Government Bailout of Oil Industry

[Redrock + 4]

Is the US Oil Industry necessary to the survival of the US economy and US sovereignty? Was the banking industry key to the US financial markets and liquidity? How about the auto industry and its relation to defense? So, when are the Treasury and Federal Reserve going to back up and insure oil industry debt, when commercial financing becomes almost completely unavailable? How many more drillers and small companies must fail? Are we only going to have one left... Exxon? America better not get hooked on low gas prices because when the American drillers go under, stand in line at the pumps.

[Gerry Maddoux + 3,627]

31 minutes ago, Redrock said:

Is the US Oil Industry necessary to the survival of the US economy and US sovereignty? Was the banking industry key to the US financial markets and liquidity? How about the auto industry and its relation to defense? So, when are the Treasury and Federal Reserve going to back up and insure oil industry debt, when commercial financing becomes almost completely unavailable? How many more drillers and small companies must fail? Are we only going to have one left... Exxon? America better not get hooked on low gas prices because when the American drillers go under, stand in line at the pumps.

Trump doesn't much care for the oil business. In fact, in his head, the Dow-Jones has always moved inversely to the price of oil. Today he is seeing for the first time as president that that isn't always true. He should immediately impose 25% tariffs on ME oil and call up Venezuela and Canada and tell them we're buying their heavy oil. But I don't think he has anyone in his cabinet who really understands just how bad this could get for the country.

[El Nikko + 2,145]

21 minutes ago, Gerry Maddoux said:

Trump doesn't much care for the oil business. In fact, in his head, the Dow-Jones has always moved inversely to the price of oil. Today he is seeing for the first time as president that that isn't always true. He should immediately impose 25% tariffs on ME oil and call up Venezuela and Canada and tell them we're buying their heavy oil. But I don't think he has anyone in his cabinet who really understands just how bad this could get for the country.

He sure didn't mind all of those votes from the oil and coal sector not to mention the huge number of people employed in related businesses.

I've got to say if it wasn't for the utter joke of the Democratic competition (and if I was American) I'd have a very hard time supporting him unless something is done to protect US jobs and businesses right now. Letting a foreign country destroy the US stock market and some industries is not exactly America First. Crowing over cheap gasoline is pretty idiotic, that's not going to help people who are out of work for the 2nd, 3rd or 4th time in the last few years.

Obviously regardless he's guaranteed to win this year so maybe he doesn't need to care about those votes this time?

I always liked Trump from the day he announced his run and really hope he was genuine about what he said at his rallies, it was an amazing breath of fresh air to hear the things he said.

[James Regan + 1,776]

11 minutes ago, El Nikko said:

He sure didn't mind all of those votes from the oil and coal sector not to mention the huge number of people employed in related businesses.

I've got to say if it wasn't for the utter joke of the Democratic competition (and if I was American) I'd have a very hard time supporting him unless something is done to protect US jobs and businesses right now. Letting a foreign country destroy the US stock market and some industries is not exactly America First. Crowing over cheap gasoline is pretty idiotic, that's not going to help people who are out of work for the 2nd, 3rd or 4th time in the last few years.

Obviously regardless he's guaranteed to win this year so maybe he doesn't need to care about those votes this time?

I always liked Trump from the day he announced his run and really hope he was genuine about what he said at his rallies, it was an amazing breath of fresh air to hear the things he said.

I like Trump but I feel in this year of election he will not make a second term. One term Trump he is the whipping boy.

[Tomasz + 1,608]

US economy absolutely need to be energy independent and I fully support that.

 A global superpower cannot import some 10 million barrels a day because it threat for national security and  good reason for many bloody interventions all over the world after WW2..

This does not mean however, that it must produce oil and gas at a loss or with very little profit like crazy at quite low price with an increase of 2 million barrels as in 2018 alone.

I am absolutely in favor of the US producing more and more of oil and gas - I really don't mind.

Only dear US colleagues with all respect you should increase your oil and gas production at a reasonable pace and not flood oil ad gas  and destroy the whole energy market by producing it with very little profit  or even a loss

If only because it is still really unknown for exacly how many years, with such a crazy increase you have enough resources

I may be wrong, but this is probably the unofficial  position of Russia and Saudi Arabia for last decade and they are simple desperate because of shale madness 

I will quote Anas Alhajji from Saudi Arabia working both at US mining university and also for Saudi Aramco

Quote

The situation of #shale is pretty simple: It got too fat in childhood. It needs to get in shape to live a longer healthy life. It has to go on severe diet, which includes capital starvation. The oil majors are the adults who intervened to get this child in shape!

 

Edited March 9, 2020 by Tomasz

[0R0 + 6,251]

So far, private equity has stood vulture like on the cliffs overlooking the oil patch waiting for another 2015 bankruptcy run to capture assets on the cheap and fund designated survivors to pick up the financial wreckage. I will worry about that side when the private equity people DON'T show up. At 50 Basis Points 10 year Treasuries, I doubt that they will stand aside.

What we do need is for the Fed to respond to the liquidity crisis they never solved with a sledgehammer rather than tweezers. By my reckoning, the repo market requires a full $400 Billion in additional Permanent reserves right now, and much more than that going forwards, the better part of $1 Trillion. Setting up China for a forex iliquidity event to shut off their trade financing is not that high a priority when the US is suffering from the same iliquidity. The Eurodollar market is in the space between countries, it does not act selectively for specific countries. It does not show up on the Fed's US bank stats. It shows up on their radar as market signals. They are screaming bloody murder with repo oversubscriptions, credit spreads blowouts even in mortgages, inflation breakevens tumbling and a totally inverted yield curve and 1% 30 year rate. And the Fed is still looking where to apply the tweezers.

That the Fed is not running about tripping every switch it has while treasuries indicate a full on deflationary spiral coming straight at us is a depth of incompetence not seen since Bernanke. The actual global payments system is in danger of coming undone. It is trying to refinance and obtain extra credit in the national money markets, particularly the dollar in in the US. Yet the Fed expects to be guided by employment and economic indicators in coming months. The market is telling them in BOLD cap underlined what those numbers are going to look like. So where is the Fed? ad hoc open market operations at the NY Fed? Where is the big policy move. What, we still stick to meeting schedules? That is what's important?

https://www.wsj.com/articles/interest-rates-wont-work-against-coronavirus-11583766853?mod=searchresults&page=1&pos=1

 

[BLA + 1,666]

1 hour ago, Redrock said:

Is the US Oil Industry necessary to the survival of the US economy and US sovereignty? Was the banking industry key to the US financial markets and liquidity? How about the auto industry and its relation to defense? So, when are the Treasury and Federal Reserve going to back up and insure oil industry debt, when commercial financing becomes almost completely unavailable? How many more drillers and small companies must fail? Are we only going to have one left... Exxon? America better not get hooked on low gas prices because when the American drillers go under, stand in line at the pumps.

EXXON won't be the only one.

Chevron makes it two.

[El Nikko + 2,145]

30 minutes ago, BLA said:

EXXON won't be the only one.

Chevron makes it two.

Aren't they borrowing money to buy by shares and give out dividends at the moment?

I'm not sure in the current climate buying every last bit of acreage from small companies is the wisest thing to do right now unless they believe we're going to see prices rise significantly. I've always felt that big fat companies have higher costs compared to the small mom and pop companies. Granted they probably own lots of prime acreage but there's not going to be loads of that owned by small and medium independents is there? It's certainly not what I've seen (anecdotal) in the last 2 or 3 years other than one company.

[Gerry Maddoux + 3,627]

5 minutes ago, El Nikko said:

Aren't they borrowing money to buy by shares and give out dividends at the moment?

Guys, this isn't going to last forever. Look, when all the shale oil is in the hands of Exxon, Chevron, and (maybe if they can stay liquid) Occidental, they're going to drill this out exactly like OPEC--by regulating production and balancing supply/demand. They aren't called Saudi Exxon for nothing. The Saudis want Exxon in there--Exxon is the company that developed the Saudi fields. The Saudis know full well that Exxon (and by extrapolation, Chevron) will cooperate (wink, nod) with the Saudis in maintaining supply/demand. There is life after financial collapse. I'm not sure Occidental is going to be around to enjoy it, what with a 40% drop today, but Marathon will. And don't forget the massive Stabroek Block find off the coast of Guyana. Exxon/Hess/CNOOK have 18 of these now. They're all rich in gas, as witnessed by the orders of Exxon for the massive gas platforms on the Liza Destiny and Liza Unity, but they have humongous amounts of oil coming up too. Guyana is going to be paying the dividends--soon this whole thing returns to the basics. This massacre by the Saudis is playing right into the old Exxon handbook. Soon there will be no Pioneer, EOG, Diamondback, maybe no Occidental--only just like the old days: Exxon and Chevron (and maybe Occidental).

[El Nikko + 2,145]

6 minutes ago, Gerry Maddoux said:

Guys, this isn't going to last forever. Look, when all the shale oil is in the hands of Exxon, Chevron, and (maybe if they can stay liquid) Occidental, they're going to drill this out exactly like OPEC--by regulating production and balancing supply/demand. They aren't called Saudi Exxon for nothing. The Saudis want Exxon in there--Exxon is the company that developed the Saudi fields. The Saudis know full well that Exxon (and by extrapolation, Chevron) will cooperate (wink, nod) with the Saudis in maintaining supply/demand. There is life after financial collapse. I'm not sure Occidental is going to be around to enjoy it, what with a 40% drop today, but Marathon will. And don't forget the massive Stabroek Block find off the coast of Guyana. Exxon/Hess/CNOOK have 18 of these now. They're all rich in gas, as witnessed by the orders of Exxon for the massive gas platforms on the Liza Destiny and Liza Unity, but they have humongous amounts of oil coming up too. Guyana is going to be paying the dividends--soon this whole thing returns to the basics. This massacre by the Saudis is playing right into the old Exxon handbook. Soon there will be no Pioneer, EOG, Diamondback, maybe no Occidental--only just like the old days: Exxon and Chevron (and maybe Occidental).

All of our clients are small, we've survived so far although getting paid 40% of what I was on 6-7 years ago (when we were contracted to a big service company) or around 70-80% of what we were getting working for the likes of Baytex..are they small or medium?

If I end up homeless I'll let you know but I feel we'll survive as there is always room for small players, their costs can be very low and as long as they don't go nuts like Chesapeak and grow too fast why not? There are small stripper companies that have operated for years and do ok.

 

 

[El Nikko + 2,145]

Just to add if a company gets sold for around 3-5 billion is that small or medium?

[Gerry Maddoux + 3,627]

5 minutes ago, El Nikko said:

Just to add if a company gets sold for around 3-5 billion is that small or medium?

Well, that's medium. And my post didn't--or shouldn't have--reflected a callous attitude toward small to medium oil well servicing companies, of which there are thousands. 

My attitude is this: Lots of guys zoomed into the Permian and the Bakken when they were young. They flew up to NYC and convinced investors usually in private equity to give them a lot of money to throw at shale. I recall a well-known "oil analyst" saying that the proper price for a net mineral acre in the Wolfcamp Formation should be $140,000. 

The companies started on the backs of such obscene purchases are going to go broke. That's just a fact of life. Most good, hard-working oil well service companies aren't going broke. I seriously doubt you'll wind up homeless: you strike me as being a hard-working, smart person who will always be in demand. 

But you probably knew when you went into this field that oil and gas are boom and bust businesses--that's simply the way. In the field I chose, there were other variables, life-threatening ones, and you just knew you had to watch yourself. Oil will once again reclaim $80 a barrel. This will all elbow its way to some sort of accommodation. 

[El Nikko + 2,145]

1 hour ago, Tomasz said:

US economy absolutely need to be energy independent and I fully support that.

 A global superpower cannot import some 10 million barrels a day because it threat for national security and  good reason for many bloody interventions all over the world after WW2..

This does not mean however, that it must produce oil and gas at a loss or with very little profit like crazy at quite low price with an increase of 2 million barrels as in 2018 alone.

I am absolutely in favor of the US producing more and more of oil and gas - I really don't mind.

Only dear US colleagues with all respect you should increase your oil and gas production at a reasonable pace and not flood oil ad gas  and destroy the whole energy market by producing it with very little profit  or even a loss

If only because it is still really unknown for exacly how many years, with such a crazy increase you have enough resources

I may be wrong, but this is probably the unofficial  position of Russia and Saudi Arabia for last decade and they are simple desperate because of shale madness 

I will quote Anas Alhajji from Saudi Arabia working both at US mining university and also for Saudi Aramco

 

I just feel that has been dealt with some years ago it just takes time for things to level out which I believe we were expecting this year anyway. Low prices, drastic drop in drilling activity in 2019 due to a lack of investor interest...at some point this year the slow down in production will change to a drop. There was no need for Saudi or Russia to destroy an industry that has been slowing down rapidly for years so there must be some other reason.

Also blaiming shale for over production as if it's the only part of the idustry to be causing problems is just wrong. Saudi and OPEC caused prices to spike years ago so they are responsible for the rise of shale. Once shale fired up OPEC (and Russia to a degree) then ramped up production to try and stop it but the lack of patience (or maybe other factors) has now caused $30 oil and both Russia, Saudi and the smaller OPEC countries are going to feel the pain just as much.

Blame OPEC first and formost, their meddling with prices are responsible and if shale dies tomorrow the world will probably suffer with 70-90 prices at a time when the global economy doesn't want it or at least the global economy can go back decades to a time when they were under the thumb of the cartels.

 

 

[Gerry Maddoux + 3,627]

3 minutes ago, El Nikko said:

There was no need for Saudi or Russia to destroy an industry that has been slowing down rapidly for years so there must be some other reason.

MbS is a little boy who never was told no. Putin probably told him that it wasn't feasible for them to turn down production in Siberia, and he didn't take it well and three a hissy fit. The point is patience: with time, the Kingdom of Saudi Arabia will go bankrupt. People are telling him that, as best they can. When you have a guy like that in charge of about 50% of the world's oil, you get messes like this. Again, this isn't Putin's doing. This is on MbS. He is a child. I doubt he lives to be an old man. With his foolish act he has harmed some very important people very badly. 

[El Nikko + 2,145]

3 minutes ago, Gerry Maddoux said:

1. My attitude is this: Lots of guys zoomed into the Permian and the Bakken when they were young. They flew up to NYC and convinced investors usually in private equity to give them a lot of money to throw at shale. I recall a well-known "oil analyst" saying that the proper price for a net mineral acre in the Wolfcamp Formation should be $140,000. 

2. The companies started on the backs of such obscene purchases are going to go broke. That's just a fact of life. Most good, hard-working oil well service companies aren't going broke. I seriously doubt you'll wind up homeless: you strike me as being a hard-working, smart person who will always be in demand. 

3. But you probably knew when you went into this field that oil and gas are boom and bust businesses--that's simply the way. In the field I chose, there were other variables, life-threatening ones, and you just knew you had to watch yourself. Oil will once again reclaim $80 a barrel. This will all elbow its way to some sort of accommodation. 

1. At the very peak we were so snowed under with work, I worked pretty much every day 14+ hours a day geosteering 2-3 wells at a time. I don't think I had a day off in 6 months getting 3 hours of sleep a night. That is just a preface to what came next (not looking for sympathy lol). We got another contract drilling a well and I get an email from a 'geologist' talking about gamma strips or something like that and I had absolutely no idea what he was talking about. It turned out this guy was clearly an investor just as you describe and absolutely clueless. What he was asking about was the correlation between the GR in real time and the offset wells...so that's Wall Street for you and yes they f**ked things right up.

2. Totally agree Or I hope so lol

3. I don't know I wanted to be a mining or exploration geologist but winded up in the oil industry due to low metal prices in 2001ish. I always believed (stupidly) that if you just worked hard things would work out eventually. The problem was the gap between downturns became shorter and shorter, my early career years it seemed to be 5-7 years between downturns (I even predicted two of them very accurately!) and the last 5 or 6 years the cycles seem far shorter almost like mini cycles.

Got to say working in a supermarket seems pretty cosy right about now

[Tomasz + 1,608]

I fully agree that OPEC and Russia were too greedy and the price should not exceed $ 80 even during the boom years, which would slow down shale significantly.

But the punishment for this in last decade is also big for them and it is high time for large players in the style of Chevron or Exxon to civilize and rationalize this shale business a little.

Edited March 9, 2020 by Tomasz

[El Nikko + 2,145]

5 minutes ago, Gerry Maddoux said:

MbS is a little boy who never was told no. Putin probably told him that it wasn't feasible for them to turn down production in Siberia, and he didn't take it well and three a hissy fit. The point is patience: with time, the Kingdom of Saudi Arabia will go bankrupt. People are telling him that, as best they can. When you have a guy like that in charge of about 50% of the world's oil, you get messes like this. Again, this isn't Putin's doing. This is on MbS. He is a child. I doubt he lives to be an old man. With his foolish act he has harmed some very important people very badly. 

Sovereign wealth fund is worth 300 billion and foreign currency fund is 480...I'd say Saudi is in a very very poor position not to mention their wars that are costing them dealy in material assets but saddly not human ones...their 'troops' mostly are hired from poor third world countries like Sudan.

[0R0 + 6,251]

48 minutes ago, El Nikko said:

Sovereign wealth fund is worth 300 billion and foreign currency fund is 480...I'd say Saudi is in a very very poor position not to mention their wars that are costing them dealy in material assets but saddly not human ones...their 'troops' mostly are hired from poor third world countries like Sudan.

There are various layers of "sovereign" funds in Saudi. Not all of them within the government proper. Many are in the royal family trusts. About $1.5 T by some estimates. Not something they put out into the public arena. 

[El Nikko + 2,145]

5 minutes ago, 0R0 said:

There are various layers of "sovereign" funds in Saudi. Not all of them within the government proper. Many are in the royal family trusts. About $1.5 T by some estimates. Not something they put out into the public arena. 

I think they need nuking but I'm probably overreacting a little bit 🤣😂

Thanks for the data, is there any chance you can share sources because things like that are very interesting and useful

[0R0 + 6,251]

7 minutes ago, El Nikko said:

I think they need nuking but I'm probably overreacting a little bit 🤣😂

Thanks for the data, is there any chance you can share sources because things like that are very interesting and useful

That is verbal from Peter Zeihan who had to figure that one out for his clients.

[Geoff Guenther + 317]

So Russia and the Saudis are about to take out the weakest players in the US and Canada. Many people on the boards are calling them zombies already, so maybe they can.

Functional governments would probably create taxes on any oil under $45/bbl, say 50% on any dollar below. 

Those taxes can do three things:

1) save more marginal American oil players from bankruptcy 

2) continue growing the North American gas markets, since we have more gas than we know what to do with and it's cleaner. 

3) continue to develop renewables, which will cut into Russian and Saudi profits in the long term (payback for trying to wipe out our industry).

Yes, it's a carbon tax, but one that disappears when the price war ends and protects our interests in the meantime. 

[John Foote + 1,135]

1 hour ago, Gerry Maddoux said:

MbS is a little boy who never was told no. Putin probably told him that it wasn't feasible for them to turn down production in Siberia, and he didn't take it well and three a hissy fit. The point is patience: with time, the Kingdom of Saudi Arabia will go bankrupt. People are telling him that, as best they can. When you have a guy like that in charge of about 50% of the world's oil, you get messes like this. Again, this isn't Putin's doing. This is on MbS. He is a child. I doubt he lives to be an old man. With his foolish act he has harmed some very important people very badly. 

MBS has been told no. He just can't process it. 

The price for being critical of MBS, in Saudi, is at best being set aside. At worst, it's a capital offense. This is a recipe for never being told hard truths, and perpetuating b.s. is very well rewarded. MBS is the worst thing that's happened to KSA since Osama Bin Ladin's 9-11 mess. Now women driving, movie theaters, and tourist VISAs are a good thing, but that's not going to save the country. 

[Tomasz + 1,608]

I don't know if MBs is paranoid. I only remember an article in the NYT that at least until recently he had a lot of fun in his free time taking hard drugs in the style of cocaine, spending free time in the company of ladies from Eastern Europe and playing passionately in playstation.

Cocaine is just such a narcotic that you can look absolutely normal and have a brain in total disarray.

Rate it youself.

[0R0 + 6,251]

1 hour ago, Geoff Guenther said:

So Russia and the Saudis are about to take out the weakest players in the US and Canada. Many people on the boards are calling them zombies already, so maybe they can.

Functional governments would probably create taxes on any oil under $45/bbl, say 50% on any dollar below. 

Those taxes can do three things:

1) save more marginal American oil players from bankruptcy 

2) continue growing the North American gas markets, since we have more gas than we know what to do with and it's cleaner. 

3) continue to develop renewables, which will cut into Russian and Saudi profits in the long term (payback for trying to wipe out our industry).

Yes, it's a carbon tax, but one that disappears when the price war ends and protects our interests in the meantime. 

The best thing you can do for renewables is to let resource prices remain low so as to make the capital outlay as small as possible. Gas actually firmed up for a while today, of all days, as the expectation is that waste NG from shale oil drilling will fall off with these low oil prices. 

[Geoff Guenther + 317]

34 minutes ago, 0R0 said:

The best thing you can do for renewables is to let resource prices remain low so as to make the capital outlay as small as possible. Gas actually firmed up for a while today, of all days, as the expectation is that waste NG from shale oil drilling will fall off with these low oil prices. 

As odd as it seems, several commenters convinced me (you may have been one) that a drop in oil price would raise the price of US NG. We'll see in the next few days of this bears out - I didn't understand the massive flaring going on, so it makes some sense.

In the past, wild volatility has made it difficult for renewables to get a foothold. Now that oil is making bitcoin look stable, renewables may not look like an crazy hedge. 

Someday I may tell you guys about my erstwhile attempt to create energy storage and let you have fun with it.