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Oil investors
#1

Hello folks.  I don't check this site often as IOC is a distant speck in the rear view mirror.  Happy New Year and good tidings to all of you.

Just curious is anyone is piling into oil?  In the last few months I have established significant postions in Chevron (CVX) and ConocoPhillips (COP).  Both will beneift from their significant oil postions, US tax cut benefits, and asset allocations/balance sheet repair.  Both have huge US shale exposure.  I'm not saying these are the best ones to own, but I like what I see.  In the USA the last oil men standing will be standing in the Delaware/Permian Basins and both companies have great lease positions.  Obviously XOM believes this as in the last year+ they have added large positions to their portfolio.  But I don't want XOM.

My thinking is that rising oil prices are baked into the cake and nothing short of a major economic downturn will stop it.  Here's the thesis.  Seen it all before.

1.  OPEC/Russia supply discipline.  Everyone knows these have been doing a good job of restraining production so that the market is rebalanlcing and as a result prices are moving up.   A question which no one knows the real answer to, is what is their capacity if things were producing wide open, and how long could they sustain it with out adding new fields?  This is a major unknown.

2.  Investment.  You may have read several articles on this.  The bottom line is that since the downturn in mid 2014 global investment in oil has tanked.  The reserve replacement ratio has been dismal.  The world has excessively produced much, much more oil than it has discovered in these years.  The longer this continues, the more extreme will be the pendulum swing.  So this investment deficit is baked into the cake.   Reportedly investment will increase in 2018.   In the meantime fewer new projects are coming on line while existing projects as a whole are declining.  Essentially the global oil reserve tank is being drained much faster than it is being refilled with new discovery/revision volumes.  When prices went down, companies had to debook reserves (e.g., XOM) because those volumes were no longer profitable.  Companies will be slow to add these back, because they need confidence of sustained higher prices to make them economic again.  And many companies sold these or walked away (Arctic).

3.  People resources.  This is like the reserve replacement picture.  Freshman enrollments in petroleum engineering and geology/geophical curriculums has plumeted as much as 90% since the 2014 peaks.  Additionally, boatloads of people have been laid off and retired (I be one of them).  So the body count AND experience have dramatically shrunk and most of it is a permanent loss; much of it can't be recovered.  So as a result, when you can't get the right expertise/skills to do the work, then projects slow down and get deferred.

The flip side is that US shale and OPEC/Russia among others, can simply turn open the tap.  Also, companies are continually getting more productive doing more, with less $$ and less people.  The downturn only racheted that up all the more.  BUT, opening the tap is limited, while existing fields continue to decline.

It is my contention that the combination of a strong national/global economy driving up demand, will over power supply AND new fields will be too iittle/too late to close the supply gap.  While companies can deliver projects faster to catch up on supply, they can only do it if they have the people.  So the combinded shortages of under investment and lack of enough right people will, IMHO combine with the growing demand to have a trifecta impact on oil prices.

I'm expecting $100 oil in less than 3 years, and maybe a whole lot sooner.  Necessity is the mother of invention, and the industry has amazed the world in its ability to use technology and smarter methods to do everything faster and cheaper.  So they will likely catch back up faster than we think they can...maybe.  So the higher prices could be short lived....jmaybe.  But no one yet knows how to take a high school graduate and turn them into wise, experienced, educated technical professionals.  The degree alone is at best 3 years for the brightest, nonstop students.  But for many it takes  4.5-5.5 years just to get a BS degree.  Then comes work experience.  So total 6-7+ years from highschool to have someone who can start to become a significant contributor.  So people may be the critical path to the return of low prices, following a nice period of much higher prices.

Just my thoughts.  FWIW.  Natural gas is a different story.

Best regards,

Kaliboo

Reply

#2

'Kaliboo' pid='81670' datel Wrote:

Hello folks.  I don't check this site often as IOC is a distant speck in the rear view mirror.  Happy New Year and good tidings to all of you.

Just curious is anyone is piling into oil?  In the last few months I have established significant postions in Chevron (CVX) and ConocoPhillips (COP).  Both will beneift from their significant oil postions, US tax cut benefits, and asset allocations/balance sheet repair.  Both have huge US shale exposure.  I'm not saying these are the best ones to own, but I like what I see.  In the USA the last oil men standing will be standing in the Delaware/Permian Basins and both companies have great lease positions.  Obviously XOM believes this as in the last year+ they have added large positions to their portfolio.  But I don't want XOM.

My thinking is that rising oil prices are baked into the cake and nothing short of a major economic downturn will stop it.  Here's the thesis.  Seen it all before.

1.  OPEC/Russia supply discipline.  Everyone knows these have been doing a good job of restraining production so that the market is rebalanlcing and as a result prices are moving up.   A question which no one knows the real answer to, is what is their capacity if things were producing wide open, and how long could they sustain it with out adding new fields?  This is a major unknown.

2.  Investment.  You may have read several articles on this.  The bottom line is that since the downturn in mid 2014 global investment in oil has tanked.  The reserve replacement ratio has been dismal.  The world has excessively produced much, much more oil than it has discovered in these years.  The longer this continues, the more extreme will be the pendulum swing.  So this investment deficit is baked into the cake.   Reportedly investment will increase in 2018.   In the meantime fewer new projects are coming on line while existing projects as a whole are declining.  Essentially the global oil reserve tank is being drained much faster than it is being refilled with new discovery/revision volumes.  When prices went down, companies had to debook reserves (e.g., XOM) because those volumes were no longer profitable.  Companies will be slow to add these back, because they need confidence of sustained higher prices to make them economic again.  And many companies sold these or walked away (Arctic).

3.  People resources.  This is like the reserve replacement picture.  Freshman enrollments in petroleum engineering and geology/geophical curriculums has plumeted as much as 90% since the 2014 peaks.  Additionally, boatloads of people have been laid off and retired (I be one of them).  So the body count AND experience have dramatically shrunk and most of it is a permanent loss; much of it can't be recovered.  So as a result, when you can't get the right expertise/skills to do the work, then projects slow down and get deferred.

The flip side is that US shale and OPEC/Russia among others, can simply turn open the tap.  Also, companies are continually getting more productive doing more, with less $$ and less people.  The downturn only racheted that up all the more.  BUT, opening the tap is limited, while existing fields continue to decline.

It is my contention that the combination of a strong national/global economy driving up demand, will over power supply AND new fields will be too iittle/too late to close the supply gap.  While companies can deliver projects faster to catch up on supply, they can only do it if they have the people.  So the combinded shortages of under investment and lack of enough right people will, IMHO combine with the growing demand to have a trifecta impact on oil prices.

I'm expecting $100 oil in less than 3 years, and maybe a whole lot sooner.  Necessity is the mother of invention, and the industry has amazed the world in its ability to use technology and smarter methods to do everything faster and cheaper.  So they will likely catch back up faster than we think they can...maybe.  So the higher prices could be short lived....jmaybe.  But no one yet knows how to take a high school graduate and turn them into wise, experienced, educated technical professionals.  The degree alone is at best 3 years for the brightest, nonstop students.  But for many it takes  4.5-5.5 years just to get a BS degree.  Then comes work experience.  So total 6-7+ years from highschool to have someone who can start to become a significant contributor.  So people may be the critical path to the return of low prices, following a nice period of much higher prices.

Just my thoughts.  FWIW.  Natural gas is a different story.

Best regards,

Kaliboo

Happy New Year to you,Kal .

Thanks for your fine explantion on your crude oil and exploration thinking . Being a fairly large holder of XOM (for several decades), I'm still unhappy with our XOM/IOC saga,but I just can't abandon the company at this time.

I saw the story on their Permian Basin holdings and I agree with your assesment of that situation.

Our family Chevron holdings are also moving up,so we'll watch them closely also.

Good fortune to you & all your loved ones .  Sageo

Reply

#3

'sageo' pid='81673' datel Wrote:

'Kaliboo' pid='81670' datel Wrote:

Hello folks.  I don't check this site often as IOC is a distant speck in the rear view mirror.  Happy New Year and good tidings to all of you.

Just curious is anyone is piling into oil?  In the last few months I have established significant postions in Chevron (CVX) and ConocoPhillips (COP).  Both will beneift from their significant oil postions, US tax cut benefits, and asset allocations/balance sheet repair.  Both have huge US shale exposure.  I'm not saying these are the best ones to own, but I like what I see.  In the USA the last oil men standing will be standing in the Delaware/Permian Basins and both companies have great lease positions.  Obviously XOM believes this as in the last year+ they have added large positions to their portfolio.  But I don't want XOM.

My thinking is that rising oil prices are baked into the cake and nothing short of a major economic downturn will stop it.  Here's the thesis.  Seen it all before.

1.  OPEC/Russia supply discipline.  Everyone knows these have been doing a good job of restraining production so that the market is rebalanlcing and as a result prices are moving up.   A question which no one knows the real answer to, is what is their capacity if things were producing wide open, and how long could they sustain it with out adding new fields?  This is a major unknown.

2.  Investment.  You may have read several articles on this.  The bottom line is that since the downturn in mid 2014 global investment in oil has tanked.  The reserve replacement ratio has been dismal.  The world has excessively produced much, much more oil than it has discovered in these years.  The longer this continues, the more extreme will be the pendulum swing.  So this investment deficit is baked into the cake.   Reportedly investment will increase in 2018.   In the meantime fewer new projects are coming on line while existing projects as a whole are declining.  Essentially the global oil reserve tank is being drained much faster than it is being refilled with new discovery/revision volumes.  When prices went down, companies had to debook reserves (e.g., XOM) because those volumes were no longer profitable.  Companies will be slow to add these back, because they need confidence of sustained higher prices to make them economic again.  And many companies sold these or walked away (Arctic).

3.  People resources.  This is like the reserve replacement picture.  Freshman enrollments in petroleum engineering and geology/geophical curriculums has plumeted as much as 90% since the 2014 peaks.  Additionally, boatloads of people have been laid off and retired (I be one of them).  So the body count AND experience have dramatically shrunk and most of it is a permanent loss; much of it can't be recovered.  So as a result, when you can't get the right expertise/skills to do the work, then projects slow down and get deferred.

The flip side is that US shale and OPEC/Russia among others, can simply turn open the tap.  Also, companies are continually getting more productive doing more, with less $$ and less people.  The downturn only racheted that up all the more.  BUT, opening the tap is limited, while existing fields continue to decline.

It is my contention that the combination of a strong national/global economy driving up demand, will over power supply AND new fields will be too iittle/too late to close the supply gap.  While companies can deliver projects faster to catch up on supply, they can only do it if they have the people.  So the combinded shortages of under investment and lack of enough right people will, IMHO combine with the growing demand to have a trifecta impact on oil prices.

I'm expecting $100 oil in less than 3 years, and maybe a whole lot sooner.  Necessity is the mother of invention, and the industry has amazed the world in its ability to use technology and smarter methods to do everything faster and cheaper.  So they will likely catch back up faster than we think they can...maybe.  So the higher prices could be short lived....jmaybe.  But no one yet knows how to take a high school graduate and turn them into wise, experienced, educated technical professionals.  The degree alone is at best 3 years for the brightest, nonstop students.  But for many it takes  4.5-5.5 years just to get a BS degree.  Then comes work experience.  So total 6-7+ years from highschool to have someone who can start to become a significant contributor.  So people may be the critical path to the return of low prices, following a nice period of much higher prices.

Just my thoughts.  FWIW.  Natural gas is a different story.

Best regards,

Kaliboo

Happy New Year to you,Kal .

Thanks for your fine explantion on your crude oil and exploration thinking . Being a fairly large holder of XOM (for several decades), I'm still unhappy with our XOM/IOC saga,but I just can't abandon the company at this time.

I saw the story on their Permian Basin holdings and I agree with your assesment of that situation.

Our family Chevron holdings are also moving up,so we'll watch them closely also.

Good fortune to you & all your loved ones .  Sageo

Thanks Sageo.  "Live long and prosper!"

I neglected to mention I also own PXD (Pioneer) a large independent with major holdings in the Delaware/Permian basisns and other US onshore shale plays.  Good luck on your XOM position.  They always have been "the smartest guys (on average) in the room" but the last place anyone wanted to work due to the nose to the grindstone, continually wondering if you're going to be cut in the "annual trimming", top down command and control work environment.  I.e., not the most relaxing place to spend your career.   I know a lot of former XOM employees who made great hands elswhere.  But apparently their more stick/less carrot disciplined approach has at least until recently, worked greatly for the company and shareholders.

Here's an interesting article that further supports my "people shortage" thesis:  http://www.worldoil.com/news/2017/12/26/americas-hottest-oil-play-just-needs-a-few-thousand-truckers

Truckers getting "only $100K/year" to haul oil and there is a shortage that is slow to fill.  How long does it take to train a trucker?  That's much nearer the lower end of the oil industry "totem pole" in terms of pay and training time requirements.

Best regards,

Kaliboo

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