Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Big Oil Companies Should Adopt a Self-Liquidation Strategy

project-syndicate.org

Post reply on HN
Print view View original

61–70 of 107 posts

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

#61

Post by mschuster91 »

rubyfan wrote: post #60
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.

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?

Yeah of course, just look at the rise of solar e.g. in Germany. Thanks to Chinese price dumping, solar cells are cheap as f..k now. Already, gas plants are shut down in Germany and only kept alive as "backup plants" (of course by the consumer who pays extra fees)

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

#62

Post by mschuster91 »

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.

You can always convert an Otto-engine car to gas fuel, and by 2050 we will be able to mass-synthesize gas from hydrogen - actually we are able to do so right now, we just don't have large scale plants for that.

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

#63

Post by vardump »

tahssa wrote: post #44
vardump wrote: post #37

Earlier quoted context omitted.

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…

> is still doing it at $35 a barrel

They'd still be doing it at any loss figure above operational costs to maintain cash flow. The cost to drill the well is already sunk. So it makes sense to operate the well at heavy loss. Some money is better than no money.

> Either way I don't think your point #2 works against anything I've mentioned.

My point was the economic reasons were why horizontal drilling became feasible. It could have been done in the eighties if oil prices were high enough back then.

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

#64

Post by fauigerzigerk »

Narkov wrote: post #42
fauigerzigerk wrote: post #39

OK, 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…

It just doesn't add up. If their reserves are actually worth that much to a private equity investor, why are they supposed to be so worthless to BP (and Shell and Exxon ...) that it should liquidate itself?

These assets are either profitable or not. If they are profitable, why sell them? If they are not profitable, why buy them? It can't be both. Not for an entire industry that is.

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

#65

Post by tahssa »

vardump wrote: post #63
tahssa wrote: post #44

Earlier quoted context omitted.

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…

> is still doing it at $35 a barrel They'd still be doing it at any loss figure above operational costs to maintain cash flow. The cost to drill the well is already sunk. So it makes sense to operate the well at heavy loss. Some money is better than no money. > Either way I don't think your point #2 works against anything I've mentioned. My point was the economic reasons were why horizontal drilling became feasible.…

The cost to drill a well is not sunk when they haven't drilled the well yet.

Well some companies are in fact drilling wells at a loss, but only because they have to pay bills while they pray for oil prices return and potentially survive this supposed rough patch. However, that says more about their debt situation than it does the cost of horizontal drilling.

Bottom line is that some companies are in fact making a profit drilling horizontal shale wells @ $35 barrel.

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

#66

Post by khuey »

fauigerzigerk wrote: post #64
Narkov wrote: post #42

Earlier quoted context omitted.

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…

It just doesn't add up. If their reserves are actually worth that much to a private equity investor, why are they supposed to be so worthless to BP (and Shell and Exxon ...) that it should liquidate itself? These assets are either profitable or not. If they are profitable, why sell them? If they are not profitable, why buy them? It can't be both. Not for an entire industry that is.

Money needs to be spent in order to extract the reserves. They don't have all that oil sitting around in a tank somewhere, it has to be pumped out of the ground.

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

#67

Post by ghaff »

tempestn wrote: post #49
caseysoftware wrote: post #43

It 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…

The argument being made is really Levitt's marketing myopia argument which at least used to appear in pretty much every Marketing 101 course. [1] The argument is that you should define yourself as a transportation company rather than a railroad (or an energy company instead of an oil company).

The problem with this argument is that it doesn't always apply very well. Yes, Kodak had distribution channels for photographs. But very little about the company gave it any particular advantage for digital photography from a technology perspective.

Somewhat ironically, Fujifilm--notwithstanding some recent success in relatively niche camera products--has largely weathered the post-film era by applying its technology to medical products and the like.

[1] http://academy.clevelandclinic.org/Portals/40/LHC%20Myopia.p...

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

#68

Post by nimos »

tankenmate wrote: post #30
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…

The break even price is estimated at current pumping rate vs gross profit; but Saudi Arabia can relatively easily increase their pumping rate. The cash cost for the Saudis per barrel is sub $5. So they can up their production rate to handle the difference; they are incentivised to do so if they truly believe that their reserves will become a stranded asset. In contrast after running and royalties cash costs in the US…

Oil, even at current prices, is significantly more expensive than natural gas and coal for generating electricity. Apart from remote communities oil isn't really used to generate electricity. Oil is valuable because of gasoline. Solar/Wind/Nuclear are competing in a completely different market.

The real threat to the medium/long term value of oil is a good battery.

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

#69

Post by lmm »

fauigerzigerk wrote: post #64
Narkov wrote: post #42

Earlier quoted context omitted.

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…

It just doesn't add up. If their reserves are actually worth that much to a private equity investor, why are they supposed to be so worthless to BP (and Shell and Exxon ...) that it should liquidate itself? These assets are either profitable or not. If they are profitable, why sell them? If they are not profitable, why buy them? It can't be both. Not for an entire industry that is.

Yahoo has been trading well below its book value for a while. If you believe that the company is about to destroy a lot of money by spending it on unprofitable R&D then it makes sense to value it at less than its current assets. (Obviously current management will spend on R&D because they believe it will ultimately produce more value than it costs, but maybe the market disagrees).

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

#70

Post by hueving »

tankenmate wrote: post #30
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…

The break even price is estimated at current pumping rate vs gross profit; but Saudi Arabia can relatively easily increase their pumping rate. The cash cost for the Saudis per barrel is sub $5. So they can up their production rate to handle the difference; they are incentivised to do so if they truly believe that their reserves will become a stranded asset. In contrast after running and royalties cash costs in the US…

Solar, wind, and nuclear don't provide a threat to fuel used for transportation, which is a major percentage of how it's used.
Post reply on HN