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Don D.
In a general oil pricing structure, there are so many talking heads some now screaming $20 oil, Others with views similar to yours of a average price of $75 this year. So if companies scale back drilling even a slight percentage and normal fracked well depletion rates shouldn’t we see pricing move up in the foreseeable future mid year approximately? So just holding what one has seems prudent if you can stomach the drop as it would provide almost a 50% gain from where we are today?
Robert Rapier
Absolutely in my opinion. I always view these things as upside potential versus downside risk. Right now I believe the pendulum has swung in favor of upside potential outweighing downside risk. No way does oil go to $20, because too much production would end up being shut in. If oil did manage to get that low, it would ultimately way overshoot to the high end as supplies began to fall short.
I’m a bit confused as to how Stock Talks is supposed to work. About a week ago I posted a question at the end of “Top 15 for ’15” and another question (for Igor) at the end of “The Best Buys for 2015” but never got a response to either.. Just exactly how is Stock Talk supposed to work?
Yes, oil markets are down and projected lower, I guess what I don’t fully understand as demand is a little lower should we be seeing the MLP’s down as much as they are? The high quality of SXL, PAA, MWE and such don’t seem to be overly levered, and transport. Sympathy selling in one thing but it seems overdone, and some of the hardest hit pieces recently, any reason why?
Igor Greenwald
I think some people bought in the last two years understanding little more than that these were energy-related income plays, and there’s certainly legitimate concern about what the oil price crash might do to longer-term growth prospects. You know I think the fear is overdone where quality MLPs are concerned, but that doesn’t mean they can’t go lower in the near term, of course.
Today, time was spent in reviewing some company oil financials.
The picture (for me) maybe has become more confusing.
Please confirm my understanding.
1. Most of the companies have hedges with 90+ prices per barrel during the next 3 to 9 months. Did not review if these hedges covered most of their production.
For this discussion purpose, assume oil continues at 50/barrel
This means that the FULL impact of the lower per barrel price will not be reported until these hedge contracts expire, i.e. the hedge will offset the lower revenue.
Therefore, it becomes difficult to review a company without doing an in depth analyst, i.e. one cannot just look at the earnings in the more traditional sense of evaluating companies.
2. The debt of these companies range from modest to very excessive. But, most seem to be able to cover their interest payments — at least for now.
3. The write downs of value (impairment of investment) at the lower 50/barrel price appears to be a hammer to most earnings in the year end reporting. What reaction do you see to the investment community to these reduced earnings, even though they do not have a cash impact. In other words, the question is more of how much of an impact.
If you wish, you could consider this as a preliminary question(s) to your chat tomorrow.
Igor Greenwald
I think writedowns won’t be much of an issue this year. Mandated reserve calculations use an average of monthly prices for the prior year, and on that basis the effect of what happened in November and December will be minimized. Debt’s also not a killer in the near term: very few, if any, high-yield energy bonds mature this year. But there’s no question that cash flow will be hurt and quickly, as many oil producers had only a third or less of their 2015 output hedged as of the last quarter. What they’ve done in terms of putting on hedges since, and what they’re planning to do in terms of additional spending cuts, since will be the key points of interest for fourth-quarter results.
I follow and invest in many stocks, I have noticed since December low in CXO, MTDR, PXD, even EMES and others have had in come cases 25% gains. Some feel oil will drop further and it may but since Dec it seems pricing has seen wild swings but is staying in a range. It also seems for once companies are being aggressive in cost management in reduced drilling and employee costs so yes earnings may be reduced but continued pumping should add to revenue. Does it seem this range in pricing will continue and increase over the summer. Or are we looking for some huge price suck into the 30’s and wipe out my thoughts?
Igor Greenwald
I think the rate of spending reductions and drilling curtailments is going to make $30/bbl crude unrealistic. To my mind it’s quite likely we’re close to a bottom and far below a sustainable long-term price. But even if the bottom for crude is in, I don’t think that’s necessarily true for drilling stocks. That will depend on global demand and OPEC supply, or lack thereof.
I know you don’t review Canadian energy companies. But I have a question on Enerplus since two thirds of its holdings are in either the Bakkan or Marcellus areas. Would you consider it a high cost producer or low cost producer and it’s chances of surviving this downturn? Thank you for your time. Mark
Igor Greenwald
It seems to be a relatively low-cost Bakken producer and one less leveraged than, say, Oasis. There is some good info in a recent presentation on its IR page: http://investors.enerplus.com/download/Investor+Update_Jan+12.pdf
But since no one is going to be making much money selling crude at $30/bbl like people have done recently in the Bakken, I find it hard to handicap its survival odds. Probably so long as crude gets back above $60?
Stock Talk
Don D.
In a general oil pricing structure, there are so many talking heads some now screaming $20 oil, Others with views similar to yours of a average price of $75 this year. So if companies scale back drilling even a slight percentage and normal fracked well depletion rates shouldn’t we see pricing move up in the foreseeable future mid year approximately? So just holding what one has seems prudent if you can stomach the drop as it would provide almost a 50% gain from where we are today?
Robert Rapier
Absolutely in my opinion. I always view these things as upside potential versus downside risk. Right now I believe the pendulum has swung in favor of upside potential outweighing downside risk. No way does oil go to $20, because too much production would end up being shut in. If oil did manage to get that low, it would ultimately way overshoot to the high end as supplies began to fall short.
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Edward Getchell
I’m a bit confused as to how Stock Talks is supposed to work. About a week ago I posted a question at the end of “Top 15 for ’15” and another question (for Igor) at the end of “The Best Buys for 2015” but never got a response to either.. Just exactly how is Stock Talk supposed to work?
Ed Getchell
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Don D.
Yes, oil markets are down and projected lower, I guess what I don’t fully understand as demand is a little lower should we be seeing the MLP’s down as much as they are? The high quality of SXL, PAA, MWE and such don’t seem to be overly levered, and transport. Sympathy selling in one thing but it seems overdone, and some of the hardest hit pieces recently, any reason why?
Igor Greenwald
I think some people bought in the last two years understanding little more than that these were energy-related income plays, and there’s certainly legitimate concern about what the oil price crash might do to longer-term growth prospects. You know I think the fear is overdone where quality MLPs are concerned, but that doesn’t mean they can’t go lower in the near term, of course.
You must be logged in to post to Stock Talk OR create an account
You must be logged in to post to Stock Talk OR create an account
Harold Williams
Today, time was spent in reviewing some company oil financials.
The picture (for me) maybe has become more confusing.
Please confirm my understanding.
1. Most of the companies have hedges with 90+ prices per barrel during the next 3 to 9 months. Did not review if these hedges covered most of their production.
For this discussion purpose, assume oil continues at 50/barrel
This means that the FULL impact of the lower per barrel price will not be reported until these hedge contracts expire, i.e. the hedge will offset the lower revenue.
Therefore, it becomes difficult to review a company without doing an in depth analyst, i.e. one cannot just look at the earnings in the more traditional sense of evaluating companies.
2. The debt of these companies range from modest to very excessive. But, most seem to be able to cover their interest payments — at least for now.
3. The write downs of value (impairment of investment) at the lower 50/barrel price appears to be a hammer to most earnings in the year end reporting. What reaction do you see to the investment community to these reduced earnings, even though they do not have a cash impact. In other words, the question is more of how much of an impact.
If you wish, you could consider this as a preliminary question(s) to your chat tomorrow.
Igor Greenwald
I think writedowns won’t be much of an issue this year. Mandated reserve calculations use an average of monthly prices for the prior year, and on that basis the effect of what happened in November and December will be minimized. Debt’s also not a killer in the near term: very few, if any, high-yield energy bonds mature this year. But there’s no question that cash flow will be hurt and quickly, as many oil producers had only a third or less of their 2015 output hedged as of the last quarter. What they’ve done in terms of putting on hedges since, and what they’re planning to do in terms of additional spending cuts, since will be the key points of interest for fourth-quarter results.
You must be logged in to post to Stock Talk OR create an account
You must be logged in to post to Stock Talk OR create an account
Don D.
I follow and invest in many stocks, I have noticed since December low in CXO, MTDR, PXD, even EMES and others have had in come cases 25% gains. Some feel oil will drop further and it may but since Dec it seems pricing has seen wild swings but is staying in a range. It also seems for once companies are being aggressive in cost management in reduced drilling and employee costs so yes earnings may be reduced but continued pumping should add to revenue. Does it seem this range in pricing will continue and increase over the summer. Or are we looking for some huge price suck into the 30’s and wipe out my thoughts?
Igor Greenwald
I think the rate of spending reductions and drilling curtailments is going to make $30/bbl crude unrealistic. To my mind it’s quite likely we’re close to a bottom and far below a sustainable long-term price. But even if the bottom for crude is in, I don’t think that’s necessarily true for drilling stocks. That will depend on global demand and OPEC supply, or lack thereof.
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Mark Akst
I know you don’t review Canadian energy companies. But I have a question on Enerplus since two thirds of its holdings are in either the Bakkan or Marcellus areas. Would you consider it a high cost producer or low cost producer and it’s chances of surviving this downturn? Thank you for your time. Mark
Igor Greenwald
It seems to be a relatively low-cost Bakken producer and one less leveraged than, say, Oasis. There is some good info in a recent presentation on its IR page: http://investors.enerplus.com/download/Investor+Update_Jan+12.pdf
But since no one is going to be making much money selling crude at $30/bbl like people have done recently in the Bakken, I find it hard to handicap its survival odds. Probably so long as crude gets back above $60?
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