WTI price required for profitable operation?

[Billm 0]

As a reader and not a contributor in the past, I am curious as to what price per barrel processors and pipeline operators can make a profit. My few holdings continue to pay fairly good dividends and they also announce expanding capacities. Most comments are bearish about the future of the industry, but oil consumption is certainly here to stay for the foreseeable future. Thanks for all comments

[BillKidd + 139]

Hello, I don't understand your post. You asked about "processors" (what is that?) and "pipeline operators." Later, you mentioned "the future of the industry." Your title seems to be inquiring about operators (E&P companies) breakeven price. Perhaps, you'll need to rephrase your post.

[Rob Kramer + 696]

Every business varies . It would be more efficient to read the company(s) quarterly report and get out a calculator change some percentage points to make worst case scenarios for your holdings than to ask about the entire industry. But if your making discussion I'd have to say alot of the industry is good at current prices and some it's not and although it seems bleak low prices force efficiency and slow the electric push while helping the economy so they actually might help in the future. 

[Gerry Maddoux + 3,627]

Billm, it sounds like you're asking a question about the oil and gas industry as a whole. Not to be mean, but that's like asking about the automobile industry as a whole, neglecting to categorize it into luxury and standard issue, electric and ICE. It's not a bad question, even the way you ask it. I'll take a shot at it because I can help you with the nuances. In the rapidly changing world of drilling for tight oil that can only be released by hydraulic fracturing of "tombstone rock," --black shale, there is tremendous variation in the quality of the rock, how porous it is, how easily fractured it is, how much water comes up with the oil, and whether or not infrastructure is available to take it to market. In the not-so-distant past, a great deal of money was made by small drillers who either got lucky or, more likely, employed a great geologist or two, buying cheaply and drilling wells with tremendous IP. Again, luck came into play: the lucky ones sold at tremendous profit and moved on. Most didn't, thinking they could parlay a tiny company into the next Exxon. That set the stage for a shale oil boom. Lots of people wildly overpaid for acreage, using OPM. The cagey oil and gas people (Yates Brothers, Bass Brothers) sold to Exxon and Chevron when the super-majors determined they needed to get into the tight oil business. Even they overpaid, because that was before the parent-child well performance discrepancy was realized. There have been small operators that made all matter of strategies. One such was Ring Energy, which bought 75,000 acres in the core of the Permian, targeting only the San Andres formation. I do not own them. To get a look at how vicious this downturn has been, and how the dispirited opinion of Wall Street has hurt shale, Ring used to sell at $11 and is now at $1.50, where insiders are buying. Ring drills a simple well vertically into the San Andres, then a short lateral, fractures it lightly and puts it online. The well cost is half that of a complex well and the pay-out is usually about 18 months. Ring Energy is fighting for its survival from a valuation standpoint, but is actually doing pretty well at what they do. I would have to say that much larger companies are in the same boat, when you consider proportions. While there is tremendous variation in rock, style of drilling, completion, etc., the entire industry is overcast by a cloud of doom. This extends to the pipeline companies, even when it shouldn't, because they make their money from transporting oil and/or natural gas. There are great dividends being paid by BP, Total, Eni, Royal Dutch Shell, Exxon, Chevron, and many pipeline MLP's. Their share prices are low. Again, doom prevails. I'm an oil and gas guy so this worries me. I'm not very well diversified in life because this is about all I know. They say that energy requirements of the planet will increase by 50% by 205o. I'm not quite sure where that's going to come from. There are vast stretches of desert in California. It's worthless land and has baked under a sweltering sun for millions of years. Be a great place for the biggest damn solar farm in the world. New Mexico and Arizona have the same thing. Not much rain in those places, so sunshine most of the time. Lots of wind in Texas wind corridor from Lubbock through Amarillo right on up to Wheeler. T. Boone Pickens, may he rest in peace, lost a lot of money on his wind farm plans. Others have succeeded. Building millions of electric cars, trucks, trains and airplanes is going to require trillions of dollars. People are going to balk at big tax increases. We could see a humongous recession. Oil and gas has always been risky. If you ask a guy like me, I think there are several dividend-paying stocks that are safe, their share prices on the floor. The Texas Pacific Land Trust is about a 150 years old and they own an awful lot of good rock, but also billions of gallons of water to use in fracking. The stock is volatile. Nobody knows where this is going. No one! This not is probably less an answer to your question and more the rambling of a man drinking his coffee after another sleepless night trying--in his dreams--to factor in when the rest of the world will wake up to the several basic facts in life: a) the Saudis are lying about the extent of their damage and when they can get it repaired, b) how thin the buffer will be between having a glut and living barrel to barrel during a cold winter by the Farmer's Almanac, c) how many more rigs are going to be laid down in the US before this turns around (170 have been laid down in the last year), d) when will drillers stop (indiscriminately) flaring natural gas (pure methane) into carbon dioxide (which is giving us a bad look in an already sour world), e) are my good rock holdings going to be left in the ground, f) is Elon Musk going to inherit the earth, and I could list about a million other things. My advice? If you want to invest in oil and gas, and you're interested in an income stream, stick with the super-majors that seem to have a good understanding what their mission is, and that they need to spread out their spacings, and start to diversify into algae farms, solar farms, wind, and so forth. I've named a bunch of those companies in the US and Europe. I'm not a stock broker or a financial adviser, just a guy. Me? I see the complete 100% abolition of coal, even in China and India. I see LNG as a tremendous utility company feedstock all over the world. Crude oil is going to be used more and more for petrochemicals. California will turn green from all those massive solar panels out in Death Valley, with massive power lines feeding energy to LA and San Francisco, and EV's will be mandated there. Long answer to a short question. I've run out of coffee. Use this if it helps you. I think it helped me. 

[Tom Nolan + 2,441]

28 minutes ago, Gerry Maddoux said:

That set the stage for a shale oil boom. Lots of people wildly overpaid for acreage, using OPM. The cagey oil and gas people (Yates Brothers, Bass Brothers) sold to Exxon and Chevron when the super-majors determined they needed to get into the tight oil business. Even they overpaid, because that was before the parent-child well performance discrepancy was realized. There have been small operators that made all matter of strategies. One such was Ring Energy, which bought 75,000 acres in the core of the Permian, targeting only the San Andres formation. I do not own them. To get a look at how vicious this downturn has been, and how the dispirited opinion of Wall Street has hurt shale, Ring used to sell at $11 and is now at $1.50, where insiders are buying. Ring drills a simple well vertically into the San Andres, then a short lateral, fractures it lightly and puts it online. The well cost is half that of a complex well and the pay-out is usually about 18 months. Ring Energy is fighting for its survival from a valuation standpoint, but is actually doing pretty well at what they do. I would have to say that much larger companies are in the same boat, when you consider proportions. While there is tremendous variation in rock, style of drilling, completion, etc., the entire industry is overcast by a cloud of doom. This extends to the pipeline companies, even when it shouldn't, because they make their money from transporting oil and/or natural gas.

Gerry, I am impressed with your acumen.

[Tom Nolan + 2,441]

2 hours ago, Billm said:

As a reader and not a contributor in the past, I am curious as to what price per barrel processors and pipeline operators can make a profit. My few holdings continue to pay fairly good dividends and they also announce expanding capacities. Most comments are bearish about the future of the industry, but oil consumption is certainly here to stay for the foreseeable future. Thanks for all comments

It would be good to clarify your holdings.  Oil companies? and their type?  Mineral Rights?  A Royalty and Streaming Company which holds mineral rights in both oil and in precious metals, such as Franco-Nevada?  EOG is one of the more well run oil companies in my opinion, but I would not buy stock in this marketplace.

Nick Cunningham mentions the comment section in his article "Secret Survey: U.S. Shale In A State Of 'Deep Anxiety'

".  The comments are very telling about what CEOs think is happening.  https://oilprice.com/Energy/Energy-General/Secret-Survey-US-Shale-In-A-State-Of-Deep-Anxiety.html

[ronwagn + 6,290]

2 hours ago, Gerry Maddoux said:

Billm, it sounds like you're asking a question about the oil and gas industry as a whole. Not to be mean, but that's like asking about the automobile industry as a whole, neglecting to categorize it into luxury and standard issue, electric and ICE. It's not a bad question, even the way you ask it. I'll take a shot at it because I can help you with the nuances. In the rapidly changing world of drilling for tight oil that can only be released by hydraulic fracturing of "tombstone rock," --black shale, there is tremendous variation in the quality of the rock, how porous it is, how easily fractured it is, how much water comes up with the oil, and whether or not infrastructure is available to take it to market. In the not-so-distant past, a great deal of money was made by small drillers who either got lucky or, more likely, employed a great geologist or two, buying cheaply and drilling wells with tremendous IP. Again, luck came into play: the lucky ones sold at tremendous profit and moved on. Most didn't, thinking they could parlay a tiny company into the next Exxon. That set the stage for a shale oil boom. Lots of people wildly overpaid for acreage, using OPM. The cagey oil and gas people (Yates Brothers, Bass Brothers) sold to Exxon and Chevron when the super-majors determined they needed to get into the tight oil business. Even they overpaid, because that was before the parent-child well performance discrepancy was realized. There have been small operators that made all matter of strategies. One such was Ring Energy, which bought 75,000 acres in the core of the Permian, targeting only the San Andres formation. I do not own them. To get a look at how vicious this downturn has been, and how the dispirited opinion of Wall Street has hurt shale, Ring used to sell at $11 and is now at $1.50, where insiders are buying. Ring drills a simple well vertically into the San Andres, then a short lateral, fractures it lightly and puts it online. The well cost is half that of a complex well and the pay-out is usually about 18 months. Ring Energy is fighting for its survival from a valuation standpoint, but is actually doing pretty well at what they do. I would have to say that much larger companies are in the same boat, when you consider proportions. While there is tremendous variation in rock, style of drilling, completion, etc., the entire industry is overcast by a cloud of doom. This extends to the pipeline companies, even when it shouldn't, because they make their money from transporting oil and/or natural gas. There are great dividends being paid by BP, Total, Eni, Royal Dutch Shell, Exxon, Chevron, and many pipeline MLP's. Their share prices are low. Again, doom prevails. I'm an oil and gas guy so this worries me. I'm not very well diversified in life because this is about all I know. They say that energy requirements of the planet will increase by 50% by 205o. I'm not quite sure where that's going to come from. There are vast stretches of desert in California. It's worthless land and has baked under a sweltering sun for millions of years. Be a great place for the biggest damn solar farm in the world. New Mexico and Arizona have the same thing. Not much rain in those places, so sunshine most of the time. Lots of wind in Texas wind corridor from Lubbock through Amarillo right on up to Wheeler. T. Boone Pickens, may he rest in peace, lost a lot of money on his wind farm plans. Others have succeeded. Building millions of electric cars, trucks, trains and airplanes is going to require trillions of dollars. People are going to balk at big tax increases. We could see a humongous recession. Oil and gas has always been risky. If you ask a guy like me, I think there are several dividend-paying stocks that are safe, their share prices on the floor. The Texas Pacific Land Trust is about a 150 years old and they own an awful lot of good rock, but also billions of gallons of water to use in fracking. The stock is volatile. Nobody knows where this is going. No one! This not is probably less an answer to your question and more the rambling of a man drinking his coffee after another sleepless night trying--in his dreams--to factor in when the rest of the world will wake up to the several basic facts in life: a) the Saudis are lying about the extent of their damage and when they can get it repaired, b) how thin the buffer will be between having a glut and living barrel to barrel during a cold winter by the Farmer's Almanac, c) how many more rigs are going to be laid down in the US before this turns around (170 have been laid down in the last year), d) when will drillers stop (indiscriminately) flaring natural gas (pure methane) into carbon dioxide (which is giving us a bad look in an already sour world), e) are my good rock holdings going to be left in the ground, f) is Elon Musk going to inherit the earth, and I could list about a million other things. My advice? If you want to invest in oil and gas, and you're interested in an income stream, stick with the super-majors that seem to have a good understanding what their mission is, and that they need to spread out their spacings, and start to diversify into algae farms, solar farms, wind, and so forth. I've named a bunch of those companies in the US and Europe. I'm not a stock broker or a financial adviser, just a guy. Me? I see the complete 100% abolition of coal, even in China and India. I see LNG as a tremendous utility company feedstock all over the world. Crude oil is going to be used more and more for petrochemicals. California will turn green from all those massive solar panels out in Death Valley, with massive power lines feeding energy to LA and San Francisco, and EV's will be mandated there. Long answer to a short question. I've run out of coffee. Use this if it helps you. I think it helped me. 

A lot of good thoughts here Gerry. I agree with most but just want to point out a few disagreements I have.

1. Coal will not go away for decades, especially in Asia where coal has been increasing in use. 

2. EVs will not take over California. Natural gas vehicles are needed for trucking, buses, etc., but it won't happen until diesel gets more expensive. Californians drive long distances and need a lot of range. They also like to use a lot of power and air conditioning, and set in traffic much of the time. Using electricity for vehicles will overload electrical grids that are already on the brink because of air conditioning. 

3. Californians are strange in that they want solar and wind power, just not in their own backyard. Many would take great affront and actually fight for a few tortoises, jackrabbits etc.  that occupy all that desert.  They don't like transmission lines either. the Los Angeles mayor doesn't want any more natural gas plants so it will be an interesting show worth watching. 

4. Growing algae for fuel seems to be a bad idea. 

[Guest]

3 hours ago, Gerry Maddoux said:

I've run out of coffee. Use this if it helps you. I think it helped me. 

Give the guy a detailed answer jeez. What's he meant to take away from that?

Edited September 26, 2019 by Guest

[ronwagn + 6,290]

7 hours ago, Billm said:

As a reader and not a contributor in the past, I am curious as to what price per barrel processors and pipeline operators can make a profit. My few holdings continue to pay fairly good dividends and they also announce expanding capacities. Most comments are bearish about the future of the industry, but oil consumption is certainly here to stay for the foreseeable future. Thanks for all comments

My vague answer:

Just factor in 1. The costs of production (which are always changing). 

                      2. The costs of pipelines to the refineries.

                      3. The market price of associated gases such as methane, propane, ethane, butane etc.

                      4. The demand for and outlook for future demand considering all related future technologies. This requires knowing what the  world economic realities will be. 

                       5. The operational efficiencies and overall competitiveness of the companies you invest in.

                       6. Factor in all possible wars, conflicts, weather, and acts of God. 

                       Good Luck Bilm.

 

[Gerry Maddoux + 3,627]

1 hour ago, DayTrader said:

Give the guy a detailed answer jeez. What's he meant to take away from that?

HaHa, I admitted my note was a personal, early-morning psychotherapy session, give me a break! The takeaway, you ask? 1) Oil and gas in this environment is too volatile, hated, beaten-up and lacking direction to invest in (I'm fully invested). 2) The break-even price for a barrel of light sweet WTI painstakingly extracted from Tombstone Rock is roughly $60, except for the very, very unique sweet spots that are rapidly being exploited. 3) MLP's pay out great dividends but the pipe shortage in the Permian is going to turn into an over-abundance, which will leave some pipes half-full, so their distribution (not dividend) will drop. 4) When the global oil shortage hits--I calculate January to February 2020--it's going to open up a trading window for gunslinging oil traders, as oil will skyrocket to $100.

This is one man's opinion. Why couldn't I have said so initially? I dunno, it's a complicated thing. Besides, this is moving at warp speed. All of you have ideas that mostly surpass mine. I'm just trying for a little relevance. I believe in taking care of the planet but have to acknowledge that the planet sometimes tries to commit suicide by quaking along its mother of a fault line or spewing methane gas and carbon dioxide from a volcano that blew its top. I don't mind someone driving a Tesla but it bothers me when the only parking spot in a big lot is reserved for recharging an EV in say, Santa Fe, New Mexico. Whenever I drive by a giant windmill I have to squeeze my testicles as hard as I can to keep from shooting at its slowly turning blades with a 30-06. Those solar panels are like shafts of light refracting from the cynical eyeballs of Pontius Pilate. See, there I've gone off again, sprinkling in prose when I should have stopped with the basic tenets. I'm long in the tooth, raised back in the time when a story was told by someone like Tolstoy or Proust, not some kid firing a one-liner zinger into the ether of Facebook. Plus, I have a God-given right to type out my erratic meanderings on these pages.  😀 There, I've learned how to use these little creatures to drive home the emotions that my words skip over.

[Guest]

Haha you're still going. I love it.

I thought I drank too much coffee.

This is gold. 

 

Edited September 26, 2019 by Guest

[Ward Smith + 6,615]

2 hours ago, ronwagn said:

Californians are strange in that they want solar and wind power, just not in their own backyard. Many would take great affront and actually fight for a few tortoises, jackrabbits etc.  that occupy all that desert.  They don't like transmission lines either. the Los Angeles mayor doesn't want any more natural gas plants so it will be an interesting show worth watch

You could have just wrapped with Californians are strange…

Thinking about those "poor" tortoises brings to mind the plight of the "poor" caribou in Alaska who were supposed to die off immediately because of the pipeline. Now it is a crying shame more "pundits and experts" aren't called to task for their asinine predictions. The caribou not only survived the pipeline, they THRIVED because of it! Millions of them cozy up to the pipeline every year to warm up, they don't freeze to death, their calves survive and they've demonstrably increased in size and health of herds. The "scientists" who were not only wrong, but 100% wrong? They're on to global warming or the next scam where their ridiculous "prognostications" won't ever be called to task either. 

So in that same vein, I'm going to step out on a very short ledge and predict that jackrabbits and tortoises will LOVE the solar arrays, because now they'll have a brand new ecosystem protected from the harsh rays of the sun in all that new shade. And the "experts" who said they'd be harmed? Promoted. 

[ronwagn + 6,290]

2 minutes ago, Ward Smith said:

You could have just wrapped with Californians are strange…

Thinking about those "poor" tortoises brings to mind the plight of the "poor" caribou in Alaska who were supposed to die off immediately because of the pipeline. Now it is a crying shame more "pundits and experts" aren't called to task for their asinine predictions. The caribou not only survived the pipeline, they THRIVED because of it! Millions of them cozy up to the pipeline every year to warm up, they don't freeze to death, their calves survive and they've demonstrably increased in size and health of herds. The "scientists" who were not only wrong, but 100% wrong? They're on to global warming or the next scam where their ridiculous "prognostications" won't ever be called to task either. 

So in that same vein, I'm going to step out on a very short ledge and predict that jackrabbits and tortoises will LOVE the solar arrays, because now they'll have a brand new ecosystem protected from the harsh rays of the sun in all that new shade. And the "experts" who said they'd be harmed? Promoted. 

Someone said that the Arctic Park or whatever in Alaska does not even have any Caribou because it is too frozen and desolate. The pipelines are nice heaters though. How can they maintain their heat? Are they heated?

[Gerry Maddoux + 3,627]

52 minutes ago, DayTrader said:

Haha you're still going. I love it.

I thought I drank too much coffee. This is gold. 

''Go Gerry, go Gerry''

Well, I'm mentally ill. I wasn't until the 2014 oil crash, but now I am and I'm trying to get my therapy on the cheap . . .

[Guest]

Well lie back on the couch and continue.

Pick any topic.

It's gold. 

[Ward Smith + 6,615]

6 hours ago, ronwagn said:

Someone said that the Arctic Park or whatever in Alaska does not even have any Caribou because it is too frozen and desolate. The pipelines are nice heaters though. How can they maintain their heat? Are they heated?

Bottom hole temperature is quite high on the north slope so the pipeline is "naturally" heated by the oil inside it. In fact the whole pipeline is insulated, to help the viscosity and those darn caribou are known to scratch it off to get more heat.

[El Nikko + 2,145]

6 hours ago, Gerry Maddoux said:

Well, I'm mentally ill. I wasn't until the 2014 oil crash, but now I am and I'm trying to get my therapy on the cheap . . .

 

Quite...

The last 5-6 years have been an absolute horror show, at least I don't need to worry about retirement anymore because I'll probably be dead before that ever happens 😆

[Douglas Buckland + 6,308]

True enough Nikko...

[ronwagn + 6,290]

21 hours ago, Ward Smith said:

Bottom hole temperature is quite high on the north slope so the pipeline is "naturally" heated by the oil inside it. In fact the whole pipeline is insulated, to help the viscosity and those darn caribou are known to scratch it off to get more heat.

I hope they didn't use asbestos! Sarc. 

[Ward Smith + 6,615]

16 hours ago, ronwagn said:

I hope they didn't use asbestos! Sarc. 

There's rumors the adolescent caribou are rolling up the insulation and smoking it…