The market is pricing this stock the same as bankrupt...Can't believe a company with good hedging for the next 3 to 4 years would go this low...BBEP Management bought this stock a few months ago in the teens...i'm still holding
If the latest IEA report is correct, than the world need to bring online the production of six Saudi's before 2030. I doubt that can be done if oil price stays at $75 level.
You are right that $100 oil takes too much out of consumer's pocket. However it depends on the marginal utility you extract from consuming oil. Wasteful usage of oil, plenty in USA, will be cut back. However, consumers in other economies who aren't using oil much may find $100 price acceptable because they get more out of using oil than we do.
Your high end seems to be about the same as the Saudis' "fair price." That is not a derogatory comment, I think they are more right than wrong about that. We need a price of about $75 to keep production stable, encourage development and provide an incentive to develop alternative sources of energy. I do think that the $75 target will change with the inflation we will likely see from all the economic stimulation around the world.
I have similar thoughts about NG prices.
But as we all know, the whole problem ultimately comes down to mismatches in supply and demand. Relatively marginal shortfalls or surpluses have dramatic price consequences across the entire production volume and dramatic effects on production levels. I see no easy solution to that since I am not in favor of mandated production levels or quotas. I guess a more rational system would price superfluous uses of energy more heavily than ordinary and necessary uses so that the brunt of the pain fell on socially problematic consumption (this is probably a charge gas guzzlers more for fuel in some fashion approach or have a special jet fuel price for private aircraft -- or mandate an end to both). But I don't see how we manage that either.
The supply/demand situation will correct itself, the question remains at what price? I think we see a price in the $50 range on the low end and $70 to $80 on the high end. $100/bbl takes too much out of the pockets of consumers.
Mexico is an interesting case all by itself, especially as the second largest exporter to the US.
This year's production is projected to have dropped by 9% from 2007.
For 2009, Mexico entered into hedge contracts for a significant portion of its production, basically the export volume, at around $70. If Mexico couldn't grow production when prices for all of its production was $80 and up because the money is funneled to support the national government, guess how things will go in 2009? Less revenue means a greater portion will go to the national government and there will be even less for investment in Mexico's oil fields. And production in Cantarell, Mexico's largest field, is projected to decline another 15% or so.
In addition, UK and Finland are projecting production declines in 2009 as compared to 2008.
As noted by another poster, the oil sands have had project delays due to oil prices. Syncrude, Canadian Oil Sands Trust's connection, apparently has production costs per barrel of $35 (Canadian) and hard maintenance costs of about $10/bbl. If I understand that correctly, at current oil prices those cost levels leave nothing for G&A or debt service and certainly not expansion projects.
Brazil probably won't drill its new deepwater fields at these prices, if only because no rational lender would front the money and oil revenues won't support the project.
Russia's production is expected to have declined for the first time in a decade in 2008 and many seers think that will again be the case in 2009.
Any producer who can afford to wait will do so -- it is silly to sell your product at these prices. The best IRR they can get is to sell a forward contract and leave the oil in the ground for the time being.
At some point, supply and demand will cross again.
Right. A lot of expensive oil projects will not work at these prices. There is also falling supply from Mexico and increased consumption (less available for export) by the growing Middle east populations.
The market is implying that we will get 3-4 years of dividends, and that will be it. Present value 4 years of $2 dividends at 10%, and you get about $6 and change.
If oil and NG stay were they are, and the hedges mature, I don't think there will be much excess cashflow (if any) for distributions after maintenance capex, interest, and loan principal payments. I am not sure how well these structures do when the banks start wanting their money back. That is a legitimate market concern.
My feeling is that the commodity prices will recover once global growth picks up again. That may be a couple years down the road, and the stock may mark time until then. Even then, the dividend will probably be cut unless we get over $70-80 again.
What we need to see is a drop in drilling and exploration projects industry wide, and I think that is already occuring. Management needs to hunker down, and cut costs as much as possible.
From what you are saying if oil prices don't go up in the next 3 or 4 years just about every oil company in the world will be BK except the mideast and if one live in a northern climate they will freeze to death because all the oil co.'s are bk...Somehow i think it won't come to that