Monday, November 3, 2014

Impact Of Lower Oil Prices -- November 3, 2014; Record SUV Sales

Boomtown nervous. AP is reporting:
That oil has averaged $96 a barrel over the past four years, fueling more drilling, more hiring, and bigger appetites in North Dakota, Texas, Oklahoma and elsewhere. Now oil has hit a rough patch, plunging to $80 from $107 in June on fears of a global glut. Many expect these lower prices are to stick around for a while.
Lower oil prices, while good for the broader U.S. economy, are a threat to what has been a surprising and dramatic surge in oil production in the U.S., and to drilling communities that have come to depend on oil money.
Record SUV Sales

Impact of lower crude oil prices? Record Ford SUV sales. Bloomberg is reporting:
Ford Motor Co., Fiat Chrysler Automobiles NV and Nissan reported U.S. sales that exceeded analysts’ estimates as buyers emboldened by falling gasoline prices flocked to sport-utility vehicles. GM also had strong SUV sales while missing of estimates.
Fiat Chrysler, led by the Jeep brand’s 52 percent gain, said vehicle sales climbed 22 percent for a 55th straight monthly increase. The average estimate was for a 20 percent gain. Sales for GM, the largest U.S. automaker, rose 0.2 percent, less than analysts’ forecast of a 3.1 percent gain. Ford’s light-vehicle sales fell 1.8 percent, better than analysts’ estimate of a 4.3 percent decline. Ford’s SUV sales rose 10.3 percent, while its car and truck sales declined.
Sales of SUVs, including crossovers, have been increasing as fuel prices have fallen this year. The average price for a gallon of gasoline in the U.S. fell to $2.98 as of Nov. 2, according to AAA, the motoring club. Total light-vehicle deliveries are expected to rise 5.6 percent from year earlier to 1.28 million.
It's not the drop in prices that is spurring SUV buying: the cost savings for a SUV at 20 mpg over one year of driving 20,000 miles works out to about $130 for the year, or the cost of two Big Macs each month. No, the surge in SUV buying is the anticipation that oil prices are not going to get worse, and, in fact, may go lower. And the fact that the Fed continues to push lower interest rates. My hunch is that folks are getting some very good deals. 

Overall, my oil and gas portfolio is hurting, but overall the slump in oil prices is incredibly good news overall. In addition to the obvious, there will be a lot of opportunities for long-term investors. Again, and again, I keep sending thank you notes to the good folks in Minnesota and Nebraska for saying "no" to pipelines. UNP has surged, trading at all-time highs; the shares have split; and the dividend has increased from 13.5 cents/share to $1.00/share (taking the 2-1 split into account. BRK-B is also trading at new highs; it, too, is a railroad company, and with an improving economy due to lower oil prices will go higher.

This is not an investment site. Do not make any investment, financial, or relationship decisions based on what you read here or what you think you may have read her. Do not make any travel plans based on what you read here.

Small Oil Companies Scrambling

This article has appeared in several places recently. A reader suggested I note the last paragraph. I've included the last two paragraphs:
Shares of Halcon Resource Corp., a $1.2 billion market cap company which produces oil and natural gas primarily in Texas and North Dakota, for example, have fallen 48 percent over the last three months. The company’s shares, which traded at approximately $3.10 late Wednesday, could fall below $1 if oil falls below $75 a barrel, largely because those lower prices would result in a funding gap of $614 million for its 2015 fiscal year, according to Goldman Sachs estimates.
Breard said that his fund has been adding to its position in Matador Resources Corp., a $1.7 billion market cap company whose operations are primarily focused in Texas’s Eagle Ford shale and the Permian Basin. The company, which announced on Oct. 14 that it had recently completed a new well in a company record 7.4 days, is one of the best-managed companies in the industry, which will give it the option to acquire leases or its rivals if prices continue to decline, Breard said.
I don't know if the "completed a new well in 7.4 days" means drilling and completion (fracking). If it does mean both, that is quite incredible. Here's the press release:
One recent well on Matador’s western acreage in La Salle County, was drilled from spud to a total depth of 12,300 feet, including an approximate 5,100-foot lateral, in 7.4 days, which was a new Company record. Costs have also continued to move somewhat lower, primarily as a result of continued drilling efficiencies, and several wells on Matador’s western acreage have been drilled and completed for between $5.5 and $6.0 million. The Company has continued to observe small decreases in overall service costs in the areas it operates in the Eagle Ford shale.
That sounds like just the drilling, not the completion/fracking, but in any event, a short lateral in less than 8 days is impressive. To say the least. A huge shout-out to the roughnecks.

Note: $5.5 to $6 million for a short lateral, compared to $9 - $10 million for a long lateral in the Bakken (though true costs/recent costs may have changed significantly in the Bakken. It looks like the Matador is looking for EURs of 500K on its better wells in Eagle Ford. 

For Investors Only

This is not an investment site. Do not make any investment, financial, or relationship decisions based on what you read here or what you think you may have read her. Do not make any travel plans based on what you read here.

Having said that, this is an interesting Yahoo!Finance story today with the headline: historic market rebound leaves fund managers in the dust.
For the year the S&P 500 is up 9.2%. That's about double the return of the average mutual fund. And hedge funds? Forget about it! According the the best available data from that still murky industry the average buy-side shop is lucky to be breaking even this year.
If you're a long term index investor this doesn't matter to you, but I can personally guarantee anyone running money professionally is starting to feel like a fraternity hazing victim right now. If you're running a hedge fund that's flat for the year you've got less than two months to save your job. Unless you're one if those 10-20 huge brand names like Ackman or Einhorn your investors are going to take away the money unless you kick it into gear in a huge way starting now.
One starts to see why "Ackman" and "Einhorn" get so much time on CNBC -- sort of like product placement / free advertising.


The other big story out there today, also over at Yahoo!Finance: ObamaCare could face large nubmer of dropouts.

I've said this a gazillion times. The administration estimated 7.3 million signed up for ObamaCare. I always said it would be closer to 2 million who actually stayed with the program: a) kept paying their premiums; and, b) signed up for the second year.

Then a week ago or so it was reported that the 7.3 million might have been a tad optimistic and the number might be significantly lower. Now we have this story. We're getting close to 2 million.

There are a number of things the linked ObamaCare story did not mention, and it made wrong assumptions on other things. It is what it is. ObamaCare for those not covered by their employer will wither on the vine. The employer-mandated ObamaCare will continue to evolve.

Simply Crass Bashing
The Bush administration set up a $6 billion slush fund to fight bioterrorism, including Ebola, but President Obama diverted at least $1 billion for his own pet projects. That's fine. That's the prerogative of the president. I'm sure presidents past and future have done this and will continue to do this. This article over at DailySignal is simply crass bashing of the president. This is as bad as Rush Limbaugh.

Facing Reality

No Keystone XL? Plan B: Energy East across Canada to New Brunswick, and then on ocean-going tankers to Europe, Gulf Coast. That was easy. 


I will be away from the blog for a short period of time while I update the IPs for the wells that came off the confidential list over the weekend, and today.

OXY USA reported a couple of nice wells (not all results have been posted yet):
  • 26077, 940, OXY USA, Evelyn Stroh, 3-17-20H-143-96, Fayette, t5/14; cum 74K 9/14;
  • 26078, 842, OXY USA, Evelyn Stroh 2-8-5H-143-96, Fayette, t5/14; cum 79K 9/14;

1 comment:

  1. Just as conversation starter- With the down turn in oil price is it better to be a small public traded oil company or a small privately held oil company