Valuebo Posted October 8, 2014 Posted October 8, 2014 Looking at the charts this morning, might as well commit suicide. Cardboard I feel for you guys. Hope this was a joke Cardboard.
Cardboard Posted October 10, 2014 Author Posted October 10, 2014 What have we missed here or are we missing? Cyclical stocks will trade at a 30 to 80% of book value during a recession or when earnings and positive cash flows have disappeared. To my knowledge, WTI is still at $85 per barrel and all these companies are still generating positive cash flows and some have very respectable earnings. Indeed price received for light oil by Canadian producers is well north of $90 CDN at the moment. My latest visit to the U.S. indicates quite strong activity. Canada is slower but, still generating new jobs per today's report. China is still growing. Japan is not doing too bad. Europe is weaker, but we are talking 0% growth and not negative so far. Is it just a massive panic based on fear of $50 oil? And the impact on debt covenants? And how long would that pricing last if economies are still moving along? And at current share price levels, are we not trading already per these conditions or a very bleak future? How much discounting should be applied to a PWT, LTS, LEG, LRE, SD, etc. for a condition that I have described above or $50 oil and a worldwide recession which we see very little sign whatsoever of materializing? In 2008, lending problems and housing weakness were visible since late 2005. What in the world is justifying such fear at the moment? Cardboard
yadayada Posted October 10, 2014 Posted October 10, 2014 only way it can sustainibly go lower is if there is a lot of hidden low cost capacity (i don't think there is), oil demand does not go up (but it did for almost every year in the last 2 decades) and if large oil producers suddenly become very irrational. They make money producing slightly less at much higher pricers, look at cost curve. I would probably bet a lot of money oil wil be higher 5 years from now on. There is a reason buffett bets big on oil, and on canadian oil sands which have higher break even costs.
gordoffh Posted October 10, 2014 Posted October 10, 2014 A lot of green on the board now. Has sanity returned. We are not going back to the stone age. We need oil and the cheap stuff to be found is not around anymore.
Cardboard Posted October 10, 2014 Author Posted October 10, 2014 Despite some legitimate concerns regarding the sector and the fact that some of these companies are too levered (PWT, LTS, SD and others), I continue to believe that some heavy shorting has been going on forcing a mass panic. While the S&P 500 has corrected about 5%, we already have Alcoa and PepsiCo having handily beaten earnings expectations. I assume that we will get the usual and that the large majority of companies will beat earnings expectations over the coming 2 or 3 weeks. This will likely end the correction. If multinationals do this well, then it will be a big reassurance on a global basis. Also, Draghi will likely increase QE and Germany will have to wake up and do something to help their own economy. If I am right at all, then I cannot foresee how oil could remain this weak. If it stabilizes at all around $85, then I would expect a major rally into these highly beaten up names. Then after they rally back, idiotic CEO's will make acquisitions. It will look better for them and to the investment community than buying cheaper now... Cardboard
Fat Pitch Posted October 10, 2014 Posted October 10, 2014 Despite some legitimate concerns regarding the sector and the fact that some of these companies are too levered (PWT, LTS, SD and others), I continue to believe that some heavy shorting has been going on forcing a mass panic. While the S&P 500 has corrected about 5%, we already have Alcoa and PepsiCo having handily beaten earnings expectations. I assume that we will get the usual and that the large majority of companies will beat earnings expectations over the coming 2 or 3 weeks. This will likely end the correction. If multinationals do this well, then it will be a big reassurance on a global basis. Also, Draghi will likely increase QE and Germany will have to wake up and do something to help their own economy. If I am right at all, then I cannot foresee how oil could remain this weak. If it stabilizes at all around $85, then I would expect a major rally into these highly beaten up names. Then after they rally back, idiotic CEO's will make acquisitions. It will look better for them and to the investment community than buying cheaper now... Cardboard There’s something to be said about buying marginal commodity plays. I think oil will be higher 10 years from now, but without a strong balance sheet and being the low cost producer, one can get killed in this industry. Maybe the Saudis and Russia are going full tilt for a while, but I know they can’t keep this up without damaging their reserves so rationality will have to return eventually. Stick with strong balance sheet companies just in case this takes longer than expected. It helps you sleep well at night even if your positions are down -40%+. That’s the greatest lesson I’ve learned from 2008-2009.
dutchman Posted October 10, 2014 Posted October 10, 2014 Which canadian producers have the strongest balance sheets ? The big ones are Suncor, Imperial and Cenovus right ?
frommi Posted October 11, 2014 Posted October 11, 2014 After looking at a lot of drilling companies i am really questioning if it is wise at all to invest in one of them. The only company with more or less stable free cashflow generation was XOM. Nearly every other small or midcap driller have mainly negative free cashflow, so whats the reason to invest there? (Is this just a bet on huge inflation going forward?) For me the oil service sector looks a lot more appealing. Or am i missing something? ( Given that i am a little bit stupid, please help me learning :) )
yadayada Posted October 11, 2014 Posted October 11, 2014 In order to combat falling revenues, Saudi Arabia pushed for production quotas to limit production and boost prices. When other OPEC nations failed to comply, Saudi Arabia slashed production from 10 million barrels daily in 1980 to just one-quarter of that level in 1985. When this proved ineffective, Saudi Arabia reversed course and flooded the market with cheap oil, causing prices to fall to under ten dollars a barrel. The result was that high price production zones in areas such as the North Sea became too expensive. Countries in OPEC that had previously failed to comply to quotas began to limit production in order to shore up prices. It is fascinating tor ead about opec and price controls. It looks like a game of nosebleed poker. Apparantly not all OPEC countries always fall in line. I wouldn't invest in risky oil companies with shaky balance sheets. That is for sure. I think Opec currently has about 40% of the oil market.
Cardboard Posted October 12, 2014 Author Posted October 12, 2014 http://online.wsj.com/news/articles/SB10001424127887323527004579077290810607968 Repsol has been looking for a $5 to $10 billion acquisition in North America for over a year to diversify into more stable producing regions. They have made their asset sales already and have the cash in hand. They have rejected a full takeover of Talisman and instead are looking at shale assets and companies with a large percentage of their production in oil. Seems to me that they can cherry pick at the moment and I doubt that they have changed their strategy. It seems to be just a matter of the seller agreeing to a lower price than a few months ago. Unless of course, they don't want to look like fools by Wall Street and buy assets at cheap prices... Cardboard
EliG Posted October 13, 2014 Posted October 13, 2014 https://en-maktoob.news.yahoo.com/u-brent-crude-fall-more-1-kuwait-saudi-234728574--business.html Top oil exporter Saudi Arabia is ... quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period, a sharp shift in policy that may be aimed at slowing the expansion of rival producers including those in the U.S. shale patch. In private meetings with oil market investors and analysts Saudi official have telegraphed that the kingdom, OPEC's largest producer, is ready to accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations. In a monthly report issued on Friday, OPEC said Saudi Arabia reported September production of 9.704 million barrels per day (bpd), up from 9.597 million in August, adding to signs it has yet to respond to a drop in prices well below $100 a barrel by trimming output. The lack of a Saudi cut could add to perceptions of traders and analysts that the kingdom is looking to defend market share, not prices.
ItsAValueTrap Posted October 13, 2014 Posted October 13, 2014 You guys need to stay away from these stocks. Many of the names mentioned in this thread have been inflating their numbers. Fraud is rather high. That's the reason why short interest is high. If you don't understand the lies in this sector then you should probably stay away.
alertmeipp Posted October 13, 2014 Posted October 13, 2014 From the surface of news, Saudi and Kuwait clearly want to force other higer cost producers to cut. They wont like 80 or 90 dollars brent, but have wti and brent stays down here will for sure get some high cost producers think hard about their budget cycle. Valuetrap, can u be specific?
SpecOps Posted October 13, 2014 Posted October 13, 2014 According to Reuters the Saudi's want cheap oil for the next few years to force North American producers out of business. But I have read other reports that say the Saudis can't afford sub $80 brent crude.
yadayada Posted October 13, 2014 Posted October 13, 2014 They don't want to push american oil out. Average break even for NA oil is like 85$ on average, so why push them out. If anything you want to keep them in. They want to push out other low cost providers who don't fall in line when they reduce capacity. If they don't do that, then they end up constantly being the ones who cut production to raise the price, while the rest of the low cost producers are not cutting. This will reduce their market share over time. Just look at history if you want to understand what is going on. This is basicly a game of high stakes poker. Sometimes you have to show some irrational behavior to get the rest of the players to play along.
Sunrider Posted October 13, 2014 Posted October 13, 2014 That may be wishful thinking - or rather it doesn't matter whether they want US oil off the market or not ... it'll just happen if they keep the price at a level below whatever the marginal cost is. Oh .... and I'm long LTS, MEI, PWE :( They don't want to push american oil out. Average break even for NA oil is like 85$ on average, so why push them out. If anything you want to keep them in. They want to push out other low cost providers who don't fall in line when they reduce capacity. If they don't do that, then they end up constantly being the ones who cut production to raise the price, while the rest of the low cost producers are not cutting. This will reduce their market share over time. Just look at history if you want to understand what is going on. This is basicly a game of high stakes poker. Sometimes you have to show some irrational behavior to get the rest of the players to play along.
yadayada Posted October 13, 2014 Posted October 13, 2014 but it does not make sense to push out high cost producers, they are the ones that give you a high oil price. You want to push out some low cost capacity, so that there is more room for high cost capacity. If all demand is filled by low cost capacity you have a much lower oil price and everyone makes less money. But if most of demand is filled by low cost and some of it by 80-100$ cost (like previously was the case) then you have 100$+ oil. And all the low cost providers make more money. That is what the saudi's want to achieve. But they don't want to be the only ones who constantly cut capacity. So that is why they flood the market every once in a while to show their muscle and force the other OPEC countries in line to also cut capacity. See this quote: In order to combat falling revenues, Saudi Arabia pushed for production quotas to limit production and boost prices. When other OPEC nations failed to comply, Saudi Arabia slashed production from 10 million barrels daily in 1980 to just one-quarter of that level in 1985. When this proved ineffective, Saudi Arabia reversed course and flooded the market with cheap oil, causing prices to fall to under ten dollars a barrel. The result was that high price production zones in areas such as the North Sea became too expensive. Countries in OPEC that had previously failed to comply to quotas began to limit production in order to shore up prices.
siddharth18 Posted October 13, 2014 Posted October 13, 2014 Someone made an interesting comment on SeekingAlpha: A great business plan by those who control vast amounts of production - short various sized oil/gas companies across the globe, then announce increased production and tell everyone to be prepared for lower long term prices. Then reverse position and go long oil/gas 12-24 months later (prior to announcing production cuts) and lift oil back to $100+ so all of your holding increase 20-60% within a few months.
SpecOps Posted October 14, 2014 Posted October 14, 2014 but it does not make sense to push out high cost producers, they are the ones that give you a high oil price. You want to push out some low cost capacity, so that there is more room for high cost capacity. If all demand is filled by low cost capacity you have a much lower oil price and everyone makes less money. But if most of demand is filled by low cost and some of it by 80-100$ cost (like previously was the case) then you have 100$+ oil. And all the low cost providers make more money. That is what the saudi's want to achieve. But they don't want to be the only ones who constantly cut capacity. So that is why they flood the market every once in a while to show their muscle and force the other OPEC countries in line to also cut capacity. See this quote: In order to combat falling revenues, Saudi Arabia pushed for production quotas to limit production and boost prices. When other OPEC nations failed to comply, Saudi Arabia slashed production from 10 million barrels daily in 1980 to just one-quarter of that level in 1985. When this proved ineffective, Saudi Arabia reversed course and flooded the market with cheap oil, causing prices to fall to under ten dollars a barrel. The result was that high price production zones in areas such as the North Sea became too expensive. Countries in OPEC that had previously failed to comply to quotas began to limit production in order to shore up prices. Interesting quote, so are you betting on some of the NA oil producers or waiting? I've been looking through some of them, but not found it easy to find a strong one at very depressed levels. My only exposure to oil at the moment is AWDR
Cardboard Posted October 14, 2014 Author Posted October 14, 2014 http://www.bloomberg.com/news/2014-10-13/bakken-drillers-poised-to-curb-exploratory-spending.html?cmpid=yhoo In NA, this is the hardest hit area so far or U.S. based Bakken oil producers. They are already getting below $80 U.S. per barrel produced vs WTI at $85. I had mentioned that Continental Resources had significantly increased its cost forecast for its newer wells. This will get cut. The pressure to curtail 2015 activity will significantly alter overall U.S. production. Everyone is starting to freak out and being more careful about spending. Combined with inventories that are not at all higher or even below 12 months ago and WTI should hold around the $85 mark. Of course, that is unless Brent goes below $80 and at that point, most OPEC members will look for cuts which will please the Saudis and make prices rebound anyway. They can't play the game very long, they need to balance their budgets. And accessing the debt market for these countries during a liquidity crisis, which they could be contributing to by instilling global growth fears by playing with the crude price, makes it unacceptable. The message has been sent and oil production will now flat line. Canadian light oil producers on the other hand are benefiting from the strength in the USD and the need for diluents to ship bitumen into pipelines. So you have Edmonton light pricing in the $95 CDN range. They could now re-hedge at these levels and still make very good money. Cardboard
bizaro86 Posted October 14, 2014 Posted October 14, 2014 Which canadian producers have the strongest balance sheets ? The big ones are Suncor, Imperial and Cenovus right ? CNQ is the other big one
gordoffh Posted October 14, 2014 Posted October 14, 2014 Lts now trading at close to valuation of assets they just sold this year this is crazzzy are these cardium and bakken assets and netbacks a fabrication was there coverage of dividend a falsehood the debt is a couple of years out is the world now in a surplus of 50? Dollar oil for a couple of years by the way added under 4 today
EliG Posted October 14, 2014 Posted October 14, 2014 You guys need to stay away from these stocks. Many of the names mentioned in this thread have been inflating their numbers. Fraud is rather high. This Bloomberg article doesn't mention any Canadian names, but it kinda validates Glenn's point. We're Sitting on 10 Billion Barrels of Oil! OK, Two
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