Jerry, good articles. As for coal, I find Exxon's projection of energy use in 30 years or whatever time frame they use, you can find in their site, the annual analyst meeting, but over that span, coal's share decreases by something like a % point to low 20s, not significant imo, as the article says, the developing world is going to use coal, and we have a lot of it in this country to export. I do own NRP, they are about 50% coal, royalties, no operations, and diversifying into other things, o and g minerals, aggregates, yields 11%, good coverage, but you have to think very long term and it's hard to get beyond $4 gas for several years.
As for SA, today, I think they are bluffing but will see. The $90 US shale number is not right, the break even is all over the board, saw that in the Bakken nos last week, low of $28 to $60 or whatever it was. I suspect the Saudis can't control the market anymore, maybe they are trying, which will be devastating to oil price short term. But in the end, the price of the marginal barrel will dictate. Plus the global demand, and if we are going to have 3 billion more people on the globe in 30 years, we will use more oil. To control the market they will have to have the capacity to cut production or increase production. Seems they can cut currently, how long remains to be seen. Adding production has always been suspect. I suspect we are in the era of the market setting price. $100 may not be the long term price, $90 still feels about right, but it could be $80. And if you can find cos that have finding costs of $10 a barrel and can breakeven at $40 or $50, still a good investment. But still feel the infrastructure cos are easier bets, will do well at $80 or $100 price. They are doing well at $4 gas.
Jerry, thanks for the post. Thinking about OPEC, the commentator that thinks SA lets oil find it's equilibrium.
If SA is in good shape fiscally, almost no debt, seems they would want to restrict supply to prop price. 10mmb/d at $80/b, $292 billion revenue. 9mmb/d at $100/b, $329 billion revenue. Assume the US increases supply a million a year, demand increase might be 1.5 mm. If SA doesn't have cheap supplies anymore, an implication of Hamm's comments?, the cheapest supplies are here at $30+, then jumps to deep water and oil sands. Would be interesting to see a current analysis of supplies. Still seems to me from a rational, simplistic analysis, that SA would restrict supply, apparently the rest of OPEC can't afford to cut supply, plus Russia can't, potentially losing the nat gas market in Europe to US shale exports. The old play book doesn't work it seems to me. If SA doesn't try to control price, then a new era for oil. Could get ugly for a time. Interesting times.
They should be able to make a profit on gas at $2 if the NE doesn't overrun the pipes. They almost have a major mentality but seem be very competent.
October has been fantastic here, was almost 70 today. We are headed south next week. Hi to Teresa.
A prediction, thinking about OPEC, only SA can cut production so the cartel is meaningless. Guess that SA steps in and cuts production. If they don't, might get ugly short term.
Seems this is the time when the macro conclusion is much more important than the company pick. Nat gas seems easy, $4 forever, to export, then $6 plus. The futures show $90 long term for Brent and $80 for WTI. Seems if we get the infrastructure in place, WTI should be maybe a couple of dollars less. And that $90 price seems to be appropriate for supply at the margin. The NE gas producers that can make money at $2 with a $4 price will continue to be good bets. And the shale oil producers with $40 breakeven should do equally as well. And the infrastructure cos continue to do well. OPEC becomes irrelevant and that shake out could drive prices lower short term.
I looked at EXXI too, 5x ebitda for the current year for 75% oil. Looks like a value also except more debt, $800mm market cap plus $3.8 billion debt. Not sure you want to be sitting on that much debt if oil falls to $60, even if it is short lived.
Listened to guy on CNBC calling for $60 oil, sounded plausible, SA lets the price drop for whatever the reason, maybe tired of propping the price alone. Kind of feels that they might do it. He presented a data on debt to GDP, has fallen from 70% to 2% and they have cash to withstand a price war. This could be the end of OPEC??? Not sure we aren't going to retest the lows or worse. Still have to keep in mind the long term cost of marginable supplies. Seems the shales need $80 on average and the rest of the globe probably more. SA has 2 mm bs of capacity, that would last a couple of years. We could be entering a period of lower prices before it bumps up again. Not as bad as the gas plunge because of the trans issues but not a scenario that should ignored completely.
Listened to a guy on CNBC, says oil is going to $60s, fairly reasonable argument, the Saudis are going to let it fall, tired maybe of the being the swing supplier. If they don't act at next meeting, could be brutal. Then you have to back up longer term and figure out supply cost of barrels at the margin. May be the end of OPEC, would probably make the industry more volatile. Still seems they would want to keep price high, $100. Supply cost globally, $90??? We may find out.
AREX has been a disaster the past few months but it looks ridiculously cheap. $700mm EV now, 14kboe/d last quarter, $50k per daily barrel. 115mm bs of reserves, 80% liquids, $6 /b. PV10 after tax is at the current EV. 140k acres Permian, $5k per acre. Liquidity looks okay. Could have a 12x PE ratio next year, that's net, not cash flow. If you figure $80k per flowing barrel, $20 per share. The $80k per b isn't that extravagant.
SN reported a 700boe/d well in the TMS, not a great result although they had mechanical problems. Going to take more than that for $12 mm wells. It may work but the jury is out.
Kinder is on Cramer right now, talking up gas transportation, mentioned the NE supply. Said his CO2 operation in place could stand $40 oil. Doesn't think oil drop will affect KMI, still think WMB is better bet, also TRGP and PAGP. Hard to believe gas is selling for
Looks like the long term futures prices are fairly stable. Brent is $85 to $89 next year and $89 for the next few years. WTI is $79 or thereabouts and for the next few years. The long term price hasn't changed much. And Brent and WTI should trade about the same absent the transportation issues. Seems the $10 differential is still a big incentive to build out more infrastructure. Can't get a feel for whether this is the bottom, seems like it should be if the globe strengthens from here. ??? Seems the infrastructure cos are still a safer bet than the e and p s. A bounce back of $10 in oil and the higher leveraged cos should be up 50% or more.
Park, BCEI and PDCE are maybe my two favorite e and p s right now. Wattenberg Niobrara is among the top couple of plays. Utica may be the other and PDCE has it also. I think GDP will work but at $80 oil the play right now doesn't compete with others. Going to take some time but if oil comes back to $90 and they get the costs down to $10mm, it will compete. And GDP has 300k acres. HK is still intriguing, with the TMS and E TX, have always liked Wilson and he usually makes it work. GPOR should be a winner. I still like PDCE the best but if oil comes back to $90, almost anything will work, GDP will be back to $20 or more. Saw a comment that there is only 2mm bs of spare global capacity, SA, Libya.... The US shales should remain the supply and still kind of think it takes $90 to keep the growth coming. Demand from China and the emerges is important, that should improve I hope.
Unless KMI is interested, I don't think so. Not sure the majors are interested, they have a bunch of shale acreage to drill or would buy shale positions to fill in holes. Leveraged cos are at risk it would seem. Do think there will be mergers but more for cost savings. The m and a in midstream continues, Tesore bought QEP Midstream. Lesson from that is buy the GP.
Oil Collapse Gives Buyers Chance at Top Targets: Real M&A
Bloomberg article, mentioned Pioneer, OAS, SM, LPI. Also Kinder says slide in prices should motivate more m and a, assume he's talking about infrastructure. Wonder if KMI could make a run at DNR, they look cheap.
Permian players do make sense, OAS also. Some of the Utica cos. Still think BCEI and PDCE should merge, would be great combo in the Wattenberg.
Jerry, hadn't seen that, was curious why WPZ was down today, that might have been the reason, WMB would use the WPZ currency to do the deal. Have been looking at QEP, might be a good bet based on the spin or sale, was low $30s, now low $20s. Another likely partner might be CEQP, I know they would like to merge with an e and p co. Not sure how it would work.
Will look at Surge, never heard of them. Sold NDLS and didn't buy EXXI, couldn't get past the high debt, especially with more weakness in oil. I want to believe that the $80s will be the low but who knows, you start looking at what happened before when demand dried up and OPEC kept producing. Think it is different this time but hard to know for sure how this is resolved, China and the rest of the globe need to be stronger. Seems there needs to be more panic in the oil markets before we bottom.
Interesting graph, Business Insider, shows the oil price 6 countries need to balance their budgets. From $105 to $130 /b. SA and Russia are included, with other 4 maybe high 20s mmb/d. Problem now is that oil production can increase outside of OPEC. If your production is fixed/declining, why wouldn't you want to keep the price as high as possible. Cut production and extend production further into the future. Outside of SA, seems the rest of the group is not increasing production, there's a bunch in Iraq but who's going to help them develop it. And we need the China's of the world to keep growing.