Hey Oil Barons.......

[jimmyjazz 45898]

3 hours ago, Dr. Beeper said:

I just got some analysis from a firm I trust:

When Cushing storage is full, we will see the bottom of U.S. prices, and likely the steepest contango in the forward curve.

To me, as a layman, this seems to be the money quote.  Would the futures contango represent a headwind to average Joe oil investment?

[jimmyjazz 45898]

9 minutes ago, Dr. Beeper said:

I don’t understand your question. Contango represents a a generally good investment time. Steep contango of this nature says what you can buy today (May and probably June) is gonna be multiples what is worth / cash flows today in 5 years.  And in reality I suspect we will hit $50-$60 (representing 2x) in the next 2-3 years. @HoustonFrog@ryskey@Trey3216 may feel differently about what some may call optimism.

 

Sorry, I should have been more clear.  I tend to invest in ETFs, where the futures roll can be inhibited because of contango (buy low, sell high).  This is especially true when talking about 2X or 3X leveraged ETFs (ahem).

Edited April 10, 2020 by jimmyjazz

[DCA_HORN 725]

I’d like DCA Horn’s take on this. I’d say we all blew it on shale. All of us. Companies, bankers, engineering consultants, bank engineers, investors, PE. Nobody foresaw the tails petering out to the point expected EURs would never be met. Nobody predicted parent/child issues.  In hindsight, we look stupid, but I’m okay with looking stupid for that as a non-technical guy. What I’m not okay with is getting lulled to sleep that February ‘16 was the worst that it was going to get.
While nobody could’ve predicted this black swan, we should’ve hedged / been required to hedge everything possible at $50-$65 crude. I don’t give a shit about the curve at the time. In September ‘14, I’d hear complaints like “I’m not hedging at $88 when ‘15 is $85 and ‘16 is $82. That’s ridiculous.”  That’s retarded. Not hedging in ‘19 with crude above $55 for a 3 year window was likewise stupid.  Hedging in ‘18 or ‘19 would’ve preserved many companies in a terrible A&D market and through the bottom of ‘20-‘21. Hedging is absolutely necessary and should be a nonstarter for any investor group / bank. And not a 12-month collar at 50% of production. No, a minimum of 3 years’ swaps on no less than 75% of production, or you’re not going to get our commitments. Go let the PE firm down the street provide a commitment, and then they’ll CramCo your ass when unhedged. Go get a loan from East-West if you don’t like my terms. Don’t give a fuck. We were ALL complicit. 

In short yes we were all complicit. A few things though. When this all started 15 years ago we were entering a brave new world. Geology and petroleum engineering are not exact sciences. I first saw interference or parent child relationships in the Barnett for obvious reason 8 or 10 years ago. It was known this would continue as the other basins developed. Companies always have excuses for these things. They kept using the top type curve in the basin unconscionably. There were companies spending many times cashflow a year before they looked back and realized what was happening. Everybody predicted after 3 or 4 years of spending like crazy cashflow would start to pay for the Capex. Not many ever made that happen even in increasing price environments.
Then after 08 when the contango market started to go away people stopped hedging much. Rocked along until late 14 and then bam. Add in second liens term loans bonds whatever as a permanent part of the cap stack and you have major problems. Those who could rolled the debt and hung on. The 15 crash should have been much worse. We got back to 65 in 16 and everybody thought we were back. /sam. Nobody learned a thing and we started drilling longer better wells as we learned more about completions. Production ramps up and even with steady demand we were in the crash course into the mountain even before this fucking virus. There might be 10 companies left after this is done. And yes people who didn't hedge at 65 last year deserve everything they get.
Then add in stupid G&A in a lot of cases. Also arrogance/selfishness of management teams and it is a total shit show.
There was just too much supply of cheap money which led to greed. Everybody overpaid for "world class assets" to justify their position. In the end the real winners are the companies who put 25k acres together early on and flipped it to some other schmuck. And of course the workout firms. And the lawyers. They always win.

[Neonmoon 38129]

Are you telling that my $60,000 per acre Permian deal is overvalued? How dare you sir!

[DCA_HORN 725]

Are you telling that my $60,000 per acre Permian deal is overvalued? How dare you sir!

Not when you model 4000 wells per section all at the top EUR in the basin.

[Okie State 3818]

I don't know shit about shit when it comes to petroleum engineering, but I do know my petroleum engineer grandpa consistently ranted for years about how going all in on shale was a bullshit unsustainable strategy and it was all going to come crashing down. He passed in February so I guess he never officially got to say I told you so.

[Okie State 3818]

Well he’s winking at us now. He was right. 

Haha he did enjoy being right although he loved the industry. Dedicated his entire life's work to it and lit up talking about it.

[Fudge Nuggets 19190]

Back in 2012 I came to a fork in the road of my career.  One fork went to international deep water and the other went to domestic shale.  I took the overseas deep water road.  Not that deep water is safe by any means, but you had to know shale would eventually top out and when it did it would get seriously ugly.  

My dad made it through the 1980’s and mid 90’s crashes so I knew how fast things can change.

[Johnny Chimpo 478]

International pays better than domestic too   

[Fudge Nuggets 19190]

Way fucking better.

[tx 3 putt 76905]

8 minutes ago, Johnny Chimpo said:

International pays better than domestic too   

This also swayed the decision. Ha 

[Fudge Nuggets 19190]

You would be surprised how many people in the industry have no desire whatsoever to leave Bumblefuck, LA much less the country.  Thank goodness because if competent people were willing to take that risk there would not have been an opportunity for degenerates like myself.

[Johnny Chimpo 478]

You’d also be surprised how many people living in bumblefuck, LA I have met in Kazakhstan  

[Hate 20108]

1 hour ago, Johnny Chimpo said:

You’d also be surprised how many people living in bumblefuck, LA I have met in Kazakhstan  

 

[jeevsie 3733]

Another one just teed up

[HoustonFrog 368]

Typical fucking banker.

Explain. There are very few people who would disagree with anything I wrote.

Pretty much everybody fucked up. There’s a select few companies who had a clue and will be fine.

I’m certainly complicit.

[Lobwedgephil 1139]

Banks are getting ready to become operators. This should go well. 

https://www.reuters.com/article/us-usa-banks-energy-assets-exclusive/exclusive-u-s-banks-prepare-to-seize-energy-assets-as-shale-boom-goes-bust-idUSKCN21R3JI

 

[Fudge Nuggets 19190]

I guess 'bankers' was written in invisible font when you threw this out:

Quote

And the petroleum engineers and geologists fundamentally blew it on shale.

 

[Fudge Nuggets 19190]

8 minutes ago, Lobwedgephil said:

Banks are getting ready to become operators. This should go well. 

https://www.reuters.com/article/us-usa-banks-energy-assets-exclusive/exclusive-u-s-banks-prepare-to-seize-energy-assets-as-shale-boom-goes-bust-idUSKCN21R3JI

 

I wonder if Vicki Hollub will run one of those companies?

[HoustonFrog 368]

I guess 'bankers' was written in invisible font when you threw this out:

And the petroleum engineers and geologists fundamentally blew it on shale.

 

That’s why I used the word “fundamentally”. Bankers are what they are, gatherers of information and then make decisions. We have no ability to evaluate the fundamental business of an oil and gas company... which is how much oil/gas is under the ground, how much of it can come out at what pace and at what cost. That’s the fundamental business.

Bankers royally fucked up later in the process when Management teams were drilling and levering as quickly as possible. We continued to sign up for this garbage

But the core engineering was wrong.

[Neonmoon 38129]

19 hours ago, Neonmoon said:

I like this game. Apache?

 

I resubmit my choice with Callon Petroleum 

[HoustonFrog 368]

I resubmit my choice with Callon Petroleum 

Any new info out there?

[Fudge Nuggets 19190]

I get that and fully agree that a lot of those dodgy companies blew a lot of smoke up everyone's ass.  My frustration is that before a bank doles out millions / billions of dollars they should find the most skeptical PE's and geologists out there to run some worst case (hell, even mid-case) scenarios and see how the deal works then.  Everyone knows it's a cyclical industry and that a slump or all out crash is not of the question.

[Llano Estacado 1257]

No they won’t. They’ll engage operators to manage their assets. It’s an already-common practice. The issue is using groups like fucking EnerVest to do it. Jesus. 

The Beacon & Blackstone relationship seems to be kicking ass in the GOM. I may be mistaken, but don’t believe they operate anything just buy %s of the right assets/projects.

Until a few years ago when LLOG started operating Who Dat and Delta House I think they were in the same role, own good bank backed assets and kickass at exploration

[HoustonFrog 368]

The Beacon & Blackstone relationship seems to be kicking ass in the GOM. I may be mistaken, but don’t believe they operate anything just buy %s of the right assets/projects.

Until a few years ago when LLOG started operating Who Dat and Delta House I think they were in the same role, own good bank backed assets and kickass at exploration

LLOG is my favorite group in the space


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[ryskey 447]

16 hours ago, Dr. Beeper said:

I don’t understand your question. Contango represents a a generally good investment time. Steep contango of this nature says what you can buy today (May and probably June) is gonna be multiples what is worth / cash flows today in 5 years.  And in reality I suspect we will hit $50-$60 (representing 2x) in the next 2-3 years. @HoustonFrog@ryskey@Trey3216 may feel differently about what some may call optimism.

 

Investing right now, whether in securities or assets, is way more interesting and potentially lucrative than it was a few months ago.  We are in the midst of violent, volatile price discovery and nobody really knows shit, and market participants generally don't have strong conviction about anything.  With respect to shale-  comps, conventional wisdom and  "best practices" are out the window forever.  Time to do ground-up analysis and and develop strategy on long-term fundamentals, then buy and be patient.  Price WILL get back to $50+ per barrel, likely before anyone really thinks.  We'll also get back to $100+/bbl at some point, thought not sure if that's 2021 or 2023 or even later.  

On the trading side, this time is also really interesting because there's so much dislocation from all the volatility.  If you find a market contradiction, that's very fun to trade.  I have never been more active in my personal trading account, and for once in my life, I'm actually doing pretty well (mostly in energy).  There is so much fear that there's really good value all over the place, but it often collapses within a few days, so have to stay on top of it.  

In short, I have never been more entertained at work.

[Neonmoon 38129]

2 hours ago, HoustonFrog said:

Any new info out there?

Nothing new from them hiring debt advisors earlier this month. 

[HoustonFrog 368]

Nothing new from them hiring debt advisors earlier this month. 

FYI that wasn’t true.... debunked

[HoustonFrog 368]

Two points. If HoustonFrog’s bank were to take that conservative tact, then another bank would do what that client wants. So it wouldn’t have mattered. Second, people thought the all out crash had occurred 4 years before. Nobody saw this coming. 

Yeah that’s the strategy/competition part of banking... but you have to try and do what’s right even if you know another bank will jump on the opportunity. It’s a tough like to draw. You also have one bank that owns the market.... and is showing to be a shitty admin and has a disproportionate share in driving the finance side of this thing into the ground.

COVID19 is certainly a game changer when mixed with the supply side issues.

[DCA_HORN 725]

Buried in the article earlier was that the banks expect to get zero dollars back on the Sanchez deal. That's impressive.

[Fudge Nuggets 19190]

3 hours ago, ryskey said:

There is so much fear that there's really good value all over the place, but it often collapses within a few days, so have to stay on top of it. 

I just happened to be looking at my trading platform the day oil collapsed 20% to breach $20 and noticed XOM was at $31 and change.  Maybe it will go lower than that in the next few months, but I figured anyone that wanted to sell XOM and it’s 11% dividend was already out of the stock so I loaded up.  

So far so good and even if it trades in a range I am pretty confident things will have to get a lot worse before they cut the divvy.  XOM and CVX will fire every employee before they cut their dividends.

[Fudge Nuggets 19190]

1 hour ago, DCA_HORN said:

Buried in the article earlier was that the banks expect to get zero dollars back on the Sanchez deal. That's impressive.

Fucking geologists.

[DCA_HORN 725]

That deal really summed up the all complicit part.

 

 

[HoustonFrog 368]

[Jshep34 2308]

What does that mean

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[Storm the Field 5294]

It's a joke. Look at the account name and the chart itself. 

However,  for a real "what can that possibly mean?":

So, yesterday Mexico eventually walked out of the OPEC+ marathon negotiations. They were only willing to cut 100K barrels a day vs. the 400K proposed by OPEC.  Their recalcitrance was preventing a formal deal from being announced. Then, today, Mexican president tells the G-20 that he has spoken with Trump and Mexico will cut 100K and that USA will pick up 250K of "on behalf of Mexico." Then today Trump starts talking at his presser about helping Mexico out with their cuts and "they'll pay us back eventually." 

[Neonmoon 38129]

How does the US make cuts? Other than wishcasting?

[Fudge Nuggets 19190]

1 hour ago, Jshep34 said:

What does that mean

Sent from my SM-G960U using Tapatalk
 

It means aggy has severe Rice University envy.

Give 'em hell Sammy.

[Fudge Nuggets 19190]

49 minutes ago, Storm the Field said:

Then today Trump starts talking at his presser about helping Mexico out with their cuts and "they'll pay us back eventually." 

The jokes write themselves.

[Fudge Nuggets 19190]

2 minutes ago, Neonmoon said:

How does the US make cuts? Other than wishcasting?

Via bankruptcies.

[Lobwedgephil 1139]

57 minutes ago, Neonmoon said:

How does the US make cuts? Other than wishcasting?

Federal Gov't could in the GOM, in theory. 

[Neonmoon 38129]

Okay degenerate gamblers, when does CHK file bankruptcy? Before or after May 1st?

[Fudge Nuggets 19190]

3 hours ago, Dr. Beeper said:

No idea. Stopped following CHK 5 years ago when everyone else should have. Going long there now isn’t a matter of degenerate gambling. It’s a matter of stupidity. 

I picked those cunts for BK back around 2011 or so when Goldman Sachs loaned them a few billion at something like 10% interest.

Yeah, a bit early because bankers are going to bank and keep passing the hot potato around.  Fuckers should have gone bust around 2009 to be honest about it.

[tx 3 putt 76905]

I just get the feeling that this is all the calm before the storm. The heavy shit hasn't even hit yet 

[Fudge Nuggets 19190]

2 minutes ago, tx 3 putt said:

I just get the feeling that this is all the calm before the storm. The heavy shit hasn't even hit yet 

Credit Suisse / S&P thinks 40% of domestic oil companies will go bust.  Sounds low to me.

[babysdaddy 2721]

They Zeihan guy that lobwedge posted an article from hosted a call yesterday and had some predictions. Storage filled by late May or June globally. Supply destruction of 20mm barrels. Single digit/Negative pricing this summer. Refiners in a jam bc all the heavy shit is going to be the destroyed supply.

[Storm the Field 5294]

After days of wrangling, OPEC+ finally reaches a deal to cut daily production by ~10M barrels/day through the end of June, followed by gradually decreasing cuts through April 2022. The real number is technically bigger b/c they're setting quotas on and cutting from November 2018 production levels rather than April 2020, which are significantly higher. 

Mexico only contributing 100K/day instead of 400K and and the rest of OPEC+ was apparently willing to accept that the US could "pick up" 300K/day on Mexico's behalf of basically through an accounting gimmick based on the fact we're gonna be producing less regardless due to market conditions.

G-20 nations  and other non-OPEC countries in Africa will be contributing several million in cuts as well, though no specific numbers announced.

Estimates are that roughly 19M barrels a day total will start coming off the markets in May.

[Parliament 14255]

So the US is not committed to purposely cutting production? Just acknowledging the reality we will because of economics?

[Hefeweizen 5311]

When does storage run out for these producers? Saudi leased 20 plus VLCCs but given the oversupply lasting I don’t see what alternative there is to cutting even further.  
 

By the way this is a free market now that OPEC has lost its clout.

[Trey3216 15346]

29 minutes ago, Parliament said:

So the US is not committed to purposely cutting production? Just acknowledging the reality we will because of economics?

Well, that’s the way we should be cutting.  Cutting just to cut is really artificial inflation . Cutting because you’re companies are bankrupt and there’s nowhere to store the shit leads to an actual market equilibrium.