers are going to eat a 25% tariff tax. Can they move the crude elsewhere or do they have to shut in wells . each would be tough to do short terms.

 

Also this would lead to product shortages in the US and some US refineries may need to shut down until they retool for different crude grades. I wonder if this has been thought through?

Mr Market seems to think that none of this is going to happen, but I am not so sure.

 

It'll certainly be interesting. Canada does not have anywhere close to the export capacity to stop selling oil into the USA. I suspect if a 25% tariff happens that would push up US oil prices compared to world prices, although maybe not by the full amount. 

 

Canada would be screwed, because quite a bit of production can't really shut in (it wrecks it) and so needs to keep going and becomes a price taker. But production would drop, exports to the coast would increase, and you'd see crude-by-rail to eastern Canada. 

 

Higher domestic US oil prices than world oil prices would spur US drilling, but would also harm US refining, which is an export industry. 

 

 

[mcliu]

I don’t think this 25% tariff will happen. It’s far cheaper to cave into US demands and just secure the border than to cause a borderline depression in Canada.

[Spekulatius]

10 hours ago, mcliu said:

I don’t think this 25% tariff will happen. It’s far cheaper to cave into US demands and just secure the border than to cause a borderline depression in Canada.

Is it feasible though? Trump has not given any quantifiable criteria. How much migration is happening from Canada to the US? The border between the US and Canada itself is so long, it’s not securable. So basically Canada needs to control in-migration into Canada itself to prevent migrants to use Canada as a hub to get into the US. I am curious how this works in practice.

[KJP]

5 hours ago, Spekulatius said:

Is it feasible though? Trump has not given any quantifiable criteria. 

 

That may make things easier, just like the rework of NAFTA during Trump I.  Keep things vague, obtain something, declare victory.

[mcliu]

Apparently the US intercepts far more terror suspects on the Northern border than the Southern border..

 

[SharperDingaan]

20 hours ago, mcliu said:

I don’t think this 25% tariff will happen. It’s far cheaper to cave into US demands and just secure the border than to cause a borderline depression in Canada.

 

All that a successor government need do to tighten border enforcement, contract a Bombardier to build drones for Canadian conditions, use them to patrol the southern and maritime borders, and make the expense part of Canada's 2% NATO spending requirement; tariffs exempt on both o/g and electricity. Manufacture 155 mm artillery shells and ATACMS consumables for NATO under licence, and maybe other good things happen too. Nobody likes freezing in the dark.

 

A tighter border may well up saving money too; as drugs and guns flow primarily from the US, and not the other way around. Tighter borders and there's less pressure on health care and people shooting each other.

 

SD

Edited November 27 by SharperDingaan

[Spekulatius]

1 hour ago, mcliu said:

Apparently the US intercepts far more terror suspects on the Northern border than the Southern border..

 

Funny way to frame the problem. If I interpret  this right, the second row stands for Canada. All I see is that the numbers have dropped to record low levels from 358 to 44 (which Jan- Oct so 10/12 month) Extrapolating  the YTD 2025 number to the entire year that 44*12/10=52.8 which is down which is just ~15% of last years number or down 85%. Ok it’s down a little less than Mexico but with numbers this small, the population size means a lot of error.

 

What exactly is the problem here? Seems like the problem is essentially solved for both Mexico or Canada or maybe they stopped looking for terror suspects altogether.

 

There is other data missing like how many terror suspect cross the border from the US to Canada

[TwoCitiesCapital]

3 hours ago, Spekulatius said:

Funny way to frame the problem. If I interpret  this right, the second row stands for Canada. All I see is that the numbers have dropped to record low levels from 358 to 44 (which Jan- Oct so 10/12 month) Extrapolating  the YTD 2025 number to the entire year that 44*12/10=52.8 which is down which is just ~15% of last years number or down 85%. Ok it’s down a little less than Mexico but with numbers this small, the population size means a lot of error.

 

What exactly is the problem here? Seems like the problem is essentially solved for both Mexico or Canada or maybe they stopped looking for terror suspects altogether.

 

There is other data missing like how many terror suspect cross the border from the US to Canada

 

I believe the fiscal year starts in September. So the 44 is from September - October or only 1 month suggesting an annual total of ~500

[lnofeisone]

1 hour ago, TwoCitiesCapital said:

 

I believe the fiscal year starts in September. So the 44 is from September - October or only 1 month suggesting an annual total of ~500

This is correct. The current numbers are Oct 1st though end of Oct. 

 

Fun fact about this chart - Mexican nationals made up majority of the KST arrests on the northern border (and southern border) as of 2024. SE Asians are now becoming a bigger trend. Mostly because Canada has very liberal visa policies. 

[Spekulatius]

18 hours ago, TwoCitiesCapital said:

 

I believe the fiscal year starts in September. So the 44 is from September - October or only 1 month suggesting an annual total of ~500

Thx for clarifying . So all Canada would need tighten Visa policies? I don’t think the Bombardier killer drones that @SharperDingaan proposed will be feasible to seal Canadian borders.

[SharperDingaan]

Most don't recognise that the 5,525 mile US/CAD border ALSO includes the 1,538 miles of Alaska. ADDITIONALLY,  there is the 151,000 miles of coast - the vast majority of which is in the arctic. Over these distances and conditions, one needs all weather drones with infrared detection, and the ability to call in on-the-ground teams to investigate (Polar Bears and people look the same from way up)

 

https://www.geographyrealm.com/interesting-geography-facts-about-the-us-canada-border/

https://www150.statcan.gc.ca/n1/pub/11-402-x/2012000/chap/geo/geo01-eng.htm

  

It's also two conversations .... what are you doing on the CDN southern border?, and what are you doing on the northern border?  Good chunk of both would qualify as defence spending, and most would expect Predator drones to need arctic modifications/maintenance (ie: Bombardier).

    

The third conversation is coastal defence. Develop and lay underwater sensor nets in the arctic passageways, and manufacture hunter/killer submarine drones that can use them. Buy/build icebreakers, forget the conventional sub purchase, and rely on state-of-the-art NATO submarine patrols for the rest. Ukraine was able to build sea drones ... no reason why Canada could not develop similar underwater drones (Bombardier?) for use in arctic waters. Defence spending.

 

https://www.canada.ca/en/department-national-defence/news/2024/07/canada-launching-process-to-acquire-up-to-12-conventionally-powered-submarines.html

 

Threaten the economic club ... and maybe Canada gets its act together.

 

SD

 

 

 

 

Edited November 28 by SharperDingaan

[mcliu]

Everyone in Canada knows Trudeau has done a shit job on the border/immigration and just about everything else. It is sad that it takes a foreign threat to get our govt to do anything other than talk talk talk.
 

https://www.ft.com/content/7ee200fa-89a1-4058-b4cf-83a37ee6d8a9
 

The number of migrants caught trying to cross from Canada into the US jumped from 27,180 in 2021 to 198,929 in 2024 — a rise of almost 600 per cent — according to US Customs and Border Protection data.

 

Canada’s provincial leaders have criticised what they say is a failure by the government in Ottawa to prioritise border security. Ontario premier Doug Ford on Wednesday said he hoped the meeting with Trudeau would be “the start of a more proactive approach from the federal government” and would show it “takes the security of our border seriously . . . or risk the economic chaos of Trump tariffs”. 

[sholland]

On 11/26/2024 at 7:33 PM, Spekulatius said:

How are the 25% tariffs working for Canadian crude exports via pipelines in the U? I don’t think Canadian producers are going to eat a 25% tariff tax. Can they move the crude elsewhere or do they have to shut in wells . each would be tough to do short terms.

 

Also this would lead to product shortages in the US and some US refineries may need to shut down until they retool for different crude grades. I wonder if this has been thought through?

Mr Market seems to think that none of this is going to happen, but I am not so sure.

Tariffs on Canadian oil isn’t going to happen for reasons very well articulated in this short video:

 

Edited November 30 by sholland

[Spekulatius]

@sholland You are likely correct and Mr Market doesn’t believe it either. Canadian energy co have mostly outperformed US peers the last year despite issue like this and the carbon tax proposed by the Canadian government. So, I don’t think there is a trade here.

 

[UK]

https://www.bloomberg.com/opinion/articles/2024-12-02/the-wrong-oil-price-is-truthfully-a-problem-for-opec?srnd=homepage-europe

[Dalal.Holdings]

 

 

I think that the assumption that China will resume its voracious appetite for oil is probably very wrong. It certainly won't see the growth of the past 20 years. That's bearish for oil...

 

https://www.reuters.com/markets/commodities/after-decades-china-sputters-engine-global-oil-demand-growth-2024-12-03/

 

 

Quote

The speed of its transition to electric mobility has stunned oil producers and investors. No single market is positioned to replace Chinese demand, which has made up 41% of annual global oil consumption growth averaging 1.1 million barrels per day (bpd) over the past three decades, according to the Statistical Review of World Energy.

 

Quote

EV and hybrid sales in China topped combustion engine vehicle sales for the first time in July, eating into China's need to import crude for refiners to make gasoline, with prolonged economic weakness also slowing overall oil consumption.

Demand for transportation fuels began to decline this year in a three-year plateau that started in 2023, said Ciaran Healy, demand analyst at the International Energy Agency, a view echoing a Chinese oil researcher's. The plateau has come around two years earlier than the 2025-2027 period the IEA forecast as recently as June, Healy told Reuters.

 

Quote

While China's crude imports are set for a November bounce, they fell 3.4% annually in the first 10 months of 2024, a rare and steep decline surpassed only by the pandemic-triggered 7.2% drop for the same period in 2021.

 

Quote

"Gasoline and diesel are dead as EVs grow at a surprisingly fast pace and there's more replacement by LNG," said a trader at an independent Chinese refiner, declining to be named as he was not authorised to speak with media.

 

Edited December 4 by Dalal.Holdings