One of the stark realities of climate change is that as the effects get worse, there will be increasing oil and fossil fuel divestment. Makes no sense at all to me to be investing mid/long term in a source of energy that everyone ultimately wants to see removed. Short term, until we create a credible alternative, oil is still a good investment to work with.
Big Oil Companies Should Adopt a Self-Liquidation Strategy
41–50 of 107 posts
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#42OK, here's the question: Who will buy all those supposedly worthless assets and provide that "tsunami of cash" to the shareholders of oil companies? A fire sale of assets of questionable value is only going to prove their worthlessness and they will have to be marked down very quickly on the balance sheets of oil companies. The result will not be a tsunami of cash but a tsunami of bankruptcies.
From TFA:
> If a consortium of private-equity investors raised the $118 billion needed to buy BP at its current share price, it could immediately start to liquidate 10.5 billion barrels of proven reserves worth over $360 billion, even at today’s “depressed” price of $36 a barrel.
Their oil reserves alone are worth nearly 3 times the market value of the company. The other assets you talk of could even have a negative value of $100b and the equation still works.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#43It feels like the author hasn't read The Innovator's Dilemma.
In it, the author talks about a number of "stable" industries that had existing product lines with the R&D, customers, and sales processes to back them up. They were so invested in those structures that as innovations in their industry came along, they missed the innovations. It wasn't because those innovations were bad - many were great - but they didn't fulfill their existing customers' requirements. And so instead of trying to develop new markets (hard!), they ignored the innovations.
As a result, new entrants - without the cash cows to worry about - applied those innovations in new areas, building new markets. As those new products caught up with the requirements of the older products, those old customers switched to the new products.
I think the next great innovations in energy aren't going to come from the oil companies.
It's nothing nefarious, just the simple realization that most of their customers can't use [choose: solar, wind, nuclear, etc] for a variety of reasons. As those other energy sources change, improve, and simplify, those customers may be able to change but we should be looking for the new entrants building the new markets first.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#44Earlier quoted context omitted.
Well let's be clear. 1. What he said was true about nodding donkeys. OPEC countries are starting to use EOR, but most of their fields do not require it. Some countries like Saudi Arablia do have heavy oil and they are starting to invest in these areas, but that does not invalidate the authors point - that the U.S./Canada can help with that shift. 2. re: fracking being new. almost all reporting calls fracking "new", b…
1. 19th century well implies at most a few hundred feet depths. There just aren't spots left on earth where such a well would still yield meaningful amounts of oil. 2. Principal driver behind those horizontal wells is money. Those wells cost 2-3x more to complete. Horizontal tech has advanced, but in the end that advancement has been dollar driven. Expensive oil made it economical.
The distinction being made is in the technology required for OPEC wells. Conventional oil fields (most OPEC Wells) require the same tech that 19th century wells did. Just because you go a little deeper doesn't change the tech.
I agree oil price played a major role in developing horizontal tech, but it's become more about the cost being driven down and is why the U.S. is still doing it at $35 a barrel (which is, on a relative basis, the same as 10+ years ago). Either way I don't think your point #2 works against anything I've mentioned.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#45Aren't OPEC essentially trying to starve out the competition (shale, fracking, solar, wind, etc.)? They are basically flooding the market with cheap oil and thereby making all the alternatives economically unattractive? Western oil interests are probably right to spend on discovery then, since they'd believe OPEC can't pump forever and non-OPEC sources will be profitable in the future and will take years to develop.…
If you're looking for evidence that non-oil sources will get more profitable, less expensive and widely available in the future, Ramez Naam has a series of excellent blog posts (with lots of cited data) that are a good starting point. The first is from mid-August of 2015, and the last in mid-October, so they are timely as well: 1. http://rameznaam.com/2015/08/10/how-cheap-can-solar-get-very... 2. http://rameznaam.com…
Great analysis. Everything there points to realistic challenges that put a renewable energy led future at least 50 years out (imho). This is great for the future and clean energy technology companies but I'd suspect oil executives to be sizing up their slice of the world energy pie. I'd guess the future looks pretty good for oil for a few more decades.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#46Earlier quoted context omitted.
> since they'd believe OPEC can't pump forever In 50 years, OPEC will still have oil even at current consumption. But consumption is shrinking as energy production is already shifting to renewables and cars will have converted to electro/hydrogen by then.
Cars won't convert in large numbers if oil-based fuel is a cheaper option.
Doesn't it take something like $5 of electricity to "fill up" a Tesla (250 miles or so?) That would be like buying gas at $0.50 a gallon. The other side of the coin is the high cost of the battery pack (something like $30K), but that should come down drastically once the Gigafactory is online.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#47I don't know anything about oil, but it seems unrealistic to claim to be able to predict markets. Liquidating all your reserves at current price is unlikely to be seen as a wise move. (And wouldn't selling more oil than the US uses annually impact prices somehow?) If you magically had knowledge of the range of prices over 10+ years you could do all sorts of money making things. Edit: Looked into this a bit. Futures o…
> I don't know anything about oil, but it seems unrealistic to claim to be able to predict markets. The author's position is less about predicting markets than it is about "if you're operating a horse & buggy business in 1885, you're best off winding it up". The debate here seems to be about whether 'today' is 1885 or 1855 or 1825, so to speak.
He clearly states a price range of $30-50 and the entire argument is built on that the price won't go up. (Otherwise why sell at 36?)
The much weaker argument of "over decades oil will have less importance" doesn't seem to be his argument at all.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#48Aren't OPEC essentially trying to starve out the competition (shale, fracking, solar, wind, etc.)? They are basically flooding the market with cheap oil and thereby making all the alternatives economically unattractive? Western oil interests are probably right to spend on discovery then, since they'd believe OPEC can't pump forever and non-OPEC sources will be profitable in the future and will take years to develop.…
> since they'd believe OPEC can't pump forever In 50 years, OPEC will still have oil even at current consumption. But consumption is shrinking as energy production is already shifting to renewables and cars will have converted to electro/hydrogen by then.
Maybe in certain countries, but the big picture is that worldwide barrels/per/day consumption is continuing to increase:
2014: 92,086,000
2013: 91,243,000
2012: 89,846,000
2011: 88,974,000
2010: 87,864,000
Almost all that increase in consumption is attributable to Asia. Any downturn in the curve will be attributable to the economy of China slowing, not renewables taking the place of oil.
I don't disagree that the consumption of renewables is growing rapidly, but that doesn't mean they're making a dent in oil consumption. They may down the road at some point, but right now they're a spit in the ocean.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#49It feels like the author hasn't read The Innovator's Dilemma. In it, the author talks about a number of "stable" industries that had existing product lines with the R&D, customers, and sales processes to back them up. They were so invested in those structures that as innovations in their industry came along, they missed the innovations. It wasn't because those innovations were bad - many were great - but they didn't…
It seemed like he understood that to me. This quote basically covers it:
> Yet, as one BP director replied when I asked why his company continued to risk deep-water drilling, instead of investing in alternative energy: “We are a drilling business, and that is our expertise. Why should we spend our time and money competing in new technology with General Electric or Toshiba?”
I think that's why the primary argument is that they should cease R&D entirely and just distribute profits to shareholders until they run out.
Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy
#50Earlier quoted context omitted.
> since they'd believe OPEC can't pump forever In 50 years, OPEC will still have oil even at current consumption. But consumption is shrinking as energy production is already shifting to renewables and cars will have converted to electro/hydrogen by then.
Cars won't convert in large numbers if oil-based fuel is a cheaper option.
Only if you do not count in the environmental impact of burning oil.