While the herd may think excess oil will last for the next year or more, the reality is the current price is unsustainable and it will certainly result in some right sizing of supply, and corresponding upward correction in price.
Assuming Triangle makes it there, a lot of wells are waiting to be completed and Rockpile appears well positioned, as of last notice, to capitalize on what will essentially be a huge backlog. The presumed cash generated from such would help insulate the company until prices may improve to levels that TUSA can begin to contribute more positively. No idea what will actually happen, but things are not always as the seem, or portrayed in the media.
It's a game of chess. Oil derricks are rooks. Kings are oil barons & big oil vs SA. Bishops are smaller countries and smaller E&P companies. Oil workers are knights. Oh and yes, we are the pawns. Per EIA data the surplus has been narrowing, Warren Buffet knows this. Granted, Iran is back potentially in a big way, but global demand does rise substantially over time.
Of many possibilities, consider these two. In the first US production, among others, capitulates and production drops dramatically. Price goes up, but how many bishops were lost? Worst case for us our bishop, TPLM, gets removed from the board. So the price either goes back up quick, or goes up later. Once it does US oil returns but maybe in the hands of bigger oil companies. SA cannot stop that. Since SA is burning through reserves at lightning speed, eventually its checkmate and not in their favor. All they have accomplished with the price war is to bankrupt years of wealth built. I can't imagine they will let this go on until they are bankrupt.
In case number two the U.S. recognizes the importance of the oil industry to national security and they offer assistance. Not entirely desirable, as this comes at a price for the bishops, but they might survive. What's more important though is that with US government backing, SA's price war would not have any chance of inflicting more damage, so they would in turn cut back to rise prices, in their own interest and to avoid bankruptcy. Again, as far as the current chess game (price war) goes its checkmate again in favor of US.
Imagine that smug refiner when Baaken oil poured in with no where else to go. "Take it or leave it bud, that's the best we can do." After buying on the cheap, he makes a huge profit at the gas pumps. Then the ban gets lifted and he still needs that oil. Baaken walks in and says "You don't want it? I'll send it to Europe or Japan, etc.". Smug old refiner: "Oh uh, well wait a minute, lets talk."
Next thing you know WTI pushes ahead of Brent, and as a matter fact, WTI is selling at a premium as of today.
Triangle has a new presentation out, they have a little more hedging in place than I had thought. Hopefully the right mix to help them stay afloat or to capitalize on any possible improving market conditions.
As much as it hurt, I think the industry was compelled to produce as high as possible in the last year to have had any chance of seeing the export ban lifted. You could call it a plan, but more likely all the players just had the same motivation to ensure that oil prices remained low enough that it could happen. Of course some had to pump to service debt, but the biggest players were likely not forced to pump so much at these prices, other than just to convince the public that a lift of the ban would do no harm.
I don’t think it was foreseen that OPEC would go wide open on the valves so to speak, or that Iran would be back so quickly, and so the market rout got overdone. Luckily, the ban got lifted before what seems very likely to me that US production will begin to drop enough soon to be noticed. Harold Hamm made a comment last year, “keep the gold in the ground”. With the ban lifted, that makes a lot of sense now, why give it away? If a few of the biggest players pullback, production could drop dramatically, and up goes the price. Perhaps SA declares victory, saves face, and get back to normal, they really don’t want to lose all their cash reserves I’m sure.
The potential lift of the ban gave reason for bigger, well capitalized companies to produce and sell at lower prices. That reason is gone now and, IMO, it is time for those companies to take the crown of world swing production, and control of pricing. Not much OPEC can do about it. I don’t know what will happen, but this is what should happen, not too quickly as to make the lift of the ban look like a mistake, but measured and calculated. Either way, I think we see US oil production drop significantly soon, to the betterment of pricing. But keeping reading what the media puts out, you won’t hear any of this there, just more predictions of doom and gloom. The stories won’t change until the price changes, then all the stories will be about how high the price could go and how they saw it coming.
Yeah. I don't know how long before a lot of exporting occurs, but good to be able to tell the refiners they don't have to accept their discounted prices anymore. Then Europe seems like a logical place to go, surely our strongest allies would prefer to buy light oil from us than the current alternatives. I don't think many will say they expect immediate price improvements at the stroke of the oval office pen, but the lift of the ban is huge long term.
Arguably, SA has shot itself in the foot by over pumping which has served to help make this ban lift more acceptable in Congress. This would never have happened at $100 oil. Once the ban is gone, we just need a little bit of news in our favor, and maybe some weakening of the dollar and things can change. Did you ever wonder if maybe one of the reasons shale has not seen much of a decline is because it was more in their interest to keep gas low as the ban lift was considered? Just saying a significant production drop now could advocate a price increase, and convince Opec that their job is done. All combined, oil would likely return to more realistic levels. Not high, just realistic. I have long said the ban is the key, let's see what happens next.
The tables are turning, light Baaken oil only had so many places to go, but if the export ban is lifted, whole new markets emerge. Light oil is highly desired in several overseas markets including Europe, and US refiners will no longer have ND oil "over the barrel". A disadvantage may well become the advantage, TPLM insiders seem to have picked up the pace at a time when some say all is lost. Cool heads prevail.
For those still tuned in, from many reports, it's possible that the export ban could become history within days. I think if that happens, we may wake up in another world. Sure the world Is awash in oil, but why are so many fighting so hard for this, and why would big political concessions be made to get it?
Does it not seem the timing is perfect? Ban gets lifted, just as some deep cuts to US production seem imminent. (Gas prices stay low for the voting public long enough to make this happen). The (oil) world we used to live in saw oil prices rises based on what seemed like any world political instability. (Plenty of that -ISIS, Russia, Turkey, Iran, etc.). Demand does continue to grow, and reports of surpluses can reverse, look at EIA data and you will see projections of a more balanced market over the next 6 months. Who knows what the dollar may do but it failed to break out on the upside over last March high.
Just saying, and no crystal ball, but if the ban falls, and if activity picks up, and if prices rise, then Triangle may be positioned well to benefit - E&P and with Rockpile's growing presence, now even in the Permian. Sure those are all big if's, but again, this is front and center in Washington for some reason. In the new world maybe some of the costliest projects don't make it back as quick, but fracking has its advantages over some deep sea, oil sands, and perhaps bankrupt Opec companies. This could get interesting I think.