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Oil stock continue to fall
- Thread starter eca7891
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I referenced that guy in the above post because he spent his entire life in the oil and gas industry. The guy is a subject matter expert.
no sweat I didn't exactly lay out that he was an SME. I've done quite a bit of correspondence with him on PM he is a wealth of knowledge it's crazy. He's already helped me save some money by selling some mid stream bonds i was considering holding on to and also make money just unbelievable insight.
Hopefully he has time to data dump for us I've been meaning to ask him for an update on energy/midstream .
Hopefully he has time to data dump for us I've been meaning to ask him for an update on energy/midstream .
If one takes the view that current stock prices are a reflection of some sort of discount on the value of future profits, then it would appear that the market simply does not agree that high oil prices today leads to higher profits tomorrow. I'm sure that @RGStory can provide more details.
I appreciate the confidence in my knowledge in the energy sector, but to be clear, there are plenty of my fellow professionals that know far more than I about the global picture. I can only offer an opinion on the subject from my vantage point in the midstream and upstream market.
The bigger companies like BP are always harder to analyze as they have a lot more going on than the smaller players. I also do not normally follow BP, but looking at only one company does not tell you what the whole industry is doing. You would need to look at a basket of them and as a whole several have trended downward over the past week.
Even though, I can only relay what I am seeing from being in the industry at my level, I don't think a midsummer dip is a problem. Most of the major producers are hovering around 20% gains since the start of the year. Exxon Mobil and Marathon are the big winners this year so far with 40% and 80% gains respectively. Just how much gain were you hoping to make that you find yourself concerned?
In the short term,
There is real worry as to if the WTI will hold. It hinged on OPEC coming to an agreement on production volumes. This builds a lot of uncertainty into the strategies moving forward. However, true to form, O&G exploration companies are historically opportunistic and less cautious than the financial markets that underwrite their activities. If there is money to be made, with shovels in hand they race to the field and there has been a lot of money and assets changing hands lately.
I do not understand enough about the stock market and banking side of underwriting to say if this expenditure of funds has an effect on the underlying book value. It seems reasonable to assume that in the short term the high risk of OPEC causing the WTI to move is pressuring the markets down while the companies take on new debt to fund their ongoing acquisition activities, but I'll leave that discussion to those in the banking and finance market to comment on.
As I write this though, I did see that OPEC came to an agreement on a moderate increase in production levels just yesterday. This alone would be enough to cause a short term market movement.
www.cnbc.com
www.wsj.com
For what its worth, if OPEC is fine with prices hovering above 70$, rig counts continue too increase in the key plays, and there is an increased sparsity of available land professionals, I know that I will be able to expect steady growth for my business in the near future.
The bigger companies like BP are always harder to analyze as they have a lot more going on than the smaller players. I also do not normally follow BP, but looking at only one company does not tell you what the whole industry is doing. You would need to look at a basket of them and as a whole several have trended downward over the past week.
Even though, I can only relay what I am seeing from being in the industry at my level, I don't think a midsummer dip is a problem. Most of the major producers are hovering around 20% gains since the start of the year. Exxon Mobil and Marathon are the big winners this year so far with 40% and 80% gains respectively. Just how much gain were you hoping to make that you find yourself concerned?
In the short term,
There is real worry as to if the WTI will hold. It hinged on OPEC coming to an agreement on production volumes. This builds a lot of uncertainty into the strategies moving forward. However, true to form, O&G exploration companies are historically opportunistic and less cautious than the financial markets that underwrite their activities. If there is money to be made, with shovels in hand they race to the field and there has been a lot of money and assets changing hands lately.
I do not understand enough about the stock market and banking side of underwriting to say if this expenditure of funds has an effect on the underlying book value. It seems reasonable to assume that in the short term the high risk of OPEC causing the WTI to move is pressuring the markets down while the companies take on new debt to fund their ongoing acquisition activities, but I'll leave that discussion to those in the banking and finance market to comment on.
As I write this though, I did see that OPEC came to an agreement on a moderate increase in production levels just yesterday. This alone would be enough to cause a short term market movement.
OPEC reportedly reaches compromise on oil production after dispute with UAE
The temporary but unprecedented gridlock saw the UAE reject a coordinated oil production plan for the group spearheaded by its kingpin, Saudi Arabia.
OPEC Reaches Compromise With U.A.E. Over Oil Production
OPEC agreed to raise the amount of crude the cartel member can eventually pump, but it is subject to approval by a wider group of producers that includes Russia.
www.wsj.com
For what its worth, if OPEC is fine with prices hovering above 70$, rig counts continue too increase in the key plays, and there is an increased sparsity of available land professionals, I know that I will be able to expect steady growth for my business in the near future.
Thanks for taking the time RG greatly appreciated. As you know midstream is where my focus is directed and always value your insights if you have any more nuggets with respect that that niche as well. Thanks againI appreciate the confidence in my knowledge in the energy sector, but to be clear, there are plenty of my fellow professionals that know far more than I about the global picture. I can only offer an opinion on the subject from my vantage point in the midstream and upstream market.
The bigger companies like BP are always harder to analyze as they have a lot more going on than the smaller players. I also do not normally follow BP, but looking at only one company does not tell you what the whole industry is doing. You would need to look at a basket of them and as a whole several have trended downward over the past week.
Even though, I can only relay what I am seeing from being in the industry at my level, I don't think a midsummer dip is a problem. Most of the major producers are hovering around 20% gains since the start of the year. Exxon Mobil and Marathon are the big winners this year so far with 40% and 80% gains respectively. Just how much gain were you hoping to make that you find yourself concerned?
In the short term,
There is real worry as to if the WTI will hold. It hinged on OPEC coming to an agreement on production volumes. This builds a lot of uncertainty into the strategies moving forward. However, true to form, O&G exploration companies are historically opportunistic and less cautious than the financial markets that underwrite their activities. If there is money to be made, with shovels in hand they race to the field and there has been a lot of money and assets changing hands lately.
I do not understand enough about the stock market and banking side of underwriting to say if this expenditure of funds has an effect on the underlying book value. It seems reasonable to assume that in the short term the high risk of OPEC causing the WTI to move is pressuring the markets down while the companies take on new debt to fund their ongoing acquisition activities, but I'll leave that discussion to those in the banking and finance market to comment on.
As I write this though, I did see that OPEC came to an agreement on a moderate increase in production levels just yesterday. This alone would be enough to cause a short term market movement.
OPEC reportedly reaches compromise on oil production after dispute with UAE
The temporary but unprecedented gridlock saw the UAE reject a coordinated oil production plan for the group spearheaded by its kingpin, Saudi Arabia.OPEC Reaches Compromise With U.A.E. Over Oil Production
OPEC agreed to raise the amount of crude the cartel member can eventually pump, but it is subject to approval by a wider group of producers that includes Russia.
For what its worth, if OPEC is fine with prices hovering above 70$, rig counts continue too increase in the key plays, and there is an increased sparsity of available land professionals, I know that I will be able to expect steady growth for my business in the near future.
Simple observation is to take a look at how many of their purchase contracts were locked in at the lower prices and how much they are committed to sell at the lower prices. If their price locked sell volume is less than the volume they are price locked to purchase, it means they get the joy of buying low and selling high at massive profits. IF instead they are committed to deliver more at below market prices than they have locked in at the lower price, they are looking at taking a beating as they cover the cost difference. So you will need to look at their spreads.
Most of the pipelines I follow stand to gain considerably for the duration of their existing contracts if the market product prices hold for a bit.
A few statements from the last EPD quarterly report were telling. While some of their systems reported less revenue than the same period in the year prior, they were still profitable. (These systems are worth keeping an eye on should the price skyrocket.) While other systems gained revenue as a result of their hedging activities. As a whole, they showed increase profitability across all transportation and processing over the same period, while actually transporting and processing less volume. Those numbers look good to me! Also, EPD has a fee based structure on some of its pipeline system, so they make money as long as volume is moving. However, again, I am not an expert and this is just what I like to look at for forecasting.
On a contrarian viewpoint, they did commit to investing less in infrastructure, upgrades, and expansion, so what do they see in the future that we can't?
I loves me some EPD they have been great...added a few times the past year, but I am at my allocation limits for the sector and any one particular position. I recall 2018 was a massive capex growth year maybe ~ 10% quarterly? 2019 was about 2% so slowed up that year. 2020 slam on brakes.....for sure Q2's numbers will be interesting to see if it increases.
That is what everyone said....
My caveat is that they said the same about the Permian, Marcellus, Scoop, Stack, Eagle Ford, Barnett, Utica Barnett and about every other shale play there was.
Truth was that when the oil took a tank over the past few years, they found that many of the inefficiencies of onshore shale development worked themselves out and suddenly, some operators could make things work at $40 per barrel. If that surprised you, don't worry OPEC was equally shocked!
In the end American capitalism, greed and ingenuity worked out better than the rest of the world had given it credit for. Although, personally the company Christmas parties did seem less extravagant and the accountants were watching the expense accounts a little more closely.
The Bakken is tied up with large transportation costs. They must transport the oil and gas out of the area to bring it to market. For the Gas, the value is less than the cost of transportation, thus the venting vs flaring debates. For Oil the break even point must be calculated with the cost of production AND transportation. If the net value after accounting for production volume, grade quality and transportation costs do not outweigh other regions, then why fuck with it?
So you are an O&G operator and have some capital to invest... Do invest in a region that has an existing infrastructure that gives you greater return on your production? or do you piss it away on transportation costs? Admittedly the calculus is a little more complex than that, but the point is clear.
When the only place to expand is to go north to the Bakken, of course, head there and make what money you can. However, while there is still room to buy/produce/explore production in the central regions around the hubs closer to market, I expect the cash flow to go there.
As always specific companies face their own situation. Some players are tied to the Bakken by existing PUD's, DUC's and production contracts. However, if you are a mineral owner looking to lease your next open acreage, don't expect a competitive market up there until the Oklahoma, Texas, Louisiana, Utica and New Mexico plays get flushed out. If you are an investor looking to park your money, why not place it in companies situated in regions that can give you a greater return on your investment?
We can test this theory by looking at total rig counts as a yard stick to see where companies are dumping their new exploration money. In the entire United States, Baker Hughes is reporting 477 rigs operating on average in the month of July so far. 233 of those rigs are in Texas, 75 in New Mexico, 39 in Louisiana, 27 in Oklahoma, 19 in Pennsylvania, 18 in North Dakota and 0 in Montana.
We can also look where the drilling interest by another means. In Oklahoma, the 1st quarter 2021 state leasing auction, leased its' acreage at a paltry average of $500 per Net Mineral Acre (NMA). While over the same period North Dakota leased its acreage at an average of $56 per NMA. A long way from the $17,000 per NMA that the Bakken acreage once commanded.
In my opinion, the price of oil stocks reflects the confidence in the oil companies. My guess is that there's not a lot of confidence for most things today.
This is fascinating. I wonder if Biden could even comprehend an O&G market spread sheet?
From my view as a service provider to the oil and gas industry for 16 years. I am not that smart but this is what I am seeing.
plenty of oil in the Bakken. The issue with Bakken is it cost around $10 per bbl to get it to market. We need more pipe to solve this problem. Oil by rail is a looser all the way around ( from a cost/ safety standpoint when compared to pipe)
there are some companies building out pipe right now and some big projects in the works, but this takes time and money. Steel prices are high right now and good labor is hard to find.
the operators are finally making some money, especially the ones who have gas wells in their portfolios.
PA seems to have some activity.
the contractors that service the wells are suffering ( generally speaking). There are not a bunch of wells being drilled right now. There are some spots that are hot but it is not “ a rising tide lifts all ships”. Operators are not bringing shut in wells back on line as quick as they could. They are just being conservative or don’t have the cash.
Generally speaking banks don’t want to lend on reserves or specialty equipment anymore. They got burned and don’t want to go back down that road. Some banks won’t lend to oil and gas companies because of BS politics. Private equity is not as interested in the oil and gas space as they used to be. Some are ready to exit the space immediately due to losses or pressure from investors.
the above limits the amount of capital that is available for operators that rely on debt to finance new wells/ infrastructure.
I think the big guys with strong balance sheets and diversity (midstream, production, refining, etc) will do fine. No matter what Biden wants you to think oil is not going away.
I would think refineries should do well. I keep hearing demand for refined products is up. I don’t know much about this area of the industry.
the big guys with good production and strong balance sheets should do fine as long as oil and gas prices stay where they are.
companies with lots of debt are going to struggle ( in my humble opinion). Contractors are going to continue to struggle.
I think one big issue is the operators don’t want to take much risk in the current political environment. The oil and gas industry saw what Obama did to the coal industry. It is hard to justify spending a bunch of money on long term projects if the government is trying to put you out of business.
There are always exceptions. Some companies are doing well.
your mileage may vary
plenty of oil in the Bakken. The issue with Bakken is it cost around $10 per bbl to get it to market. We need more pipe to solve this problem. Oil by rail is a looser all the way around ( from a cost/ safety standpoint when compared to pipe)
there are some companies building out pipe right now and some big projects in the works, but this takes time and money. Steel prices are high right now and good labor is hard to find.
the operators are finally making some money, especially the ones who have gas wells in their portfolios.
PA seems to have some activity.
the contractors that service the wells are suffering ( generally speaking). There are not a bunch of wells being drilled right now. There are some spots that are hot but it is not “ a rising tide lifts all ships”. Operators are not bringing shut in wells back on line as quick as they could. They are just being conservative or don’t have the cash.
Generally speaking banks don’t want to lend on reserves or specialty equipment anymore. They got burned and don’t want to go back down that road. Some banks won’t lend to oil and gas companies because of BS politics. Private equity is not as interested in the oil and gas space as they used to be. Some are ready to exit the space immediately due to losses or pressure from investors.
the above limits the amount of capital that is available for operators that rely on debt to finance new wells/ infrastructure.
I think the big guys with strong balance sheets and diversity (midstream, production, refining, etc) will do fine. No matter what Biden wants you to think oil is not going away.
I would think refineries should do well. I keep hearing demand for refined products is up. I don’t know much about this area of the industry.
the big guys with good production and strong balance sheets should do fine as long as oil and gas prices stay where they are.
companies with lots of debt are going to struggle ( in my humble opinion). Contractors are going to continue to struggle.
I think one big issue is the operators don’t want to take much risk in the current political environment. The oil and gas industry saw what Obama did to the coal industry. It is hard to justify spending a bunch of money on long term projects if the government is trying to put you out of business.
There are always exceptions. Some companies are doing well.
your mileage may vary
There's also a lot of external factors at play.
Some people prefer that their investments are "woke", and don't want their money going to "dirty" companies that are "causing global warming" like O&G.
And I'm not just talking about the hippy making your coffee with his $20 Robinhood account. Big hedge funds and the like are turning to more activist style investing, only putting money in companies they think are "ethical". Big oil is the new big tobacco in the eyes of many, and more and more people and investors are steering their money away from that industry.
Banks have been burned too by funding the unconventional onshore boom. All the small and medium sized companies have been taking billions of dollars to fuel their unconventional operations, with the promise of huge payback. The financials simply aren't what they were expected/billed to be to the financial sector. Drawdown happens at a rapid pace, and these O&G companies need to drill wells at an even more rapid pace to keep up production and reservoir values. This requires a steady injection of money to keep the operation going, and the banks are simply getting tired of pumping money into these plays and seeing little return back.
The bigger companies are able to balance the books better on unconventional plays, with their "factory" model type operations, using economy of scale to their favor and their vast amount of resources. Having a downstream component (refining) also balances out the financials better, acting as a hedge when the commodities are worth less. Speaking of hedges, the huge O&G companies have a whole team of traders that are actively engaged in the markets placing hedges to protect their investments.
The O&G market is complicated with lots of compounding external factors, both foreign and domestic, that influence their financials.
Some people prefer that their investments are "woke", and don't want their money going to "dirty" companies that are "causing global warming" like O&G.
And I'm not just talking about the hippy making your coffee with his $20 Robinhood account. Big hedge funds and the like are turning to more activist style investing, only putting money in companies they think are "ethical". Big oil is the new big tobacco in the eyes of many, and more and more people and investors are steering their money away from that industry.
Banks have been burned too by funding the unconventional onshore boom. All the small and medium sized companies have been taking billions of dollars to fuel their unconventional operations, with the promise of huge payback. The financials simply aren't what they were expected/billed to be to the financial sector. Drawdown happens at a rapid pace, and these O&G companies need to drill wells at an even more rapid pace to keep up production and reservoir values. This requires a steady injection of money to keep the operation going, and the banks are simply getting tired of pumping money into these plays and seeing little return back.
The bigger companies are able to balance the books better on unconventional plays, with their "factory" model type operations, using economy of scale to their favor and their vast amount of resources. Having a downstream component (refining) also balances out the financials better, acting as a hedge when the commodities are worth less. Speaking of hedges, the huge O&G companies have a whole team of traders that are actively engaged in the markets placing hedges to protect their investments.
The O&G market is complicated with lots of compounding external factors, both foreign and domestic, that influence their financials.
I recently retired from a “big oil company” and I cashed out my pension, that should give you an indication of my confidence in the O&G industry.
All my investments were sold 16 months ago with no plans on buying again. I’m in the midsts of my 50th summer and I listen to my children when they tell me that times are changing and the way people think are changing. My oldest son informed my father that he is the last of a dying breed of 1950 thinking. My father then informed me that I should listen to the future of the world and offered an apology to my sons for the damage that his generation has done in the name of money and success. While the boomers did a lot of great things they also have done some unrepairable damage. He fully blames his generation for a lot of the medical problems that exist today due to chemicals they developed. Times change and the older I get the more willing I am to change my way of thinking for my family. No more quad in the mountains, now it’s a Rambo Bushwacker.
Is it the O&G industry or what the government is wanting to do to the O&G industry?
Well, if you think there was an Earth's Owner's Manual in the Boomer era, you would be wrong. You talk about unrepairable, let this generation continue with it's division among society and you'll see Nazi style unrepairable things.
Immediate thoughts are that for the past few years oil production has been constrained a lot, particularly on a global scale. OPEC cut production and hasn't seen fit to increase production yet. This is part of the reason why you see oil prices increasing. The supply is X but the demand has gone up to Y thus driving prices up.
Keep in mind that the global demand/recovery is NOT happening equally. So it's a whole lot more complex of a picture. Basically you have pockets that are moving forward but other places not so much or at a much slower pace.
That being said, if you are looking at oil companies and you want to see who will make more money, is it easier to make money (as a producer) when oil is $70 or when oil is $50? Obviously the answer is $70 with a big BUT... looming in the background is the likely probability that OPEC will collectively increase oil production...thus increasing competition and in turn potentially decreasing profits.
Without getting too into the weeds that's pretty much it from a stock market perspective.
And people lined up to use these chemicals, no questions asked, because these companies would never cause harm. Something rings very familiar about that scenario. I'll bet the asbestos industry wishes they had immunity.
Did I miss something? S&P and Dow futures are indeed down this morning, but still are only 2% off the all-time highs. If you're referring specifically to Exxon, yeah, it's down about 10% off its recent highs, but I'm not convinced that portends a bear market.
You have to wonder if all this fraud evidence, once it makes itself mainstream as to the extent..., if that will have major impact/correction just from fear.
Cell phone videos of vote counting witnesses being locked out of ballot counting stations and covering the windows so they couldn't do their jobs wasn't mainstream evidence enough? What about video of foot lockers of fake votes being pulled out after they were locked out, are we still waiting for that along with other undeniable, hard evidence, to become 'mainstream'?
It's obvious, ASGH.
I had Exxon stock for years and it didn’t do anything. Got lucky (didn’t feel lucky at the time) and sold it all a couple of years ago at $79 or $80 as I recall. Bought IVV and have sworn off individual stocks. Index funds for the broad market are the only place I invest now.
I assume a combination of concern about an increase In supply paired with a general anxiety in this sector.
hard to know why the market prices in the way it does at times.
hard to know why the market prices in the way it does at times.
Similar to others who have posted.....
I retired effective 1-Feb-21 after 43 year of working the Oil Patch all over the Gulf Coast, Southwest and for the last 18 year we were living in Africa as Married Accompanied Expats for megaoilcorp.
I too, took the Lump Sum vs the Pension for a couple of reasons.
1) Pension was/is not Cost Of Living Adjusted
2) I lost all confidence in the Corporations Senior Management - no longer are they Oilfield men.
As to the future, in my opinion, the Hydrocarbon and Petroleum Industry and the products made from them are not going anywhere anytime soon.
If I was 20 year younger, I would be buying up some other Oil Corps Stock at the lower prices.....ride the variance....
gamboolman.....
Lifes A Dance And You Learn As You Go...
I retired effective 1-Feb-21 after 43 year of working the Oil Patch all over the Gulf Coast, Southwest and for the last 18 year we were living in Africa as Married Accompanied Expats for megaoilcorp.
I too, took the Lump Sum vs the Pension for a couple of reasons.
1) Pension was/is not Cost Of Living Adjusted
2) I lost all confidence in the Corporations Senior Management - no longer are they Oilfield men.
As to the future, in my opinion, the Hydrocarbon and Petroleum Industry and the products made from them are not going anywhere anytime soon.
If I was 20 year younger, I would be buying up some other Oil Corps Stock at the lower prices.....ride the variance....
gamboolman.....
Lifes A Dance And You Learn As You Go...
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