The Market And Energy Page, T+15 --- March 15, 2018; How Did Bloomberg's Gadfly Miss This One?

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Wow. EOG has 40% upside -- Fitzsimmons over at SeekingAlpha.

• like many Canadian energy stocks these days - Enbridge has suffered a massive sell-off: down 14% YTD and down 20% since the merger with Spectra was completed
• but ENB's liquids pipelines in Canada are running at full capacity. And its storage assets benefit from the back-up in Canadian supply
• dividend growth prospects are excellent and management has committed to growing the dividend at a 10% CAGR through 2020
• an analysis of EV/EBITDA at a 14x midstream multiple (using 2018 estimated EBITDA) indicate shares are deeply discounted
• the shares could easily trade up 40%, or to $46, from the current $33. Add in the current 6.3% dividend and the total return would be 45%+ 
• the dividend story is incredible
• mentions Line-3 in passing; a big concern 

Texas holdem: cold snap could trigger gas supply emergency in UK if Putin orders Russian gas giants turn off taps due to spy scandal (won't happen; ships already in port, or very close)

• the cards:
• Putin's hole cards: two aces
• Theresa May's hole cards: an ace and an 8
• the flop: an ace, another 8
• the turn: yet to come
• the river: yet to come
• we've been talking about this since the winter of 2013-2014, maybe 2011-2012
• now we have the winter of 2017-2018
• Putin's in control, but a full house beats three of a kind

Beating a dead horse named Ipo. Now Bloomberg --

A couple of years on, the IPO hasn't yet happened, and there are now signs it could be pushed into 2019. The figure looks like it resulted from a highly scientific process of multiplying Saudi Arabia's roughly quarter-trillion barrels of proved oil reserves by a multiple of $8. But the fact that Aramco is being privatized in the first place undercuts such simple valuation by reserves, because the IPO acts as a hedge against weaker long-term oil demand. It makes little sense to apply such blanket valuations against 60 years' worth of production (companies usually carry about 10 - 15 years of proved reserves on the books).

Rule number one with an IPO: Don't announce a target value years ahead of the actual sale -- especially if one is tempted to use the word "trillion."

That rule was broken way back with Saudi Arabian Oil Co., or Saudi Aramco. In early 2016, when Prince Mohammed bin Salman first unveiled plans to list shares in the oil behemoth, he boasted about a price tag of $2 trillion. A couple of years on, the IPO hasn't yet happened, and there are now signs it could be pushed into 2019.

The problem: cash flow. Saudi Arabia can't get there from here.

Cash flow:

How Saudi gets there (hint: it won't, unless there's a huge geopolitical event):

One big problem: when it comes to some offerings, cash flow does not matter at all. It's all about the mojo. If cash flow mattered, Tesla would have gone away a long, long time ago.

How could Bloomberg's gadfly miss that?

"Everyone" will want a piece of the Saudi Aramco pie. Or not. But cash flow is not the driver.

Other comments:

• look at that: to get to Shell's 7% cash flow at $65, the Saudi Arabia IPO is worth about half ($1.1 trillion) vs what Prince Salman wants ($2 trillion)
• another trope dashed: Saudi's net profit per bbl on $65 oil is ... drum roll ... $18/bbl

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If I Had My Druthers ...

... I wouldn't post links to oilprice.com, but sometimes it's almost impossible not to link some articles. We've talked about this for quite some time. This is why I suggested the other day that the biggest oil story of the year might be ExxonMobil's decision to move to light oil at its Gulf Coast refineries. RBN Energy has talked about this more than once. From oilprice.com:

"2020 is going to usher in a mammoth sea change for the global petroleum market. On January 1, 2020, the International Maritime Organization - the agency that regulates the global shipping market - will enforce a global sulfur cap of 0.5 percent on marine fuels.

While this is this going to have the biggest impact on fuel oil and middle distillates, it is also going to influence the crude flows of heavy sweet barrels. In fact, it already is.

Heavy sweet crude is going to be increasingly in demand in 2020, as refiners look to pivot towards producing low sulfur fuel oil.

Lest we forget, lighter crude yields less fuel oil, while sour crude raises the sulfur content.

The challenge for the global market is going to be getting its hands on heavy sweet crude. According to our ClipperData, heavy sweet crude exports make up just over 1 percent (!) of total waterborne exports, and have been on the wane in recent years. Of these exports, nearly two-thirds come from West Africa.

Paragraph 6: Angolan Dalia is the leading grade, but there are also exports of Lokele from Cameroon, Baobab from the Ivory Coast, Yombo from Congo and Ebok from Nigeria. Doba, which is produced in landlocked Chad, is the second-largest export, and hits the global market via loadings from Cameroon.

In terms of the destination of these grades, three countries account for a half of all barrels: the U.S., India and China. An interesting trend is emerging, as illustrated in the chart below. China has surpassed the U.S. in just the last year to become the largest recipient.

For newbies: there are two huge things I've learned from the blog over the years regarding heavy oil vs light oil

• US refiners along the Gulf Coast optimized their operations for heavy oil at great cost about ten years ago; killing the Keystone XL changed everything
• heavy oil: distillates, like fuel oil; light oil: gasoline (see graphic)

The coolest thing about the story above: while reading paragraph six (6) above, a 2 x 4 hit me on the head, and a light bulb went off: quick -- name the one country in the world that is investing heavily in African heavy oil.

Yup: China.

As I said to my son-in-law last night, things are moving very, very fast. My only regret: I won't live long enough to see many of these "sea-changes" -- pun intended.