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Carolina1954

Carolina1954
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  • Seadrill Is Still 40% Overvalued [View article]
    Mr. Naples,

    There is no question that deep water oil production will "survive". It will and so will the deep water drillers. The question is whether their business volumes and day rates will stabilize at levels high enough to sustain positive equity value.

    As for the shale drillers, yes, they are under heavy pressure and some of the smaller, less efficient ones won't survive this cycle. But the costs of the major players are plunging at an amazing rate. For example, EOG says that its field level IRRs at $65 (>70%) today would have required >$95 oil only 3 years ago. Mega-fracks are flattening decline curves for up to a year. (See articles by Michael Filloon and Richard Zeits.) The offshore drillers are not achieving comparable cost savings; if anything their costs have been rising because of post-Macondo regulatory compliance and customer demands for only the newest and most high-spec rigs.

    So the much-publicized "price war between OPEC and shale" may really be a three way war, with deep water getting squeezed the most. If so, the shocking decline in deep water driller share prices might be more of a value trap than a value.

    C. David Kirby
    Aug 26, 2015. 02:44 PM | Likes Like |Link to Comment
  • Will China Bring Down Global Markets? [View article]
    "Population reduction"?

    That part does sound like Mao.
    Aug 24, 2015. 08:13 AM | Likes Like |Link to Comment
  • Seadrill Is Still 40% Overvalued [View article]
    SE,

    Even if a sharp rise in the price of oil is inevitable, to say an equilibrium level of $70-$80, that may not be enough to save the offshore drillers. Offshore not only has to compete with OPEC, but with the shale sector where costs are falling rapidly and where production could resume growth with rising oil prices. The risk is the Saudi price war mostly fails against the shale drillers but succeeds all too well against the offshore drillers. Recall that offshore budgets were being cut in 2014 even before the oil price collapse.

    If offshore (rather than shale) is actually the high cost or marginal producing sector and must bear the brunt of production capacity reductions, the implications for SDRL, RIG, etc. are very grim. Their equity value could bottom out at zero.

    C. David Kirby
    Aug 23, 2015. 02:10 PM | 2 Likes Like |Link to Comment
  • Bakken Update: Answers To Why U.S. Oil Production Remains High While Prices Tank [View article]
    dar43054,

    I have to disagree that Saudi Arabia has always made wise decisions regarding oil production and prices.

    The '73 embargo was a disastrous mistake. Americans to this day regard the embargo as a sort of economic Pearl Harbor. After the actual Pearl Harbor, Admiral Yamamoto said, "I fear we have only awakened a sleeping giant and filled him with a terrible resolve." The oil embargo was folly for much the same reason. It had no effect on US policy toward Israel, but created massive and permanent oil demand destruction. It created the US Department of Energy, CAFE, alternative fuel subsidies, conservation subsidies, etc.

    I agree it would have been a mistake for the Saudis to attempt to prop up prices by cutting production in November. They made the right call by maintaining production and letting markets sort out the price. But at some point, they decided to up the ante by boosting production to force an even deeper collapse in price, to a level they know full well is not sustainable long term. In other words, by deliberately manipulating the oil price to damage their competitors, they are creating a roller-coaster volatility that will undermine their long term interests. As one analyst put it, "volatility sells Teslas".

    The artificially depressed price we now have won't even be effective in blunting the shale oil challenge in the longer term. On the contrary, the leading shale drillers, under the stress of low prices, are achieving permanent productivity gains at an amazingly rapid rate. Some bankruptcies of marginal producers can be expected. However, forcing the weaker hands out of the game will only enlarge and strengthen the EOGs, CLRs, PXDs, etc., who have more than enough staying power to outlast Saudi price manipulation.

    C. David Kirby
    Aug 11, 2015. 08:28 PM | 2 Likes Like |Link to Comment
  • Bakken Update: Answers To Why U.S. Oil Production Remains High While Prices Tank [View article]
    So Einhorn should have said "motherfrac'er"?
    Aug 11, 2015. 09:31 AM | Likes Like |Link to Comment
  • What Whiting's Guidance Suggests About Where U.S. Production Is Headed [View article]
    This article hits the nail squarely on the head. Momentum from the high drilling rate of 2014 has carried over to the early months of 2015, funded in part by continued debt accumulation. Managements (e.g. CLR), under pressure from capital markets and bankers, continue to curtail capex in order to "live within cash flow", despite IRR calculations showing positive drilling economics at current prices.

    The apparent stability or gradual decline in US production will likely give way to accelerating declines in upcoming months.

    The current environment will help to sort out which companies have organic self sustaining growth potential, and which are debt junkies.

    C. David Kirby
    Aug 6, 2015. 01:17 PM | 4 Likes Like |Link to Comment
  • Bakken Update: Mega-Fracs Are The Reason U.S. Oil Production Remains High In A Low-Price Environment [View article]
    Mr. Filloon,

    Thanks for the effort you put into your responses.

    If EOG is the mega-frack leader, with WLL lagging somewhat behind, doesn't it seem ironic that EOG's Bakken completions have dropped to very low levels this year, whereas WLL has maintained a much higher completion tempo?

    Finance (i.e., WLL's huge debt load) may explain this better than economics.

    It's a shame to see holders of core-of-core acreage desperately drilling out their finite inventory at $40 realized prices.

    C. David Kirby (long EOG)
    Jul 31, 2015. 09:10 AM | 1 Like Like |Link to Comment
  • Bakken Update: Mega-Fracs Are The Reason U.S. Oil Production Remains High In A Low-Price Environment [View article]
    Mr. Bereczki,

    I've updated and corrected my ND completion count. Through July 29th, I count 79 "completions of producing wells" per the ND daily activity reports.

    This compares to Director Lynn Helms' estimate that 110-120 completions are needed to maintain flat production.
    Jul 30, 2015. 11:18 AM | Likes Like |Link to Comment
  • Bakken Update: Mega-Fracs Are The Reason U.S. Oil Production Remains High In A Low-Price Environment [View article]
    Mr. Filloon,

    A very good article with much useful information on improvements in drilling technique.

    However, are you sure that EIA data really indicate US production is flat at 9.5M bbl/day?

    EIA's weekly petroleum balance sheets would seem to indicate this, but their Drilling Productivity Reports suggest production has rolled over into declines at an accelerating rate for the 7 major shale basins.

    In aggregate, the DPR numbers started falling in May (.77% decline). For June, 1.28% decline, and for July and August declines are projected at 2.35% and 1.67% respectively. Cumulatively, the decline is projected at 6% through August from peak, or ~300k bbl/d.

    For the Bakken field, the projected declines for July and August appear to be based on ~75 completions/mo.

    According to North Dakota's daily activity reports, July completions to date are 57, about half what is needed to maintain flat production.

    If shale oil production is actually falling at ~2%/mo., US production is also headed down significantly unless non shale is growing rapidly (but I haven't looked at those numbers yet.)

    C. David Kirby
    Jul 28, 2015. 12:28 PM | 2 Likes Like |Link to Comment
  • What Needs To Happen Before I Will Consider Buying Any Oil Stocks [View article]
    GEOinvestor,

    Could you please elaborate on what "other market forces beyond simple supply and demand fundamentals" are likely to be "contributing to the downside" in oil prices?
    Jul 20, 2015. 04:02 PM | 1 Like Like |Link to Comment
  • The Idea Of A Temporary Grexit Is Rubbish [View article]
    dieuwer,

    Actually, the Euro has much worse effects than the Gold Standard. Under the Gold Standard it was possible to devalue/revalue without the disruption of adopting a new currency. For example, the US devalued the dollar against gold in the 1930s. And it was also possible to leave the Gold Standard altogether and resume it later, as Britain did during and after the Great War.

    The geniuses who gave Europe the Euro designed it to 1) facilitate prosperity and 2) be virtually impossible to reverse. They succeeded at number 2.
    Jul 17, 2015. 02:41 PM | 1 Like Like |Link to Comment
  • The Idea Of A Temporary Grexit Is Rubbish [View article]
    SU,

    Your analysis of the Greek situation is the best I have seen. I agree Grexit is probably inevitable, but let us hope it happens after a period of preparation and with more credible leadership than Greece now has. The idea of a temporary Euro exit is ridiculous--as though a country can check into and out of a currency union the way a starlet checks into and out of "rehab." Herr Schauble knows this full well, of course; proposing Grexit on a "temporary" basis is just a political fig leaf.

    However, I don't totally agree that Euro straightjacket + austerity fully or even mostly explains the severity of the Greek disaster. Ireland and others have had comparable challenges with much better results.

    A frequently underestimated toxic ingredient in the Greek crisis is the economic effects of the sudden collapse of confidence in the basic economic/political structure occurring when the budget and economic statistics frauds were uncovered in 2010, leading to drastic increases in government deficit projections and fears of government insolvency. The "rational expectations" one would expect investors to have as a result, i.e., recession, massive tax increases, political radicalization, and uncertain continuation of Eurozone membership, have been amply confirmed by subsequent events. Although Greek wages have fallen by 37% according to Varoufakis, to restore employment Greece also needs an investment boom, but what it has gotten is massive capital flight, i.e., decapitalization.

    Grexit, if conducted by the Greek equivalents of Konrad Adenauer with Ludwig Erhard as finance minister, could possibly revive investor confidence and pave the way for an economic miracle, but whether Greece can summon even mediocre economic leadership seems doubtful.

    C. David Kirby
    Jul 17, 2015. 11:03 AM | Likes Like |Link to Comment
  • 4 Reasons 'AGreekment' Will Fail Greece And The Euro, Plus What It Means For U.S. Investors [View article]
    James,

    I recall Cyprus requiring $10B bailout in addition to the bail-in "haircut" of depositors. Cyprus is roughly 10% the size of Greece with an economy nowhere near as bad. Which implies Greece could require $100B additional support before even considering sovereign debt writeoffs. Can the Bundestag stomach that?

    According to FT article, Greek banks are considering bail-in contingency plans to haircut account balances in excess of 8k Euros, a shockingly low threshold compared to 100k in Cyprus. (Greece doesn't have Russian plutocrat accounts to fleece.) Very hard to imagine Greek parliament approving this.

    What a godawful mess, and getting worse by the day.

    David K.
    Jul 16, 2015. 03:07 AM | Likes Like |Link to Comment
  • 4 Reasons 'AGreekment' Will Fail Greece And The Euro, Plus What It Means For U.S. Investors [View article]
    According to Varoufakis, Greek wages have already fallen 37%.

    http://bit.ly/1Na2YJB

    According to Deutsche Bank Research, Greek competitiveness (relative to Germany) has improved 35% over the last four years.

    http://bit.ly/1V5eLxV

    C. David Kirby
    Jul 15, 2015. 08:59 PM | Likes Like |Link to Comment
  • 4 Reasons 'AGreekment' Will Fail Greece And The Euro, Plus What It Means For U.S. Investors [View article]
    James,

    For the sake of the Greeks, I hope you are right about the tractability of restoring the banking system. The banking system of Cyprus has shrunk ~50% since its "bail-in". Could Greece in its weakened state survive that?

    In the intermediate to long term, you are right that the overvalued Euro is a core problem with no easy resolution.

    But to get to the intermediate/long term, Greece has to arrest its current free fall, which means having a banking system into which people are not terrified to deposit money.

    David K.
    Jul 14, 2015. 01:50 PM | 1 Like Like |Link to Comment
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