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Big Oil Companies Should Adopt a Self-Liquidation Strategy

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Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#51

Post by dynamicwebpaige »

jofer wrote: post #23

Whoever wrote this seems to be predicting the present while having no awareness of how the petroleum industry works. Yes, they've outlined what most majors are doing to different degrees in different areas. However, you're stupid not to keep your ability to operate when oil prices come back up. (Caveat: I'm an exploration geologist at a "western major", so I do have a somewhat slanted view.) First off, let's get some…

"Proved reserves" (developed and undeveloped) are also a large component of how an energy company is valued by Wall Street.

Regardless of the current price environment, it's important to keep a portfolio of potential exploration opportunities.

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#52

Post by hughw »

justincormack wrote: post #36
hughw wrote: post #17

The article ignores some realities. 1) The major OPEC producers need to recover far more than their lifting costs. Their oil revenues subsidize the rest of the economy and is their bulwark of social stability. Some estimate that Saudi Arabia needs $90/bbl. 2) Technological adaptation to the low price regime is happening as we speak. The years of $100/bbl oil developed expensive innovations, and now we are seeing thos…

Huge numbers of US oil companies are filing for bankruptcy right now, and many are not profitable even at zero debt. I am not sure where your "most are succeeding" figure comes from.

Thirty-six [1] is not "huge numbers". There are literally thousands of oil and gas companies in the US. I repeat, most are succeeding.

[1] http://www.slideshare.net/MarcellusDN/haynes-and-boone-llp-o...

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#53

Post by Spooky23 »

derekp7 wrote: post #46
ams6110 wrote: post #24

Earlier quoted context omitted.

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.

Everyone prefers to pay more over time vs make a larger capital investment.

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#54

Post by Spooky23 »

ape4 wrote: post #18

Doesn't seem so crazy. If your industry isn't viable any more: liquidate rather than hang around. We all know what Alphabet (Google) would do if it owned some company that was in decline.

Oil isn't in decline. There may be some alternatives to oil that are newly viable, but you still have billions of engines that aren't going anywhere.

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#55

Post by hughw »

ascorbic wrote: post #28
hughw wrote: post #17

The article ignores some realities. 1) The major OPEC producers need to recover far more than their lifting costs. Their oil revenues subsidize the rest of the economy and is their bulwark of social stability. Some estimate that Saudi Arabia needs $90/bbl. 2) Technological adaptation to the low price regime is happening as we speak. The years of $100/bbl oil developed expensive innovations, and now we are seeing thos…

That's not their marginal cost though. They may need $90/bbl to balance their budget, but they don't need $90 to pump the next barrel.

Agree, that was my point. It's not relevant to talk about their marginal cost as if you could ignore their need to balance their budget eventually.

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#56

Post by Spooky23 »

oilthrowaway wrote: post #2

Question for those who might know: Is analysis that the oil price depression will result in a significant economic recession just FUD, or is it grounded in truth?

FUD. Elevated energy costs are a tax on everything.

Next time you're at the mall, consider that for every 100 cars you see, those drivers have an additional $100,000-150,000 to spend vs. peak has pricing.

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#57

Post by kriro »

"""In a normal competitive market, prices will be set by the cost of producing an extra barrel from the cheapest oilfields with spare capacity."""

This seems wrong as the marginal price is determined by the utility of an extra barrel of oil for the consumer not by production cost. Sounds like a fall back to the labor theory of value (aka classical economics and/or Marxism) to me.

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#58

Post by alkonaut »

ams6110 wrote: post #24
mschuster91 wrote: post #22

Earlier 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.

True, but once cleaner cars are even remotely close In cost they will no longer be subsidized, instead the dirty ones will be taxed or banned.

The yearly road tax for a "dirty" car where I live is about $1000. If that was 2k or 3k they would be off the roads within the year...

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#59

Post by hughw »

VeilEm wrote: post #26
hughw wrote: post #17

The article ignores some realities. 1) The major OPEC producers need to recover far more than their lifting costs. Their oil revenues subsidize the rest of the economy and is their bulwark of social stability. Some estimate that Saudi Arabia needs $90/bbl. 2) Technological adaptation to the low price regime is happening as we speak. The years of $100/bbl oil developed expensive innovations, and now we are seeing thos…

That's pretty interesting about the new technologies and how small businesses can still operate profitably in the current price range. Where did you read about this?

I work in the drilling data industry and have access to data as well as anecdotal observations. But there are lots of published articles e.g. [1], [2]

[1] http://www.nytimes.com/2015/05/12/business/energy-environmen...

[2] http://www.worldoil.com/news/2015/8/12/oil-at-30-is-no-probl...

Re: Big Oil Companies Should Adopt a Self-Liquidation Strategy

#60

Post by rubyfan »

mschuster91 wrote: post #22
rubyfan wrote: post #21

Aren'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.

Indeed that is the expectation, but to be more specific however they won't keep over producing forever. Oil prices won't be low forever and western oil interests should be claiming rights on new wells that will produce for a long time to come.

Also I am curious, do you have evidence that suggests consumption is shifting away from oil to renewables?

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