There are is so many variables I don't think anyone knows where oil prices will be at the end of the year. Elasticity affects are starting to occur if you look at EIA data gasoline consumption in the US has gone up over 300000 bbl year to year, and I think it will approach 500,000. I assume you will see similar affects although not as pronounce in other countries,. There is to sides of the Iraq pumping equation I know that countries will pump as much oil as they can to get revenue, but how much investment will be made to offset depletion. I have seen predictions that Russia oil production will be up to 500000 bbl lower by then end of this year because of depletion and lack of investment. I would bet Iraq will be facing the same issue as well as any oil producer that requires high oil prices to maintain their country's budget. I still believe by the end of this year we will be well above $70 oil and if there are disruptions maybe higher. As Roberts pointed out he suspects that oil production in the US will go South by the middle of this year because of the fracking high depletion rates.
forth quarter will look a lot like the last quarter as they have lock in prices for the third and forth quarter for UAN. Revenue and income should be a little higher as production is higher. Would guess distribution would be around 30 cents. The first and second quarter for 2015 should see stronger revenue and higher distribution as UAN pricing has gone up from 2.50 range they locked into in last year to the 2.80 range I believe.
You are right on your assumptions, except that the 65 -70 level is in Canadian not US which make its more like 55 US. If the eliminate all CAPEX except for maintenance they would be cash flow neutral done to the 35-40 range, the probable they would be facing is depletion, PWE does have one of the lowest depletion rates in north America, but is still 20% that means production would go done about 20000 bbl per year until they invest in CAPEX. The US fracking producers are in far worse shape they have depletion rates that approach 70-80% and have to drill or go out of business. even at 75 they are not cash flow positive and rely on financing for drilling. They need to get oil well above 90-100 to get cash flow positive, Contential Resources is a good example even at 100 dollar oil they were 1 billion cash flow negative.
My guess is they are reevaluating their CAPEX program It appears from their Dec 17 news release they need to spend about 500 million to offset their decline rate. If they spend less the production levels will be lower at the end of the year, meaning their starting point for their 8 % growth in oil production at their 5 year projected CAPEX levels in lower. Their budget is for WTI at 65 Canadian right now it as about at 55-57 Canadian. Their quarterly update will be interesting.
Go to their web site and pull up the latest presentation. Also if you look at the last press release you will note that they reduced their capital budget to 600 million and the funds flow at 65 dollar Canadian or about 55 US is 550 which is about break even. would look for the fund flow to improve and capital budget costs to go own a little as drilling costs will go down as the demand for rigs will be less, and expense for operation should go down to.
One other note the Bakken operations like continental resources are ponzie operations. They have never maintain a breakeven free cash flow and have relied on financing to grow their operation. I am surprised the market has brought into this. With the downturn in oil pricing they just cut their CAPEX budget from 5 billion to 2.6 billion. They are still 1 billion free cash flow negative ( I wonder if the bank credit line they have will be withdrawn). They have 5 billion debt for an operation that is only slightly larger than PWE. PWE at least understands cash flow and is trying to maintain a breakeven cash flow so their balance sheet is not affected.
Difficult question to answer. PWE depletion rate for their wells is about 20% which is low. Typical fracking operations like the Bakken and Eagleford wells deplete at 60-70% per year. To offset the depletion and maintain production PWE has given us the answer in their latest budget, they need about 500 million in CAPEX to do this. Based on their latest budget they would break even at $65 Canadian or $55 US at WTI pricing (they would have to eliminate the 3 cent a quarter dividend). If they invest no money to offset depletion and let their operation produce about 20% less each year, they would probably be profitable down to 30$ bbl or less. They need higher prices to grow the operation. Just curious point if oil increases to $75 US WTI their free cash flow would be over $700 million. In the previous budget which was based on $65 US WTI they could add additional 200 million in CAPEX and pay the 56 cent dividend and breakeven. This stock is entirely leveraged to the oil market price. At current prices they survive and maintain production. Hope this helps
Really they should eliminate the slave point drilling, the Cardium is not that expensive to drill, Salve point from their slides costs about 7 million per well.
They don't have to make decision until feb also the CAPEX is backend loaded so they may not make a move until the second quarter and wait and see what oil prices do. Most are not expecting a recovery until the end of this year or early next year. I am sure they would like to keep their CAPEX budget in place so they keep their growth in place for the next spike up in oil. They are in better financial shape
Own several 1000 shares of company for income, looking at buying more, but oil may go down to 50 #$%$ before stabilizing. So I will wait before buying. It appears traders are driving the market. It will take about 6 months to year for production levels in the North America to level off and start going down because of lack of investment. OPEC members production will also go down because investment issues and depletion. Also demand will go up oil is not entirely inelastic. I look for a boomerang reaction to these low prices in the later part o9f next year or early 2016 where oil will spike up to level higher than they were than the recent highs.
This is totally a geopolitical issue. I believe the US and Saudi Arabia are using the oil weapon to pressure Iran and Russia. Saudi Arabia has historically produce about 8.5 million bbl per day, they have ramped up to 9.5 mml bbl to put excess oil on the market. The US shale producers also have increase production more than expected. I do not believe that we will see a drop in US production until the second half of this year, as existing CAPEX budgets have already been spent for oil production in the first half, but if prices stay this low in first 6 months it will have effect US production for the next 3 years. It will be harder for US small and mid size oil companies to get loans to fund their development programs and it will add caution on any new development that is high in cost for fear of this event happening again, My only concern is I hope the US and Saudi Arabia did not push to much as it would only take a few well places bombs in Saudi Arabia to drive the whole world into chaos. What would you do if you were Russia or Iran facing hyperinflation with a collapsing currency.
Really there price is 87 in Canadian dollars which is bout 78 US. Oil will drop to 60-65 in short term, high debt US producers will go under Forest oil etc. It will take about 9-12 months for the market to shake out. But several things will happen together:
1. Demand will go up because of low prices I bet about 500000 bbl minimum world wide
2. Supply will go down I bet about 1 million bbl minimum in year probably more. The world needs about 7 million now bbl a day to offset depletion. I would be surprised at these prices it developed 4 million bbl let alone 7 million bbl.
3, The US shale industry when prices comeback and they will be unable to get low cost financing as several banks will get burned over this
4. Could be some bank failures of small banks with large energy loans in US.
5. PWE will go down to below 4 in the short term, but will thrive in 2016, could be the buy of life time.
been doing some research on PWT property there. There may be some value to it, The property borders ECA and Conco properties to the east in Wildsay Green area (there are three area),. ECA has been doing some some drilling in the area with great success, The area in the Duvernay they are drilling in is rich in condensate in oil. This may be worth far more than the 5000 an acre that has been mentioned. Drill results on the well they sunk will be available in mid December. hope they are as successful as ECA
I agree, although if prices stay where they are which is the budgeted price by the way, I see a significant improvement in stock price anyway. The Candain prodcuers have a significant advantage over the US producers because their cost are much lower due to the Canadian dollar.
I agree with you. I do not think OPEC will cut. American producers will be hirting in a few months. Most small and medium producers CAPEX budgets exceed their cash flows ans will be forced to cut back. Some may not be able to get financing. You are starting to see it in the headlines now. The Canadian producers are somewhat insulated as the higher dollar lowers their production costs putting them in far more competitve position than the US producers. This will take about a 6 months to a year to correct itself, but it will. I am curious how long this bull market in the dollar can survive. We are exporting inflation to every country but our own could be a lot a push back eventually.
It would not last for long. the depletion rate for our production is about 40% if that happens production comes to a stands still and within a year over 3 million bbl of US oil supply would be removed. I read the same article, other things that would happen is export would be reduced substantially becase of the ultra high dollar, empolyment would go down, the fed would be forced into massive qautative easing like Japan, to weaken the dollar. I do believe 65 dollatr oil in short run is possible, but that would be an overcorrection to the down side, which will cause supplies to be reduced in the and US and demand to increase (oil is not inelastic) and which could cause a substantial price spike.
The only asset sale announcement will be the Duvernay sale and that will not occur until mid December at the earliest as the results of their drilling efforts will not be available until then. As far as WTI I would not look for a major turn around for at least another 6 months to a year, it could trend up to 85 because of cold weather in the US this winter. I think we will be stuck a the 75-85 level for several months because of several reasons,