A fair analysis. My view is that WTI oil prices are likely to rally to around 70 by the end of this year or early next year. Then I expect WTI oil prices to get stuck in the low 70s for at least 1-2 years, because a lot of domestic supply can be produced in that price range. So I don't think the 80-85 scenario will happen until 2018 at the earliest. So the oil business has become more of a cost reduction game for the next few years. If GDP can continue to bring down drilling costs in the TMS, I think the stock price can go to at least 10 and possibly up to 19 if they are very successful at cost reductions. For the stock price to reach 10, they also need to sell their EFS acreage for a reasonably high price.
Their drilling costs in the TMS have dropped substantially this year, and royalty burden is low in the TMS. Check the latest management presentation. I'm not selling any shares.
This bear raid is such a yawner. I think it started with short selling by hedge funds, which triggered some stop loss orders just below $2. I'm not selling any shares, and I'll be buying when oil starts rallying this Fall.
GDP has a massive asset base, and they could sell some acreage if necessary to increase liquidity. Their drilling costs have dropped substantially in the TMS and they can make good returns on investment in the TMS at $65 oil prices. (See latest management presentation.) Rumors of serious financial problems are false.
GDP's drilling costs in the TMS are way down from last year's drilling costs, Drilling days are way down this year. Completion costs are also way down, and service costs are generally lower in the TMS (following the trend of much lower service costs this year in the US). The royalty burden is also below average in the TMS, and transportation costs to refineries should be lower than in the Bakken. Check the latest management presentation on GDP's website.
The oil industry used to be a stodgy, slow-moving industry. Now it's extremely dynamic and you have to read the latest material continuously to stay on top of the current situation. Drilling and completion costs are dropping rapidly throughout America. There are some good articles on declining production costs on the Seeking Alpha website.
This bear raid is a big yawner to me. I'm holding a very minor long position, and I won't add more until oil prices rally in the Fall. But I'm not selling any shares either, unless the company's fundamentals actually decline.
I think GDP is not in serious financial distress. This company needs higher oil prices to pay for drilling over the long run. The stock market wants higher oil prices immediately...today. But US oil production is probably not going to drop significantly until late in this Summer or early in the Fall, when oil prices should rally. That is because it takes about six months from the time an oil well is started until it is completed and tied into a pipeline for sales. That means here in June, we're still adding production from wells started in December, before the big plunge in oil rig count.
This is a typical summer bear raid, when trading volumes are lower and there's less institutional buying. There could have been some margin calls today also. This company has a massive resource base, but obviously they need higher oil prices, which should arrive in a few months.
There's a good article on the Seeking Alpha website about declining oil production costs. You should be able to find it with a search on the symbol QEP.
Production costs per barrel are dropping along with oil prices, because of improved drilling and completion methods and lower service costs.. Return on investment for the best wells is fairly high now assuming $60 oil. Hopefully LGCY can bring down its production costs substantially.
I have a minor long position in LGCY. I'm not going to add to that position until WTI oil moves into the high 60s (...hopefully later this year). I might trade LGCY long as it moves up into the next distribution.
I think the drop in LGCY has probably been caused by hedge funds shorting LGCY between distributions. Most of them will probably cover before the next distribution. They are trying to scare retail investors into selling their units at undervalued prices. I think oil and LGCY are both going up next year.
This drop could be just hedge funds shorting LGCY between distributions. Then some of them could flip and go long into the next distribution. I'm not selling LGCY; oil is going back up in the long run.
I don't expect anything dramatic to happen in Saudi Arabia. But I think HK will survive and eventually prosper because of mundane reasons like the steady depletion of the world's giant oil fields. Oil prices will eventually have to move to at least $76 to meet global demand, and at that price the TMS will be highly profitable for HK. Success in the TMS should enable HK to refinance its bonds. HK might also have to sell some acreage in the Bakken or the TMS to pay off maturing bonds. But we may have to wait until early in 2017 for this oil rally to really get rolling. I'm not going to add to my HK position until WTI oil moves over $70 and the TMS becomes profitable.
TY Zoom. HK needs more monsta wells and WTI oil up around $70. Global oil demand is growing rapidly because of low prices, while the world's giant oil fields continue to deplete steadily, so I think we're going back to $70 by the end of this year.
Saudis don't do anything for Iran's benefit. But they are likely to cut production slightly to bring the price of oil back where OPEC needs it to be for the long run. Also, I would think that some recovery in oil prices back up to $70 is an unwritten part of the nuclear deal with Iran. SA is making that deal for their own national security, not for Iran's benefit.
But it does depend on strong growth in demand, caused by prices below $74. If demand growth is sluggish while Iran adds more supply, then oil prices could hang around $60 and HK will continue to struggle.
Why do you think Iran finally accepted the nuclear deal? They finally took the deal (at least in principle) because Saudi Arabia and NATO engineered a crash in the oil market to put crushing financial pressure on Iran. That's the correct geopolitical analysis...actually quite a simple conclusion to reach. What happens from here is tougher to predict, but I think oil prices are going up in the second half of this year.
More supply will flow from Iran, but less from Saudi Arabia, while demand grows. The oil crash into the 40s was engineered by Saudi Arabia and the NATO countries. Watch what happens...even as Iran produces more, the oil market will tighten up as demand grows and SA produces less, and oil prices will rise. I assure you, I am not high...lol.
Iran can't produce 1.5 MM barrels per day immediately. They need a year or two to rebuild their oil industry, which has been badly damaged by sanctions. Oil wells and infrastructure have not been maintained properly over the last several years. They can produce possibly another 800K barrels per day immediately. The Saudis have room to cut production slightly and global demand is growing at an annual rate of around 1.2 MM barrels per day. So there's room for the Iranian oil to be absorbed by the market. Several OPEC countries are in bad shape financially with oil in the 60s, so I would expect the Saudis to enable a move up to around $70 by the end of this year.
Clearly it's gonna take higher oil prices to get this stock moving up. I think Saudi Arabia and the NATO countries are still holding down oil prices to pressure Iran to take the nuclear deal. If and when Iran signs the nuclear deal next month, then the pressure should start to be removed from oil prices and we'll see a rally up to $70 or more by the end of this year. Global oil demand is growing rapidly at current oil prices. It seems like HK needs oil at $70 to make the TMS profitable, and the stock can't go very far until HK starts developing the TMS. So the best reason to hold is for an oil rally in the second half of this year, then a move back into the TMS and possibly a big rally in HK...at least a big rally from here in percentage terms.