The Market, Energy, And Political Page, T+ 76 -- October 28, 2018

TSLA: up 4% today.

Disclaimer: this is not an investment site.

November 4, 2018: Iranian sanctions go into effect.

October 30, 2018 (tomorrow): Apple, Inc., hardware announcements; NYC; 10:00 a.m. Eastern time.

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Reading Assignment For The Day

I could "take or leave" the article -- while reading it -- until I saw who wrote it: Simon Flowers, Chief Analyst and Chairman for Wood Mackenzie. Even so, it's a pretty typical Forbes article: great promise but at the end, a big letdown.

At Forbes: what next as Big Oil moves in on US tight oil?

Before I get to the article -- look at that headline -- what next as Big Oil moves in on US tight oil? This is a very, very timely question -- if any doubt, look at COP's earnings transcript.

Now, to the Forbes article.

He begins:

What does tight oil have in common with FAANG stocks? Answer: tight oil is arguably the upstream equivalent of these tech sector leaders. It’s the hot investment play in the oil and gas index, it’s outperformed What does tight oil have in common with FAANG stocks? Answer: tight oil is arguably the upstream equivalent of these tech sector leaders. It’s the hot investment play in the oil and gas index, it’s outperformed.

Note to self: memo to Art Berman and Jane Nielson.

Data points from the linked article:

• Big Oil needs exposure to that growth
• Big Oil is muscling in
• their move began with BP's $10.5 billion acquisition of BHP, July, 2018
• [COP, lucky with BP; XOM, lucky with XTO; odd "man" out? ChevronTexaco?]
• ExxonMobil, Chevron, Shell, and BP: have assembled tight oil assets that include the Permian
• Equinor with sizable Bakken exposure
• production climb, tight oil for Big Oil:
• 2018: 0.7 million bopd
• 2026: 2.2 million bopd (projected peak)
• 2026: tight oil will account for 10% of the majors' total production; one-fifth (20%) of liquids
• and look at this for all the doubters and critics: going forward, returns from tight oil will beat all but the very best conventional and deep-water alternatives
• [and, initial investment and long-term commitment in tight oil is a whole lot less than deep-sea)
• majors' inventory of yet-to-drill wells will generate an average IRR of 45% ($65 Brent); well above the 16% weighte average for pre-FID conventional projects
• what's next?
• the majors will want still more tight oil
• the industrialization of extraction means tight oil is increasingly a scale game
• 120 operators operating in the Permian Wolfcamp: there will be consolidation
• what about the have-nots?
• Total and Eni say "no" to tight oil
• it's hard for an outsider to justify buying into tight oil 
• XOM, CVX, BP, and RDS: had legacy US lower 48 positions
• Bottom line for investors:

Investment in tight oil isn’t exactly risk free. Tech stocks are demonstrating in the current sell off that hot sectors have their downs as well as ups. As the world’s marginal barrels, tight oil’s value and cash flow are very sensitive to oil price. The plays are far better understood now after several years of development, and production growth for the next few years looks reasonably assured.

Yet the clue is in the name, “tight” oil. The geology should not be underestimated, and the challenges of extracting at a commercial cost will mount as operators begin to move out beyond the sweet spots into tougher rocks. For the Permian, that likely comes after 2020. It could go either way.

And what he doesn't mention: over time, and it appears to be coming sooner than later, most of hte US is turning "against" fracking. North Dakota is holding in there; Oklahoma will probably hold on; and, of course, Texas will hold on, but after that, it's anyone's bet. Think Proposition 112 in Colorado and the NY Times article today on fracking on federal lands. The latter will last only as long as Trump is in office.

I think Russia and Saudi Arabia see that, and both are willing and able to wait.

Meanwhile, WTI continues to fall. Down another 55 cents today.

Good luck to all. I'm off the net for awhile.

My favorite song in 1964 (?). My favorite memory in middle school: my mom giving me a dime every so often to play the pinball machine at the Huddle (?) on Main Street and 6th Street East at lunchtime -- just across the street from Central (Junior High - Middle) School. This song, red licorice, and pinball. That's all I needed. And a dime.

Last Kiss, The Cavaliers
And, then, of course, my other favorite song of 1964: "Pretty Woman" by Roy Orbison.  And then all the early Beatle songs. My mother brought a 1964 Beatles album from England for me. How did she ever know?

Wow, I must have had a dozen other favorite songs in 1964. No Walkman. No iPod. No iPhone. No Apple Watch. How did we all survive?