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Posted

leverage is very high, while the operational track record is mixed at best! what am i missing in terms of this "value" opportunity with LTS

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Posted

Almost 20 percent swing today.

 

They probably will cut capex and let production drop if they do both buyback and dividend.

 

Until oil price recover or another major asset sales.

They said they will try to live within cash flow.

 

Asset sale very unlikely at this environment. I actually think cutting the dividend make little sense for now. Cut fifty percent only save them 48m.

 

Like ten percent of flow fund.

 

 

Posted

Manitok announced very good results inmo. Currently down quite a bit but I still really like the company.

Will review Manitok and PWE over the weekend.

 

http://www.manitokenergy.com/files/file/manitok-corporate-presentation-2014-11-12-v005-final.pdf

 

I'm curious to hear your thoughts.  At a cursory glance, I'm confused that the shares traded down a bit today.  Just oil price, I suppose?  The report was far more positive than I was expecting.  Nice to see the hedging through 2015.

Posted

Its a strange situation.

 

The Juniors have been massacred, the majors killed.

Great value and once in 3-4 years ops, but most are sitting down 50%.

 

I was fairly overwieght oil. I have sold service companies which were down 10%.

Now I can buy more Manitok or wait.

 

I think the shares I have will recover, but you can make real money buying today.

Entrice is looking great, they may produce more from it in 2 years than Stolberg. Stolberg is back on line.

I will listen to the call and think about it over the weekend.

 

They have upside in Stolberg, and tremendous running room in Entrice. They can even pick up the other acreage from PS / Encana Spin CO.

Lots of good options and good hedges and 50 / 50 nat gas production to help with the dip in oil.

The real question is - is it a dip?

 

Interesting. times....

Posted

The real question is - is it a dip?

 

the crux of the situation, as i see it.  low cost, unlevered companies are not down so much.  if you want a significant bargain you have to invest in a company that will not do well with, may not survive, long-term $70 wti.

Posted

A dip if the major players are rational.

 

Everybody cuts 1-2% of their output and they can sell their remaining 98% for ~30% more.

 

But rational is too much to expect sometimes.

 

 

Posted

Why wouldn't the oil market work like all other commodity markets... in which case the depressed price will last quite a while and poor/levered business will get shuttered/acquired etc.  From what the US producers are saying, it sounds like they fully intend to keep pumping and increasing supply even further.  The most bullish sign I see for oil is the fact that all the headlines are telling us that it's going to $50. 

 

 

 

Posted

Its a strange situation.

 

The Juniors have been massacred, the majors killed.

Great value and once in 3-4 years ops, but most are sitting down 50%.

 

I was fairly overwieght oil. I have sold service companies which were down 10%.

Now I can buy more Manitok or wait.

 

I think the shares I have will recover, but you can make real money buying today.

Entrice is looking great, they may produce more from it in 2 years than Stolberg. Stolberg is back on line.

I will listen to the call and think about it over the weekend.

 

They have upside in Stolberg, and tremendous running room in Entrice. They can even pick up the other acreage from PS / Encana Spin CO.

Lots of good options and good hedges and 50 / 50 nat gas production to help with the dip in oil.

The real question is - is it a dip?

 

Interesting. times....

 

Arggh.. the title of slide 23 of their recent corporate presentation really bothers me:

 

http://www.manitokenergy.com/files/file/manitok-corporate-presentation-2014-11-12-v005-final.pdf

Posted

I keep hearing a reoccurring phrase on these oil and gas related threads that goes something like this.

 

oil producing state (Russia/SA) can't survive with oil prices below certain price point because their budget calls for certain price level.

 

I'm beginning to wonder if this is a self reassuring phrase used to validate and justify our investing in this area with the market constantly bombarding our confidence with dropping oil prices. We cling to these thoughts that SA will HAVE TO cut production because they can't survive at prices below____

 

Looking back at the long term prices of oil these same countries not just survived but thrived as recently as 8 years ago with oil between 30 and 70. now I know that is 8 years ago and we all get comfortable at what ever level of income we currently have and don't ever want to take a pay cut. so while there will be a lot of griping about the lower prices are we deluding ourselves that the pain will be strong enough that those countries will take the steps in order to curb production.

 

Think of those countries in terms of being companies... PennWest recently said they wouldn't consider decreasing their production levels unless the price went below 70. Even then it's no guarantee that they would curb production in a significant way. If a company who's cost per barrel is significantly higher then that of say SA won't think about curbing until that point then what makes us think that SA will curb production?

 

 

PS. an ever growing portion of my portfolio is in this area so I feel the pain but just want to make sure I am thinking about it circumspectly and not deluding myself with false hope.

Posted

Your exactly right.  The market neither knows nor cares what is required for anyone's budget. 

 

If someone said they needed their investments to double next year in order to meet their "budget" and survive, we would consider that person to be delusional.  Other people turn around and then apply the same logic to oil prices and consider it rational.   

 

Go figure. 

 

This is what I consider the term "circle of competence" to mean.  It is the ability to separate facts from wishful thinking.  Our minds are not constrained by reality, which causes so much harm in this world but is also a valuable tool (i.e. creativity).  When you think about it, almost every time you are "mad" it is because what you believe "should happen" and "reality" are in conflict.  Don't fight reality and you will live a much happier life.  Wishful thinking is simply trying to force reality to conform to what we feel it "should be". 

 

I keep hearing a reoccurring phrase on these oil and gas related threads that goes something like this.

 

oil producing state (Russia/SA) can't survive with oil prices below certain price point because their budget calls for certain price level.

 

I'm beginning to wonder if this is a self reassuring phrase used to validate and justify our investing in this area with the market constantly bombarding our confidence with dropping oil prices. We cling to these thoughts that SA will HAVE TO cut production because they can't survive at prices below____

 

Looking back at the long term prices of oil these same countries not just survived but thrived as recently as 8 years ago with oil between 30 and 70. now I know that is 8 years ago and we all get comfortable at what ever level of income we currently have and don't ever want to take a pay cut. so while there will be a lot of griping about the lower prices are we deluding ourselves that the pain will be strong enough that those countries will take the steps in order to curb production.

 

Think of those countries in terms of being companies... PennWest recently said they wouldn't consider decreasing their production levels unless the price went below 70. Even then it's no guarantee that they would curb production in a significant way. If a company who's cost per barrel is significantly higher then that of say SA won't think about curbing until that point then what makes us think that SA will curb production?

 

 

PS. an ever growing portion of my portfolio is in this area so I feel the pain but just want to make sure I am thinking about it circumspectly and not deluding myself with false hope.

Posted

SA needs around $90-100/barrel to balance their budget.  but they have huge cash reserves and could borrow at very low rates if they needed to.  they have no short-term budget pressures that would cause them to either either cut spending or cut/raise production.

Posted

I agree with everything you said SmallCap.  No reason it can't go much lower.

 

I also agree with kevin4u2 on the rising productivity in the US.  It is undeniable when you look at the trend of rising production over past 5 years with no concurrent increase in drilling platforms.  Despite all of the talk of the producers having to drill like mad just to counteract the high depletion rates, the numbers indicate that productivity is well ahead of the depletion.  I should have looked into this more closely before.  Basically it doesn't look good.

 

The only positive I see is that the entire media lately is attaching to the idea that there will be an oil bust so maybe it's overdone in the short-term.

Posted

all the low cost stuff will be drilled out though at this pace within a few years. Meanwhile demand steadily goes up. Only need a very small shortage and you get a price spike. And unlike most other commodities, demand is pretty stable for oil, and you cannot recycle the stuff.

Posted

It is very complex. Looks at all those deals that closed in the first 9 months. Look at those multiple people were willing to pay. Those involved know better than many of us and yet they didn't see this coming.

 

All government,  OPEC didn't see this coming.

 

And somehow, now,  everybody and their dogs said it was obvious.

 

Depletion is real, ever increase production and efficiency is real. But so are tons of borrowing and equity financing used to fund the drilling.

 

Not many companies can continue their growth without dipping more into debt.

 

I agree, we careless about what the budget needs. Their citizens do.

 

The sentiment is terrible and likely to get worse. Those who bet the right side will make a killing. The bet is on what is the price to balance supply and demand? Forget about what each gov needs.

 

 

 

 

 

 

 

 

 

 

 

Posted

all the low cost stuff will be drilled out though at this pace within a few years. Meanwhile demand steadily goes up. Only need a very small shortage and you get a price spike. And unlike most other commodities, demand is pretty stable for oil, and you cannot recycle the stuff.

 

Indeed, many producers with great acres in eagle Ford and Permian are shifting more drilling there.

 

The immediate effects is they keep their growth promise with lesser capex.

 

The longer term effects is higher marginal cost for new production.

 

This will take some time under Russia or OPEC cut or something  blow up in middle east.

Posted

Jeremy Grantham had some interesting thoughts on oil:

http://online.barrons.com/articles/jeremy-grantham-u-s-stocks-can-gain-at-least-10-before-crash-1416334236

 

Summary: he has no clue what happens in the near-term.

 

Thanks for posting this as Grantham is always a good read. My key take away is Grantham's statement that, while he is unsure of the timing, he believes there will be an "accelerating transference of demand away from oil under the impact of surprising technological progress in alternative energy".  I was curious to do some more research and found some surprisingly (to me) good news about solar power. We may indeed see the cost of solar power become comparable to fossil fuel energy by the end of the decade (http://www.nrel.gov/news/press/2014/15405.html).

Posted

this graph (re. solar) may have already been posted somewhere on the board.  it presents the information on a different scale than i usually see it presented, and it was, at least for me, eye-opening.

 

http://www.bloomberg.com/image/igniG8R8Efd0.jpg

Posted

Good commentary on the longer term effect of the current price drop from IV boards...

 

http://www.investorvillage.com/smbd.asp?mb=4288&mn=151650&pt=msg&mid=14337781

 

Broken oil market - long term pirce spike

 

I have been following the oil market as long as I can remember. What’s going on right now in the oil market is highly suspect; prices are clearly being manipulated for political and economic gain. This attack on the oil market will have severe consequences on future oil supply, already at $100 oil, several major oil projects have been cancelled over the last few years, at $75-$80 all new major projects will come to a standstill at some point.

 

Yet, this is happening during a period in which the need for alternative long supplies is crucial, since the panacea of future oil supply: Iraq is going through a bloody civil war thus rendering any major investment in oil production infrastructure in the country highly uncertain. Meanwhile, the rivalry between Al Saud and Iran has never been more intense with Saudi Arabia surrounded by aggressive Shia forces in the South (Yemen), East (Iran) and North (Iraq). The Saudi-Iran proxy war currently taking place in Syria and to some extent Iraq is far from over. As if the situation is not bad enough Libya is sliding in a deeper civil war, a war that has already pulled Egypt and the UAE in the fight.

 

More worrisome, US shale production is projected to peak in the 2015-2017 time frame (probably faster at current prices) once this major source of production growth stalls a growing disconnect between supply and demand will emerge. Finally, the current sanctions on Russia have stalled and delayed multiple long term oil supply projects, the effect of those cancellations will be felt just as shale oil peaks.

 

The current opportunity to buy quality Canadian oil stocks (which have long been accustomed to low prices, and are currently being shielded to some extent by a low $CDN and narrow differentials) will prove to be a buying opportunity of a life time, anything bought today should be held until 2020 and beyond, because the next oil spike will take us beyond the 2008 highs in my opinion.

 

Regards,

Nawar

Posted

Nice little analysis on shale oil and Bakken production sustainability: http://peakoilbarrel.com/bakken-sweet-spots-petering/#more-5238

 

"In conclusion, first 24 hour production per well, when measured by well number, has dropped by 40 percent since peaking in the 24000s. This, to me anyway, clearly indicates that the sweet spots are playing out and companies are now drilling on less productive acreage. I now believe that North Dakota production will peak no later than 2015 with a high probability that 2014 will prove to be the peak year."

 

The author of that page may be very good at collecting data, but he doesn't seem to have much in the way of analytical skills or critical thinking. The production per well is only half of the equation, the other half is number of wells drilled. Sure, the best spots are disappearing because many of them have already been drilled. It is pretty obvious that companies are going to drill them first, so they can get quicker and faster returns and reinvest those returns into more capex. However, if a well today produces 40% less on average than before, but you drill two wells instead of one, you are obviously still going to get more production out of those two wells than just one.

 

Anyone can look at production gains that Bakken companies are reporting and what they are forecasting and see that guy's forecast based on his reasoning is bull. However, if oil prices go much lower he might be right about a peak(probably a temporary one), but he would be right for the wrong reasons. If oil prices go back above $80 a barrel, he will definitely be wrong. If you look at oil charts you will see part of the time the Bakken boom was happening was with oil prices similar to the ones we've had recently. Some of the best acreage has already been drilled, but well costs have gone down and efficiency has gone up as companies have scaled up operations and improved processes. So, even though average production might have gone down, that doesn't mean returns have gone down proportionally.

 

Here is a quote from Oasis Petroleum's most recent earnings call to add some more to this post:

WTI has been pretty volatile of late, but it's helpful to remember that an $80 WTI oil price is still a good price for us. In fact, our inventory of 3,600-gross operated locations is built off an $80 per barrel WTI price and up till 2014, up until this year, that's what we budgeted. That said, we also have meaningful hedges in place for the fourth quarter of 35,500 barrels of oil per day, with an average floor in excess of $93 WTI, and 32,000 barrels of oil per day for the first half of '15, with the floor of approximately $88 WTI.

 

When we think about 2015 in light of current oil price environment, I don't think it's dissimilar from what we've said in the past. We're definitely a larger company now, running 16 rigs with a capital program this year of just over $1.4 billion. If oil prices stabilize above $80 WTI oil price, you could see us continue with a capital program similar to the $1.4 billion range, maybe a bit higher or lower depending on how much above $80 we are, which will continue to drive a 20% to 30% growth rate.

 

In a sub-$80 WTI environment, you'll likely see us further contract activity to the core or deeper parts of the basin, where our wells have the most price resiliency, and where we have the most mature infrastructure.

 

As we contract to the core areas, honestly outspend our cash flow and preserve balance sheet strength, we will still deliver strong growth in this case in the mid teens to low 20s. If you start to see a $70 WTI oil price or below, we would likely live with a cash flow and deliver flat to modest production growth.

Posted
The author of that page may be very good at collecting data, but he doesn't seem to have much in the way of analytical skills or critical thinking. The production per well is only half of the equation, the other half is number of wells drilled. Sure, the best spots are disappearing because many of them have already been drilled. It is pretty obvious that companies are going to drill them first, so they can get quicker and faster returns and reinvest those returns into more capex. However, if a well today produces 40% less on average than before, but you drill two wells instead of one, you are obviously still going to get more production out of those two wells than just one. /quote]

 

I think there is a bit more depth in his "beliefs". if you take conventional production, it has peaked following the path that you exactly described. As the more productive wells from giant/big oil fields die out, there are replaced by many more wells on less lucrative spots with more tech and so on. Eventually though you get declining total production. I think he believes the same is happening with this too... I do not know if he is right and I am not taking sides. I just know that his analysis on conventional production peaking was right years ago. I feel like we will probably never run out of oil but whatever remains will get more and more costly to extract as we will need new generations of extraction tech every time. But what do I know?

Posted

The author of that page may be very good at collecting data, but he doesn't seem to have much in the way of analytical skills or critical thinking. The production per well is only half of the equation, the other half is number of wells drilled. Sure, the best spots are disappearing because many of them have already been drilled. It is pretty obvious that companies are going to drill them first, so they can get quicker and faster returns and reinvest those returns into more capex. However, if a well today produces 40% less on average than before, but you drill two wells instead of one, you are obviously still going to get more production out of those two wells than just one. /quote]

 

I think there is a bit more depth in his "beliefs". if you take conventional production, it has peaked following the path that you exactly described. As the more productive wells from giant/big oil fields die out, there are replaced by many more wells on less lucrative spots with more tech and so on. Eventually though you get declining total production. I think he believes the same is happening with this too... I do not know if he is right and I am not taking sides. I just know that his analysis on conventional production peaking was right years ago. I feel like we will probably never run out of oil but whatever remains will get more and more costly to extract as we will need new generations of extraction tech every time. But what do I know?

 

+1

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