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Big Oil’s Nightmare Is Coming True | OilPrice.com
Here's some more about the $17.5B write-down for BP and $22B expected write-down for Shell. But ExxonMobil is not writing anything down.
So ExxonMobil could be sitting on some $40B in write-downs that it refuses to take until forced to. This is a fraudulent path. If I were to target an oil company for shorting, I'd look in to ExxonMobil. Of course, the market already seems to be cutting XOM market cap already. So maybe some of this is already baked into the price. They could be forced by regulators, but perhaps a worse scenario is that they run into a liquidity crisis and find that the company cannot sell assets to save itself. And even before that unfolds, they may be crippled from divesting assets that really don't serve the company well because they are afraid to accept a price that implies that they should have impaired the asset much earlier. Resisting a write-down is really not a good posture for a company. It will surely erode the trust investors have in management.
Here's some more about the $17.5B write-down for BP and $22B expected write-down for Shell. But ExxonMobil is not writing anything down.
So ExxonMobil could be sitting on some $40B in write-downs that it refuses to take until forced to. This is a fraudulent path. If I were to target an oil company for shorting, I'd look in to ExxonMobil. Of course, the market already seems to be cutting XOM market cap already. So maybe some of this is already baked into the price. They could be forced by regulators, but perhaps a worse scenario is that they run into a liquidity crisis and find that the company cannot sell assets to save itself. And even before that unfolds, they may be crippled from divesting assets that really don't serve the company well because they are afraid to accept a price that implies that they should have impaired the asset much earlier. Resisting a write-down is really not a good posture for a company. It will surely erode the trust investors have in management.
TheTalkingMule
Distributed Energy Enthusiast
Similar to when you see a desperate failing local restaurant on Groupon.....
Amex Offers: Purchases at Chevron and Texaco (at the pump only), Get 15% Back (Max of $25, Valid for Select Cardholders)
Amex Offers: Purchases at Chevron and Texaco (at the pump only), Get 15% Back (Max of $25, Valid for Select Cardholders)
TheTalkingMule
Distributed Energy Enthusiast
Great to know which side of the bet Goldman needs to come through. Lol!
Oil demand to return to pre-pandemic levels by 2022, Goldman says, but unlikely to peak this decade
(Nevermind that CNBC knows that's physically impossible)
Oil demand to return to pre-pandemic levels by 2022, Goldman says, but unlikely to peak this decade
(Nevermind that CNBC knows that's physically impossible)
It's even less likely to peak this decade if the peak was actually last decade.
TheTalkingMule
Distributed Energy Enthusiast
We should have known that actual peak oil demand would be dragged forward by the very investors who kept the supply side on the treadmill an extra 5 years. The irony! (is that irony?)
Fracking investor sentiment clearly crossed a tipping point last fall just as TSLA popped after 3Q19. If we had a brain cell between all of us posting here we would've figured out a demand disruption was in the mail and certain to tumble out the ass-end of our civilization soon. That's just how it works. If it weren't covid19, I would've been something else.
Strange, but in retrospect perfectly sensible.
As an investment note:
My inclination now that I've missed the obvious 6 month oil industry demand crisis shorting window from Oct-[whenever] is to make sure I don't miss the looming 50% decline of the oil majors over the next 2 years. This logic is veeeeery similar to when I missed the obvious TSLA run from $17 to $275 and promised myself I wouldn't miss out on the SCTY run from $30 to $120. The takeaway......all oil majors will probably be up 25% from here to Christmas 2021.
I wish this thread never existed.
Fracking investor sentiment clearly crossed a tipping point last fall just as TSLA popped after 3Q19. If we had a brain cell between all of us posting here we would've figured out a demand disruption was in the mail and certain to tumble out the ass-end of our civilization soon. That's just how it works. If it weren't covid19, I would've been something else.
Strange, but in retrospect perfectly sensible.
As an investment note:
My inclination now that I've missed the obvious 6 month oil industry demand crisis shorting window from Oct-[whenever] is to make sure I don't miss the looming 50% decline of the oil majors over the next 2 years. This logic is veeeeery similar to when I missed the obvious TSLA run from $17 to $275 and promised myself I wouldn't miss out on the SCTY run from $30 to $120. The takeaway......all oil majors will probably be up 25% from here to Christmas 2021.
I wish this thread never existed.
Muni Likely To Cut Many Bus Lines In Coming Years As More Commuters Turn To Cars
more diesel off the road?
more diesel off the road?
mspohr
Well-Known Member
TheTalkingMule
Distributed Energy Enthusiast
A little OT, but relevant to the investment angle.
Warren Buffett's Berkshire buys Dominion Energy natural gas assets in $10 billion deal
Of all the things this guy could buy.....he doubles-down on gas. If Buffett is synonymous with capitalist investment in the age of scarcity, and this is how he intends to "buy low" in the covid recession, we are looking at yet another sign of looming transition.
Who will be the Warren Buffett in the era of Sustainable Abundance?
Warren Buffett's Berkshire buys Dominion Energy natural gas assets in $10 billion deal
Of all the things this guy could buy.....he doubles-down on gas. If Buffett is synonymous with capitalist investment in the age of scarcity, and this is how he intends to "buy low" in the covid recession, we are looking at yet another sign of looming transition.
Who will be the Warren Buffett in the era of Sustainable Abundance?
TheTalkingMule
Distributed Energy Enthusiast
Lost in Oil’s Rally: $2 Trillion-a-Year Refining Industry Crisis
Lost in Oil’s Rally: $2 Trillion-a-Year Refining Industry Crisis
Lost in Oil’s Rally: $2 Trillion-a-Year Refining Industry Crisis
How Tesla Became More Valuable Than Exxon | OilPrice.com
Oil industry is coming to terms with Tesla and the fact that low oil prices cannot stop EV adoption.
Oil industry is coming to terms with Tesla and the fact that low oil prices cannot stop EV adoption.
Gas assets continue to lose value.
https://www.bizjournals.com/charlot...gy-dominion-abandon-the-atlantic-coast-p.html
https://www.bizjournals.com/charlot...gy-dominion-abandon-the-atlantic-coast-p.html
TheTalkingMule
Distributed Energy Enthusiast
Equitrans Midstream (ETRN) has a few oil assets, but is mostly a gas and pipeline company.
I wanted all y'alls opinion on shorting it as I was surprised to see it valued at nearly $4B today. Looks like they got a bump on the Buffett news, but how can a Marcellus shale gas company be worth that much?
They caught my eye being at the very top of this list of high debt to equity oil & gas companies.
Yes, my home state of Pennsylvania does stoop and now to the gas industry in any way they like, but even the once mighty dictator of PA Chesapeake Energy is dying.
I guess if the GOP can take the governor's office in 2 years there might be a smoother decline for gas in PA but that's unlikely.
Looks like puts are slim pickings, but $7.50 doesn't seem like terrible idea for January if they can be had for pennies.
I wanted all y'alls opinion on shorting it as I was surprised to see it valued at nearly $4B today. Looks like they got a bump on the Buffett news, but how can a Marcellus shale gas company be worth that much?
They caught my eye being at the very top of this list of high debt to equity oil & gas companies.
Yes, my home state of Pennsylvania does stoop and now to the gas industry in any way they like, but even the once mighty dictator of PA Chesapeake Energy is dying.
I guess if the GOP can take the governor's office in 2 years there might be a smoother decline for gas in PA but that's unlikely.
Looks like puts are slim pickings, but $7.50 doesn't seem like terrible idea for January if they can be had for pennies.
adiggs
Well-Known Member
I don't know that company, but I've owned a nat gas pipeline operator previously (Oneok Partners). It was a fantastic investment that I exited in 2015 or so.
The way I figure it, within the overall ecosystem of fossil fuels, the pipeline operators are the best to be involved with financially. With Oneok, they had a lot of their pipeline capacity under multi-year contracts; they could practically fill out their quarterly financials for the year, at the start of the year. It was a dividend play, where the dividends were very high quality.
Reason I think pipeline operators (of existing pipelines - seems like new pipelines are having a hard time getting built) will do so well - whether gas is free or $8/mmbtu, producers are going to pay somebody to transport their gas to market. The transport company is going to get a reasonably fixed price to move the gas from here to there. Even if the producer is in reorganization bankruptcy, the creditors will want to keep paying the pipeline operator to keep delivering gas to market in order to maximize revenue for the producer (so the creditors can recover as much of their losses as possible).
So the key I think, is to decide if it's primarily a pipeline company with a few gas assets, or primarily a nat gas producer, with some pipeline assets. I wouldn't expect it to be 50/50 - if it were, I'd expect it to split in some way, and create two pure play companies. You describe it as a pipeline company - so think of it as transport rather than as O&G and evaluate on that basis.
The upside to a pipeline company is limited; the downside is limited. You might compare to Oneok Partners (OKS I think is the ticker) - I think 50/50 debt/equity was OKS target. So some leverage but not outrageous. And the stability of the revenue made that pretty safe in my eyes.
Sidebar: also look to see how the company is organized. OKS was a limited partnership which meant Schedule K income reporting. It was well worthwhile, but the pain at tax time should only be born for a significant investment (in my case, back in 09 when I got in I shoulda done $50k instead of the $5k I actually did; filling out state tax forms for 10+ states, most of them for income amounts under $10, was a serious pain in the rear).
I wonder where the breaking points are for this business model. For example, if the price of gas goes so low that producers shut up wells, how do they get out of these contracts with the pipeline? In the extreme a producer may go bankrupt. I suspect this would leave any contractual obligation worthless. Moreover, when conditions are so bad that producers go bankrupt, the pipeline operator would have a hard time obtaining new contracts at a reasonable price to replace ones lost through bankruptcy. In the scenario, where the pipeline is able to seize the gas wells as part of a bankruptcy proceeding, if the price of gas is low enough, there may be no economic recover for the pipeline operator.
All these extreme scenarios notwithstanding, I'm still not sure this would be a good short target. It's like the two hunters that are trying to outrun a tiger. While it's true that the tiger can overtake both runners, it's the slower runner that gets eaten first. So any short scenario that depends on gas producers going bankrupt first suggests that maybe the producers are the better target for the short in the first place.
So the general problem with trying to short fossil fuels is that these are complex supply chains. We may be convinced that ultimately the whole supply chain is destroyed, but the tactical challenge for the short trader is to identify the weakest players to go after first.
There is an interesting question in the oil supply chain whether oil producers or refiners are at greater risk of failure as demand for oil products decline. So if you own oil wells there is a natural decline rate around 3% or more. What's the natural decline rate for refiners? Refiner capacity must be large enough to process peak oil demand, but beyond the peak nearly any decline in oil demand leads to an oversupply of refinery capacity. A global decline of 1% to 2% in demand for gasoline or diesel could crush the crack spread. Margins at refineries compress until some of the capacity is forced out of production. On the oil production side, a 2% decline in gasoline or diesel could simply mean that fewer new wells get drilled as the crude demand decline (about 1%) is well less than the natural decline rate (3% or more). So it is plausible that refiners could experience more economy distress than crude producers. On the other hand, producers are extremely prone to over supply. So if crude is oversupplies while demand is relatively stable in the short run, then the price of crude can plummet while the prices of gasoline, diesel and other products remain high. That is, refiner margins can expand while producers go bankrupt. So depending on short run dynamics, either refiners or producers could be at greater peril. A savvy short would want to have a clear idea of which target is in the most immediate peril.
On the other hand, my favorite way to "short" oil is simply to hold shares of Tesla. I'll level it to the Jim Chanoses of the world to pull their big boy short-shorts and go after the rot in fossil industrial wasteland.
TheTalkingMule
Distributed Energy Enthusiast
After a one week break from horrendous weekly US crude reports, the previous trend came back with a vengeance today.
Total stockpiles went up another 10-11M barrels. Saudi imports are back up to 1.5Mb/d.
WTI pricing is strangely up today, but I could see the major crash coming any minute. Perhaps Thurs/Fri as covid news deteriorates too.
Total stockpiles went up another 10-11M barrels. Saudi imports are back up to 1.5Mb/d.
WTI pricing is strangely up today, but I could see the major crash coming any minute. Perhaps Thurs/Fri as covid news deteriorates too.
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