Hills Group Oil Depletion Economic and Thermodynamic Report

[Eddie]

And if reading comprehension is worth anything in today's world, I didn't say, write or imply that all is well. Only that being terrified year after year of TEOTWAWKI might teach any of us that we terrify way too easily.

Anyone who is NOT terrified by what is coming down the pipe here is a few cans short of a 6-pack.

RE

How can anyone go through life, suffering terror spanning the time from Ehrlichs Great Dieoff of the 1980's to now, continue to be terrified? It is a defeatist type of mental energy, it would seem to impede progress through life, dull the senses to apparent lesser problems (like all the other things happening in life), and create someone (to date anyway) near permanently disappointed by events unfolding around them.

I do agree with this.....at some point, you just have to get on with life. AFAIK, we only get one.....counting on collapse is just as delusional as counting
 on an inheritance from a dead relative  to provide for your financial needs.

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[John of Wallan]

And if reading comprehension is worth anything in today's world, I didn't say, write or imply that all is well. Only that being terrified year after year of TEOTWAWKI might teach any of us that we terrify way too easily.

Anyone who is NOT terrified by what is coming down the pipe here is a few cans short of a 6-pack.

RE

How can anyone go through life, suffering terror spanning the time from Ehrlichs Great Dieoff of the 1980's to now, continue to be terrified? It is a defeatist type of mental energy, it would seem to impede progress through life, dull the senses to apparent lesser problems (like all the other things happening in life), and create someone (to date anyway) near permanently disappointed by events unfolding around them.

I do agree with this.....at some point, you just have to get on with life. AFAIK, we only get one.....counting on collapse is just as delusional as counting
 on an inheritance from a dead relative  to provide for your financial needs.

Rational fear is a good thing. It lets you prepare and be aware of what is coming. Unfortunately the concept of fear and rationality are often mutually exclusive. 

I dont consider myself a "doomer", but others raise a few eyebrows when I talk of backup gen sets, gardens and water tanks etc... What I see coming makes me sad more than frightened. I dont fear death, but I am not in danger of dying any time soon. At the time this may change.

Preparedness is just as much between the ears as what toys you have. I live a normal life, work a normal job, and am a regular citizen. I also see a bad moon rising and am getting prepared for the future to be different to the current. A lot of people can not handle any change from the status queo let alone a change for the worse. Delusional thinking that things will always be rosy may make you happy in the short term, like the 2nd bottle of Merlot. But like the 2nd bottle, the hangover when things go South will be pretty unbearable to many.

Plan for the worst, hope for the best.

JOW

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[BuddyJ]

How can anyone go through life, suffering terror spanning the time from Ehrlichs Great Dieoff of the 1980's to now, continue to be terrified? It is a defeatist type of mental energy, it would seem to impede progress through life, dull the senses to apparent lesser problems (like all the other things happening in life), and create someone (to date anyway) near permanently disappointed by events unfolding around them.

I do agree with this.....at some point, you just have to get on with life. AFAIK, we only get one.....counting on collapse is just as delusional as counting
 on an inheritance from a dead relative  to provide for your financial needs.

It seems logical that a resilient lifestyle (as unique as what each of us thinks "collapse" might be, and what "resilient" might be in that context) is the best answer to the twists and turns of current events.  Terror is certainly not a feeling that everyone feels the same way, let alone which combination of current events might generate it at all. A fight/flight reaction to the slow decline of America just doesn't seem to fit the problem.

I was perusing the early posts and thread topics of this website, which would seem to cover a decent time slice of current events, and for all the eager interest in what might happen, the reality is that the US or world didn't even a recession until now. And as it turns out, that didn't happen because of economic mismanagement or resource scarcity or the Fed borrowing money or the price of gold. Makes a bit curious now, to find some decent pandemic threads and see how those were foretold, prior to arrival.

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[BuddyJ]

Plan for the worst, hope for the best.
JOW

Make a plan, and work it.

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[Phil Rumpole]

Since you asked, I think the right-wing shooter kid is a product of his environment, which probably included a lot of indoctrination from somebody. I see him not as an isolated individual, but rather as a symptom of our disease.....not that unlike a school shooter...it's just that his delusion is shared by a lot more  people,. which ultimately makes the  phenomenon more dangerous.

And he doesn't look like the sharpest crayon in the box, frankly.

On the original police shooting, I stand my previous statements. In a country with 55 million arrests a year, and many more police-citizen encounters, I don't see any chance of getting down to zero on shootings of black guys.....I believe racism exists in policing, but mental illness, drug-induced impairment, running from cops, resisting arrest, and demographic factors (more cops get called in black neighborhoods)all that figures in.....racism is only one part of it......and a thousand deaths in 55 million incidents is a vanishingly small number. Even if the real number is 10X the reported number, it's still vanishingly small.

But it only takes one viral video to put people in the street. I doubt that will change.

A left-leaning politico I once voted for said that there is nothing left in the middle of the road except for white lines and dead armadillos.....and that isn't too far from the truth.

Well I still disagree resisting on its own is a justification. I also think that if people are that authoritatian in trusting police on the scene to be ethical, they can easily become the low hanging fruit for unscrupulous police and prosecutors themselves. Not to be shot, but charged and/or convicted of things by incriminating themselves through misplaced willingness to co-operate.  'I'll just go down to the station and clear this all up...I'll seem guilty if I don't answer questions.... I plead guilty, but...'' are all ways to have everything incriminating magnified and everything mitigating excluded, opposite to the suspect's expectation.

with the shooting of Jacob Blake I thought it was a case where for a change, policee had no choice, so should not have resulted in the following turmoil. I thought Rayshard Brooks shooting was wrong as the man was clearly mentally retarded for anyone who watched the full video, so did not understand the instructions. He was not suspected of doing anything other than being drunk, so should not have been shot in the back running away.

In this Blake case, at least some news media was misleading in blacking out the seconds where he reaches for the floor of the car and shots are fired. The Guardian, which has zero journalistic integrity did that anyway.

I then asked a lawyer why the news and obviously much of the public was treating it as a simple shot in the back situation. He said it was because there were 4 police on scene and they never tried to use less lethal force like tackling, pepper spray or tazer beforehand. Fair enough.

Then I started getting a lot of memes sent my way, treating the
Rittenhouse kid who shot 3, killing two as a huge war hero deserving of a gold or bronze Star. You would have thought he had stormed a machine gun nest, not shot unarmed people, himself armed with an armalite.

I personally don't think he is either a cold blooded murderer or a hero as the polarised opposing opinions hold. I certainly don't accept that charges against him are totally unfounded and simply acted in self defence while doing a public service of killing commies. I don't buy for a second that going somewhere armed and underage is the same as picking up a weapon in self defence underage. I also see a case for self defence hugely negated by unnecessarily placing yourself in danger.

 A huge swathe of public opinion does seriously maintain he has altogether no culpability at all and his arrest is simply political. I think those same people are responsible for him throwing his life away, by imparting this idea that a teen with a semi auto in a crowd is as much a rite of passage as one with an air rifle in the uninhabited woods. Also the approval for dropping out of school to play call of duty all day, leading to LARPing. Certainly the profile of a school shooter as you said, and his former classmates said the same. That said, he didn't set out to kill anyone, but should never have been in the situation that might forseeably result in it happening: which is why he was armed and resulted in three shot with two dead and charges that would effectively mean life in prison. Yet millions refuse to take any responsibility for this happening, through the same beliefs they have in the attitude of first his mother who sent him and then the men in the milita who allowed him to accompany them.

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[BuddyJ]

A huge swathe of public opinion does seriously maintain he has altogether no culpability at all and his arrest is simply political. I think those same people are responsible for him throwing his life away, by imparting this idea that a teen with a semi auto in a crowd is as much a rite of passage as one with an air rifle in the uninhabited woods.

Do you have any information as to how or why Americans would equate those two? As someone who grew up around firearms (admittedly awhile ago), this never happened in the rural area I am familiar with. It seems a bit of a stretch even in flyover country today, imagining all these folks who would confuse using an air rifle in the woods with a semi-auto in a crowd.

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[Phil Rumpole]

Perhaps a touch hyperbole, but what I see is every right wing protest or counterprotest such as the anti-lockdown ones around April, carry guns instead of signs. People are citing the Wisconsin law on open carry has some exemption clause for 16-17 yr olds. I haven't seen the actual wording of that, but it's common sense in my mind it would be meant for going hunting or a firing range. I doubt most of them have even thought about the relevant statutes at all, they just take what the youngster in Kenosha was doing as natural as a boyscout needing a pen-knife. Boggles my mind.

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[RE]

Good material about Winston Churchill and the transition of Naval power to oil from coal.

RE

https://oilprice.com/Energy/Energy-General/Oil-Majors-Stuck-Between-A-Rock-And-A-Hard-Place.html

Oil Majors Stuck Between A Rock And A Hard Place
By Andreas De Vries - Oct 18, 2020, 6:00 PM CDT

The past few years have been historic for as far as crude oil forecasts are concerned. Back in 2015 the view that crude oil demand could peak during the 2020s or 2030s was still met with disbelief (and some ridicule…). Economic growth had been pushing crude oil demand up ever year for decades already, so why would things become different, so the reasoning went. Today, however, essentially all major energy forecasters, including BP, Shell, Total, DNV-GL, the IEA and even OPEC, have come round and acknowledge Peak Oil Demand as a realistic possibility.

The strategic response of the Oil Majors to this possibility has differed. But so far, none seem to have won over the investment community. What could be the reason for this? And does this leave the Majors at risk of being cut-off from capital?

Crude Oil during the 20th century

As Admiral of the Royal British Navy, Winston Churchill took a decision that not only shocked his nation, but also defined the role crude oil would play in the global economy during the 20th century.

Great Britain had become the world’s leading nation thanks to its invention of the steam-engine, coupled with an abundance of coal in the country. This enabled the country to be the first to mechanize industry, which made it not only the world’s industrial heartland, but also its leading military power, as Britain’s mechanized industry was able to churn out warships that were much larger and more heavily armed than its rivals could produce. And by fitting them out with steam-engines, these British warships were also able to travel faster and further, independent from wind. In other words, thanks to the steam-engine and coal, Britain became “the empire on which the sun never sets”.

Nevertheless, in 1912 Winston Churchill decided that the British Navy’s future would be based on crude oil, when he ordered construction of the Queen Elizabeth class of super-dreadnoughts based on an internal combustion engine design. Many were outraged. Steam-engines needed coal, of which Britain had plenty. But Churchill’s internal combustion engines needed liquid fuels derived from crude oil, of which Britain had only a negligible amount. So what on earth was he thinking? But Churchill was convinced that warships which coupled the technology of the internal combustion engine with the physics of crude oil could be made larger, more heavily armed, faster, and with a greater range of operation, than any warship that utilized a coal fired steam-engine. The introduction of the internal combustion engine would therefore ensure that in the competition with France, Russia and Germany, the British Navy would remain superior.

Churchill turned out to be right. Judging by speed, range, ease of operation, reliability and economics, the internal combustion engine fueled by a crude oil derivative did indeed outperform all other transportation solutions. And, as it turned out, these advantages applied not only to (war)ships, but also planes, trains and automobiles. As a result of this superiority of the internal combustion engine, oil became the most important source of energy of the 20th century.

The implications for the strategy of oil companies was far-reaching. Since there was no technology that could compete with the internal combustion engine, growth of the global economy ensured growth in demand for crude oil. Oil companies could therefore simply focus on finding crude oil, producing, refining and marketing it. For as long as they could do this at a price point that was lower than that of their competitors, they would always find takers for their product. They would be able to sell all the oil they could lay their hands on, and at margins which guaranteed record profits and rates of return.

The Crude Oil Business during the 21st century

Over recent years, a number of trends have developed that call into question the future of the internal combustion engine and crude oil.

Primary among these trends is sustainability. The first generation that grew up in the internal combustion engine and crude oil era, the baby-boomer generation, did not know much about the impact on the environment of crude oil production, refining and burning in an internal combustion engine, as this body of knowledge developed only during the 1970s. The baby-boomer generation therefore became environmentally aware after they had firmly established a certain lifestyle. The descendants of the baby-boomers, the Millennial generation, was brought up with knowledge of the environmental implications of crude oil. Consequently, they became not only aware of the environmental issues associated with the internal combustion engine and crude oil, but also concerned about them. As this generation educated its descendants, the so-called Generation Z, in these concerns from the youngest of ages, this latter generation moved beyond environmental awareness and concern, to action. Generation Z consumers are considered the “green generation” because for them, environmental concern is a key factor in day-to-day consumption decisions. For the sake of the environment they are willing to make do with products that are sub-optimal from a convenience perspective but deemed sustainable, and they are willing to pay a premium for products that are deemed sustainable.  This trend would be irrelevant for the internal combustion engine and crude oil had it not been for a second trend, namely technological innovation. Over recent years a number of technologies that greatly appeal to the Generation Z, the consumers of the future, have developed to the point where it becomes possible to imagine that they bring forth solutions that can compete with the internal combustion engine and crude oil on power, range, ease of operation, reliability and economics. Chief among these technologies are the electric drivetrain, batteries and hydrogen, which have made electrification of transportation not only possible but likely.

The third trend of importance to the internal combustion engine and crude oil is ESG investment. On the one hand not fall foul with Generation Z, and on the other hand to leverage this generation’s sustainability preference for financial gain, investors around the world are making sustainability a key tenet of their investing strategy. The bottom line of this trend is that less money will be available for investment in crude oil projects, while that which remains available will most likely come at a premium.

All this means that there is a real possibility the crude oil business will experience a structural change during the 21st century, as the internal combustion engine could lose its role as the “engine of the global economy” to the electric drivetrain.

Crude Oil Strategy during the 21st century

If the above scenario – the Energy Transition scenario - were indeed to play out, the Oil Majors would be forced to change their strategies in a fundamental manner. If, namely, crude oil loses the pivotal role it plays in the global economy, growth in demand for it would no longer be guaranteed. In such a market environment, the traditional “find it, produce it, refine and market it” strategy would no longer guarantee the growth in profits that the Oil Majors’ shareholders have come to expect.

This potentiality appears to have triggered strategic reviews at a number of the Oil Majors.

Shell was the first to adopt the Energy Transition scenario as the core for its future strategy, as evidenced by the fact that over the past years  it has announced a number of decisions that are natural responses to this scenario. For example, in 2016 it launched a New Energy division to leverage the opportunities that would result from the Energy Transition, such as in electricity generation, batteries, grid management and hydrogen. in 2018 it adopted methane emissions intensity targets for its assets, which has led it to divest from crude oil resources with high carbon intensity such as the Canadian tar sands. In 2019 the company adopted a new ambition to become the largest power company in the world during the 2030s. And most recently the company announced that it would accelerate it transformation in response to the Energy Transition. It adopted “net zero” emissions targets in April of 2020, and in September 2020 launched a major restructuring to free up funds for investment in the New Energy area.

BP too has changed it strategy its strategy in accordance with the Energy Transition scenario, but more recently than Shell. After the failure of the company’s “Beyond Petroleum” strategy launched in 2002, it spent most of the 2010s managing the implications of the Deepwater Horizon disaster. But since the appointment of a its new chief executive officer Bernard Looney in October 2019, things have changed. In February of 2020, in pretty much his first major announcement, Looney announced the new strategic direction of the company using the slogan “Reimagining energy, reinventing BP”, accompanied by a very specific “Net Zero” ambition. Shortly thereafter the company restructured in accordance with this strategy, implementing a new organization structure and leadership team during May and June of 2020. In August it then set out the details of its new strategy, explaining it to the international investment community during September. Further that month it also communicated its new “core beliefs” about the future of global energy demand, saying it assumes this will continue to grow (“at least for a period”), but in a manner different from before, with a “declining role of fossil fuels offset ‎by an increasing share of renewable energy and a growing role for electricity”. On this basis BP then signed its first major M&A deal to add to its New Energy portfolio, also during September.

Although Total has not made the major announcements around the Energy Transition of Shell and BP, it has not stood idly by. It has been speaking about “integrating climate change” in its strategy since 2017 already, and has made a number of significant investment accordingly. Today, of all the Oil Majors, the Total portfolio of New Energy businesses is probably the most advanced, covering renewable power generation, storage, electric vehicle charging, and, through its Carbon Neutrality Ventures arm, even a hydrogen fuel cell powered commercial vehicles developer.

Over in the United States, however, ExxonMobil and Chevron are taking the contrarian position, with both maintaining a market outlook that is best described as “steady she goes”. Based on this outlook, ExxonMobil believes that heavily investing in addition crude oil, natural gas and petrochemicals capacity now sets the company up for success it the future, especially as its European competitors are speaking about decreasing the share of fossil fuels in their future portfolios. Consequently, the company’s strategic plan targets well over US$ 30 Billion of investment annually over coming years – all in fossil fuels.

Related: The Secret Behind America’s Most Valuable Energy Play

Chevron is positioning itself in between the European Oil Majors and ExxonMobil, adopting a wait-and-see strategic approach. Its current strategy prioritizes dividends payments and share buy-backs over investment, as long as it is not fully clear what the future of energy will look like. The company’s top goal is to distribute US$ 75 billion - US$ 80 billion in cash to shareholders over the next five years.

The Stock Market Response Interestingly, at the end of September, the share price of all the mentioned Oil Majors was down significantly on the year. Shell was down 58%, BP 53%, Total 45%, ExxonMobil 52% and Chevron 40%. Part of this is due to the crude oil price decline during the year, and the lingering impact of the COVID19 pandemic on global crude oil demand. But since this should affect all Oil Majors more or less equally, it is fair to assume that the divergence in their share prices movement is related to the differences in their strategies. Based on this assumption, it appears that none of the mentioned strategies has so far fully convinced the international investor community.

As to the reasons why this could be the case, different considerations are likely at play.

As to where global energy markets are heading, the ambition of consumers, governments and international organizations is clear: sustainability remains the trend, to which investment community is responding by prioritizing ESG investment. The “steady she goes” strategy of ExxonMobil does not address this, as a result of which the company finds itself under significant investor pressure at the moment.

On the other hand, what is not helping the case of the transitioning Oil Majors Shell, BP and Total is the fact that the speed at which they envisage to transition does not align with the 1.5°C global warming limit as outlined by the Paris Agreement. Additionally, smart investors are asking questions about the ability of these companies, which for over a century have focused on fossil fuels, to actually deliver on their transformation ambitions. And, even if one assumes they will be able to, there is no doubt that transforming an Oil Major is harder than starting up a new venture based on the Energy Transition scenario. So why would a smart investor bet her Energy Transition money on a “fossil trying to change”, that will have to deal with a company culture and practices that were developed for the fossil fuel era of the 20th century, when she could also put this money in a New Energy focused startup unhindered by such deadweight?

This probably explains why Chevron, with its focus on returning cash from existing operations to shareholders, has relatively outperformed its competitors so far this year.

The Way Forward

This author firmly believes that the Oil Majors cannot succeed without the Energy Transition, and that the Energy Transition cannot succeed without the Crude Oil Majors.

As to the first point, the need for the Oil Majors to adopt the Energy Transition strategy, in the world before Covid-19, sustainability was what futurologists and trendwatchers call a macro trend. That is, a general movement in society toward a comprehensively different way of life. Sustainability fell into this category because it was in the process of changing consumer preferences; social taboos as with flight shaming; societal priorities, as evidenced by national commitments made under the UN Framework Convention on Climate Change; government rules and regulations such as bans on single-use plastics and internal combustion engines; and national development policies as exemplified by China's Industrial Green Development Plan and Europe's Green Deal. Historically, only cataclysmic events, such as a pandemic or global war, disrupt macro trends. So far, however, the Covid-19 pandemic has not disrupted sustainability. To the contrary, as evidenced by the calls to use the current crisis to accelerate the transition to a carbon neutral economy, it is likely to only accelerate the sustainability trend. Consequently, the pressure on the Crude Oil Majors to transition is likely to increase as well. Those that are transitioning are likely to eventually find themselves under pressure to transition faster. But those that are not transitioning might find themselves cut off from investment, financing and funding.

Related: Democrats Want Permanent Ban On Offshore Oil Leasing

As to the second point, the dependency of the Energy Transition on the Oil Majors, firstly, this has to do with the nature of a transition. Despite the global ambition for a carbon-neutral economy, the dependency of the global economy on the various derivatives of crude oil will not disappear overnight. Since nothing could be more disruptive for the Energy Transition than a shortage of transportation fuels and plastics during the process, even in their current form the Crude Oil Majors will remain an essential component of the global economy.

Secondly, this has to do with the competencies and capabilities the Oil Majors have built up over the decades. According to the OECD, to meet the needs of the global economy, around $6.3 billion of investment in the global energy infrastructure is needed annually until 2030. This number rises to $6.9 billion if all investments are made compatible with global climate ambitions. Clearly, the scale of this necessary effort is huge, and it is hard to imagine how it could be achieved without leveraging the Oil Majors’ experience in delivering massive, technologically complex projects in the most inhospitable areas of the world, and seamlessly connecting the energy produced with consumers globally.

For the sake of Energy Transition, therefore, the Oil Majors should transition, in a balanced manner, but with a sense of urgency. If they do this while communicating well with their stakeholders, there is no reason to believe the global investment community will not overcome its current hesitancy and come to support their transition strategies.

In a separate, future article I will expand on my ideas about what a balanced transition strategy should look like for the Oil Majors.

By Andreas de Vries for Oilprice.com

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[RE]

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Help & Support
Short Ideas
No Debate, Most Oil Shale Is Doomed
Oct. 27, 2020 1:54 PM ET|
202 comments
|
Includes: BP, BPAQF, BRK.A, BRK.B, CHK.PD, CHKAQ, CHKGQ, CHKHQ, CHKJQ, CHKPQ, CHKVQ, CHKWQ, CHKZQ, CLR, COP, CVX, CXO, OXY, PE, PXD, TOT, TTFNF, WLL, XLE, XOM, XOP
Kirk Spano
Kirk Spano
Margin of Safety Investing
Growth and Income Investing For The 2020s
(18,248 followers)
Summary

Shale has huge competition to fill remaining oil demand.

Zero cash takeovers for Permian producers is a very bad signal for the rest of the industry.

Debt-laden shale companies simply cannot pay down debt at likely demand and prices - a last wave of bankruptcies and takeunders is coming.

There might only be four or fewer independent U.S. oil and gas producers worth considering an investment in.

I own puts on the SPDR Oil & Gas E&P ETF and three oil stocks because I expect retests of 52-week lows over the winter.

Looking for a helping hand in the market? Members of Margin of Safety Investing get exclusive ideas and guidance to navigate any climate. Get started today »

Oil stock investors have become the biggest bag holders in the market the past several years. Those still holding onto oil stocks in the hopes for a brighter future and rebound are missing all the points I laid out in June of 2019 here: Here's Why Oil Stocks Are Priced For Armageddon.

In the recent presidential debate, Joe Biden took the bait and said he'd see through a transition away from oil. I'm not sure why this caused a stir. Whoever is president next will have to do that as the secular trend away from oil is unstoppable.

Over the next decade, we will see oil demand reach its 2019 highs again, but then flatten and fall before the end of the decade. This spells doom for most oil shale drillers as they are heavily leveraged and sitting on second or third best "rock."

If you own oil stocks, I agree with Pioneer Resources (PXD) CEO Scott Sheffield who said: "There's only going to be three or four independents that are investable by shareholders..." I see most of the oil companies in the SPDR S&P 500 Oil & Gas E&P ETF (XOP) going bankrupt or merging to become married zombies.

I sold my most of my oil stocks in summer 2019 and the rest in January 2020. I currently own puts on three oil company stocks and the SPDR S&P 500 Oil & Gas E&P ETF (XOP) on what I expect will be a very rough winter in the oil patch.
Oil Demand Growth Is Gone

Oil companies from BP (BP) to Exxon Mobil (XOM) are adjusting their expectations on oil demand. As have OPEC, the IMF, EIA and IEA. All are revising their oil demand expectations down.

There's a realization that technology for ICE vehicles, hybrids and EVs were all driving demand down. Now, coronavirus has likely accelerated the work from home economy to the point of no return. Many people will be working remotely, at least more than they were, forever.

Here's BP's latest outlook framework. I think the orange line is most likely, but the blue "net zero" is more likely than the green "business-as-usual."

BP Oil Outlook
The EIA's short-term energy outlook does not have demand rebounding until 2022 at least. Remember, this is Donald Trump's EIA. They're pretty much paid to be bullish.

EIA Oil Demand STEO

Even OPEC revised demand down. The APT case is more realistic than the reference by far, in my opinion.

OPEC Oil DemandWhat's most important for the OPEC scenarios is the explicit mention of technology. That's the bogeyman for oil. Technology is simply making oil less viable economically.

Bloomberg provides a nice composite view of the long-term oil outlook among different forecasters. In each case, I'd ask you to consider motivations.

Oil Demand Forecasts
While at CES 2020 (January seems so long ago), it became apparent listening to auto industry engineers and executives that by 2025 the ICE engine as we know it will be mostly gone for sale, only super efficient models will be left. The reality that set in though was that EVs could dominate new car sales by 2030.

Couple that with the coronavirus causing a permanent to at least partial work from home arrangements for millions of people and it's easy to see that oil demand growth is essentially dead, excluding a rebound to full economic activity after the pandemic.
Shale Has Major Competition

There's now jockeying for position to see who will supply the oil for the rest of the oil age. Like any other commodity market, the lowest-cost producers will be the winners (or slowest losers). That means that OPEC will eventually go back into "drill, baby, drill" mode as soon as enough oil inventory burns off.

If you ask one question about oil ask this: Why would the lowest cost producers not produce?

Oil Breakevens By Type
In the updated graph by Rystad, you can see shale faces some major problems. Already, nearly 40m/d of oil are from existing conventional production. OPEC has the cheapest oil and Russia's production will only decline slowly.

What's new in the Rystad analysis is that deepwater is not on par with U.S. shale oil for cost. How did this happen? Primarily that's from the existing and new deposits around South America. Brazil has several fields that are cost effective. Guyana and Suriname are newer fields that are cost effective and have major commitments from Exxon, Hess (NYSE:HES) (maybe the fourth investable company that Sheffield mentioned), Apache (APC) and Total (TOT) which is a noted bargain hunter.

Consider the reserves of each type of oil shown. Then project out how much oil will be needed in the next few decades. There are going to be a lot of stranded assets.

For shale producers that means that only the lowest cost oil will be produced. Given the massive amount of "high grading" in recent years, that means only the best remaining assets are competitive. Other than in the Permian, there's very little cost competitive oil shale left.

The best "rock" is primarily in the Permian Basin where most U.S. production growth has been the past few years. But even for Permian producers there's bad news.
Zero Dollar Takeovers Are A Sign

Recently, two big Permian Basin independent producers were acquired. Neither company was able to get any cash in their deals the way Anadarko was in a bidding war just two years ago.

The Occidental Petroleum (OXY) purchase of Anadarko was 78% in cash of $44 billion. A portion of that cash was from expensive debt issued by Berkshire Hathaway (NYSE:BRK.A) (BRK.B) that also returned an equity kicker to Buffett's company.

In one of the past week's deals, ConocoPhillips (COP) purchased Concho Resources (CXO) for $9.7 billion or about a 15% premium to its prior day's closing price. The deal was all stock with no cash to Concho shareholders.

In the other deal, Pioneer Resources (PXD) acquired Parsley Energy (PE) for $7.6 billion - again all stock and no cash. This is a deal I suggested should happen back in May 2019:

"Pioneer also is a merger candidate with Concho Resources, Parsley Energy or Diamondback Energy. I could actually see Pioneer acquire Parsley. In such a transaction, they company would keep the Midland assets and likely sell the Delaware assets."

from: Permian Pure Play Merger And Takeover Targets

The question that investors should ask is why no cash in these deals. I think that two answers are rather obvious:

First, there are no oil majors with the willingness or ability to offer cash for more oil assets that they can't use over time. Think about both parts of that statement. Chevron (CVX) and Exxon are both losing money right now.

Chevron recently acquired Noble Energy in another no-cash deal. Exxon is in danger of cutting their dividend. Why would either company buy more oil assets given both have moved forward their expected dates for oil demand destruction? Obviously, they wouldn't.

Second, although Concho and Parsley are both considered gems of the Permian, it's entirely possible that neither is as valuable as perceived by many investors. How could that be? Both had significant debt and as we know fracked reserves decline quickly, meaning more capex to keep the treadmill running.

I would submit that with oil prices likely to stay under $60 per barrel another two or three years at least, based on lower demand, massive inventories, a few new large offshore developments and statements made by Saudi Arabia, that frackers simply do not carry anywhere near the value they were once thought to have. Hence, no cash.

The reality is that these deals, even for the best companies in the best U.S. oil basin, really are just survival tactics. Consider what that means for frackers with worse "rock" and worse balance sheets.
Shale Companies Have Massive Debt

The majority of still independent frackers are loaded with overwhelming debt. Those debt loads were based upon fantasies of long-term rising oil demand and at least stable oil prices around $80 per barrel. Reality has not been nearly that bullish.

The SPDR S&P Oil & Gas E&P ETF (XOP) is full of companies with bankruptcy or going to penny stock status risk. Company after company in XOP has massive net debt that without higher oil prices and higher demand they can never hope to repay, much less provide any value to shareholders.

XOP Net Debt
XOP Net Debts

StockRover charts

What you see is that XOP companies carry roughly $288 billion in net debt. There's simply no way, again, echoing Sheffield, that this debt can be repaid by most of the companies.

To be sure, they have assets, but I don't both show those measures because i believe that net PP&E and total assets are both overstated by double or more. There are so many writedowns coming it's going to be bloodbath not only for the oil companies, but for bondholders and banks.

The oil shale companies are going to engage in takeunders and mergers of the damaged to stay in business. The natural gas companies also are undergoing mergers and are slightly better condition due to the longer runway for natural gas vs. oil, and the likelihood that natural gas prices rise somewhat as affiliated gas production falls.

This winter, investors also should expect several more bankruptcies among XOP stocks.
Oil Bankruptcies Already Are Everywhere

There have been nearly 250 oil company bankruptcies in the past six years. There are about to be more over the winter. To avoid more pain of falling stock prices, investors should sell most oil stocks and cut their losses.

With debt out of control, oil prices lower than $60/barrel and demand in the dumps, oil bankruptcies have been spiking again. Two of the highest profile have been Chesapeake Energy (OTCPK:CHKAQ) and Whiting Petroleum (WLL). But they are certainly not alone since OPEC decided to try to capture more market share.

Oil Bankruptcies

The Chesapeake case is interesting in that a dispute with pipelines could take the company from reorganization to liquidation. This bodes very poorly for oil pipeline companies, so keep an eye on that as well. The dividends of several pipelines companies are clearly at risk. If their dividends fall, so too will their share prices.

If Saudi Arabia is right that oil will be around $50 per barrel through 2022 or 2023 then, as the debt numbers above suggest, a lot of oil frackers are in big trouble given their breakevens and accumulated debt.

I think one need look no further than Continental Resources (CLR) for signs of trouble. Its two main basins, the Williston and STACK/SCOOP, both have problems. The cheapest oil in the Williston is gone and the STACK/SCOOP has earthquake problems that limit production and cause disposal costs to be higher.

With nearly $6 billion of net debt and essentially no cash, Continental looks headed down to penny stock territory. I fully expect either a take private at much lower prices or a bankruptcy reorganization. Harold Hamm buying shares is interesting. He's been very bad the past five years at predicting the oil markets, so I do not know if he has a bankruptcy or take private plan in mind, or if he's just blinded by his emotions for the company he founded and making a big mistake buying shares.

Occidental Petroleum (OXY) is another company that has been virtually destroyed by the bad judgment of the CEO. Vicki Hollub has virtually destroyed that company through some combination of hubris, greed and wrong analysis. The Anadarko deal will go down as one of the worst takeovers in history.

And now, it turns out the Anadarko board might have allegedly misled about the value of its assets in the Gulf of Mexico. A whistleblower complaint has been filed by an Anadarko engineer that Anadarko's management deliberately lied about the value of their Shenandoah Field. Now, a shareholder lawsuit is pending alleging that Anadarko executives suppressed this information for years knowing it would be instrumental in selling the company and them getting their change of control bonuses.

Occidental tried to put a good face on things by paying Berkshire Hathaway its latest preferred dividend in cash. They should have paid in shares again. The company has no real cash. And, with oil prices languishing, there's no way for Occidental to pay its debt by fracking more. In fact, by paying the Berkshire dividend in cash, they're basically admitting that.

Occidental had hoped to sell more assets for higher prices. But, as the entire world is realizing, there's no point in buying more reserves. They probably don't matter. Occidental as a result is stuck with a bunch of junk assets from the Anadarko deal with the huge debt.

Occidental's real value lies in its conventional assets and a host of small but potential growth assets (CO2, power) intermediate term. The shale assets outside of the Permian have little value. Their large Niobrara position is a third tier asset at best and I believe more of a liability.

Occidental Petroleum is a company that likely goes through a reorg if oil prices stay down. That would put the company possibly under the ownership of Berkshire.

Continental and Occidental are two of the larger holdings in XOP. When scanning the list from most net debt down, you see a host of companies with just massive problems. And now, with a few of the best companies absorbed, what hope does that ETF have?
Buy Puts On XOP

Just to disclaim, I own puts on Occidental, Continental and Exxon (XOM). These are the second or third times I have done this in recent years. So far, all of these trades have been profitable. I have discussed my shorts on Exxon in my "Peak Oil Plateau" webinars.

The weakness across the companies in XOP and the technical analysis are telling me that it's very likely that the ETF double bottoms here over the winter. Here's my quick chart showing my expectation for a double bottom on XOP over the winter.

XOP Collapse Double Bottom
TradingView chart

MACD is showing no strength:

RSI has further to fall:

Ultimately, I do think XOP is delisted and SPDR directs investors to the SPDR Select Energy ETF (XLE). XOP is simply becoming not viable.

As such, I have bought a spread of puts for January 2020 at a few strike prices between $40 and $30 on XOP. I expect it to fall to about $29 per share in coming months. I can roll my puts out if necessary as volume on later dated puts become active.

If you use options and are looking for a way to make money on oil stocks, stop debating, flip the switch, sell your oil stocks which are facing major secular headwinds and buy puts on XOP and select oil stocks now.


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To follow my hedging trades more closely, or to learn which energy stocks I am investing in instead of oil stocks, take a free trial to Margin of Safety Investing today.

Disclosure: I am/we are short OXY, CLR, XOM, XOP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: See my blog for details about a special upcoming webinar. --- I own a Registered Investment, but publish separately from that entity for DIY investors. Any information, opinions, research or thoughts presented are not specific advice as I do not have full knowledge of your circumstances. All investors ought to take special care to consider risk, as all investments carry the potential for loss. Consulting an investment advisor might be in your best interest before proceeding on any trade or investment.
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ProBagholder77
Comments55 | + Follow
Amusing to see much rage from oil investors who have been wrong for so long. I'm no perma bear neither am I a perma bull on anything or many of these oil cos... but it's obvious they have been terribly run and deserve to be wiped out. But also see the writing on the wall, the majority of investor's $$$ and even more so in future as the kids build their wealth will keep flowing into renewables no matter the cost, that won't change any time soon.
28 Oct 2020, 01:50 AM
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0
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Al-Gor
Comments1857 | + Follow
There’s a lot of certainty expressed in the posts & analysis, and that can be a useful predictor.
28 Oct 2020, 01:30 AM
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0
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Dr Hey hey he
Comments934 | + Follow
oil is the most unloved, contrarian play in the stock market.

all oil stocks will see a double when covid is contained- in a year from now. green energy won't displace carbon energy for at least 10 years.

planes use jet fuel.

i just bought a 2020 ICE car.

used cars will still be around.

i cook with nat gas

nat gas power plants source electricity for EV

etc etc
28 Oct 2020, 01:23 AM
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2
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Stillhunter888
Comments213 | + Follow
Dr Hey, you are WAY too logical for the greenie ESG snowflake investors. Take away their fossil fuels and watch them have a hissie fit.
28 Oct 2020, 02:59 AM
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0
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Maverick 2021
Comments3002 | + Follow
US Gasoline Stations will be OBSOLETE by 2040 !!!

President Biden will see to it that the Green New Deal is set in stone and the Koch brothers are poorer for it....!

Pack the Court with 13 Justices and get a liberal majority. Just like Mitch McConnell said, elections have consequences and Dems will repeat mitch’s own words....haha?
28 Oct 2020, 12:59 AM
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0
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Ephmen85
Comments52 | + Follow
The last buggy whip maker makes money.

The cure for low oil prices is low oil prices.

Combine those cliches and we might have an investable bottom. I agree that oil demand is in long-term decline, but it will take a while for the EV companies to scale up. As shale companies go bankrupt, Covid gradually goes away, and exploration budgets are cut the supply/demand equation for oil will change.
28 Oct 2020, 12:10 AM
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MattZN2
Comments3287 | + Follow
The last buggy whip makes money... but not very much money.

-Matt
(edited)
28 Oct 2020, 12:31 AM
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RealRural
Comments3561 | + Follow
Great analysis, I learned a lot. Much appreciated and well written also

Quite a good comment thread too, not too much Trumpian ranting for a change. Appreciate the counterveiling views and perspectives, since I am not an oily guy deep into thoughts on the sector.

Hoping my one pipeline stock, EPD, survives. Didn't see a comment on it in the thread.
27 Oct 2020, 11:00 PM
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1
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reron
Comments706 | + Follow
@Kirk Spano , you can't compare the current oil market with any in the history of oil. It's totally extraordinary. The timing of all this, the pandemic, the nutty kingdom and the watershed of negative prices, coming after a 5 to 6 year bear market is a bottom worth recognizing and remembering. Makes prefect sense the players are cut off from capital and all the no premium acquisition / mergers and bankruptcies. What more could a commodity investor want, maybe a few more moths of oversupply and another trip to the twenties. I sure hope so, I'll be a buyer of all of it, EP, Mid-streams, Refiners and Crude.
27 Oct 2020, 10:07 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
I guess we'll see. I am actually a bit bullish on oil price about 18 months out. But, by then the shale patch will have its final smack down.
27 Oct 2020, 11:11 PM
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reron
Comments706 | + Follow
@Kirk Spano , shale needs 50+ oil to access capital, if the dollar could help and roll over that could happen faster than most believe. But we need oversupply for awhile longer to get a trip to the twenties, then get the dollar to play along. Anyway, that's what I want for Christmas.
(edited)
28 Oct 2020, 12:24 AM
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david foster 1
Comments316 | + Follow
Natural gas needs to be more factored into this analysis, given that a lot of 'oil companies' also have a lot of gas revenue.
27 Oct 2020, 09:35 PM
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3
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aqeelmahesri
Comments1115 | + Follow
These companies make nearly all their profits (if any) on the liquid oil. The natural gas is basically a byproduct that's given away at cost or because regulators frown on flaring it away.
27 Oct 2020, 09:55 PM
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0
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SomeGuy14
Comments1827 | + Follow
Shale oil was never profitable. It was always a scam. I think investors and banks are just now realizing this fact.
27 Oct 2020, 09:29 PM
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gutcheck
Comments3731 | + Follow
"XOP. I expect it to fall to about $29 per share in coming months."

really ? are you aware a vaccine is likely to be deployed in coming months. what effect do you think that will have on oil
27 Oct 2020, 08:18 PM
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MattZN2
Comments3287 | + Follow
How long do you think it will take the vaccine to make its way to a sufficient number of people to actually create herd immunity? That's assuming that enough people actually get the vaccine. And then how long will it take after that level is reached before the virus is actually stamped out ?

-Matt
27 Oct 2020, 09:03 PM
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COVID-20
Comments7438 | + Follow
“No more new fracking” lacks an understanding of the process where all fracking is ‘new’. There are over 2 million fracking operations right now and if there was a negative environmental impact, it would be broadcast nonstop on the obvious networks.
27 Oct 2020, 07:14 PM
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MattZN2
Comments3287 | + Follow
2 million fracking operations? You mean 2 million fracked wells? I don't think the article discussed the environmental impact of the actual fracking. Its more a matter of the environmental impact of the oil itself. And the economics in the article are all based on the price of oil, not environmental impact.

The issue of "no new fracking" relates more to whether the companies can justify the cap-ex to do it, or not.

-Matt
27 Oct 2020, 09:07 PM
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COVID-20
Comments7438 | + Follow
@MattZN2 data reported today on Fox Business. The most significant element is what one party is saying, “no new fracking” in relation to the extraction process - it means an end to fracking which the same party denies.
27 Oct 2020, 09:13 PM
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MattZN2
Comments3287 | + Follow
@COVID-20 I have not a single clue what the heck you are talking about. Do you believe that memes spoken on... what was it? ah, Fox Business... are even remotely accurate or future-looking? If so then I feel sorry for you.

-Matt
27 Oct 2020, 09:30 PM
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COVID-20
Comments7438 | + Follow
@MattZN2 it will be a moot point in one week as that party will not win the White House.
27 Oct 2020, 10:33 PM
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Ulrich Eckert
Comments2 | + Follow
I m from germany.

Everything Green ist big Here. But i Don t See how the oil Market could colapse in the next 10 to 20 years. Cars in Poland have an average age of over 16 years. AND Poland is more advanced than many other countries .The Population in africa for example is growing. IT s estimated that there will BE an additional one Billion africans in 2050. Total Cars wordlwide have gone from 500million in the year 2000 to over a Billion today and over 2 Billion Cars are expected in 2040. Even If full Electro vehicles Take an serious Share in new Sales. That would Not even reduce oil demand in the Personal vehicle Share of the pie in the next 10 to 20 years because of a growing fleet and rising age of the fleet. And Cars are only a fifth of the Overall oil demand. For many heavy duty transportation tasks ,aviation and chemicals there is Not Alternative to oil for years to come. How does anyone See the demand Side collapsing without an davastating world war or Something Like that?
27 Oct 2020, 07:13 PM
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Westexr
Comments1657 | + Follow
@Ulrich Eckert

Oil demand is not going away, for many of the reasons you point out.

The China Virus and Saudi Arabia declaring financial war on the world created the current drop in oil prices. But, the China Virus and Saudi Arabia's financial attack are both temporary events.

The cure for low oil prices is low oil prices. The cure will work again, just like it always has. However, this time, due to the massive Capex cuts by the oil companies, the cure for low oil prices will work with a vengeance.

We will probably see a new record high oil price for awhile. IMHO.

@powerhousetravis
(edited)
27 Oct 2020, 08:38 PM
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PT Larry
Comments6826 | + Follow
@Ulrich Eckert Not too many believe oil demand is going to collapse from where it is today. Actually, most look for demand to increase from this point.

As wealthy countries purchase EVs, the used ICE vehicles will get shipped to lesser developed countries. Gasoline will remain the fuel of choice for some time....
28 Oct 2020, 12:11 AM
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BorisSFL77
Comments355 | + Follow
@PT Larry So why does Royal Dutch and BP trade around all time lows like they're going to zero?
28 Oct 2020, 12:34 AM
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1
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PT Larry
Comments6826 | + Follow
Inventory levels remain high and are keeping crude prices from rising. @BorisSFL77
28 Oct 2020, 12:43 AM
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BorisSFL77
Comments355 | + Follow
@PT Larry I don't see any correlation between the oil prices and price of energy companies now...Oil price has stabilized in 38-42 range while energy companies have been trending down since June
28 Oct 2020, 12:47 AM
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0
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bpayne37
Comments79 | + Follow
Electricity supply doomed as well? www.prosefights.org/...
27 Oct 2020, 07:03 PM
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0
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pgace123
Comments1274 | + Follow
Agree with article. But you know what cures low oil prices ...
27 Oct 2020, 06:58 PM
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4
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Clinton CTX
Comments30 | + Follow
Less drilling
27 Oct 2020, 10:13 PM
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1
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21793061
Comments12652 | + Follow
I like PXD, EOG, COG, FANG and COP. Last is a gas stock, of course, but still a shale-co.

Major props for reversing your strong bull stance. Only analyst I have seen honest enough to do that. Others either slunk off, or just continue pushing the same "long CRC" contrarian rap that their (dwindling) readers pay for.
27 Oct 2020, 06:54 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
thank you for noticing, others just go full asshat or ideology
27 Oct 2020, 10:05 PM
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powerhousetravis
Comments356 | + Follow
This scenario is very plausible and a big negative for the oil industry which I have worked in for 15 years since college. The cards are definitely stacked against a bright future for oil. Gas may be another story but it still may be hard to invest in. The slow bleed has begun.
(edited)
27 Oct 2020, 06:49 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
I think that's what people still bullish don't grasp, there is not enough future to see prices rise much and risk is extreme. The folks who win will be those who take these private at vulture prices.
27 Oct 2020, 10:08 PM
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Westexr
Comments1657 | + Follow
I have to agree with that last sentence, Mr. Spano. Going private would make a lot of sense for some of the smaller companies. Maybe even some of the medium size companies.
28 Oct 2020, 01:08 AM
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David 99
Comments190 | + Follow
Oil is taxed almost everywhere. Renewables are subsidized almost everywhere.. Once fossil fuels are no longer the number global source of energy maybe at the turn of the century (a reminded the world supposedly turned away from coal at the beginning of the previous century), there will be something more efficient to replace them and most certainly current day renewables.

Most people do not factor in the scope of world wide use of energy. The chart by Rystad Energy is a joke.
27 Oct 2020, 06:35 PM
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0
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
For those who watch webinars, here is my webinar from last Friday:

No Debate, Most Oil Shale Is Doomed on the Peak Oil Plateau playlist.

www.youtube.com/...
27 Oct 2020, 05:52 PM
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MattZN2
Comments3287 | + Follow
Still watching but quite well put-together and very well spoken. I don't agree with all of it, but I think you've nailed the general trends.

-Matt
27 Oct 2020, 06:36 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
thank you, getting pretty many viewers lately
27 Oct 2020, 10:09 PM
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papaloapan
Comments53 | + Follow
Trouble in River City, but not the first time. I agree that we are on a path to greener energy, but I think it is a reasonably long road.

We need a lot of infrastructure to support a lot of electric cars, and that will require a lot of utility expansion, which burn carbon.

How long before the battery issues are solved - both for the cars, and to store green energy which can be intermittent. And do we know they will be less damaging to the environment - disposal?

Discounting the short term effect of COVID on consumption, we produce / consume circa 100mm bopd - that means we need to find 100mm bopd to maintain reserves. How fast can we build green energy, and how does this addition measure up against increased consumption from the developing world. We will increase the percentage contributed by green energy, but will we reduce the quantity of oil required significantly because of this.

That 100mm balance is the classic example of elasticity of demand. A move of 1-2% in either direction, or either side of the equation, the effect on price is dramatically disproportionate.

Assume fracking is on a path to elimination, how much oil/gas is produced by fracking; It's a big number, and responsible for energy independence. Take that out of the supply side, and the market is more than balanced, it will be in deficit.

The logical path to green energy is through gas.

I buy the premise of green energy, and its importance to the future, and carbon is not going to be as easy as it was, but missteps are possible, and likely, on both sides. Carbon is on the way out, but I will be gone before it is, and in the meantime, something is going to kick start that elasticity problem once or twice before I'm gone.
27 Oct 2020, 05:46 PM
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O&G Alpha
Comments69 | + Follow
100% agree green energy is through natural gas.

You need a base load power source expect if you are a tiny country or Norway which continuously has hydro or wind power [they are an exception].

There are 3 sources of base load power: thermal (fioul/gas/coal), Nuclear or Hydro.

Renewables complement one or combination of the three but countries need a base load power.

Putting nuclear plants in every emerging countries is imo a terrible terrible idea, thermal coal plants will be converted to NG. Renewables will exist with Natural Gas
27 Oct 2020, 06:53 PM
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AnthonyGiordano
Comments548 | + Follow
Thanks for the article Kirk. Any opinion on EPD and the midstream pipes? I noticed Buffett bought some of Dominion’s pipe assets back in the summer.
27 Oct 2020, 05:38 PM
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Moon Kil Woong
Comments16938 | + Follow
Chevron and Exxon among big majors will survive. They actually need the ridiculousness of pumping at a loss to end the oil boom financed with nothing but debt and massive losses to end. What would help even more if other countries that pump at loses stop pumping so much as well.
27 Oct 2020, 05:33 PM
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Philipsonh
Comments4128 | + Follow
If we could foretell the future, my wife would have purchased Dell shares in 1986 instead of buying a Dell computer. The computer went to the scrapyard and the shares multiplied 8,000%, best I remember. The $1,800 she spent would have now been worth - wait- where is my calculator ? Well, A LOT.
27 Oct 2020, 05:30 PM
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SomeGuy14
Comments1827 | + Follow
You're gonna go back to 1986 and the best stock you can come up with is... Dell?
27 Oct 2020, 09:49 PM
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0
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KCI Research Ltd.
Comments5538 | + Follow
Shale oil and shale gas are two different animals. My targeted five Appalachia producers were up 47% YTD through Friday, October 23rd, on average, which rivaled the 48.6% average gain in the FAANG stocks year-to-date through the same time frame. The leading natural gas producers, particularly in the Marcellus, and in the core of Haynesville, have world class assets, superior to even the Permian in terms of competing on the global market. This differential versus their oil based peers is starting to assert itself in 2020.

WTK
27 Oct 2020, 05:22 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
yeah, but those nat gas producers were down 50, 60, 70, 80% the past few years. I've looked the nat gas too. The difference is that nat gas has a longer runway so will be zombies rather than dying outright.
27 Oct 2020, 10:11 PM
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KCI Research Ltd.
Comments5538 | + Follow
@Kirk Spano

I understand the perspective, however, sometimes the proverbial baby gets thrown out with the bathwater (as I write this, wondering where that expression came from anyway, as somebody with quite a few kids). Straight to my point, might AMZN declined by over 90% from peak to trough in 2000-2002, so sometimes when there is a very bad bear market in a sector, even the future leading companies are dragged materially lower. That is what I think has happened with the leading natural gas equities. The massive energy bear market took them down too.

WTK
28 Oct 2020, 03:12 AM
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O&G Alpha
Comments69 | + Follow
What is crazy to me is that people don't understand that 75% of shale oil companies would have gone bust regardless of COVID. It just accelerated their downfall.

ShaleCos became ShitCos by injecting themselves with lethal capital structures & overvalued M&A / A&D transactions.

The consequences of a Capital Structure OD can happen suddenly, or it can take years before collapse. 75% of them will collapse and keep destroying billions in shareholder value.

Fully agree it will be a bloodbath but not only from debt funds or banks but employees and local economies. Chevron waited for the deal to close to fire 25% of Noble's staff. Concho's employees are next.
27 Oct 2020, 05:04 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
@O&G Alpha exactly. Covid just accelerated the death of most shale oil. The aid they got helps, but the offset is the work from economy, TaaS, hydrogen for heavy vehicles coming within a decade and massive improvements in efficiency while moving to EV & hybrids.
27 Oct 2020, 10:13 PM
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SandMac
Comments1414 | + Follow
@Kirk Spano

What aid did the shale companies get?
28 Oct 2020, 02:01 AM
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Stillhunter888
Comments213 | + Follow
Kirk, you do realize that the bankrupt companies shale oil wells are still there, and will still be produced when prices are sufficient, by the companies that operate the wells, either in receivership, or a distressed buy out, right?
28 Oct 2020, 03:08 AM
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StreamlineMidstream
Comments113 | + Follow
The Saudis play the most important part of all oil prices, simple.
27 Oct 2020, 04:37 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
careful, folks hate hearing that Saudi Arabia has more control of oil than the U.S.
27 Oct 2020, 10:14 PM
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StreamlineMidstream
Comments113 | + Follow
Good article. Simple and is on the money.
27 Oct 2020, 04:35 PM
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riki3742
Comments209 | + Follow
I question any article that begins with "No Debate, ....". This one is no different. Oil is certainly not dead...True there's a number of factors that are challenging the industry in the short term, but to claim its dead is ridiculous.
27 Oct 2020, 04:30 PM
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investor_newbie
Comments229 | + Follow
@riki3742 could you describe a few supports to your view please? Thank you!
27 Oct 2020, 05:04 PM
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Craig Cooper
Comments3756 | + Follow
@investor_newbie

Here is a great resource for information about this and other energy-related issues. All of the presentations are excellent as are the movies Switch and Switchon.

https://switchon.org/

Kirk's hyperbole aside, Switch Energy Alliance provides an excellent, realistic view of energy, energy issues and energy transition(s).
27 Oct 2020, 05:58 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
so, no debate, you missed the play on words huh.
27 Oct 2020, 10:15 PM
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Craig Cooper
Comments3756 | + Follow
@Kirk Spano nope, didn't miss it. Merely wanted to provide access to pertinent, intelligent, realistic perspective on the topic. Would be good to spend a day or two going through the material.
27 Oct 2020, 11:01 PM
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Entreri
Comments3091 | + Follow
Oil stocks should come back in the next 2 years, then steady declines.

Tesla and the green revolution.
27 Oct 2020, 04:27 PM
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ziggyzig
Comments1586 | + Follow
To negative on oil......we will be back to 100 million B of Oil...demand sooner than later. I would guess 65.00 by 2022
27 Oct 2020, 04:22 PM
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MattZN2
Comments3287 | + Follow
I think that is possible but there is a basic problem of *who* winds up filling that demand. I doubt it will come from North America or Europe (for many reasons). If am right about that, then we are left with China, then followed by third-tier players (India, etc) who don't have the same buying power as prior demand sources had.

If my prediction is correct, it doesn't bode all that well for a robust price recovery even in the presence of a volume recovery.

Ultimately though I think we are near peak oil and I think oil companies believe that as well and won't commit to many more 50-year projects. Or even 30-year projects.

-Matt
(edited)
27 Oct 2020, 04:38 PM
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andysbling
Comments1180 | + Follow
I grew up overseas from Asia to deep Africa to North Africa to S America..there is a massive real and potential Demand wave coming...this fact is being disregarded IMO......
27 Oct 2020, 04:15 PM
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TK8500
Comments4058 | + Follow
It cracks me up... there’s people complaining about how life is so unfair they can’t get ahead, but yet CVX is yielding 7.5% at extreme oversold values. They don’t own one share.

Anyone not buying CVX right now just doesn’t want more money.
27 Oct 2020, 04:06 PM
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Cash Flow Assets
Comments1200 | + Follow
Still short XOM? You are killing me. Long XOM at $60.
27 Oct 2020, 04:04 PM
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Arbitrage- Technologies
Comments35 | + Follow
fed up to hear that oil is dead because of green energy...that real transition will not occurs before 2030 at least.
27 Oct 2020, 04:02 PM
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Geloo
Comments544 | + Follow
At least. I drove for a few hours around Washington DC this week, a very high income area. I saw 3 Teslas and thousands of gas cars and trucks.
(edited)
27 Oct 2020, 04:11 PM
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tonykklau
Comments84 | + Follow
@Geloo I live in cupertino, aka capital of Teslas. I often see 3 Tesla’s around me waiting for the traffic light to turn. Having said that, I do believe that the so called renewable revolution will take decades to play out, if at all.
27 Oct 2020, 06:37 PM
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Torrid tungsten
Comments173 | + Follow
I think the difference is Tesla are reputed to not work well on hills and in the cold.

I've no idea if it's true, but that would explain why you see lots in California but a few in Washington.

Me? I've never even seen a Tesla.... ever, anywhere. Seen thousands of Toyota though

@tonykklau
28 Oct 2020, 01:46 AM
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whoosh21
Comments326 | + Follow
plenty of talk in the media about the renewable energy transition, but it will take many decades
27 Oct 2020, 03:56 PM
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richjoy403
Comments23464 | + Follow
21 -- Agree as to airplanes; but the auto industry ain't waiting!
27 Oct 2020, 04:00 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
@richjoy403 exactly
27 Oct 2020, 04:13 PM
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MattZN2
Comments3287 | + Follow
The full transition will take decades, yes, but that doesn't mean that oil simply remains king throughout that period with no competition. There will be fairly consistent demand destruction going on over the entire period (or, at least, a shift in demand to lower-tier players that don't have the same buying power as we do). And as that occurs, the long built-up debt in the sector starts to come home to roost. So what does that do to oil in the mean time? Steadily increasing competition from EVs, concurrent demand destruction, shift to lower-quality demand clients. Doesn't sound good.

Well, lets look at it a different way. Gasoline and Diesel vehicles are still highly popular but we live in a time of low gasoline prices. If the desire is for oil prices to bump up to support the flagging oil industry, what does that do once gasoline prices start to increase again? What happens is that the operating costs of gasoline and diesel vehicles diverges quickly from EVs and accelerates EV adoption.

--

I don't see any holes in this story. The oil industry has already lost a lot of future production capability. A fairly enormous investment would be needed to get it back, requiring a 30-year economic time frame just to break even. The economics of other technologies have already heavily disrupted other long-economic-time-frame projects. It is almost certain that the further evolution of various renewable resources will only disrupt it further.

Result is: A no-win scenario for the oil industry.

-Matt
27 Oct 2020, 04:59 PM
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Finici
Comments6001 | + Follow
@whoosh21 -

Certainly and I agree - besides,many seem to forget that baseload generation is still necessary to charge EV vehicles and will continue to be necessary for the near to intermediate future - Accordingly, I would look to more pollution reduction through 'command and control' - hardball emissions reductions across the board

While autos/trucks &c will most likely be the major transition factor, it will still require natural gas, nuclear and similar generation assets to supply baseload power. We are not there yet with storage, and true 'renewables' are not at sufficient capacity.

I would also think that as the over leveraged shale partnerships and smaller, less liquid pete producers shut-down, larger producers should take over the market more and institute supply management - not unlike dairy - which could see a slower return to $50-70 oil.

I noticed that today - Chevron is cutting more employees - mostly Noble folks?? 'The big oil folks had been driving big steaks and eating big cars for far too long.' Time to do some serious economizing not just belt tightening.

Jay
27 Oct 2020, 05:00 PM
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MattZN2
Comments3287 | + Follow
@Finici Better to think of it as 'overnight generation' rather than 'base-load', and it is already mostly nuclear and natural gas so the mix is unlikely to change a whole lot as time progresses (other than coal going away entirely). The historical concept of 'base-load' has pretty much gone out the window in the last decade.

The larger issue for this type of generation, however, is that it makes up a smaller and smaller portion of the overall daily cycle. And because of this, base-load style plants just don't have the economic leverage that they once had.

This is readily apparent just by looking at net-demand graphs for ISOs in big states (California's is easiest, but also Texas), for say a recent summer day verses a similar day just 8 years ago.

I am going to paste a URL that has the graph I'm interested in, but please note I am not concurring with the article... I'm just referencing the duck-curve graph printed in the article. The article is from 2017. At that point in time ISOs were getting used to having a pronounced duck curve but still weren't sure just how deep it could go for the grid to remain stable. Since that time, hybrid storage and computer control of the grid has continued to evolve and is even more capable now than it was in 2017 (and in 2017 was far more capable in dealing with the extreme ramps verses, say, 2008).

energyathaas.wordpress.com/...

So, in this posting all I really want to highlight is that first graph... just how little base-load CA actually has on the grid, which is effectively the low-point on the graph on the daily cycle. Around 12GW at the low point is effectively the maximum base-load the grid can actually accommodate on a daily cycle that can push up past 26GW (on that graph, actually higher today) at peak and well over 40GW in absolute terms from all generation sources.

Now if we look at the supply-side for, say, today (or really any day in the last year), using the URL below to the CAISO, you can see that *most* of the overnight generation is not actually base-load either.

www.caiso.com/...

So, literally, the two biggest overnight components are (A) natural gas for which only 8GW is effectively base-load, and (B) imported electricity which is only 3GW of effective base-load. The imported electricity is also mostly NG generation.

Also, in terms of nuclear, look at the graph from say June, not today (Diablo Canyon is off-line right now), and you can see that nuclear energy provides a steady 2GW of base-load power and that's it.

-Matt
27 Oct 2020, 05:44 PM
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david foster 1
Comments316 | + Follow
In addition to daily cycles, there are also seasonal cycles...you may get a lot of sun on your solar cells in summer, but snow on them in winter. Yet a lot of loads will continue.
27 Oct 2020, 09:32 PM
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MattZN2
Comments3287 | + Follow
Well, you generally don't have to worry about snow, solar panels at an appropriate angle tend to shed snow very quickly after a storm. A light dusting melts almost instantly. A foot or two of snow-cover will shed in 1-2 days at most. Of course there are numerous micro-climes where the snow-load can be excessive but very few of them are actually in the continental U.S. (ex-Alaska). Canada has a bigger problem with that inland. The U.S... not so much.

But yes, the seasonal cycles are rather large between summer and winter and generation has to be able to handle a worst-case situation. It's fun to look at the CAISO net generation graphs for a typical summer or winter day and compare them.

The worst-case situation isn't quite as bad as some people might imagine. For example, nobody really needs A/C the winter, let alone during a storm. Thus the extra generation needed during the day during a winter storm is the SAME extra generation that is needed for summer morning and evening peaks. And never the twain shall meet (solar generation during spring and fall always over-produces, creating a buffer between summer and winter).

California had an interesting situation crop up this year where the huge number of burning fires caused the ISO to mis-predict one week's weather. It wound up being hot but with seriously depressed solar generation due to smoke covering most of the state for a few days. They had to institute rolling black-outs in some areas for 1.5 days while they scrambled to make up the missing generation. The media hyped it up more than the actual event but that is a mistake they probably won't be making again.

-Matt
(edited)
27 Oct 2020, 10:44 PM
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Stillhunter888
Comments213 | + Follow
Matt, here is the hole in your story. How in the hell do you think the extra electricity that will be needed to charge all those EV's will be produced? Through fossil fuels, mostly natural gas, and even coal, if NG gets expensive. EVERY oil company is also a NG producer.
28 Oct 2020, 03:15 AM
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whoosh21
Comments326 | + Follow
all the oil majors are planning a major presence in the permian after the COVID passes. they are exiting noncore production basins globally. permian is one of the lowest cost production basin with all midstream infrastructure is in place. oil is headed for a super cycle. even with Bidens $2 trillion renewable energy plan fiasco, which mostly benefits China, US gasoline consumption will only be down 150000 barrels per day by 2030, only 5 million EVs by 2030
(edited)
27 Oct 2020, 03:53 PM
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Kirk Spano
Comments6627 | + Follow
Author’s reply »
@whoosh21 I’ll take the way over on both those numbers. 30m EV, 30m hybrid & -6mbd
27 Oct 2020, 04:15 PM
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js204
Comments1143 | + Follow
@whoosh21 Except Covid isn't "passing" - at least that's what Mark Meadows says.
27 Oct 2020, 04:17 PM
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Rusty the Wonder Dog
Comments164 | + Follow
IMHO you will see more Divy cuts like yesterday's ET to try and keep cash and to pay down debt. Overall that puts the industry in survival mode which is needs to be in until Covid subsides. Smart companies also will refinance (if they can) and extend their debt to the end of the 2020 decade. The industry cannot for any reason have WTI drop into the low $30s or lower. If so that will speed up the death of many.
(edited)
27 Oct 2020, 03:45 PM
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G_Daddy
Comments3 | + Follow
Would love to know where all of these EVs are. Seeing one is still a very rare sight for me and I travel a lot (yes, even with the COVID boogyman out). By the way, how close are we to finding a way to generate massive amounts of electricity for very low investment? Closing your eyes real tight and wishing really hard for some electric utopia isn't going to work out too well. Sorry.
27 Oct 2020, 03:38 PM
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js204
Comments1143 | + Follow
@G_Daddy Hint: They look just like "real" cars without an exhaust pipe.
(edited)
27 Oct 2020, 04:19 PM
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MattZN2
Comments3287 | + Follow
Always silly when people still think that generation must be instantly upgraded to handle the EV load that it will have 30 years from now.

-Matt
27 Oct 2020, 05:10 PM
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BobW333
Comments418 | + Follow
I travel extensively and see Tesla cars often.

Even more common, hybrid vehicles.
27 Oct 2020, 06:00 PM
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locum2
Comments464 | + Follow
@BobW333, live and work in Silicon Valley. Major reason for buying an EV is access to the HOV lane. Nobody gives up their ICE car for an EV. EV’s are just another extra car.
27 Oct 2020, 07:05 PM
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Gators2
Comments445 | + Follow
So you briefly mentioned the MLP pipelines. Where does this put CEQP, HEP and PAA which I own?
27 Oct 2020, 03:38 PM
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Kirk Spano
Comments6627 | + Follow
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@Gators2 oil pipelines not Permian focused you need to see who the oil companies are. See CHK trying to cancel 2 deals. Trump admin sides w pipelines, Biden will allow bankruptcy to kill deals at Federal level super-ceding state law. I told my folks sell all non Permian oil pipelines.
27 Oct 2020, 04:18 PM
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Fero.
Comments4172 | + Follow
You're dead wrong about the future of oil. Enjoy your sucess till it lasts.
27 Oct 2020, 03:37 PM
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Oleg98
Comments520 | + Follow
The sixty percent per year production decline is the real killer. An operator has to drill frantically just to maintain production volume.
27 Oct 2020, 03:37 PM
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Kirk Spano
Comments6627 | + Follow
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@Oleg98 Exactly
27 Oct 2020, 04:19 PM
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Salmon3
Comments2 | + Follow
Kirk Spano, the dumbest article by apparently a snowflake that knows nothing about oil and gas! Been in the business 30 years. There are ups and downs in the oil business! The weakest companies get bought or go bankrupt. They get bought by companies that are savvy and add to their portfolio! Kirk, you need to get a job for Dementia Joe if he is elected and bans fracking when the price of gasoline will go to 6 dollars a gallon and natural gas will trade above $6.00!
27 Oct 2020, 03:36 PM
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chalakov
Comments1 | + Follow
@Salmon3it does not matter how much it will be the price at gas station, as we will not need it everything it will be EV in 10 years.
27 Oct 2020, 03:45 PM
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CaptainNoob
Comments382 | + Follow
@chalakov while I agree everything will eventually go electric, it won't be on 10 years. Maybe 50. Maybe.
27 Oct 2020, 04:00 PM
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Geloo
Comments544 | + Follow
@CaptainNoob Agreed.
(edited)
27 Oct 2020, 04:14 PM
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Kirk Spano
Comments6627 | + Follow
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@Salmon3 I am a snowflake maybe, but I’m no lemming running over a cliff
27 Oct 2020, 04:20 PM
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locum2
Comments464 | + Follow
@Salmon3, agree. There will have to be a real breakthrough in batteries for widespread EV adoption. If EVs were that great, why all the subsidies and tax breaks? iPhones, IC’s, PCs, didn’t require tax breaks for their adoption. Call me when tax breaks, regulatory schemes for EVs are eliminated.
27 Oct 2020, 07:09 PM
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MattZN2
Comments3287 | + Follow
@locum2 At this point manufacturing scale over the next few years (sub-5-years) alone is probably already sufficient to drive widespread EV adoption. People seem to forget that a large chunk of the cost of building a battery pack is simply manufacturing scale.

The batteries are already in the 'pretty good' category and it what Tesla presented during battery day was even remotely accurate, manufacturing scale alone can drop the price of a battery pack by another 50% in 2-3 years without any major new technological innovations on the chemistry, anode, or cathode construction.

That pretty much means game-over in 3 years, then it just comes down to the economics of car longevity and buying habits.

EVs are great. The subsidies and tax breaks exist to promote scaling up production and they are doing a pretty good job pushing that forward. People want more and are getting more. What's wrong with that?

And, frankly, subsidies and tax breaks have been falling away slowly for several years now already, so I'm a bit confused why you think it's a problem. Tesla has already used up all of theirs, for example.

-Matt
27 Oct 2020, 09:20 PM
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Kirk Spano
Comments6627 | + Follow
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So, a reason I'm so long F from 5 is that the Mustang Mach E I saw at CES is basically on par with Model Y or dang close. The hybrid F-150 is going to be a hit the way they are marketing it. And an F-150 EV is close too. Ford's 4IR tech is amazing. They're one of the top industrial tech companies in the world. I hope they make a huge EV/hybrid announcement tomorrow.
27 Oct 2020, 10:25 PM
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RealRural
Comments3561 | + Follow
@Salmon3 - Love it when you go all rogue on the snowflakes and oil flakes. As for Dementia Joe, he may be giving you gas in a week or so.
27 Oct 2020, 10:54 PM
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MattZN2
Comments3287 | + Follow
@Kirk Spano That's a tough call. A BEV (pure battery electric) pickup/truck would be very expensive to produce and acceptance would be very slow relative to a BEV passenger car. A PHEV (hybrid) pickup/truck would be more affordable, but has the problem of differentiation verses a normal diesel or gas pickup/truck. This is because they can't optimize for wind resistance due to trailer loads... so range might be a problem.

On the passenger vehicle side, BEV passenger vehicles will probably overtake PHEV (hybrid) passenger vehicles in just a few years. The popularity will be relatively high for both initially but PHEVs might have trouble holding their value in a few years as battery-pack costs continue to drop. Pure BEVs are simpler and have lower maintenance costs.

Betting on Ford getting a first generation PHEV F-150 electric done right might be a bit of a stretch.

Betting on the PHEV passenger vehicle would mean buying, say, Volvo.

Betting on the BEV passenger vehicle would mean buying, say, VW group.

I personally think that betting on the BEV passenger vehicle is more of a sure-thing, so I've gone long VW group. Its also a bit of a recovery play as VW tries to put diesel-gate behind them and as part of that plan they are essentially going all-in on an affordable BEV. The ID.3 is already out and the ID.4 will be out next year, as well as the 2021 Audi Q4 e-tron. All three will probably sell-out.

I couldn't bring myself to go long Ford. Their legacy assets are such a huge overhang and they have $175B in debt. How do you retool a car company with that much debt?

-Matt
27 Oct 2020, 11:14 PM
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David Alton Clark
Comments3135 | + Follow
In 2018 when the market was on fire you stated oil was going to $100. Now in the midst of a pandemic you state oil is going to who knows how low. Classic first level thinking. The seeds of the coming boom are sewn during the current bust Ken. Your article simply regurgitates all the current negatives. The fact you say there is no debate is telling. All the greatest oilmen of the ages have known better than to attempt to divine oils future.
(edited)
27 Oct 2020, 03:36 PM
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BojackHorseman
Comments1 | + Follow
This article was a nice encapsulation of the current market consensus on oil. It will be extremely interesting to see how things play out, what a conundrum! Just a

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