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Started By
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re: There’s more oil and gas than ever — and the industry is tanking
Posted on 2/11/20 at 9:17 am to Thib-a-doe Tiger
Posted on 2/11/20 at 9:17 am to Thib-a-doe Tiger
quote:
I am enjoying the depressed prices of oil stocks, as I know the dividends are still coming in, and the share prices will recover
When Baw? Kind of hard to justify holding oil stocks the last 5 years when the broader market has been absolutely crushing it
This post was edited on 2/11/20 at 9:18 am
Posted on 2/11/20 at 9:31 am to TigerDog83
quote:
I haven’t been impressed with the supposed 5% terminal decline in shale oil. Some of the wells are quite frankly god awful
Takes about ~180-200 months to reach this (5-6%) terminal decline (in the Marcellus anyway) and most shale wells have not been producing that long. The App basin is riddled with pipeline and surface constraints, so the wells that have been online even close to that long have usually been shut in for a time...will be interesting to see what the real terminal declines per basin shake out to be.
This post was edited on 2/11/20 at 11:11 am
Posted on 2/11/20 at 9:32 am to baldona
Posted on 2/11/20 at 11:26 am to hubertcumberdale
quote:
Takes about ~180-200 months to reach this (5-6%) terminal decline (in the Marcellus anyway) and most shale wells have not been producing that long. The App basin is riddled with pipeline and surface constraints, so the wells that have been online even close to that long have usually been shut in for a time...will be interesting to see what the real terminal declines per basin shake out to be.
I was talking about shale oil versus gas. Gas works at the right prices and the history of the Antrim in Michigan shows it can flow for a while at low volumes. I don't really believe the recovery slides 20 years out put out by RRC and the like, but if the wells are well past pay out and producing cash it seems somewhat immaterial. The key is good gas prices to get quick payouts then minimal maintenance to produce gas wells. We clearly don't have that natural gas price right now. It's harder to move oil molecules through shale and this clearly is seen in the results in the Permian, Eagleford, etc. Heavily drilled cores resulting in companies drilling worse acreage and the $50 oil price doesn't cut it. The density of Karnes County, TX Eagleford wells is almost mind numbing,
Posted on 2/11/20 at 12:43 pm to KillTheGophers
quote:
Here is the article
quote:
Yeah I don't believe that at all.
Oh I fully believe students would protest against O&G, I'm simply saying I don't think in the end they will be prevented from hiring. There will be students that ultimately want to succeed.
Posted on 2/11/20 at 1:30 pm to KillTheGophers
quote:The video in that article shows maybe 10 or 12 students AT MOST protesting, and says 100 students (10 times the number of protesters) attendee the dinner.
Here is the article
So your whole post is based on a handful of students and ignores that far more students weren’t protesting and were participating in the dinner with Exxon.
Posted on 2/11/20 at 2:20 pm to Thib-a-doe Tiger
quote:Over the last 10 years, Vanguard Energy ETF has an annual return of 1.28% with a SD of 21.14%. That's considerably worse than Vanguard's Total Bond Index (3.65%) despite historically low bond yields. And this is during a market where the S&P500 has had an annual return of 13.81%.
And oil isn't going anywhere anytime soon. I am enjoying the depressed prices of oil stocks, as I know the dividends are still coming in, and the share prices will recover
So whether they're depressed or not, that is a huge opportunity cost to invest in something that has had terrible returns and a lot of risk when risk his historically low and stocks in general are having historically high returns.
So at what point do "depressed prices that will rebound" become "realistic prices that are going to continue to lag the broader market?"
Posted on 2/11/20 at 2:51 pm to baldona
quote:
Oh I fully believe students would protest against O&G, I'm simply saying I don't think in the end they will be prevented from hiring. There will be students that ultimately want to succeed.
Do you really believe top law students at Harvard are left in a position where it's Exxon or Morris Bart?
Posted on 2/11/20 at 3:46 pm to buckeye_vol
quote:
So at what point do "depressed prices that will rebound" become "realistic prices that are going to continue to lag the broader market?"
As you’ve pointed out there is no “becoming” to it. They’ve been at that point for some time. The interesting question is “how long will this continue?”.
Consider the five main oil exporters right now: Saudi Arabia, Russia, Iraq, the U.S., and Canada.
Three of those five are in tenuous-at-best political and national security situations going into the future (SA, Russia, and Iraq). If SA and Iran continue to escalate their proxy wars who’s to say how long it would be before they, Turkey, Iraq, and everyone else in the area collapses into serious infighting akin to Syria?
Russia, on the other hand, is in danger of defeat from within. If someone strong doesn’t step up to replace Putin upon his death we could very easily see further political splintering and disruption of their oil production.
Canada’s tar sands are infamously expensive to extract and have only been possible thus far due to major government subsidies. How much longer will that continue with an aging/shrinking tax base?
Which leaves the U.S. We’ve absolutely crushed costs of production in the last 10-15 years, our political situation (both internally and regionally) is rather stable, and our capacity to produce and export is at an all-time high.
Who do you think is in the best position to benefit from supply disruptions going forward? How likely do you consider it that we see a serious disruption in production by the other major players? How soon?
It might not be this year. Or next. But I’m bullish on American O&G coming back stronger than ever in the coming years.
Posted on 2/11/20 at 5:19 pm to Decisions
Yeah, I wouldn't invest on any of those hunches.
Posted on 2/11/20 at 6:03 pm to Decisions
quote:
Decisions
This guy gets it.
Posted on 2/11/20 at 6:23 pm to Decisions
You are looking at this backwards. You need to look who has the best reserves. That is clearly Saudi followed by Iraq and russia. US shale has been drilling a lot of uneconomic oil wells on cheap interest money. Instead of lowering activity and waiting for the nat gas market to rebound after flooding the market the american public independents pushed into shale oil and managed to overwhelm the crude market as well. The debt is starting to come due and the pain for the domestic shale oil companies is going to be immense the next year or two. The entire industry is uninvestible right now until the market stabilizes. Now we have the double whammy of generationally low natural gas prices. While the gas market will likely rebalance I’d wager maybe 10-15 percent of these companies will still be alive to profit from the rebound. Anyone in the business knows you want to own the best reserves and that’s definitely not an accurate description of USA shale oil.
This post was edited on 2/11/20 at 6:43 pm
Posted on 2/11/20 at 7:12 pm to TigerDog83
quote:
You are looking at this backwards. You need to look who has the best reserves. That is clearly Saudi followed by Iraq and russia.
I never disparaged the reserves of these three. That is undoubtedly their strength. Just their ability to produce uninterrupted.
ETA: This isn’t some base investing guidance. I’m not advocating people to go buy up all the energy stock they can afford. I’m just making some big picture observations about where I see the market going eventually.
This post was edited on 2/11/20 at 8:09 pm
Posted on 2/12/20 at 12:11 am to Decisions
Anyone buying energy stocks right now is foolish. Until this enormous glut in supply clears up (when??) nothing is getting better anytime soon. Been this way for years (November 2014). I was always optimistic bc I was a perma-bull by nature but the last 5 years have beat me down to a pessimistic bear. There’s just too much oil available and too much money being thrown at drillers. We need more US independent shale producer bankruptcies until anything meaningful happens. API says we can expect EIA to report a 6 million barrel build tomorrow. The kinda good news is EIA reported a decrease in domestic production last week. Let’s see where it goes from here. Just do not know when the tide will finally turn, which is obviously the key point to any investment. Hopefully it’s soon for all our sake.
ETA: not saying youre advocating to go out and buy oil stocks, just incoherently ranting and frustrated. Wall Street/unrealistic corporate guidance got us all fricked up imo, maybe I’m wrong but seems like that’s been the problem
ETA: not saying youre advocating to go out and buy oil stocks, just incoherently ranting and frustrated. Wall Street/unrealistic corporate guidance got us all fricked up imo, maybe I’m wrong but seems like that’s been the problem
This post was edited on 2/12/20 at 12:22 am
Posted on 2/12/20 at 2:03 am to Decisions
quote:Honestly, you’re whole post made more more bearish for a number of reasons:
It might not be this year. Or next. But I’m bullish on American O&G coming back stronger than ever in the coming years.
A. You presented a list of unpredictable, uncontrollable events that are seem both absurd and plausible. All of that is just one big collection of risks, and a lot of downside risk at that.
The sector has already has already had historically low returns and high risk despite the broader market having the opposite. That’s resulted in a beta of 1.27 and an alpha of -13.91%. So the returns would have to increase significantly to make it worthwhile and all that you laid out would only increase the beta.
B. Although the relationship has diverged a bit lately, one of the major drivers of gains in the sector is the price of its commodities. And when those commodities rise it negatively impacts other sectors AND consumers who use these commodities.
C. As discussed earlier, this sector is not only being increasingly avoided by environmentally conscious consumers, but environmentally conscious investor, and this type of investing is becoming more popular.
D. Alternative options (e.g., electric cars, solar power, etc.) for this sector is becoming more and more popular, affordable, efficient, and most importantly, adopted by both consumers and companies. And there are an increasing number of companies developing and providing these options.
So risk-sensitive investors/consumers are going to care about A; price sensitive investors/consumers are going to care about B; environmentally sensitive investors/consumers are going to care about C; all 3 are going to be more likely to avoid the sector for these reasons; and D provides (for maybe the first time ever) a viable alternative for consumers/investors.
And personally I care more about avoiding risks and lowers prices but a little environmentally friendliness is a nice cherry on top. So you not only made me want to avoid the sector more than I did before, I now want to buy a Tesla (already did) and put some solar panels on my house (likely won’t though) than I did before.
Regardless, maybe it’s because the energy sector is so much more important to the region that most of the posters on here are from, but I just don’t see how people can he so bullish about the sector given all of the headwinds. I mean O&G is obviously going to still be necessary (since this has been a popular Strawman argument here), but I think its best days are likely to be in the past and most people are going to be happy about having some competing alternatives.
Posted on 2/12/20 at 2:13 am to buckeye_vol
All the environmental points are moot, there’s just too much oil on the market. Shale oil has made America the swing the producer. Just look at the EIA reports, we have around 450 million barrels of oil stockpiled and around 7500 shale wells drilled and uncompleted just holding leases. This is a simple issue of too much supply. The environmental aspect is just speculation.
5.5 years ago oil was trading $100/bbl. you think some battery powered cars are dragging down the price? It’s shale oil production that has absolutely flooded the market and replaced any declining global supply, ie Venezuela.
5.5 years ago oil was trading $100/bbl. you think some battery powered cars are dragging down the price? It’s shale oil production that has absolutely flooded the market and replaced any declining global supply, ie Venezuela.
This post was edited on 2/12/20 at 2:27 am
Posted on 2/12/20 at 2:44 am to hubertcumberdale
quote:It’s not moot when the alternatives are now here. And while the consumer side may take more time to change, the investing trend is gaining popularity even among institutional investment firms (Blackrock) AND unlike consumers (e.g., have a gas powered car), investors don’t have to participate in any sector and any other sector is an alternative, not just a director competitor.
All the environmental points are moot, there’s just too much oil on the market.
quote:No I don’t think that as of now. But I’m saying that as they become more popular, that becomes more of a possibility.
you think some battery powered cars are dragging down the price? I
And from an investment standpoint in a forward looking market, with more alternatives beyond just the sector to search for better and safer investments, I think this is much more of a current (or at least near-future) risk for the sector.
quote:And this seems like a conundrum for the sector. On one hand, since a higher supply lowers prices, they make less, but consumers are content paying low prices.
This is a simple issue of too much supply.
On the other hand, lower supply would mean higher prices and they make more, but consumers are not so content paying higher prices.
With no viable alternatives, the consumer has (has) to deal with it and demand was pretty inelastic. But with more and more affordable alternatives, I think demand will become more elastic, which will then drive down prices again, and they make less again.
So I really think the sector is in bad place moving forward since elasticity is now greater risk for them as they can’t just rely on artificially lowering the supply and lowering it would less to the elasticity itself.
Posted on 2/12/20 at 2:54 am to buckeye_vol
You make good points, but I don’t think the alternative energy market is in a place to take away substantial market share anytime soon. Hypothetically if half the supply of oil and gas was all of a sudden removed from the market, there is no renewable infrastructure in place to absorb the shock. Sure, over time this might not be true as renewables grow, but the cost is what it is today due to tax subsidies. If everyone all of a sudden we’re to rely on renewables, the tax subsidies provided by the govt would be exponentially greater than they currently are and I would assume be removed/restricted. I don’t have any numbers to back this up, just my logic.
This post was edited on 2/12/20 at 2:55 am
Posted on 2/12/20 at 5:12 am to buckeye_vol
quote:
It’s not moot when the alternatives are now here.
What alternatives? As Hubert’s image pointed out, nuclear plateaued decades ago and renewables have been nearly the same, as well. Wind is highly regional and not a viable large-scale replacement. Solar is also highly regional and heavily subsidized. China and the U.S. make up ~75% of total solar cell production for precisely this reason. If it was just around the corner from taking over don’t you think production would be ramping up in more places?
Combined solar and wind don’t account for more than a couple percent of large-scale energy production. I’m sorry, but electric cars aren’t crushing the O&G market if they simply shifted the consumption down the line to the power plants.
Posted on 2/12/20 at 10:26 am to Decisions
quote:
I’m sorry, but electric cars aren’t crushing the O&G market if they simply shifted the consumption down the line to the power plants.
Would crush the O and possibly benefit the G.
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