Sell out now or hold on?

[BillKidd + 139]

What would you do if you were me?

I will be at retirement age (65) later this year. Having been involved with exploration for 40 years, I have built up a considerable portfolio of oil and gas investments... producing properties... oil and gas lease working interests and royalties, both oil and gas. About 90% of my income is from natural gas, the remainder being crude oil. I know everybody loves oil these days, but I have stuck mostly with natural gas. Also, I don't know what the percentage is but most of my holdings are now shale oil or shale gas leases. I'd guess it's probably 95% shale wells, not acreage-wise but income-wise.

If oil goes to $20 or even $30-something, heck, even $40, the shale oil industry, which means just about everybody in oil and gas these days... seems to me it will be a crash the likes of which we have never seen. I have watched them closely and a lot of what they tout borders on fraud. Of course, there is some good production here and there but there are also a lot of crappy wells drilled. But over the years, I have screened like crazy to only involve myself in prime acreage.

If oil/gas tanks bad, seems it would mean the U.S. economy will tank due to such huge amounts of debt going into default. I have actually been expecting the house of cards (both of them... the shale biz and the U.S. economy) to fall within the next 20 years, and maybe ten. Wish I didn't feel that way but I do. Bogus as can be, it can't go on forever.

I am strongly considering selling everything I have, even the gas assets. Or, I could hold the gas assets. I also happen to have a lot of oil acreage that is undeveloped but it's "in the honey hole." Smack in the middle of a field.

There is just such a huge dollop of uncertainty. Including Trump, for sure. There is no telling what he will do. I don't mean to start a free for all here but I need to mention that I can't stand him because I think he's a fraud. It's apropos for me to bring this up because it colors the way I am thinking in a huge way. We have NEVER been here before. I don't think he's anything close to what his followers think he is. A huge amount of America (just about everybody I know) loves him. They don't just accept him, they friggin love him. I think I know why but I'll leave it at that. (There's more than one reason.) But my point is... no telling what is going to happen and that leads to uncertainty and insecurity. He is so full of himself, no telling what he will do! This ain't no football game. When the market crashes, it could be become very, very ugly.

If I were to sell, I would have enough to do whatever I want for the rest of my life. Cash is certain. For the first time in my 40-year career, I can now say that it worries me that oil and gas in the ground does not provide a guarantee of a seemingly certain lucrative value. Of course, if I just hold on, and oil and gas prices long-term are such that the shale oil and gas biz continues to develop the properties, I will earn way more money in the long run by not selling. But that will be spread out over decades. And the sure thing has appeal. Sell-out cash is lump sum, right now, cash in hand.

I have no kids, it's just me and a girlfriend. I have a house, truck, boat, plenty of toys, I don't need any more crap, lol. My point is, I could live as well as just about anyone on the cash if I sell. Travel the world, buy a farm, whatever. What would you do?

Bear in mind that I can do just fine by doing nothing, NOT selling, as I earn a very large income right now and have for many years. My fear is NOT taking a huge amount of cash money having a lot of uncertainty staring me in the face. If the shale biz crashes, drilling stops, and my income will drop like a rock. What if it never comes back? Ouch.

Edited June 18, 2018 by BillKidd

[GeoSciGuy + 74]

Are you serious?  With your portfolio, you think pro-business Trump is causing more uncertainty than the anti-fracking democrats?  

You were more comfortable in February 2016, when WTI hit $16 a barrel, Obama was on his 8th year, many people thought Hillary would be president, and the corporate tax rate was 35%, than you are now, with WTI at $65, Trump in office, and a 21% corporate tax rate?  

I hope you don't own any Marcellus/Utica shale acreage in New York State, because Democrat Governor Andrew Cuomo banned fracking state wide!  It's okay though!  His son Chris Cuomo on CNN will tell you Trump is bad!  

---

Natural gas is much less volatile than oil, as oil is priced globally and natural gas priced differently per country.  The advantage we have with cheap natural gas is that we can export it to Asia, as LNG, at a much higher price.  LNG exports are continuing to rise, as are shale oil exports.  Chemical and Petrochemical companies are coming back to America due to our large supply of cheap natural gas.  West Virginia is building a Methanol plant, using natural gas as feedstock, that should be up and running by 2019.  Methanol will be a key component of reducing the sulfur content of maritime fuel, as the IMO regulation of reducing sulfur from 3.5% to 0.5% starts in 2020.  That should be a boon for natural gas and a negative for sulfur-rich crude.  

Unfortunately, pipeline protests in the Northeast have prevented the building of new natural gas pipelines in upstate New York and Vermont.  When those cold nor'easter storms came this winter, people from the Northeast had to use heating oil.  If only those virtue signaling protesters knew that natural gas is cleaner than petroleum-derived heating oil.  

 

[Guillaume Albasini + 851]

My advise would be to sell and diversify your investments. It's to risky to bet all your money on oil and gas. And betting it on shale oil and gas is even riskier.

Shale producers are heavily indebted and they need a long term high oil price to get some benefits. But the shale wells have a steep decline and the rising share of electric cars in the world car fleet will end up impacting oil demand.

A lower oil price could trigger the shale bubble explosion generating huge damage for the US economy... and your investments.

 

"While politicians and the mainstream media tout an American energy “revolution,” it is becoming clear that — like the housing bubble just a few years earlier — the American oil and gas boom spurred by fracking innovations may be one of the largest money-losing endeavors in the nation’s history. "

https://cleantechnica.com/2018/05/21/the-great-american-fracking-bubble/

 

 

[Jan van Eck + 7,558]

Natural gas will become more and more valuable due to political developments in Eastern Europe.  There is major conflict brewing between the former Soviet-bloc States and Russia, the big gorilla player in the gas markets there.  Those conflicts and postures are really frightening the small States (Latvia, Poland, Ukraine)  and making them nervous on relying on gas from Russia.  The larger future play is in LNG exported from gas-producing States into that area, and eventually into Germany itself. 

What holds it back?  It is not "price."  Security trumps price any day of the week.  Are the Soviet-bloc States prepared to go to USA gas?  You bet. What holds it all back are insufficient numbers of LNG tankers and re-gasification plants.  But:  both of those are now big on the order books, and lots of LNG tonnage is going to hit the water in the next two years.  If you shut Russia out of their current natural gas markets, then the demand for US gas will really keep the push on.  

You would ask (I anticipate) what about the oil that comes with the fracked gas?  Light oil has as a component, or offspring, so-called "hydrocarbon gas liquids," stuff that becomes the feedstock for all kinds of chemicals, principally alkanes and olefins.  Those items in turn become the building  blocks for (especially olefins) longer-chain molecules such as propylene, converted into Polypropylene, widely used as a plastic.  It will also go into polyethylenes, for which there is an endless market.  You may end up in a situation where the more valuable component of your wells is the gas, for both export to Eastern Europe and for domestic chemicals manufacture including methanol (see comment above) for heavy ship engines, and as a feedstock for petrochemicals, and the oil that comes out goes into the manufacture of (ultimately) polypro.  Do those markets advance or shrink?  I suspect they will advance and enlarge over time, as long as direct substitutes for the end products do not get developed.  And I don't see that happening any time soon.  

The plastics industry in the USA has taken a beating due to the higher costs of resins, which has made processing a capital-intensive industry. In the old days a truckload of resin might set the processor back some $15,000.  Today it might cost him $50,000.  The small guys in the converting businesses don't have that kind of cash and don't have the credit, so they get squeezed out.  Lower pricing will bring them back in. 

As to your concerns about Mr. Trump, which are well founded, the bigger problem is that he is an incompetent Administrator. The lack of competence,coupled with hubris, anger, pettiness, spite, complete absence of humor, being thin-skinned, the list just goes on and on, will leave chaos behind, but the absence of serious Administrator skills as a skill-set (and the apparent inability to bring people on board who do have those skill sets) is in my view your largest worry. And that will cause market disruptions.  will the USA survive all that?  Probably.  But you are right to conclude that certain sectors are going to take big hits.  To illustrate, I remind readers of Trump's response to the immense damage caused by hurricanes to Puerto Rico.  The people of Puerto Rico are American citizens, although it is not a State of the Union and probably never will be.  Trump's response to the mess was to show up and throw rolls of paper towels at the survivors.  That is not helpful.

Even today, vast stretches of the Island are without electric power. The economy is totally wrecked.  Large numbers of Ricans have fled to the US Mainland - where ironically they get hassled by Homeland Security for not speaking English. I remind readers that there is no Official Language in the USA, so you can speak whatever language you like to the cops  (I suggest Italian, hey why not). The failure to deal with the repair of Puerto Rico reflects absence of managerial and Administrative competence. I would be mortified to be a President and still have a hundred thousand citizens living under tarps with no running water, little food, no electricity (thus no refrigeration) and busted roads with washed-out bridges a year after some hurricane.  Absolutely mortified.  Does not seem to faze him at all; indeed, not even on his radar. 

How does that affect you?  Well, when a parallel situation hits your sector, you can anticipate the same incompetence. At that point, your investments will take a hit.

But cash also has risks.  It is entirely possible that the US Dollar collapses. Think:  Cyprus. Hey, could happen.  The Dollar is stretched rather thin.  Nobody said life is a certainty. 

[Scotsman + 14]

A bit of diversification is always wise, but I would definitely not be divesting such a juicy nat gas portfolio. This still has very long legs in my opinion. 

[Bharath + 12]

my sincere advise is to see the tony seba report and think about it

[NickW + 2,714]

Diversify. I wouldn't hold more than 10% of my assets in any individual commercial entity. 

[Ark am + 5]

SELL. 

Move to South East Asia. 

Buy a couple of apartments. Rent em out. 

Hold your cash and get ready to buy when things crash!

RINSE & REPEAT.

 

[JunoTen + 118]

I think you need to see the numbers of the new electricity generation that is being installed. it is over 90% renewables. Natural gas is basically over. And oil will  get soon around 20 dollars due to electric (autonomous) vehicles taking over, and taking over fast. That's my opinion anyway.

So I think you should diversify a bit, it's always better than keeping everything on the same horse.

[Gerry Maddoux + 3,627]

Bill: Natural gas is the cleanest energy source available; it is going nowhere but up. To produce solar panels and windmills, a huge amount of petrochemical consumption is necessary. It will take decades of use for these to justify the petrochemical usage. Carbon capture, so that a lesser carbon footprint from natural gas is seen, is being perfected as we speak. We have natural gas coming out our wazoo! Wind farms are ugly, cumbersome, take up massive tracts of land, and are not always reliable. The same is true for solar farms and even massive storage batteries. The petrochemical expenditure to make a Tesla is massive. The world is "bundling" all carbon into one big, godawful parcel. Coal is the devil, yet we're producing it like crazy, as is China and everywhere else. The US is awash in light/sweet crude, yet the refineries haven't stopped to retool for this feedstock: it would take a year offline and a billion dollars. So instead we continue to rely on either heavier oil from Saudi Arabia or that tar from Canada that is so thick it has to be heated to get it going in the pipeline--and it is full of sulphur and releases tons of greenhouse gases. This doesn't take a genius! Natural gas is clean and getting cleaner. The emphasis should be on using more of it, not less; in conjunction with elimination of coal, heavy sulphur-laden crude oil, and the massive petrochemical expenditure going into Teslas, solar panel and windmill manufacture. What is happening now makes no sense. 

[Eric Staib + 21]

16 hours ago, JunoTen said:

I think you need to see the numbers of the new electricity generation that is being installed. it is over 90% renewables. Natural gas is basically over. And oil will  get soon around 20 dollars due to electric (autonomous) vehicles taking over, and taking over fast. That's my opinion anyway.

 

lol no.

[Ark am + 5]

Commodity exposure is risky full stop

At 65 it aint worth risking unless u buy at bottom. I trade commodities (physical) for a living. When there is a slight correction in pricing buyers / traders don't even answer their fones. Sometimes selling 100 MT RICE  (daily consumption item) let alone HDPE OR LLDPE; becomes impossible OR land acreage without someone asking a huge discount.

 Plan safe plan smart but don't take a back seat. As soon as one gets IN THEIR COMFORT ZONE; whamp things turn upside down. Recouping lost capital is difficult these days since m margins and returns r extremely low.

My 2 cents. Good luck!

[Greenclaws + 11]

This could be a good time to sell if shale turns out to be a Ponzi scheme...

http://resourceinsights.blogspot.com/2018/06/opec-production-increase-shows-its.html

[Greenclaws + 11]

I think it's unwise to be all in energy. If your worried about a collapse people are always going to need food and healthcare so they could be good stock picks. Physical gold is the way to go if you follow Jim Rickards...