I like Oil

[aja8888]

If you like oil, you should love coal.

Ahhh, coal...the stuff diamonds are made out of....if you have the patience.

 

[Rothman]

Hearing of every available tanker already full and Saudi Armco pledged to not let up on volume when Iran gets permission to ship the potential downside on oil looks ominous. The next month won't be boring anyway.


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[dallas27]

Hearing of every available tanker already full and Saudi Armco pledged to not let up on volume when Iran gets permission to ship the potential downside on oil looks ominous. The next month won't be boring anyway.


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got a source/reference? Been watching barrel price, just trying to gauge how bad the drop is going to be when the capacities are finally near max. I'm still sticking with my prediction from before we are going to have a second big price drop and some fallout from it.

 

[Running_Man]

Well BHP is the poster child and a small study of what has occurred worldwide.

It is heavily in the commodities that have been in oversupply, and one of the major players in creating the oversupply. In 2008 it had 8 billion in debt and has borrowed another 22 billion to get to 30 million in long term debt at advantageous rate of 4 percent due to worldwide interest policies.
in 2011 on 72 billion in sales it had 5 billion in annual depreciation costs now with 71 billion in sales and falling it has 9 billion in depreciation.

It has another 12 billion in commitments for another 8 projects it has undertook, main attraction appears to be proposed split of their minerals division from the commodity oil and gas properties. Which will increase total debt to about 40-45 billion dollars, (currently with short term debt BHP's total debt is 35 billion dollars. While it is not costly in low interest rate environments to only pay 1.5 billion in interest on such a large sum of debt, this company has positioned itself for long term bull market in commodities in a time when commodity prices are in a major bear market, yet this stock is only off from 100 when the strategy appeared to be a very smart move.

From it's most recent presentation on 6 month performance review of July - Dec 2015:


From it's review you can see the 131 million barrels of oil realized an average sale price of 85 dollars per barrel, meaning the price decline of oil has not yet hit BHP. However taking that 131 million of production doubled for yearly production, if it sells for $45 per barrel you have a decrease of 11 billion dollars of sales forthcoming in 2015 just from oil (15 per cent of sales), with all of these dollars falling from the bottom line, meaning at 45 dollar oil BHP as a company is not profitable. I do not think this is reflected in the current stock price as investors instead are focused on the 85 realized and the dividends paid from that as opposed to the future with 45 dollar oil.

If you then layer in copper average of $3.00 per lb realized in 4th qtr now at $2.45 I do not see how this company can withstand current prices and maintain it's current stock price. Already they are announcing they are taking 200 million in provisional pricing for copper in the 4th qtr, a 350 million charge for failure of planned asset sale to go through of their Nickel West business and a write down of those assets, a 850 million tax charge for loss of a deferred tax asset in Australia, a 250 million charge for petroleum producing assets in Louisiana and announced while it plans to go forward with it's tar sand oil project it will review to optimize cash flow.

And this is before even discussing their plan to increase Iron Ore production by 30 percent in 2015 even while iron ore prices have dropped even more than oil.

I think this company is a very good proxy for the overall world process in oil and commodities and will be a leading indicator in 2015 of effects of large amounts of low interest debt tied to high production of natural resources.

Time to review this the reality of commodity prices is starting to come home to some of these oil companies as their hedges are coming to an end, and virtually all of them are down 10% or more with BHP down 22%. Amazingly BHP has been using cash to increase dividend and pay down debt, which in about another year will all have to be undone or they will be in serious financial jepoardy.

XOM is starting to get nearer to the 70-75 where they might be a buy, smartest guy in the investment room and look at a chart of XOM and you can see where Warren Buffet sold this year. Chevron and COP have been equally poor this year.

On the 25th BHP will be having an investor first half in review, I look forward to listening to that, I presume Wolfman Jack will be their presenter.

 

[brewer12345]

Hearing of every available tanker already full and Saudi Armco pledged to not let up on volume when Iran gets permission to ship the potential downside on oil looks ominous. The next month won't be boring anyway.


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The Saudis hate the Iranians, so no doubt they will keep pumping. As for the tanker side, if there were a shortage of crude tankers I would expect to see VLCC rates well in excess of $100k/day (like 150k). We are 80k-ish on spot, 48 to 50k for a 1 year charter.

 

[HF63]

Hay anyone consider the state own companies like PBR, EC, and E.


They do have the oil that the world needs.

 

[Ed_The_Gypsy]

No. They are badly run and investors will always be secondary to national politics.

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[Totoro]

I am actually planning on selling big oil in the coming months.

Reason is that I've had a good runup with Total (in EUR, so alot of it is currency effects) and don't see the long-term - 20 years+ - potential anymore (greener energy and regulations). Strangely with the drop in oil prices Total barely moved. Guess it was priced in already?

I don't remotely understand enough about the exploration and oil shale stuff, but I can imagine there are some real bargains to be had there at the moment.

 

[aja8888]

I don't remotely understand enough about the exploration and oil shale stuff, but I can imagine there are some real bargains to be had there at the moment.

The oil shale leases in the Dakotas and Texas were bought on the way up and at very high prices. Wells are costly to drill and frac ($8 - 12 million each). And in many areas there is no infrastructure (pipelines, gas plants). Now we are starting to see write downs of those lease expenditures since no new drilling is taking place. There will be a bunch of companies having financial trouble in the oil patch because of the write downs. I would wait until WTI oil hits bottom ($40's?) and the shake out occurs before buying anything associated with crude oil extraction/production.

 

[TimSF]

Doing some TLH today by selling energy stocks, and buying Vanguard energy fund.

 

[redduck]

Doing some TLH today by selling energy stocks, and buying Vanguard energy fund.

TLH - What does TLH stand for?

acronyms.thefreedictionary.com/TLH

• Definition. TLH, Total Laparoscopic Hysterectomy.

Do you sell and buy energy stocks every time you do a TLH? Have you considered selling and buying consumer discretionary stocks after performing the procedure?

 

[TimSF]

"tax loss harvesting"

 

[redduck]

"tax loss harvesting"

oh.

thank you.


edit: Maybe this isn't correct. Does it mean I knew and forgot? (I don't recall knowing or forgetting what TLH means).

 

[RISP]

On the 25th BHP will be having an investor first half in review, I look forward to listening to that, I presume Wolfman Jack will be their presenter.

That's the 25th of August, isn't it?

BHP Billiton | Corporate event calendar

I looked into BHP today. Your points are all very valid, though I think you mixed up some periods in your original post (2014 vs 2015). I made a few calculations of my own and based them on the planned production increases, and BHP's own expected prices for H2/2015 as published here: http://www.bhpbilliton.com/home/inv...perationalReviewfortheYearEnded30June2015.pdf, page 3.

Those prices look like reasonable guesstimates for the near-term to me.

Oil is really not their only problem. With copper at 2.61 US$/lb, iron ore at 53 US$/wmt, and Hard coaking coal under 100 US$/t, I can't see them making any money in the second half. That's already assuming they really can expand production and sales as planned.

Their only chance to end up in the black would be some serious cost-cutting, to the extent of 1 billion+ US$. I don't think that's possible while at the same time increasing production across the board.

And if prices do not go up within 6-9 months, the nice dividend is gone. Too bad - At first I thought BHP could be a nice portfolio addition, since I'd like to get some exposure to commodities. I believe their portfolio of iron ore/coal/copper will do quite well in the longer term, and they have the lowest production costs in the industry.

Any suggestions for alternatives? I have a bit of money earmarked for investing that's kinda burning a hole in my pocket.

 

[target2019]

At one time I was following FCX. They had the brilliant idea of diversifying into copper. What a great place to be - Oil and copper.

But, these are two commodities that the world still needs. This is just a link, and nothing more.

Commodities Today: This Copper Miner Is A Buy, But Too Soon To Buy Big Oil Stocks | Seeking Alpha

 

[Running_Man]

That's the 25th of August, isn't it?

Yes it is, they released their Operational Review yesterday and when I saw investor call on the 25th I assumed it would be July but actually I guess the prefer to let their investors sit on their operational report and projections for a month before they are willing to discuss their own report.

What they are doing shows how you can be GREAT in field production operations and still fail due to business planning.

BHP added another 10% addition to their long term debt in Euros of 2.2 Billion, while paying 3.2 Billion dollars in dividends. Their investments from the recent past are being written of as "non-cash" but they are non-cash in the sense of the cash was already spent to buy the assets and sits on the books as Long Term Debt. Why anyone would lend this company 750 million Euros at 1.5% for the next 15 years is beyond me, why is buying these worthless bonds?

Again this year so far they are taking over 6 billion dollars of expenses to their income statement due to past transactions:
2.8 Billion as writeoff of 2011 purchase of US oil properties
2.1 Billion for write downvalue of assets spun off as new company - South 32
0.4 Billion sales for Copper in 2014 that had price reset based on actual prices
0.8 Bilion for impairments of Copper assets

The total is equivalent value to the writing off of all the accounts receivable the company holds. BHP as the chart on page 3 of the operational review shows is only now having their hedging roll over and they are counting on stopping investments in new production and pushing present production as much as possible to get efficiency gains in production realized in cost and gain as much cash as possible. When you speak of mines this is possible only for short periods as you mine out your present locations and need to spend capital to get at additional levels of production.

Their plan of recovery is basically they expect commodity prices to improve 20% in 2016 to make them cash zero operationally after dividends. Stock down 22% so far this year and 65% from the top the market is now starting to price in the fact they are going to be very profit challenged coming up here.

If oil stays below $50 for the second half of the year the larger oils will get punished as COP now is as the results from lower prices becomes apparent to shareholders. That COP raised their dividend in April was foolish, their ownly hope for success is that oil goes back over 70, and to increase the dividend in the stock to give shareholders a sign that you are confident this will happen shows I think the weakness of leadership in that company. None could know what the price of oil will do for sure, the most accurate price for the future is the prices you have before you today.

 

[turbo89]

Seadrill went down to $8.97 today and then shot back up to near $10...all in a couple hours.

Volatility!

SDRL is an interesting case that I'm watching closely. I ended up picking a few hundred shares up at ~ $10.

They're getting beat down because people don't think off-shore / jack-up rigs will be utilized with oil in the 60's or below and because of debt exposure (they have $3B in exposure on new rig-contracts). *this is the bad*

Here's the good:
- SDRL has ~ $1B in cash or near cash assests on hand, and has close to $7B in assets.
-While SDRLs quarterly earnings have been beat down, the P/E is hovering around 3.5 at current prices. Even if earnings fall to .10 for the next three quarters, the P/E will still be less than 10.
-SDRL and Transocean are the two big names in this industry and SDRL is way ahead in terms of fleet age.

This seems oversold to me... It reminds me a lot of AA, which got hammered down to $5/share in the 2008 downturn, then rebounded to $20/share.

Anyone else tracking this with some interest?

 

[Snidely Whiplash]

Anyone else tracking this with some interest?

Yep. If it (ever) gets back to my cost basis you will be very happy. Bought it when it was cheap. Bought more when it got cheaper. Went all-in when it got unreasonably cheap. Unfortunately (for me) it's even cheaper yet. Ugh. Not enough cash to lower cost basis significantly now so I wait.

 

[Fermion]

I owned FCX in the high $20s last year and sold for a bit of a loss in the mid $20s. THANK GOODNESS!

Today it dropped to $13.50.

One might consider that low demand for oil and low demand for copper could mean world growth is not what we are being told it is.

 

[dallas27]

WTI is starting to look sexy again.....


47.46
USD/bbl

 

[audreyh1]

Wow - oil down again. Commodities crashing. Gold under $1100. China selling off again. It just doesn't stop!

Often this means some large bets were wrong and the selling forced at low prices. But if it's really China malaise behind this, it may be more structural and long lasting.

 

[hesperus]

Wow - oil down again. Commodities crashing. Gold under $1100. China selling off again. It just doesn't stop!

Often this means some large bets were wrong and the selling forced at low prices. But if it's really China malaise behind this, it may be more structural and long lasting.

Interesting in that as oil has been dropping again the last few days, my midstream MLP's are bouncing up during the same period. I read something about an unexpected increase in rig counts, which for pipeline companies, may be good news.

edit: now I see CVX is up 3.5% today, too.

 

[FIYes]

CVX hit a 52 week low today. Big drop in profits.


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[aaronc879]

CVX hit a 52 week low today. Big drop in profits.


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That hurts. CVX is 6% of my overall portfolio. I just hope they don't have to lower their dividend.

 

[Fermion]

What do I know, I tried to short Exxon yesterday when it spiked to $91.50 by buying April $95 puts and selling Feb $90 puts for a price of $3.50. It would have filled at $3.55 but I wanted $3.50. One day later and that spread is worth $4.40.

Sigh.

My take is if you want to play the oil rebound, buy the drillers. They have been absolutely crushed. I don't know how this has played out yet but I think Exxon is overvalued at this level even though they do make good money on refining. I really expect Exxon to fall to the $75 or $80 range soon if the oil slide continues.

Boy were we all so wrong in this thread. Pretty much nothing we suggested buying worked out, and the only good idea I had, shorting Exxon expecting it to fall to the $70s, I did not execute.

One person suggested LNCO, which at the time had drastically dropped to $10 or so. Now it is $3.90!