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User 353732

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  • Penn Virginia President/CEO Whitehead retires [View news story]
    The skills and temperament needed to navigate during a downcycle are very different from those needed to borrow and spend during the upcycle. As goes PVA so go many other public small/mid sized independents.
    Oct 26, 2015. 10:11 AM | 1 Like Like |Link to Comment
  • U.S. Natural Gas Exports To Mexico - Hype Vs. History [View article]
    The 5 bcfd number for pipeline exports to Mexico within 5 to 6 years has been suggested by several sources, including big Midstream companies. Mexico is indeed building new gas fired power generation capacity and its natural gas production is now in a quite rapid decline phase.
    Much new pipeline development in the US is being driven by the need to supply the 4 LNG export facilities that are either on the verge of being operational( first liquefaction train comes online within 90 days) or under construction and will become operational in later 2016, 2017, 2018, 2019 and 2020 as a total of 12 LNG trains are added.
    Cheniere Energy alone will have to source over 7 BCFD of supplies for its 2 facilities which are now under take or pay capacity contract to foreign buyers.
    The additional exports to Mexico are incremental to these LNG export requirements and should be viewed in the contact of total likely exports by 2020.
    Oct 23, 2015. 11:01 AM | 4 Likes Like |Link to Comment
  • Kinder Morgan -7% on slower dividend growth view, uncertain funding needs [View news story]
    Any distribution growth is an accomplishment during the current downcycle.
    KMI is very well positioned for volume growth in natural gas because of debottlenecking, market intermediation, storage and export growth; as well as increases in throughput of petroleum products, petrochemical feedstock, and NGLs.
    Crude accounts for a minor part of not only KMI's volumes but that of the other Big 5 Midstream companies.
    The 50% debt-50% equity financing model is intact since KMI only constructs after customer contracts are secured.
    Oct 22, 2015. 10:37 AM | 11 Likes Like |Link to Comment
  • Reuters: Occidental Petroleum to sell all North Dakota shale holdings [View news story]
    OXY should be exiting its foreign operations instead of LTO in North Dakota, despite near term performance issues with its ND holdings.
    OXY has a vast position in the Permian but it has shown no leadership in either innovation or management of LTO or NG in the Permian. Its California business is a negative for its multiple. The chemical business is good but shareholders would be better served by a spin off.
    OXY can be a leading North American upstream independent but it cannot be a wealth creating diversified energy company.
    Oct 16, 2015. 09:51 AM | 1 Like Like |Link to Comment
  • Mexico's Energy Reforms - Beyond Round 1 [View article]
    Mexico is clearly now a better place for foreign energy risk capital and technology than Brazil or Nigeria.
    However, corruption and organized crime increase risks while reducing income. This is a significant deterrent especially in developing Mexico's equivalent of the EagleFord play.

    Moreover deepwater E&P although high in volumetric potential,

    is now unattractive and will continue to be until the next price upcycle. There is no lack of new deepwater E&P prospects worldwide: there is a severe scarcity of capital available for such projects, even in GOM.

    Mexico will probably see a further decline in oil production in 2016, despite the participation in the first 2 rounds. Unfortunately for Mexico it will be another 10 years before production reaches the peak of 2004.
    Shallow water production can arrest the decline in 2017 but it will take deepwater and shale to add 1 mmbd in production by mid next decade. If the next price upcycle only lasts 3 years( prices above $80/bbl) then even the mid decade goal will be unattainable.
    The Saudi price war and North American LTO have dramatically reduced the appetite for very high upfront capital . long lead time E&P ventures (or mega tar sands projects).

    Meanwhile Mexico will become an increasingly important customer for US natural gas: it makes more economic sense for Mexico to export heavy oil to the US and import natural gas rather than develop ,on scale, its own more expensive natural gas basins.
    Oct 14, 2015. 11:05 AM | 2 Likes Like |Link to Comment
  • Does Longer-Term World Oil Supply And Demand Provide A Thesis For Oil Exploration And Production Investment? [View article]
    1. Neither the EIA nor the IEA have ever correctly called a turning point in the world oil or LNG market.

    2. Iran will have difficulty increasing production by more than 400,000 bpd in 2016. There will be no notable entry of foreign capital or technology in 2016( too much risk; too few rewards). In addition, the expanding war within Islam is generating new and unquantifiable geo strategic risk all over the ME.

    3. Iraq/Kurdistan are likely to witness production declines in 2016 ( capital starvation; violence); Venezuela is also likely to see stagnant or declining production in 2016( capital starvation despite Chinese loans and perhaps domestic violence)

    4. Foreign capital and technology now have very little interest in Brazil and diminishing interest in Nigeria and are prevented from participating in Russia: all 3 are likely to witness stagnant or even declining production in 2016

    5. If the Saudis could produce more on any sustained( as opposed to a temporary surge) basis, they would; moreover Saudi enhanced heavy oil production is unprofitable at current prices

    6. In 2014 ( peak exploration spending this century) about half the discoveries made worldwide cannot be produced at current prices and will not be developed;in addition the productivity of the exploration dollar in conventional oil has been declining this decade

    7. Frontier exploration( Arctic; deep offshore) has been virtually halted and cannot be justified at prices below $100/bbl.

    8. Shale oil outside North America( and some fields in Australia) is unattractive at less than $80 to $95/bbl

    9. Innovation continues to impressively reduce D&C costs for US shale oil(and gas) while increasing both IPs and EURs. At the same time new mini( less than 10,000 bpd) oil sands projects in Canada are attractive even at current prices while new mega oil sands projects cannot be justified at less than $85 to $90/bbl WTI despite technological advances

    By early 2017 it is very likely that global liquids production plus storage drawdowns will barely meet global liquids consumption( now rising at over 1.5 % annually or much faster than the past 5 years).

    At less than $80 to $90/bbl about half of NEW conventional oil projects worldwide cannot be undertaken, even if capital were suddenly abundant. This leaves US LTO and mini Canadian tar sands to met the additional demand for oil in 2017 at prices below $80/bbl( but well above $65/bbl). Nothing else cannot be brought online quickly or significantly

    When prices respond to the new dynamic they will do so suddenly and massively. We dont know when the response will occur  but we do know that the next price upcycle will take the EIA and IEA(as well as the Majors) by as much surprise as the current downcycle.
    Oct 9, 2015. 10:06 AM | 18 Likes Like |Link to Comment
  • Is Energy Finally On The Rebound? [View article]
    Global economic growth is a little over 3% at present ( ranging from negative in Russia to nearly zero in the EU to over 5 % in Asia (less Japan) led by China and India.
    The internal combustion fleet of the world, especially Asia is still growing. Oil use is likely to expand at about 40% the rate of economic growth suggesting an aggregate increase in oil demand in 2016 of 1.2 to 1.3 mmbd and based on current trends also in 2017.
    Opec outside Iran and Russia are producing all they can. Iran will have difficulty increasing output by even 400,000 bpd in 2016. Output in Africa, Latin America , North Sea and North America will decline by over 500,000 bpd over the next 12 months. Iraq/Kurdistan and Nigeria may also see output declines because of violence and deep capital constraints. Global upstream Capex will be lower in 2016 than in 2015. Global geo strategic risks will be greater as the war within Islam intensifies and spreads.
    By mid 2016 net storage drawdowns worldwide may be an established trend. By Fall 2016 it will be clear that the market will be supply constrained in 2017 and that the next price upcycle will be needed to stimulate essential capital investment . When prices adjust they will do so suddenly and hugely.
    No one can honestly call the turn but when it occurs no one can miss it. Wall St will claim it saw the turn all along, of course about 2 months after the fact.
    Oct 7, 2015. 02:28 PM | 4 Likes Like |Link to Comment
  • U.S. Natural Gas - Will We See 50 Bcf Shale Wells In 3 Years? [View article]
    There is little doubt that in several shale gas basins both IPs and EURs will continue to increase quite impressively over the next 3 years.
    The low permeability E&P industry is still young and there is both the incentive and the opportunity to innovate all along the D&C chain.
    Consequently both unit capital and unit operating costs will keep declining for the best companies and production that was unattractive at $2.75 to $3.00 a couple of years ago will be appealing next year and for the balance of the decade.
    Oct 7, 2015. 02:07 PM | 6 Likes Like |Link to Comment
  • Many MLPs will need to delay or scrap capital spending plans, analyst says [View news story]
    There is a very large backlog of projects that have sufficient contractual commitments to proceed in 2016 and 2017, especially debottlenecking and rail substitution projects. Producers will pay a fee if their netbacks improve by more than the fee.
    The demand for natural gas, petroleum products, petrochemical feedstocks and bulk petrochemicals as well as strategically located storage continues to increase. Crude and condensates are a minority of total midstream throughput and gross margins.

    Financing these projects via a mix of new debt and equity is not an issue for the Big 5 or for niche entities. It is the midsized midstream companies that are in trouble and must eliminate most capex while seeking a buyer.
    Oct 7, 2015. 02:00 PM | 3 Likes Like |Link to Comment
  • Anything Higher Than 0% Is Now High Yield; Retirees Thrown Under The Bus Today [View article]
    Big Government and Big Money are the unambiguous and intended beneficiaries of perverted yields and interest rates. No one else has vast, repeat, access to virtually unlimited free credit.
    Ordinary middle class households and small medium businesses pay a large spread above the cost of debt to Big Money.
    For the past several years there has been a willful and enormous transfer of wealth and income from the many to the anointed few. No surprise then that both home ownership and labor participation rates keep falling while the real purchasing power of most people has declined in real terms.

    But then, this is exactly what happens in a kleptocratic oligarchy, whether it is the Soviet of Russia or the Soviet of America.
    Oct 7, 2015. 09:56 AM | 13 Likes Like |Link to Comment
  • The Potential End Of An Era For Exxon, But What Does The Smart Money Think? [View article]
    XOM's dividends and credit rating are secure provided it reduces Capex some more, avoids buying companies for a premium ( rather than leases and reserves via tactical transactions to augment its shale holdings in North America and tar sands in Canada) and avoids volumetric (rather than value added) growth for its own sake.
    Given XOM's size more scale will not help: more efficiency and innovation will.
    Oct 6, 2015. 05:37 PM | 14 Likes Like |Link to Comment
  • Can You Bet On Duke? [View article]
    DUK has a very good demographic footprint, a supportive regulatory environment and substantial growth opportunities in gas fired generation. Its non regulated and foreign investments are not a strategic or value added fit any more . DUK would better serve shareholders by exiting all businesses outside its regulatory footprint and redeploying capital to improve cash flow.
    Its dividend is secure and as it rises gradually( probably no more than 2% per year) over the next decade its stock will generally follow suit. DUK is a bond substitute not remotely a growth stock.
    Oct 6, 2015. 08:33 AM | 5 Likes Like |Link to Comment
  • Exxon, Chevron outlooks cut to Negative by S&P [View news story]
    Clearly both XOM and CVX will preserve their dividends by increasing borrowing and cutting Capex in 2016. Failure to do so would be a serious breach of faith with scores of thousands of small investors, who clearly prefer near term income over medium term wealth creation.
    CVX, in particular, needs to closely examine why so many of its vital projects have run billions of dollars over budget and often over time.
    XOM is much better but it too will have to become a more efficient company.
    Volumetric growth at any cost wins admirers during the upcycle but it is a debilitating strategy during the downcycle.
    Oct 5, 2015. 11:04 AM | 12 Likes Like |Link to Comment
  • Enterprise Products declares $0.385 dividend [View news story]
    Wall St is( deliberately) mispricing midstream companies, especially the Big5, based on commodity prices rather than throughput, ratio of fixed contract margins to total margins and backlog of sanctioned projects. The message is that distributions will fall in 2016 and that external financing to build out the backlog will evaporate.

    Throughput is higher than this time year ago( crude volumes are only a minority of total throughput); for most midstream companies the margin ratios are above 65%( meaning cash flows are not in jeopardy for the next 12 months anyway) and the sanctioned backlog suggests growth in 2016.

    For the Big 5 natural gas, gas liquids, bulk petrochemicals, refined products, market intermediation and processing services and accretive acquisitions are now(and in 2016) the drivers of margin and system expansion rather than crude and condensates.
    Of course the volume of crude and condensates will decline in 2016 and small producer bankruptcies may lead to contract abrogations but it is liquids by rail, truck and perhaps barge transportation that will absorb the bulk of the decline.

    Treating midstream companies as though they were highly reliant on crude and condensate prices makes no investment sense.
    Oct 1, 2015. 02:45 PM | 8 Likes Like |Link to Comment
  • Investors give big thumbs-down to Energy Transfer deal for Williams [View news story]
    The consolidation of the Midstream industry has now begun in earnest.

    The Big 5 will dominate the industry in another 12 to 18 months while small companies occupy profitable niches leaving no room in the middle.
    The scale, scope, cost of capital and operating cost advantages of the Big 5 will soon be overwhelming.

    The marking down of ETE, WMB and WPZ (as well as other Midstream companies) makes no investment sense: if a deal is bad for one entity then it must be good for another. If the deal is bad for ETE then why should KMI be marked down?

    The medium and long term growth prospects for the Big 5 are very good as natural gas, petrochemical feed stocks and bulk petrochemicals continue to generate increasing volumes and production growth in crude , condensates and refined products re-emerges during the next oil price upcycle, which may be as little as 9 months away.Over the next 10 years natural gas will be the main growth trend rather than oil(which too will grow on balance despite deep cyclicality)
    Sep 28, 2015. 12:01 PM | 23 Likes Like |Link to Comment