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Stocks - specifically the liquid energy sector

  • #1
  • First Post: Mar 9, 2015 5:07pm Mar 9, 2015 5:07pm
Ok, I'm not talking about Red Bull

I 'invest' in a few stocks, and have had a few sparring sessions with some around FF in calling 'up' on the house building sector a few years back.
I have just called 'end' on the house building sector, mainly because the possible returns have shrunk to mediocre.

So to the next prospect, the most recently crashed must-have commodity - and particularly any parts of the supply or servicing industry.

Over supply is pushing down raw prices, that is the most touted explanation.
What about geopolitical risk in places such as Kurdistan or other parts of eastern Europe?
Where is the catastrophe point for American or Canadian shale producers?
Eventually the market will balance and the panic will subside.
There is going to be some blood in the water, but afterwards will be the survivors and the money makers.

So to open a discussion here, how might you spot a diamond amongst the basket cases?
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #2
  • Mar 10, 2015 5:47am Mar 10, 2015 5:47am
Today I notice that the differential between Brent and WTI is closing.
Also note that it is Brent which is falling rather than WTI rising.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #3
  • Mar 12, 2015 8:36am Mar 12, 2015 8:36am
Here are parts of recent results from a Canadian company which is operating in South-East Europe.
Missing from this clip is the part which shows that debt has not grown over the previous 12 months, well not by much - a million or two is nothing in this theatre.

So: debt flat, production and income up, efficiency up, why the collapse in the stock price?

Attached Image (click to enlarge)
Click to Enlarge Name: 20150312_highlights.png Size: 34 KB


The note at the bottom showing the price-point sensitivity refers to this year's figures for 2014.

You have to read a bit further into the results to discover that planned Capex, which is targeted at improving production from existing fields, is to be paid for out of earnings or cash flow, so no increase in debt. Also deeper within is revealed that there are no contractual liabilities to incur costs often found in oil companies due to collaboration when developing a prospect. The 2P reserves are up around $9bn so plenty of life remaining.

The stock price collapse.....
Appears to be driven by the fear of the herd that small companies using non-standard production techniques are going to be flattened.
I'm not sure I believe that but it does depend upon how low the price of oil goes, and how long it stays there.
A protracted period at $50bbl, say 2 years, will be depressing but not life threatening.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #4
  • Mar 15, 2015 5:20pm Mar 15, 2015 5:20pm
The start of governmental interference, perhaps.....
http://www.digitallook.com/news/news...x--661623.html
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #5
  • Edited 6:47pm Mar 15, 2015 6:18pm | Edited 6:47pm
Quoting Exodus
Here are parts of recent results from a Canadian company which is operating in South-East Europe. Missing from this clip is the part which shows that debt has not grown over the previous 12 months, well not by much - a million or two is nothing in this theatre. So: debt flat, production and income up, efficiency up, why the collapse in the stock price? {image} The note at the bottom showing the price-point sensitivity refers to this year's figures for 2014. You have to read a bit further into the results to discover that planned Capex, which is...
Does this company have a name?
Not enough information available.
How much of the 2014 production was hedged? Most small companies have hedges on to protect from a drop to prevent financial troubles.
When do their current hedges expire & @ what price are the hedges in place for? They might have added hedges but if done after the price really fell are the earnings going to take a severe hit @ current hedged prices? If so, maybe the company is priced according to future earnings potential.
Too many questions to give an educated guess about the financial stability of the company IMHO.
(The energy pipeline companies are a safer bet as they get paid based upon volume flowing through the pipes & not on price of oil/gas. If you can find one that's taken a hit just because it's in the energy sector that might be a good investment. Kinder Morgan(KMI) is a large one that would be good if it had a sizeable fall but not too likely.)
  • #6
  • Edited 4:26am Mar 16, 2015 2:33am | Edited 4:26am
Quoting srt
{quote} Does this company have a name? Not enough information available. How much of the 2014 production was hedged? Most small companies have hedges on to protect from a drop to prevent financial troubles. When do their current hedges expire & @ what price are the hedges in place for? They might have added hedges but if done after the price really fell are the earnings going to take a severe hit @ current hedged prices? If so, maybe the company is priced according to future earnings potential. Too many questions to give an educated guess about...
Hi, I was beginning to wonder whether anybody was reading....

I just checked their website for any restrictions on disclosure, the company is Bankers Petroleum.

You are right that there are many factors to consider.
Bankers have a hedge for 2015 of 6000 bopd at $80, which is about 1/3rd of their production and there is no mention of 2016.
That is quite small compared to some I have found.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #7
  • Mar 27, 2015 3:47am Mar 27, 2015 3:47am
I was interested to see that producer stocks jumped along with the oil price when this unfortunate mess brewed up in the Yemen.

I am still waiting for the US to fill-up its oil storage facilities, and watch for the prophesied further collapse in oil prices.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #8
  • Mar 30, 2015 11:06am Mar 30, 2015 11:06am
A strategy is emerging. We wait to see how the Yemen and Iran situation unfolds.....
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #9
  • Apr 8, 2015 8:52am Apr 8, 2015 8:52am
Since there has been some discussion of Bankers Petroleum, here is a slide straight out of this month's company presentation.

Attached Image (click to enlarge)
Click to Enlarge Name: 2015_Q1_Bankers_margin.jpg Size: 72 KB


As can be seen, the hedge is protecting profits down to a low level. However there is no mention of any hedge into 2016.
Presumably a hedge extension will be impossible to achieve if the price remains low.

The 'Netback' portion has to cover new Capex, and debt servicing. It seems like things might be Ok, if a bit lean, all the way down to a Brent price below $40.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #10
  • Apr 8, 2015 9:40am Apr 8, 2015 9:40am
Will reply later, subbing to thread
  • #11
  • Apr 9, 2015 5:49am Apr 9, 2015 5:49am
....and now, huge deposits found in the UK!
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #12
  • Apr 9, 2015 1:33pm Apr 9, 2015 1:33pm
Quoting Exodus
....and now, huge deposits found in the UK!

Yes, even more supply into the market and because it is onshore will be cheaper to extract than North Sea oil

Check out this link: https://www.bis.org/publ/qtrpdf/r_qt1503f.htm

Currently long Hal, but suspect that oil still has lower to come yet. The storage tanks are filling up, but the the oversupply still remains, and once storage is full again the excess supply will come back into the market.
  • #13
  • Apr 10, 2015 9:15am Apr 10, 2015 9:15am
Quoting verv
{quote} Yes, even more supply into the market and because it is onshore will be cheaper to extract than North Sea oil Check out this link: https://www.bis.org/publ/qtrpdf/r_qt1503f.htm Currently long Hal, but suspect that oil still has lower to come yet. The storage tanks are filling up, but the the oversupply still remains, and once storage is full again the excess supply will come back into the market.
Thanks for the link, a lot of reading.....

A few things come from that article, imho Saudi Arabia is really determined to crush the opposition. They have gone to the capital markets to cover government spending now that their receipts are down by at least 50%. Also they are edging-up prices to some customers in Asia, not sure how they are managing to do that.

The oil industry is starting to look like the sub-prime housing market. The bond redemptions hit a peak in 2017 and that is when oil prices had better have improved - or there will again be a great crashing sound, banks and oil companies.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #14
  • Apr 10, 2015 9:41am Apr 10, 2015 9:41am
Quoting Exodus
{quote} Thanks for the link, a lot of reading..... A few things come from that article, imho Saudi Arabia is really determined to crush the opposition. They have gone to the capital markets to cover government spending now that their receipts are down by at least 50%. Also they are edging-up prices to some customers in Asia, not sure how they are managing to do that. The oil industry is starting to look like the sub-prime housing market. The bond redemptions hit a peak in 2017 and that is when oil prices had better have improved - or there will...
I think it is more than just crushing shale which adds an extra dimension to things. Low oil price hurts political enemies of the West and Saudi, specifically Iran and Russia.

In the future there is going to be a massive increasing demand for oil globally. I read an article recently that said that the world will need to increase output by 1 million barrels per day, each year for the next 20 years. So in 20 years time we need to be producing 20 million more barrels of oil per day than we do now. Prices in my opinion can only stay low for so long, but I don't believe we are going to see new highs in oil prices for many years.

Picking which oil producer is going to be hard, because we don't know at this stage who has over indepted themselves, or the quality of the wells that they extra from, or the prices of extraction for each company. So I picked a company that services oil companies like Haliburton, meaning I don't have to try and pick a winner from among the producers. The problem with the service companies though, is that they are highly susceptible to capex by oil companies, but they aren't indebted in the same way, so they should, by my estimates, be ok.

A company that refines oil would also be a good bet, because again the cost of refining is probably going to be static irrespective of oil prices, but you don't get good discounts in those sectors.
  • #15
  • Apr 10, 2015 11:21am Apr 10, 2015 11:21am
I see Halliburton and Schlumberger etc. suffering until oil prices recover, well until there is a floor under $60 at least.

I have been compiling a list of medium sized companies in the E&P sector, and the market has already done the work for you in pointing out which have a large debt. Some have debt equal to their 2014 revenues, so that is going to end badly if prices remain in the $50+ region. Those stock prices are down by 50% or 75% from this time last year.

There are others with a small amount of debt, such as Bankers, where the debt is about half or less than 2014 revenues. So of these it comes down to the cost of getting oil to the well-head, and also ease of transport from there to refinery or other distribution.

There are a few with zero debt, and of those the bigger operations have maintained their stock pricing. Dragon Oil produces in Turkmenistan, pipes through Turkey, has low production costs and zero debt. The stock price has hardly moved except when the market frets over the Ukraine or whatever.

There are two other tiddlers with no debt and production at zero or sub 10k bopd. Both are waiting on external factors such as the oil price.

It is a grind reading through the company results and notices, a real cure for insomnia at times.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #16
  • Apr 10, 2015 11:41am Apr 10, 2015 11:41am
Quoting Exodus
I see Halliburton and Schlumberger etc. suffering until oil prices recover, well until there is a floor under $60 at least. I have been compiling a list of medium sized companies in the E&P sector, and the market has already done the work for you in pointing out which have a large debt. Some have debt equal to their 2014 revenues, so that is going to end badly if prices remain in the $50+ region. Those stock prices are down by 50% or 75% from this time last year. There are others with a small amount of debt, such as Bankers, where the debt is about...
Schlumberger hasn't dropped to hard compared to Halliburton for sure they will both suffer with oil price as they are. Both companies have significant but manageable debt with enough retained earnings to cover that debt, and a lot of current assets they can use to service any short term debt. I think the question mark over Hal is this merger with Baker hughes.

I haven't looked through many of the filings, mostly those on Hal I must say. I took a different approach, I went to Finviz, set up a whole load of the stocks and screened for them. I ranked each of the stocks in the various oil sectors on a particular metrics, such as ROA, Debt, Price etc, and then made a combined rank of them all. After that I filtered out companies which had a market cap that was too small, and debt levels which I thought were too big.

Happy to send to you.
  • #17
  • Apr 13, 2015 8:44am Apr 13, 2015 8:44am
Quoting verv
.... Happy to send to you.
Thanks

Also I will checkout Finviz.
I go here and pick out the not-too-small companies - and then read their filings.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #18
  • Apr 24, 2015 12:24pm Apr 24, 2015 12:24pm
I'm not sure if this rise in the price of Brent and WTI is a flash in the pan, or whether the floor has been put in.
I am still waiting for another major catastrophe with the oil price. Something like the US storage suddenly announced as 'full' and coincident with a declaration that Iran is off the bad-boys list - well off the really-bad-boys list at least.

US production is reducing, and the Saudis are trying to inflate prices by adding on a bit to their Asian customers.
My trade finger is starting to get itchy - a bad sign.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #19
  • May 6, 2015 1:07pm May 6, 2015 1:07pm
Now that I have started to build some E&P positions I am considering putting stops under them, or bailing and awaiting the next surge, after making a small profit of course. This report on the European situation with the physical crude market has made me ponderous, circumspective, or just plain wary.
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
  • #20
  • May 7, 2015 11:42am May 7, 2015 11:42am
One of those pleasant surprises just happened to me. A stock that I bought recently has gone through the roof.
Chariot Oil & Gas, spiked up 35% at one point today which would have given me an out at +60% (in 2 weeks).
It was a pleasant surprise because I was out at the time collecting daughter on her return from Uni.
Not that I would bail at this juncture - but it would be nice to know what the rumour is......?

Unfortunately, it being a high risk bet, I only put in 1k .........................
Carbon-Dioxide: the gas of life! https://youtu.be/ttJBdr6eBuo
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