Wednesday, November 6, 2019

Brazil Off-Shore Auction A Total Disaster -- Bloomberg -- November 6, 2019

Link here. Brazil offshore auction a "total disaster." Look at the lede --
Brazil’s largest-ever auction of oil deposits flopped, sending the real tumbling, after state-controlled Petroleo Brasileiro SA did most of the bidding while other major oil companies stayed away.
  • Brazilian currency slumps after two blocks sold to Petrobras at the minimu
  • two other blocks go unsold; Exxon among companies not bidding 

Brazil is not a "short-cycle" story. Shale changed things. When I first started investing, back in 1984, oil companies were "valued" based on two criteria:
  • earnings
  • reserves
In addition, investors took the long view. That was then. Today, millennials, growing up in a world that has only twelve more years, are in a hurry. They don't have a long view. They need to see a return on their investments now: share appreciation and dividends. Does it matter the size of XOM's reserves in 2030 if the world ceases to exist in 2035 and/or if the world no longer uses oil in 2025? For companies to be relevant today, they need to provide an "immediate" return on investment for millennnial "investors." Brazil is not going to give Exxon that return on investment in the next six years.
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The Brazilian Story Is Huge

Re-posting: this commentary is linked at the sidebar at the right. It's from the Dallas Fed which, I would think, would know a bit about the oil industry and particularly, the US shale industry. There's a slight flaw in their analysis but that's fine. It should not affect their conclusions.

And their conclusions are summed up in one graphic which I find absolutely amazing. Spend some time on it. Note that the data is biannual -- every two years (2009, 2011, 2013, etc. through 2019).


Tag: breakeven points.

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