Oil biz 2020 and beyond

[BillKidd + 139]

Oil is at $28.72 on futures right now. What do you think is going to happen with the oil biz, especially in the USA? Massive bankruptcy count? How long do you think this will last? Do you think rig count will ever recover to what it is now?

This includes natural gas, it's pretty much the same industry, just different players.

Opinions welcome!

[BLA + 1,666]

2 hours ago, BillKidd said:

Oil is at $28.72 on futures right now. What do you think is going to happen with the oil biz, especially in the USA? Massive bankruptcy count? How long do you think this will last? Do you think rig count will ever recover to what it is now?

This includes natural gas, it's pretty much the same industry, just different players.

Opinions welcome!

.

[BillKidd + 139]

So, today, oil fell to close to $20. Hmmm...

[Ward Smith + 6,615]

Very very few operators play in the spot market. Unless they're small potatoes they're locked into supply contracts that only partially relate to spot prices if at all

 

[Jan van Eck + 7,558]

Last Fall I predicted that oil would drop to $28.  Nobody believed me.  Guess what:  here it is. 

I will gloat in, yet once again, being right. 

Once the airlines burn off their hedged purchases of (by today's numbers, very expensive) jet-fuel,  the sellers of refined product are going to take a big hit, simply because nobody is going to be signing hedging contracts at $68/bbl.  All the "big guys" in that industry have a torrent of fuel hedged at $60-$78 still coming at them, for flights that are not being flown:  Air France-KLM, Lufthansa, British Airways, Delta, all those guys do hedging.  In the next round, the refineries are looking at contracts in the $15 range.  Ouch.  And then if oil suddenly recovers, the refineries will be upside-down on their contracts.  That will result in refinery bankruptcies. 

Western Canada Select is now at the ten bucks range.  How are those guys going to sell oil-sands bitumen against those market prices?  They cannot.  So will Canada production be the first casualty of the oil-price war? 

[BillKidd + 139]

Jan, always enjoy your insight.

I was shocked today when I saw that Biden said just a couple days ago in a debate with Sanders some very negative comments about "fracking." It appears to me that he tried to backtrack on that, but over the past year or so, he has NOT supported "no more fracking" like Bernie does. In this debate, he seemed to totally contradict that and roll with the "no more fracking" to a degree. Now, I don't think a prez can do that by himself but, still, it was a shock.

I feel that renewables are coming and faster than most think but as of now, the world still runs on oil. Do you think the shale fields will largely, get drilled or not so? Possibly stranded? Same thoughts for natural gas?

If fracking ever does get shut down, my, it seems that is the end of the oil biz in the USA. The industry hardly ever drills any conventional wells anymore.

Of course, sans the anti-frack stuff, price is key. Wondering how fast oil/gas prices could recover and the oil biz (and shale drilling) could recover.

 

[Jan van Eck + 7,558]

8 minutes ago, BillKidd said:

I feel that renewables are coming and faster than most think but as of now, the world still runs on oil. Do you think the shale fields will largely, get drilled or not so? Possibly stranded? Same thoughts for natural gas?

I speculate the shale fields will continue to get drilled.  The technology is there, the oil is there, even the cash is there, so it is going to happen once the "price war" settles down.  But that might take some time, potentially as much as five years.  Nobody knows, because that is in the realm of ego, and not science.  

Some folks are convinced that there will be a big rash of bankruptcies in the oil patch.  I don't think so.  Here's why:  if a shale producer ends up in the BK Court, then the investors are 100% wiped out.  If they blink, the company continues to pump (and drill), and the investors get no returns, but also their hope of future return of capital is not utterly dashed.  The same goes for the royalty land-owners: if they kick the driller out for non-payment, then they get nothing, and that oil is a stranded asset, worthless to the land-owner (or whoever owns the sub-surface mineral rights).  If they are paid say 25 cents on the dollar for their royalties, then at least that is "something," and "something" is better than nothing. Unless you are a pig-headed kind of guy and would rather get "nothing," then you could force the issue and collapse the estraction.

So the more likely scenario is that nobody goes bankrupt, the drilling continues, the extraction continues, and the investors, seeking to protect their ocean of cash already sunk in those projects, will continue to provide more capital to keep that ship afloat. Sounds far-fetched?  I know of cases where that exact thing was done - Husky Injection Molding Systems, a fellow by the name of Bob Schad, did that multiple times.  When he was flat broke, he called all his creditors into a room, told them that he was flat broke, that (pick your competitor) the Japanese, Chinese, Americans, Germans, were eating his lunch out there in selling machinery, so if the creditors put him under, they would get nothing.  Then, after the creditors agreed to let it ride, he would demand more capital to support the next machine development - and he would leave the room.  His creditors would blink and each would furnish fresh trade credits.  Today he actually pulled it off and is a rich man  (and the creditors got paid, eventually). 

Natural gas is an interesting picture.  I predict that Trump et al will use LNG as a weapon against both the Russians, whom they are beginning to despise, and whatever other suppliers are attempting to horn in on that market  (including the big LNG player, Qatar).  That LNG needs pipe gas to be liquified, so demand will continue for nat-gas.  And it sure is cheap enough!  And getting cheaper -  a lot cheaper. There is no logical reason for nat-gas not to drop below a dollar.  

22 minutes ago, BillKidd said:

If fracking ever does get shut down, my, it seems that is the end of the oil biz in the USA. The industry hardly ever drills any conventional wells anymore.

If fracking gets shut down, then oil will be generated from coal.  The USA has vast coal reserves, which markets have collapsed.  Ironically, both the railroads and the coal-machine builders have advanced considerably and surface coal in Wyoming and Montana can be mind on the cheap.   The other area that will get attention is oil-sands oil inside the USA  (not the Canadian stuff), with solvent extraction.  I anticipate that lots more R&D will be done on solvent extraction, and this will pay off big-time, if fracking were to collapse.  But fracking is unlikely to collapse, so the more probable scenario is that oil-sands oil will continue its development curve, albeit at a low pace, mostly by small outfits such as Petroteq and those that become licensees of their technology. Cheers. 

[Matthew w + 27]

3 hours ago, Jan van Eck said:

Last Fall I predicted that oil would drop to $28.  Nobody believed me.  Guess what:  here it is. 

I will gloat in, yet once again, being right. 

Once the airlines burn off their hedged purchases of (by today's numbers, very expensive) jet-fuel,  the sellers of refined product are going to take a big hit, simply because nobody is going to be signing hedging contracts at $68/bbl.  All the "big guys" in that industry have a torrent of fuel hedged at $60-$78 still coming at them, for flights that are not being flown:  Air France-KLM, Lufthansa, British Airways, Delta, all those guys do hedging.  In the next round, the refineries are looking at contracts in the $15 range.  Ouch.  And then if oil suddenly recovers, the refineries will be upside-down on their contracts.  That will result in refinery bankruptcies. 

Western Canada Select is now at the ten bucks range.  How are those guys going to sell oil-sands bitumen against those market prices?  They cannot.  So will Canada production be the first casualty of the oil-price war? 

There are few players in Canada that can survive at these prices, CNQ for example can, they produce about 1.1-1.2 million barrels per day. They mentioned about 420-470 thousand of those cost them around 13usd per barrel (they released a statement today). As well, 60% of their production is light oil which sells for a considerably higher price than WCS. I'd imagine Suncor and potentially imperial oil are in the same boat.

These big players that make up the bulk of Canadian production will survive. In terms of the small and mid caps, time will tell. Without a bailout and production curbs from the government (I expect both), I'd imagine some trouble in the near future. Lots of their production is hedged though from what I've read, how long into the future I don't know. 

I guess it all depends on how hard demand is hit, will the US start importing less crude from Canada because of this situation? Or do they still depend on the sour crude due to the refining configurations. Will storage tanks eventually get filled to capacity which will further crush prices and force major production cuts? I don't know, scary times for these companies!

Edited March 19, 2020 by Matthew w

[Jan van Eck + 7,558]

29 minutes ago, BillKidd said:

over the past year or so, he has NOT supported "no more fracking" like Bernie does.

Do keep in mind that Senator Bernie Sanders is a professional politician, who started out his career by winning the contest for mayor of Burlington, Vermont by one vote.  He got that "one vote" by pushing the Legislature to open the local voting to the college students at the University of Vermont, located in Burlington, and who predictably vote leftist.  Since he has zero business experience, he has zero clue as to how business operates or the dynamics of production of anything.  In any event, he is about to fold his campaign, so he will not be a factor. 

If his competitor Joe Biden, Senator from Maryland, becomes the Democratic nominee, he will lose to Donald Trump. Although the American public is disgusted with Trump, they are far more disgusted with Democratic machine politicians, the "limousine liberals" that have this idea they are the entitled ones to hold office.  that behaviour seriously grates on Americans, and they have had their fill of it.  So I predict the Americans will put up with Trump rather than hire someone from the Biden-Clinton camp.  Intgerestingly, the Democrats seem impervious to grasping this fundamental truth of the shift of American thinking.