Comments from Seasoned Oilmen

[errolanderson]

On occasion, I have the privilege joining a group of seasoned Calgary oilmen for a breakfast meeting and a fascinating discussion of whatever comes-to-mind.
Sometimes there is not much to say, but these days there has been a lot to talk about. Here are some notable comments to share with agrivillers.

*** Oil companies are now just at the beginning stage of pulling capital to protect balance sheets.
*** Even when oil prices begin to recover, capital investments will be slow to recover. The roaring '20's won't happen quickly again.
*** A lot of capital spent since 2008, shouldn't have been spent. The industry is beginning to cleanse itself.
*** Oil prices will remain unsettled until expensive sources of oil (i.e.: oilsands, offshore drilling) are again economical to invest in.
*** The US drilling frenzy is over, but booming oil production is not. About 150 US rigs are recently idled, about a 10% cut. More rigs will be shutdown.
***Trend in US oil production is the key variable in the global oil market. The shales are where the growth is coming from and its decline in shale production is what will turn around WTI prices.
*** The downturn in the oil industry and reduced capital expenditures may last at least 5 years.
*** WTI prices could recover to 60 to $70 per barrel by the end of 2015, but this would still not be enough to offset the cleansing of the oil industry that is now taking place.
***Canada is also feeling the impact of global currency
wars. The Cdn oil industry is digging in for a prolonged dry spell, yet the Toronto TSX index is on-a-roll . . . .

[bucket]

Shutting down or slowing production to stay healthy. Interesting concept.

[SASKFARMER3]

Yet on the grain side I keep being told to over produce that's the only way out. Ag what a joke?

[boarderbloke]

"*** Oil prices will remain unsettled until expensive sources of oil (i.e.: oilsands, offshore drilling) are again economical to invest in."

Errol, that statement doesn't suggest the shutdown of current costly production, only future development. To be clear, am I interpreting your comment from the breakfast meeting correctly, Production will continue in oil sands and offshore, despite the low price?

Also, doesn't this situation leave Canadian oil co's vulnerable to foreign investment/takeover? particularly with the devalued CA$ ?

Are some of these co's looking for the "golden handshake"? If so, would they be small, medium or large?

[boarderbloke]

SF3, of course your/we're being told to over produce by those that would gain by you doing so! equipment dealers, chem and fert retailers, and graincos that are "your" customer

It's up to you to use management, in maneuvering through the ambushes.

One question, is the "market", ie; futures, asking you to plant more?
It's just that easy!

[fjlip]

" Ag what a joke", too many producers, very independent, price takers dreaming of beating the BIG boys!
Yup, that's a joke in every board room too!

[fjlip]

" Ag what a joke", too many producers, very independent, price takers dreaming of beating the BIG boys!
Yup, that's a joke in every board room too!

[Horse]

Sk3 which face do you shave in the morning? You are always going on about buying fert,roundup seed in great quantities , so what is the ides , mabey so you can convince others there is no sence in planting a crop to make yours more valuable? Then tell what a joke farming is .. M abey you should refrese and say WHAT A JOKE FARMERS ARE.

[SASKFARMER3]

Horse I'm shooting for 40 not 60 plus any more. The rest can do that. Why over produce. The canola council is delusional with their request it will only help one group industry.
I'm doing my part to drop production by 33%.
The seed fert and some chem in fall has been done since 1977 so why change. Just now the deals suck at that time of year also.
It's a business that over production just works to feed the parasites.
I'm doing my part how about you?

[errolanderson]

boarder. . . My sense of their comments is a definite hold on new unsanctioned projects. But included in this will be; job cuts, wage freezes and reduced expenditures.

Canadian production will decline as well. But oil company survival will be the survival-of-the-fittest and take-overs will take place. Cost of production appears to range from $50 to $75 per barrel depending on fixed costs.

[cottonpicken]

What i'm worried about is the decline rates in shale.

After 3 years them wells are nothing what they where so them companies have had to drill drill drill to maintain,which you can do for a while if you have revenue,and we are not many years in to shale so.....if a company drops its drilling capex,for any length of time,how does its share price on a p/e ratio perform?

[grassfarmer]

Cotton, I think I replied once before on your observation not sure if you saw it.
We are in the centre of a fracking for shale gas area at the moment - still very busy. Fracking is a hugely expensive process and it doesn't make sense to use a lot of diesel (directly down hole as well as in engines) given the relative price of diesel and natural gas. What they are really after are the fluids extracted along with the gas, primarily "condensate" which is shipped to Ft Mac to thin the bitumen enough to get it shipped down the pipelines to Texas. I've heard it is so valuable it is separated out in Texas and shipped back here to help move more bitumen south.
These fluids are "milked" out in the first few years of production leaving only some gas. I think the decision
on whether to keep pumping that will depend on gas price but the fluids are the real pay dirt they are after.
Not sure if the Americans are in the same position with their shale gas but I believe this explains what is happening around us in AB.