you say if the CEO knew prices and saw the collapse, I never said he could predict weakness in demand and how many wells each company would drill in 2014 and how much overproduction would occur, that is not possible for anyone, but once you see the production numbers, storage numbers after the fact it is not a crystal ball speculation it is about how long it takes to terminate existing contracts for drilling and how long to use up what has been going into storage and is floating around in ships at sea that no one is taking delivery. Your in house economic analysis number crunchers can tell you that. I spent two years early in my career in the economic analysis department of a NYSE energy company (coal, etc.) and that is what we did. You study what is being used each month, how much is in transportation to plants or storage and what is coming out of the ground, etc and you calculate what production you need to meet supply or curtail. The CEO of Exxon has those people telling him how many months of oil are stored around the world, 3 months or 6 months and where that number is heading, such as 7 months or 8 months or 9 months. They calculate the production and storage numbers and they know when it is gone. Unfortunately, you get companies like Chesapeake energy that said production is going to increase with them 3-5% from 2014 to 2015. You need companies to have negative production growth to burn up what is going into storage and the Exxon CEO said in his comments that 1 million barrels a day of current production in the U.S. has to go into storage because of the demand imbalance.
Exxon CEO said oil price should be $50-55 for the next two years based upon storage and excess production in the U.S. and OPEC. He said the U.S. is producing 1 million barrels per day that is not needed and the law does not allow it to be exported.
I think this guy has a better handle on the current situation than any of us on this board.
Exxon has 400 billion a year in revenue perhaps hedging that kind of volume has issues about counter party banks that are willing to take that on or perhaps the cost. What if the hedges are going to cost you 5-10%, maybe you do not spend $20-40 billion every year when you keep that money for 10 years. I'm sure the CEO is looking at current storage in ground and on ships and current production and has his CFO giving him some computer projections on when this surplus is going to decline. The problem is that existing wells and drilling are getting better production as technology gets better every year in drilling and enhanced recovery methods.
My understanding is that ISIS is moving into Libya to compound the uncertainty in the power
vacuum among the militant groups. What companies are going to keep the infrastructure
running in that country with ISIS cutting off the heads of western workers and Christians?
The CEO of Exxon said this week that he sees the price of oil in a $50-55 barrel price range for the next two years. This guy is no idiot he is a brilliant oil and gas production executive. As the hedges of BBEP fall each year this could be a problem but I think the price of BBEP has already baked that in. At $1.00 in distributions BBEP should be able to make that for the next two year and by then I believe the Exxon CEO said he sees $70 a barrel oil which should allow BBEP to increase the distribution and pay down debt. If all of that comes to fruition then BBEP should be able to increase the distribution in 2017, pay down debt and we should see the equity price climb to $10 by end of 2015 and $15 by the end of 2016. So, good distribution and good price appreciation. Now if Saudi Arabia and OPEC would cut production 1 million barrels in June then everything accelerates in terms of prices, but I would not hold my breath on that one.
Oil and gas prices have are down about 50% during the last year. CHK does not want to sell energy at half price so they will come back when prices have gone up substantially. Is that one year or two? No one really knows. Warren Buffet the smartest investor in America sold all of his Exxon Mobil shares, millions of them during the last 90 days. He said it is a good company but this is now not the time to own energy. It could be that way for another year. Now is not the time to buy CHK or any energy producer when we are producing 1 million barrels a day that are surplus production.
ETFs and mutual funds should be reducing energy holdings as the next six months are going to be terrible as U.S. government reported this week that storage of oil has hit all time high in the U.S. and U.S. is producing 1 million barrels a day with no takers. CHK has reported they will be producing 3-5% more in 2015 than 2014. Funds can dump now, buy back in six months at 10% lower prices. Why continue to ride down? Next two quarterly reports for oil and gas producers is going to be terrible.
I would imagine ETFs and mutual funds are reducing energy sector shares as the federal government and others reported oil production and storage in the U.S. is approaching all time high with 1 million barrels a day that are surplus. Even CHK said in the recent quarterly report that production would increase 3-5% in 2015 over 2014. Frankly the weakness in oil and gas equities should continue for another quarter as the first and second quarter reports by all of them should be terrible.
So how much lower can these equities drop? Only guessing, but 10%-20%.
There is not going to be good news when this quarter ends in 4 weeks. Also, no good news for April, May and June. Can it continue yes, some experts are saying for 1-2 years. So if there is no good news to propel shares higher, shares can trend lower.
Glad I stepped up at $5.50 and bought.
The yield is really crazy as they predict $80 million excess cash flow for the year after capex and distributions.
I assume prices in 2016 will be higher (around $60 by the beginning of next year and $70 by the end of next year). But all bets are off if the Congress approves the export of oil and that has been introduced by Texas members of Congress today.
The Koch Brothers like the price of oil, I am sure Dow Chemical, Dupont and any chemical company and oil based product want the price lower, think plastics, chemicals, think car factories: who sell bigger cars at bigger prices and bigger profits the lower energy prices go. We are not winning this one.
"The Event", yes, yes, but I have been waiting for it for 5 years now and my shares are lower than where I bought in, so we could be waiting for another five years and no real return on this stinker.
I have been waiting and waiting and waiting for the event, we could be dead by then and what good will that do any of us.
If you keep reading the reports on overproduction by everyone: Russia, Saudi's, U.S. and holding our breath for The event, we could suffocate by then.
For the past seven weeks, the United States has been producing and importing an average of 1 million more barrels of oil every day than it is consuming. That extra crude is flowing into storage tanks, especially at the country's main trading hub in Cushing, Oklahoma, pushing U.S. supplies to their highest point in at least 80 years, the Energy Department reported last week.
If this keeps up, storage tanks could approach their operational limits, known in the industry as "tank tops," by mid-April and send the price of crude — and probably gasoline, too — plummeting.
"The fact of the matter is we are running out of storage capacity in the U.S.," Ed Morse, head of commodities research at Citibank, said at a recent symposium at the Council on Foreign Relations in New York.
Hillary Stevenson, who manages storage, pipeline and refinery monitoring for Genscape, says Cushing could be full by mid-April. Supplies are increasing at "the highest rate we have ever seen at Cushing," she says.
Forget storage in the U.S., people are storing oil on tankers all around the world. Does anyone really think this is not going to impact prices? Prices of energy are going to go lower and unfortunately so will share prices. Expect the quarter that ends in four weeks to be bad for CHK and others
CHK is producing more oil and gas as last year, so is OPEC, so are most E&Ps despite
putting rigs out of work. This is happening because the drilling being done by everyone
to avoid being cash flow negative and pay down debt is being done on the best locations
which have the highest production. Most experts say the surplus is 1.5 million barrels
per day. Not until that ends will CHK and others see an improvement. As long as
companies are cash flow negative and the surplus production does not reach actual
demand we should all expect that share prices will be under pressure. So, in reality we
do not know how much lower it is going but it is likely to go lower each week as production,
storage and demand are reported and they are out of alignment.
Look at it this way, the fourth quarter just reported was terrible and they are now finished with the first two months of the first quarter and it is going to be worse than the last quarter. The share price has tumbled since the last report in just two days, I imagine it will happen again with more of the same after March quarter.
Another two points down after the march quarter and it is time to load up assuming they get rid of that $12 billion debt. The interest on $12 billion in debt is about 3/4 of a billion dollars every 12 months. That hurts after a while.
Actually, they have said anything in recent months about paying down debt and they announced no shares purchased. I guess they assume that the shares are not good value or they would have announced that they have acquired a certain number of shares. Ask yourself, why should anyone buy shares if the company does not see the value in the shares. If they see better value somewhere else that is what should be acquired.
Not sure what "The Event" means. CHK could receive a buyout offer from any of the ten major multinationals especially when its shares are low, but I would expect that a foreign buyer would not go after CHK, just 10-20% of its land holdings so as not to get a political storm going on a sale of a company to a foreign company.
The real unpredictable of course is a regime change in Saudi Arabia. If you can have a regime change in Iraq, Syria, Libya, etc., anything is possible. But I would not expect that as long as the regime in Saudi Arabia gives free education, free medical care, free housing.
What I would not be surprised to see is a terrorist attack similar to September 11th. But one where Middle East terrorists take out a major pipeline or energy complex by flying a plane into it or blowing it up. The Saudi's ship a tremendous amount of oil all over the world and if you damaged the port facility with a bomb and took out the supply for a year or two to repair it I could imagine oil tripling over night. The terrorists in the MIddle East are getting stronger all the time and wealthier all the time. If they get the LIbya oil fields then anything is possible. Being a short in energy works during times of over-supply until something happens.
The weak members of OPEC may force a cut in production in 90 days and if the members agree to cut one million barrels per day that event would change market prices for energy and energy stocks. Not saying that will happen but Venezuela, Nigeria and others are hurting with these energy prices.
True, but it could go lower still as funds, ETF and investors move out of CHK and allocate energy holdings to EOG and others. Remember, we are already two months through the first quarter of 2015 and I expect CHK will report another lousy quarter at March 31.
I would have expected them to say we will not drill and sell oil and
gas at these prices as we have enough production that we are selling
at low prices.
Even if you drill wells and do not complete them, do not sell the stuff
since everyone knows that first year production is usually double
what you get the following year from the same well. Why give away
oil at $50 and gas at sub-$3 when you can wait 12-24 months and
sell it for 50% more.
I'm disappointed and already own too much of this to buy more at
these low prices, especially when management sounds out of touch.
I spoke with the president of another oil and gas company where I
have a large position and he told me this week they dropped the
number of rigs from 20 down to 2 that are drilling. Now that is what
I like to hear but nothing from CHK management.
CEQP incentives should make it the better growth engine of the two but as I read quarterly reports from all the MLPs and GPs I am looking for execution and growth and so far I have not seen that here. Management has to make decisions where they spend their cash flow and who they want to service and who they will expend capex on that payoff in growth.
The energy sector is going to be problematic for the next 12-24 months. The midstream providers have held their own and both CMLP and CEQP have not held their own in this difficult time. There appears to a lack of confidence in the execution of management, choices of management and when analysts, investors and funds cut back on positions in a name you see what happens and that is case here, prices crater and buyers buy for the perceived higher yield. Yes, I keep coming back to the name and reading the quarterly reports and viewing presentations, but the bottom line with this name is execution and performance.
When energy prices correct as they will it will lift all boats but 2014 and 2015 have hurt this name and I am afraid it gets worse before it gets better. Why risk riding this down another point or two during 2015 when there is so much uncertainty.
People are buying both names every day as they look cheap and where has that benefited investors over the last year or even in the last 30 days? What makes it turn around and not go lower another 10% or even 20% if the first quarter shows more deterioration?
CEQP is cheaper to buy and each dollar appreciation has a greater equity return kicker so if one had to buy one name they should take the lower distribution for the appreciation and incentive rights but I see no reason to buy until they show they can grow cash flow and distributions.
lack of investor confidence by those that buy equities based on distribution yield. There is a reason this midstream has lost 50% of its value over the last year while most other midstream investments are up significantly. When you take the distribution of most other midstream performers at 5% yield and add the typical 10% appreciation per year in the equity price you come up with a total return of 15% per year to 20% per year return depending on which name you are looking at . Looking at this investment you come up with nothing like that return. Also, most other midstream equities have good growth in revenue, cash flow and distribution growth. This equity is not seeing that in fact the opposite.