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Oil and gas getting a beat down

whose head is most likely on the chopping block here? pengrowth, penn west and COS are large caps that look vulnerable. Lightstream is looking like its days are numbered here. i’d imagine we’ll see Connacher and STP finally die here as well.

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Baytex looking like it’s getting priced for a dividend cut

putin pissed

"You want a quote? Haven’t I written enough already???"

RIP

Last week I dug into the financials of some of these leveraged MLP oil producers. I don’t follow the energy sector so go ahead and correct my mistakes…
 
Okay so what happened here? Some idiots discovered some new *high-cost* oil production technology and went crazy over-producing. Uhh like they never expected the price to drop with the over-supply they created? What were they thinking? Did Goldman Sachs author these financial structures by any chance? The finance people must have known that at a certain price threshold they would default, but they never expected prices to drop? Reminds me of my days working in sub-prime.
 
So now there is this expectation that the Middle East adjust their production to save the Americans from their lack of foresight? Why would they do that? The situation corrects itself during 2015 if they just sit and wait for the idiots to blow themselves up. So they sit and wait…
 
It looks like these chumps are oil-price hedged for the rest of 2014, and some of 2015. But as their hedges expire things get nasty quick. The weaklings default, it’s like oil sub-prime. The whole “American oil revolution” ends just like that, and prices go back up.
 
Except no we can’t let markets run their course, the government steps in and does QE4 by mid 2015. And US oil becomes some sort of government-supported/owned deal.

Grabbed an OFS co this morning, hopefully I grabbed the right end of this falling knife…

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

wow this really is a great thanksgiving. lots of discounts. arab vs us. lets bring the ruckus.

I love my cheese. I got to have my cheddar.

Black friday sale!

*hopefully I don’t get trampled on this deal

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

OFS right now? Ballsy move.

“I can no longer obey. I have tasted command, and I cannot give it up.”

Neryblop wrote:

arab vs us. lets bring the ruckus.

I’m not sure this is entirely true; Saudi trying to flush out North American production. I think a big part of the drop in oil is fighting within OPEC. Some OPEC members may want to cut production, but know other members will *say* they’ll cut to keep prices high but when the rubber hits the road, they’ll produce at full capacity in an effort to gain market share. It’s a prisoner’s dilemma situtation. We’ve all seen these “break-evens” for OPEC members’ fiscal budgets…if you can’t get the price you need, try to make up for it in volume.

I don’t know if any of the Canadians on this board follow the potash industry (Saskatchewan is a major producer and has their own oligopoly), but they were hammered last year when the Russia/Belarus oligopoly/cartel had a dispute over market share and prices tumbled 25%. I think there may be some similar disputes within OPEC right now. Potash is far more concentrated in terms of suppliers than OPEC but when these cartels are fighting over market share it’s bearish for pricing.

Interestingly, other commodities are getting hammered today, too. Copper is down 3.5% so there may be a demand impact on today/yesterday’s pricing, not purely supply. (maybe commodity funds are getting flushed out of their positions?)

I do think OPEC would like to see North American production decline but they have to know its inevitable…for them to have prices where they’d like ($85ish and above) they’ll have to deal with it. I think there is more at play here than Saudi vs. US/Canada and it’s disagreements within OPEC.

I’m long DNOW, and may add more. I think struggling energy sector helps them as they seem to be planning a rollup.

Anyone have any good articles on the substitution impact on nat gas from this new level of oil?  I’m long more nat gas focused plays and curious.

Snuck a fat short on the S&P500 Friday during pre-market, everyone was too preoccupied with their turkey food-coma to sense what was up…

Stock futures all down – oil price fears, plus “black Friday” shopping numbers suck. Hoping for a mass chaos (or even minor chaos) this week so I can buy up some goodies cheap.

@ Geo : what do you think would be a good canadian oil play given the beat down ?

Could you recommend 2-3 stocks, of the less speculative variety, read not the ones that need a barrel @ 100 to break-even ?  

- Fran: You know, in Tibet, if they want something, do you know what they do? They give something away.
- Bernard: They do, do they? That must be why they're such a dominant global power.

I don’t publicly talk about specific names, and in any event, I need to run some numbers at these levels which I haven’t had the chance to do with real work demands.

That said, this is a must read: http://mobile.bloomberg.com/news/2014-11-30/oil-at-40-possible-as-market...

I really don’t know where this will shake out at this point. We are beyond what I had envisioned for this decline now. Uncharted territory. That said, my inner value investor voice is telling me “be greedy when others are fearful.” Just wish I had the hours right now to put into some solid analysis.

“I can no longer obey. I have tasted command, and I cannot give it up.”

Does anyone know of any sources on researching oil demand elasticity? If I remember right, it’s relatively inelastic but if levels hit 40 or so, a good bit less than half of where it was not too long ago, won’t we see a nice rise in demand at some point? And if so, how long will it take to see the effect?

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

geo wrote:
I don’t publicly talk about specific names, and in any event, I need to run some numbers at these levels which I haven’t had the chance to do with real work demands. That said, this is a must read: http://mobile.bloomberg.com/news/2014-11-30/oil-at-40-possible-as-market... I really don’t know where this will shake out at this point. We are beyond what I had envisioned for this decline now. Uncharted territory. That said, my inner value investor voice is telling me “be greedy when others are fearful.” Just wish I had the hours right now to put into some solid analysis.

Really ? Are you soooo conflicted that you can’t mention a couple of known players on an anonymous forum ?

Why so serious ?

Txs for link in any case, will have a look at that.

- Fran: You know, in Tibet, if they want something, do you know what they do? They give something away.
- Bernard: They do, do they? That must be why they're such a dominant global power.

yo geo, I’m in the same position as you, no time. Maybe we should consider some type of O&G related index. Alerian MLP index has dropped off some. Wish I would have kept some of the marketing materials they were pitching me at this CAIA event I went to. They were showing huge gains year after year and we all know what follows that. Tossed all their docs last week while cleaning up. The lack of K1’s and the way the other points they talked about seemed interesting.

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

Viceroy wrote:

geo wrote:
I don’t publicly talk about specific names, and in any event, I need to run some numbers at these levels which I haven’t had the chance to do with real work demands. That said, this is a must read: http://mobile.bloomberg.com/news/2014-11-30/oil-at-40-possible-as-market... I really don’t know where this will shake out at this point. We are beyond what I had envisioned for this decline now. Uncharted territory. That said, my inner value investor voice is telling me “be greedy when others are fearful.” Just wish I had the hours right now to put into some solid analysis.

Really ? Are you soooo conflicted that you can’t mention a couple of known players on an anonymous forum ?

Why so serious ?

Txs for link in any case, will have a look at that.

i would expect CPG, BTE, TET, LEG, PWT to rebound the hardest if we get a general bounce in the energy sector or see oil prices rise, for the simple reason that they are beat down the hardest.

Wasn’t too long ago when oil previously traded at these levels. A lot of names are trading much lower now than when oil was similarly priced. Will the stocks rally before crude…….

“Our lifeline is CO2 emissions. Don’t let them decline.”

i think energy stocks need to rally here, with or without oil. obviously with oil, the rally will be far more powerful. far too many prognosticators talking are calling for $30-$40 oil and it is scaring all of the antsy money out of the sector. if oil rallies above $70, or by god, touches $75, everyone is going go, huh, maybe oil won’t hit $30 and buy the crap out of everything again. whether buying when oil is at $75 is smart or not, i’ll make that call when we’re at $75. technically, i can’t imagine there is much downside left in the names i’ve listed above.

i mean, most of the names above are down 5-10% today and oil is up, possibly forming a ST bottom.

I’d be interested in a small cap oil producer ETF, but I’m not familiar.

And Viceroy - I’m not going to throw around specific names without due diligence. I haven’t had the time to update my analysis, so I can’t really say what’s looking good. I have no conflicts in any oil and gas names.

“I can no longer obey. I have tasted command, and I cannot give it up.”

Man I avoid energy in general but I am KILLING the energy index. My one short is down 60% since I got in. My one long is up 45%. SO MUCH ALPHA. I have no idea what to do with energy stocks here… small and microcap energy is such a graveyard, and at ~5% of the R2K it is okay for me to be systematically short energy (by not playing for the most part). Still, the value investor in me wishes I knew more about this sector.

XOM might be a firm worth looking at. Good management focused on return on investment.

I am going to look at the canadian stocks recommended above but it got me thinking : why not an oil major ?

I mean given that there is an overreaction in the market, wouldn’t it be wise to take a position in a stock that isn’t too exposed to North American production (which has higher break-even costs) ?

So far Total SA seems to have the best value on a Schiller-ish P/E basis, P/CF basis, past earnings volatility basis, as well as analyst recommendations.

Oil majors all seem to have a 45-50% equity ratio on the B/S.

What do you guys think ?

- Fran: You know, in Tibet, if they want something, do you know what they do? They give something away.
- Bernard: They do, do they? That must be why they're such a dominant global power.

I don’t really understand the focus on government budget break even prices.  The journalists act like no government has ever borrowed money.  What is debt to GDP in Saudi Arabia? 15%?  Some other countries may have trouble finding financiers, but overall budget deficits aren’t going to be a very useful indicator IMO

Venezuela, Russia and Iran could see real civil unrest if they don’t have the cash. The Saudis would obviously be less concerned.

“I can no longer obey. I have tasted command, and I cannot give it up.”

geo wrote:
Venezuela, Russia and Iran could see real civil unrest if they don’t have the cash.

Yes, also on the list of “not real countries around the world,” giving company to Greece, Argentina, Myanmar, basically all of the Middle East, and several more I’m surely forgetting. It would be nice if Venezuela just sank into the ocean and we could call it a day on that one.

geo wrote:
Venezuela, Russia and Iran could see real civil unrest if they don’t have the cash. The Saudis would obviously be less concerned.

I don’t know much about the members, but wouldn’t it be funny if Saudi bankrolled other’s financing.

Viceroy wrote:

I am going to look at the canadian stocks recommended above but it got me thinking : why not an oil major ?

I mean given that there is an overreaction in the market, wouldn’t it be wise to take a position in a stock that isn’t too exposed to North American production (which has higher break-even costs) ?

Avoiding high-cost production is avoiding growth, unfortunately. Many of the low-cost oilfields are mature and in decline (oil fields deplete over time), so the investment community doesn’t find that very attractive…think of all the valuation formulas that are highly influenced by “g”. There’s been excitement in recent years b/c we were seeing companies actually show growth in production of hydrocarbons. Major E&P’s like Marathon Oil, ConocoPhillips, Apache all had a lot of reserves in these low-cost fields but they were all experiencing production declines so they all traded at EV/EBITDA ratios of 3.5x to 4.5x. The U.S.-based E&P’s in tight oil plays that were actually showing production growth were trading at EV/EBITDA 7.0x to 9.0x – companies are greatly rewarded for showing production growth (and low exploration and geopolitical risk associated with North American reserves)

If by some chance you could get all of the under-developed/undeveloped Iraqi oilfields in Kurdistan, not have to pay royalties to the gov’t, take away all of the major, major geopolitical risk you’d have an awesome E&P with low-cost growth but that is just not realistic. Those opportunities are just not out there. Bottom line. Existing major oilfields are often owned by state-owned companies and you can’t invest in them. If you want growth, you’ve got to look to oil sands, deepwater and/or tight oil (Bakken, Eagle Ford, Permian) and it takes major capital investment to do so. 

The oil E&P industry is tough. Proven reserve lives are only 12-14 years on average; your existing fields decline in production every year and you’ve got to replenish your reserves (this requires big money and geological skill) otherwise you’re going to be out of business if you sit on your hands for too long.

I don’t know Total well enough to say much about them. You spoke about oil majors and Canadian players earlier. Suncor, Imperial (majority owned by Exxon), Cenovus are major companies that have refining and/or petrochemical businesses that help offset some regional oil price volatility they are exposed to. These are all well thought of companies in the industry and if you want large companies with strong financial resources and balance sheet strength, these are some places to look. 

yall need to read the Big Rich - ill book

"You want a quote? Haven’t I written enough already???"

RIP