Which producers will shut in first?

[Jim Brennan 0]

$1.75/gal in Omaha Ne. And trending downward.......

 

[Wombat + 1,028]

On 3/31/2020 at 3:55 AM, Jan van Eck said:

While your conclusion is trenchantly accurate, the issue that that would provoke, I would suggest, is that it runs afoul of the rules of the World Trade Organisation [WTO].  Cutting a vendor out of the loop in world trade would be "protectionism," and the tariff or quota would be attacked in suit at the WTO.  And the USA would lose that suit, opening up Washington DC to large damages claims. 

If the USA were to withdraw from the WTO, then that issue would disappear.  And at that point, nothing to stop the USA from issuing a blanket prohibition on foreign oil entering the country without a special exemption permit, that would be controlled in D.C.  And (of course), no permits would ensue. Ha!

Withdraw from the WTO, I have been saying that for years. That is why I pushed for the TPP. See "Saudi Armada heading to US" for my take on it

[Wombat + 1,028]

On 3/31/2020 at 9:34 AM, Dan Clemmensen said:

Take a look at the map more closely, the few counties above $4/gal are extremely low population counties with very few gas stations. They contribute almost no weight to the average. The average appears to be about 20% below a 2 months ago (my wife's guesstimate). But all of this is meaningless: gasoline consumption is no longer elastic with price here. We are about where the rest of the US will be in about ten days: https://91-divoc.com/pages/covid-visualization/

 

Dan, don't be put off by spurious arguments. Wholesale price of gasoline only $1.20, a record low, retail price $3 = record margin for retailers, just good ol price-gouging.

[Wombat + 1,028]

On 4/1/2020 at 1:08 PM, Ward Smith said:

I read every word. Just pointing out that if you're worried about demand, you lower the damn price. Amazing that some stations aren't figuring that out. 

No. If you have no demand, you collude and keep the price high so you still cover your fixed costs and make a profit?

[Wombat + 1,028]

On 4/1/2020 at 11:08 PM, Jan van Eck said:

I cannot speak to the issue of Israel, other than to say that US support, or at least benign acceptance, of the Israeli policy of confiscating Palestinian land is the crux element for all the enmity. Pushing people off their land and demolishing the houses leaves embittered populace with nothing mer left to lose.  Adding guns and bombs into that mix and you have the unending violence of the Middle East. 

I do not grasp the idea of putting Europe  "in an awkward position."  If the US determines that offshore oil is not going to come in, that the US market is closed (except for heavy oil from Canada, of course) the that is one less market to absorb output and Europe can pick between suppliers, presumably KSA and Russia, and continue to gete lower and lower pricing.  I must be missing somethhing in your argument. 

Actually, the Palestinians are occupying Israeli land and the Israeli's are merely taking some of it back. You need to learn a little history. Also, Jesus was Jewish. The Romans (Catholics) were in charge of Israel, and they killed him, but now they blame the Jews?

[Wombat + 1,028]

On 4/2/2020 at 10:41 AM, Dan Clemmensen said:

Of course. I was just quoting grossly oversimplified free market theory for a market with perfect information. Reality intrudes in a great many ways at the margin. But (again in theory) the market adjusts as all of these deviations get factored into the total cost of production. This is all part of the "bookkeeping" I keep harping on so monotonously. In the end and in the long term, end consumers pay for product, producers produce product, and a large number of entities in between do things to move and modify that product. (refine, transport, store, finance, regulate, tax, etc., etc.....) "Bookkeeping" allocates the money paid for by consumers to all of those other entities, and some of that money sometimes manages to get through to producers so producers can keep producing.

But right now we have imperfect information and a real-world inertia in the system such that production exceeds consumption, and storage will fill up, unless some producers somewhere slow down or stop, and I am trying to learn from you guys how that happens.

It ain't rocket science Dan. OPEC have been turning off the taps when required for 50 years. It is just harder for shale without wrecking half their wells, that is all.

[Wombat + 1,028]

On 4/2/2020 at 9:49 PM, U_P said:

OilPro forum had nothing to do with "feel good" emotions, there were heated debates about highly tecnhical and complex industry issues, where, for your knowledge, many discussions among serious commenters were of the tune of "robust projects must be profitable with an oil scenario of 20$ flat..."

I have never known "good old days" so refrain from talking about things you may know little about.

What are you sources of information? Mainstream publications? What if I told you that current capex revisions within large oil corporations are far deeper than anything announced to the market so far? And that we are already preparing for scenario where the most critical issue is not the low price or low demand but absence of reliable oilfield services supply chains and civil unrest in a few large producing countries/ NOCs tecnical defaults?

This is a free forum anybody can write whatever they feel like, I am certaintly not pulling my hair out when there are things posted that insiders know to be not true... so relax.

 

How about we start putting caps on the ends of all those old wind turbines and use them to store oil instead of burying them? I dunno, if a metal oil drum costs $50 then why the fu.. aren't we gettin the Chinese to produce plastic ones for $5?

[Wombat + 1,028]

On 4/2/2020 at 7:09 PM, Douglas Buckland said:

It’s a sad fact that government agencies or institutions (except those involved in law enforcement and national security) are generally not staffed with the best and the brightest, those people tend to go to the private sector and better paying jobs.

A cursory examination of the recent performance of the WHO  and the UN as an international ‘governmental agencies’, as well as the FDA and CDC (and their foreign equivalents) bears this out.

I dunno, those in law enforcement and national security aren't always the sharpest tools in the shed either

[Wombat + 1,028]

On 4/2/2020 at 10:04 PM, Rasmus Jorgensen said:

It is true that this situation is more or less unprecedentet. However, we also came from a peak. It is frigthening to me how many businesses small and large that need help after a few weeks of downturn. 

That is because nearly every Western company in the world borrowed to the hilt to pay excessive dividends or share buybacks thinking the expansion would go on forever. Here in Australia, the market has been paying dividends equal to 140% of profits for the last 4 years!

[Wombat + 1,028]

On 4/2/2020 at 10:42 PM, Jan van Eck said:

Well now, you are on a thread that I started, and you can voice your opinions and debate or discuss the ideas with me directly if you choose.  I am not one to "commiserate on the change to the industry."  I am a finance guy.  I have never stepped onto some oil rig, never worked there, and only know about the extraction end from my discussions with those that have. 

So, let's get back to the finance end: who are the producers that are going to shut in first?  that ws the question I posed.  I have my own ideas about that, and everyb ody is invited to chirp in.  It is my view that the creditors to the various individual producers are not likely to pull the plug because if they do, then they will have their assets dissolve right in front of their eyes.  So you get the situation where the debt is not serviced but the creditors do nothing about it.  What are you going to do with a well that gets you five bucks?  And you think you can do it better than the guys out there doing the extracting now? 

I remember a discussion that Donald Trump had with his bankers, wh were upset that his comapnies were not paying their notes.  they were threatening to take over some buildings.  He had a meeting with them, and stated bluntly: "Whatmakes you think you can run these buildings better than I can?"   And then the bankers sitting around that table all shut up.  And they continued paying him a salary of $25,000 a month to remain in charge of the buildings. 

See, that is financial reality.  The creditors have to hang in there or their investment is history.  Unless there is a tax advantage to taking a tax loss carry-forward, nobody has an incentive to shut the enterprise down.  So you will continue to see pumping, and discharge into the market, of unprofitable oil  And that is the financial reality. 

Will there be buyers of producer Debt - in the form of their Notes?  But of course, that is what markets do.  The only issue is the amount of the discount.  There is that scene in the movie about Wall Street and Lehman Bros. where management makes the decision to liquidate their mortgage-backed securities bonds, and the traders are on the phone to others in competing companies, and the trader says, "My loss, your gain."  He offered the MBS at 96, a discount of 4%.  The counterparty not visible replied, "How about 93?"  The  Lehman trader replied, "Done!"  

In another scene, two traders were observing the aftermath of the sale by a third of a massive MBS, that traded at 85.  One softly whistled, "Wow, that is a $177 million write-down on the security!"   They were taken aback at the carnage on the trading floor.  Realistic?  You bet. If you want out, you take your lumps.  

An outfit like General Electric went from a peak of around $60 a share for the equity stock down to around $6.50 today.  That is a hit of 94%.  thank you very much, Jack welch and jeffrey Inmelt.  These idiots managed to totally wreck a fabulous manufacturing franchise.  It is the shareholder that now have a choice:  put up with it, work with no dividends, or sell out to someone else looking for some future fabulous doubling to $12 and a doubling of their speculative cash.  Hey, could happen.  Not very likely, but it "could."  Again, tht is what markets do. 

Who is going to get shut down in the oil industry, first?  That is the question I posed.  It is not the guy with tons of debt overhang and debt covenants that are in the toilet.  No chance, pulling his plug destroys the investor cash, as you have just seen with Whiting.  Getting three cents on the dollar is lousy economics.  Management should never have filed that Chapter 11, the bond holders would have taken a bath if the company had gone into an involuntary liquidation.  

But OK, now let's look at it on the nation-state scale.  Who goes under first?  My guess is that it is Canada. Inside the USA, it will be the producers that rely on trucking or rail to get the product out, so that is Wyoming and Utah.   the market knows this, and prices their crude accordingly.  If you look at the prices of various sourced crude, the ones at the lowest sales price are the disadvantaged producers, and they will fold first.  I don't see producers such as Venezuela getting back up any time soon, so those guys are in the deepest toilet, a complete shambles. Nigeria?  Big problems, and that country is headed for massive unrest, basically a perpetual internal state of war. The others?  I invite readers to chime in. 

All I know is that in a buyers market, the customer is always right and they are the ones who will choose who to bail out. I hear that China doing big deals with Russia, and India more focused on ME oil which is understandable given the proximity. Like a game of musical chairs at the moment?

[Wombat + 1,028]

On 4/3/2020 at 12:00 AM, Jan van Eck said:

This is not on-topic but since all you fellows are up and about, I thought I would share this:

Last night at a hospital in New York - Manhattan up on around 76th Street, the hospital had 1,000 deaths in one day. 

Anyone who thinks that the coronavirus COVID-19 is not a pandemic threat is kidding themselves.  This is seriously nasty.

ONE hospital! Crikey, that ain't what we hearing on the news. They said 1000 for the whole city and that was the peak a few days ago. I thought the bastards were lying thru their teeth. I suspect the same thing happening here in Australia. Virtually no new cases reported but they want the lock-down to last 6 months? Very suspicious.

[Jan van Eck + 7,558]

2 hours ago, Wombat said:

No. If you have no demand, you collude and keep the price high so you still cover your fixed costs and make a profit?

Parties attempting to do that in the USA will end up with large fines, and the principals of those enterprises could end up in jail, or alternatively a criminal prosecution, likely conviction, and a felony with suspended or deferred sentence.   Collusion with competitors is a civil fraud and anathema, at lest in the USA.  Additionally, US corporations are prohibited from engaging in any form of collusion with overseas entities, that is considered a corrupt practice. 

A conviction of anti-trust laws would also preclude both the enterprise and its principals from ever being government contractors, or recipients of any government programs.  This is why the US internal air carriers never even speak to each other on the phone; there was this case a number of years back where the CEO of one airline, I think it might have been American, calling up the CEO of a competitor, I think it was Continental, where the chief angrily exclaimed, "Dammit, Charles, we are both losing our shirts!  You raise your prices and I will raise mine the next day!"   Except his competitor had a tape recorder running and turned it over to the cops.  Oops. 

[Wombat + 1,028]

On 4/4/2020 at 11:04 PM, BLA said:

SARS was mostly limited to North Eastern China.  Little infection elsewhere.

Wrong. Malaysia has a memorial for the 800 health workers that died from it. Went throughout SE Asia.

[Wombat + 1,028]

On 4/5/2020 at 8:08 AM, Gerry Maddoux said:

^

It's not the above that worries me; it's the fact that global data-sharing is almost nonexistent and that's where the answer probably lies. 

For example, this virus enters via the ACE-2 (Angiotensin Converting Enzyme 2) receptor. ACE-I antihypertensive drugs are among the most common in the world, mostly made in China, by the way. Are older males taking ACE-Inhibitors more or less likely to have superinfection and cytokine storms? Blood type A is more likely to get Influenza and have complications. Is this the case here? Why are old men with waning immune systems having cytokine storms while young men with robust immune system not getting them as often? Everyone in every country with the expertise has looked at the viral genome; is it from nature or have viron genomic sequences been added? 

So far, this has been a real goat-f**k, sorry to say, and I'm not sure that's anyone's fault but President Xi. His government misled the world about infectivity, mortality, morbidity, etc, and then  . . . .  oh well. 

Gerry, I much appreciate your comments here, very informative. You mentioned that if the Chinese fired a shot at the US Navy, it would be war. Unfortunately not. A few years ago, a US Navy vessel was retrieving one of their drone subs, and the Chinese Navy simply came up and took it at gun-point. I cannot for the life of me understand why the US has been taking it up the arse from China for so long. I was pondering similar thoughts to you today in regards to the "high frequency" of deadly viruses that have appeared in the last 10-15 years. I don't believe in "coincidences". Can't all be due to "bush-meat", over-pop'n, or even climate change? Anyway, I think the US Navy is shit-scared of the Chinese. Thankfully, the Air Force and Army are not. I give a bit of geo-political, defence, and economic advice to Western Governments, but when the economy "doing great", the fuckheads all like to think it had something to do with them and ignore all the threats I constantly warn them about. Anyway, please see my comments in "Saudi Tankers to swamp America" for a brief summary of my concerns relating to Chinese belligerence. Would appreciate your feedback!

[J.mo + 165]

3 hours ago, Wombat said:

Dan, don't be put off by spurious arguments. Wholesale price of gasoline only $1.20, a record low, retail price $3 = record margin for retailers, just good ol price-gouging.

Wrong.

I own a gas station. 

Not only is that wrong, my volume is down over 60%. 

[Wombat + 1,028]

1 hour ago, Jan van Eck said:

Parties attempting to do that in the USA will end up with large fines, and the principals of those enterprises could end up in jail, or alternatively a criminal prosecution, likely conviction, and a felony with suspended or deferred sentence.   Collusion with competitors is a civil fraud and anathema, at lest in the USA.  Additionally, US corporations are prohibited from engaging in any form of collusion with overseas entities, that is considered a corrupt practice. 

A conviction of anti-trust laws would also preclude both the enterprise and its principals from ever being government contractors, or recipients of any government programs.  This is why the US internal air carriers never even speak to each other on the phone; there was this case a number of years back where the CEO of one airline, I think it might have been American, calling up the CEO of a competitor, I think it was Continental, where the chief angrily exclaimed, "Dammit, Charles, we are both losing our shirts!  You raise your prices and I will raise mine the next day!"   Except his competitor had a tape recorder running and turned it over to the cops.  Oops. 

I think it is better for America to be morally bankrupt than financially bankrupt, but in truth, you are both. Where have your anti-collusion laws got you? I suppose they are one of the many reasons that all of your manufacturing went to China. You can't even feed, clothe and house your own citizens but you still like to preach from your high-horse. And you didn't even get the joke? Get a kleenex and dry behind your ears?

[Wombat + 1,028]

2 minutes ago, J.mo said:

Wrong.

I own a gas station. 

Not only is that wrong, my volume is down over 60%. 

That is why you all need to get together and put your price up?

[Jan van Eck + 7,558]

2 minutes ago, Wombat said:

I think it is better for America to be morally bankrupt than financially bankrupt, but in truth, you are both. Where have your anti-collusion laws got you? I suppose they are one of the many reasons that all of your manufacturing went to China. You can't even feed, clothe and house your own citizens but you still like to preach from your high-horse. And you didn't even get the joke? Get a kleenex and dry behind your ears?

Normally, I would not respond to this type of outburst.  In this case, I will say that I am not American. Your outrage is misplaced. 

Meanwhile, you may have and hold whatever views of America you wish, that is our principle of a free country. Whether those views are accurate or not is an entirely different matter. 

[J.mo + 165]

12 minutes ago, Wombat said:

That is why you all need to get together and put your price up?

Should We should bitch and moan until we get given the comfortable margins we deem acceptable? 

Even if we were making double, pumping half it would never fly. People would burn the stake. Or better yet "shut in" sales to increase price, that would go over well huh

What would you deem acceptable for gasoline margin? Because we are lucky to make 5% of retail price. And that is before the credit card companies get their 2%

Surely no oil major is running 2-5% margins on a barrel. 

I am so sick and tired of upstream pissing and moaning 

Edited April 9, 2020 by J.mo

[JoMack + 549]

On 3/30/2020 at 6:54 PM, Dan Clemmensen said:

I'm not an oil person. Can someone please explain the "shut in" process? How expensive is it, and how hard/expensive/possible is it to turn the well back on? Would it be cheaper to simply reduce production to minimal levels at multiple wells, or shut in one well? I'm most;y interested in actual costs, here. If there are considerations about royalties or bonds or other funny money, the industry can ask for some sort of legislative relief and I hope they will get it.

Short form - shut-in = stop producing the well.  Pay shut-in royalties or produce enough to sell some production to maintain the lease if necessary each month.  Also depends on the mineral ownership (federal, state, private).  High pressure wells can be brought back into production after a long shut-in process, low pressure wells will not be able to produce after long term shut-in and to make them productive isn't economic.  Most of these are called stripper wells. On the multiple wells, if the Operator has one lease and is producing several wells, one well will hold the lease unless there are specific exemptions.  If the Operator is on federal lands, no relief.  Trump and Congress just said no to any royalty reduction or financial assistance.  As usual the industry isn't considered "essential" in the governments mind.

[Wombat + 1,028]

1 hour ago, Jan van Eck said:

Parties attempting to do that in the USA will end up with large fines, and the principals of those enterprises could end up in jail, or alternatively a criminal prosecution, likely conviction, and a felony with suspended or deferred sentence.   Collusion with competitors is a civil fraud and anathema, at lest in the USA.  Additionally, US corporations are prohibited from engaging in any form of collusion with overseas entities, that is considered a corrupt practice. 

A conviction of anti-trust laws would also preclude both the enterprise and its principals from ever being government contractors, or recipients of any government programs.  This is why the US internal air carriers never even speak to each other on the phone; there was this case a number of years back where the CEO of one airline, I think it might have been American, calling up the CEO of a competitor, I think it was Continental, where the chief angrily exclaimed, "Dammit, Charles, we are both losing our shirts!  You raise your prices and I will raise mine the next day!"   Except his competitor had a tape recorder running and turned it over to the cops.  Oops. 

News flash Jan, Chinese Govt is colluding with Chinese business to destroy America! Wake up.

[Jan van Eck + 7,558]

2 minutes ago, Wombat said:

News flash Jan, Chinese Govt is colluding with Chinese business to destroy America! Wake up.

We are well aware of that, and are dis-engaging with China, in case you have not noticed. 

[Wombat + 1,028]

7 minutes ago, J.mo said:

Should We should bitch and moan until we get given the comfortable margins we deem acceptable? 

Even if we were making double, pumping half it would never fly. People would burn the stake. Or better yet "shut in" sales to increase price, that would go over well huh

What would you deem acceptable for gasoline margin? Because we are lucky to make 5% of retail price. And that is before the credit card companies get their 2%

Surely no oil major is running 2-5% margins on a barrel. 

I am so sick and tired of upstream pissing and moaning 

I think u will find that their margins are negative right now too.

[Tom Kirkman + 8,860]

2 minutes ago, Jan van Eck said:

We are well aware of that, and are dis-engaging with China, in case you have not noticed. 

[Wombat + 1,028]

1 minute ago, Jan van Eck said:

We are well aware of that, and are dis-engaging with China, in case you have not noticed. 

Bullshit, you are digging yourselves in deeper. Got rid of the TPP (which excluded China), tried tariffs but they failed so you quit. See my comments in "Saudi sending Armada of oil to America" to see real cause of the problem.