Big Oil Companies Should Adopt a Self-Liquidation Strategy • Hacker News Board

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

#91

Post by cplease » Mon, Dec 28, 2015, 8:04 AM UTC

ams6110 wrote: post #25

nextweek2 wrote: post #19

I'd be interested in seeing a breakdown of the lifespan of oil using transport. A car might have a 15 year lifespan so we can't see a massive change in petroleum use until that time. However boats, trains and planes have at least double that lifespan. Because of capital investments, surely an alternative to oil is still 20 years away?

Trains are feasible to run on electricity, since they run on fixed tracks and you can have overhead cables or 3rd rail configurations. There is no realistic chance that ships and planes will not use petroleum fuel for the foreseeable future.

Aviation and marine fuel demand is only a small fraction of global demand.

Think about it; for most of history shipping was entirely wind-powered. Clearly not comparable to today's massive freighters, but don't rule out new technologies finding a way to harness more wind and sun at sea.

And at the end of the day if there's a surplus of renewable electricity, it can be converted into high density fuels such as gas or diesel. That technology exists today; it can only get better especially if a cost incentive existed.

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

#92

Post by golergka » Mon, Dec 28, 2015, 8:24 AM UTC

> strategy of self-liquidation that tobacco companies used

Does anyone have a source for that?

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

#93

Post by fauigerzigerk » Mon, Dec 28, 2015, 9:02 AM UTC

lmm wrote: post #69

fauigerzigerk wrote: post #64

Earlier quoted context omitted.

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).

I have no problem with the "investing too much in exploration" part of his argument. But avoiding overinvestment is not what unleashes the tsunami of cash he's talking about. It's asset sales that should bring on that tsunami of cash.

What is the break even of oil companies' proven reserves after not overspending on investment? That is the all important question. If that break even is below future long term oil prices, as he seems to suggest, then these assets are worth exactly $0.

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

#94

Post by netcan » Mon, Dec 28, 2015, 9:16 AM UTC

nimos wrote: post #68

tankenmate wrote: post #30

Earlier quoted context omitted.

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.

It's a problem to consider these separate. All energy and certainly all carbon fuels are fungible to a degree. Oil is easier to transport and bottle. Gas is more location and infrastructure dependant.

If Gas prices rise or oil prices drop, we'll use oil for electricity generation too.

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

#95

Post by venomsnake » Mon, Dec 28, 2015, 9:38 AM UTC

late2part wrote: post #77

hughw wrote: post #55

Earlier quoted context omitted.

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.

True. But let's play this out. If they can't balance their budgets, their government collapses (like Bankruptcy) and is replaced by a new Government that doesn't offer the same panem et circenses. New Government outsources oil production (like House Saud did some 70 years ago) and then the true marginal becomes the needed cost.

Then we have civil war and big chunk of Saudi oil is off the market and prices rise again.

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

#96

Post by dredmorbius » Mon, Dec 28, 2015, 9:53 AM UTC

vardump wrote: post #14

amelius wrote: post #6

We will still need oil for things like polymers (e.g. plastics), drugs, and thousands of other applications.

Oil is generally not used to make plastics. That said, nearly everything else is, at least indirectly. http://www.eia.gov/tools/faqs/faq.cfm?id=34&t=6

Distinguishing NGL from petroleum is fairly disengenuous, and it's one of several games that's played with NGL reporting in US fossil fuels reporting. They're treated as oil where convenient to do so, as not oil otherwise (much of the touted increase in US domestic "oil" extraction in recent years has been NGL, where it's treated as "oil", but here for plastics, EIA treat them as "not oil").

No, NGL isn't the fraction of crude oil that's synthesised into motor fuels such as gasoline, kersone (jet fuel), or diesel. But it does come from petroleum extraction, and if you're not extracting petroleum from the ground, you're not getting NGL -- dry up one source, and you're drying up the other.

That leaves natural gas, and I'd have to do some conversion to sort out what fraction of plastics production is represented by the billion cubic feet or so of gas EIA mentions. And yes, other carbon feedstocks, including ag waste or captured / segragated carbon could conceivably feed plastics.

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

#97

Post by justincormack » Mon, Dec 28, 2015, 9:57 AM UTC

Spooky23 wrote: post #53

derekp7 wrote: post #46

Earlier quoted context omitted.

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.

No. That's why we have credit markets because some people like the opposite. These can then be converted to rentals.

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

#98

Post by semi-extrinsic » Mon, Dec 28, 2015, 10:07 AM UTC

_nedR wrote: post #90

iofj wrote: post #72

Earlier quoted context omitted.

Until battery tech gets within a decent percentage of a gas tank. Commercial batteries are currently worse than gas tanks, but catching up fast. If they get to 20% volume/weight/price of a gas tank I would predict a switch is going to happen very very fast. Currently commercial batteries are price limited (about the price of a gas tank + filling up the gas tank 400 times, which would keep a normal car moving for 5-10…

Its not just the batteries and cars. Can the grid really handle the huge increase in demand ? How much investment needs to be done to upgrade it? How long will that take?

And not just the main grid, which is not that hard to upgrade, but we're talking about also upgrading the grid and transformers on every street in the western world.

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

#99

Post by dagw » Mon, Dec 28, 2015, 12:03 PM UTC

ghaff wrote: post #67

tempestn wrote: post #49

Earlier quoted context omitted.

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 photograph…

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.

Yet they completely owned the pro digital camera space in the early 90s. Their problem was that they chose not to build on this lead since they didn't want to cannibalize their more profitable film business.

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

#100

Post by hughw » Mon, Dec 28, 2015, 12:45 PM UTC

fnordfnordfnord wrote: post #84

hughw wrote: post #59

Earlier quoted context omitted.

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...

Look in that data and tell me how many companies are hiring. These companies are treading water. They are furlough-ing people, laying people off, getting bought by bigger companies looking for a bargain, etc, etc, etc.

Oh, absolutely. They are adapting.