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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

#71

Post by rubyfan »

mschuster91 wrote: post #61
rubyfan wrote: post #60

Earlier quoted context omitted.

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)

Any citation? Since I'm not in Germany the anecdote is lost on me.

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

#72

Post by iofj »

hueving wrote: post #70
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…

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

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 years), and weight limited at about 5% of the energy/weight of a gas tank. Given how it's evolving, I'd expect another 2-3 years before the necessary technology becomes available.

I think 20% will be about the turning point because while gas tanks provide a 1000km range, if you can charge at home, then what's the problem with 200km range, decreasing to 160km over 2-3 years ? Especially if you can solar charge (and combined with a house battery ... watch out)

And Teslas don't count. Anything over 20000$ starting price just isn't going to start the migration.

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

#73

Post by iofj »

AnthonyMouse wrote: post #27
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?

> Because of capital investments, surely an alternative to oil is still 20 years away? It depends what you mean by alternative. The day when the last gallon of oil is burned may not ever even happen, but the day when 20% of things that currently burn oil have been replaced with something else could be very soon, and 50% only a few years after that, etc.

Oh so we're going to start burning more oil ? That sucks.

https://en.wikipedia.org/wiki/Jevons_paradox

(Note that you can currently see it in action. Fossil fuel usage is very near an all time high while prices dropped 75% due to oversupply)

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

#74

Post by tim333 »

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…

He's ignored costs. 10.5 billion barrels * $36 = $378 bn. But they probably cost something like $25 a barrel to extract so $115bn, plus financing costs because it would take say 10 years to get it and sell it, say 6% interest reduces the NPV to $65 bn. A lot of businesses would look great if you could assume they were worth potential sales with no costs attached.

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

#75

Post by AnthonyMouse »

iofj wrote: post #73
AnthonyMouse wrote: post #27

Earlier quoted context omitted.

> Because of capital investments, surely an alternative to oil is still 20 years away? It depends what you mean by alternative. The day when the last gallon of oil is burned may not ever even happen, but the day when 20% of things that currently burn oil have been replaced with something else could be very soon, and 50% only a few years after that, etc.

Oh so we're going to start burning more oil ? That sucks. https://en.wikipedia.org/wiki/Jevons_paradox (Note that you can currently see it in action. Fossil fuel usage is very near an all time high while prices dropped 75% due to oversupply)

The current market situation with oil is very strange. My guess is OPEC sees the writing on the wall regarding climate change, i.e. that not all of the reserves in the ground can be used, and have decided that they're going to pump as much of theirs as they can before some law is passed that will turn what's left in the ground into a pumpkin.

So now what we need is that law. A cross-subsidy would be perfect: Tax fossil fuels and use the money to subsidize fossil alternatives.

Oil is cheap now, so the tax wouldn't pinch much, but it would make alternatives more attractive for anyone in a position to make that choice (e.g. buy an electric car). Which would then correspondingly reduce demand for oil, which would reduce the price of oil. Then we can keep oil prices from crashing by increasing the tax, which provides more money for the subsidy, which makes oil comparatively even less attractive, which reduces demand for oil, and so on until we're off of oil. But the price of gas never needs to go back above ~$3/gallon -- it's just that by the end the $3/gallon you're paying is $2.50 of tax and the tax is paying for everybody to get an electric car.

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

#76

Post by D_Alex »

tim333 wrote: post #74
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…

He's ignored costs. 10.5 billion barrels * $36 = $378 bn. But they probably cost something like $25 a barrel to extract so $115bn, plus financing costs because it would take say 10 years to get it and sell it, say 6% interest reduces the NPV to $65 bn. A lot of businesses would look great if you could assume they were worth potential sales with no costs attached.

What's worse - the oilco usually operates under a Production Sharing Contract or some kind of resource rent tax/royalty regime. Often, the oilco share of the oil is less than 50% of production. So, unfortunately for BP etc, the revenue will be way less than what the article suggests.

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

#77

Post by late2part »

hughw wrote: post #55
ascorbic wrote: post #28

Earlier quoted context omitted.

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.

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.

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

#78

Post by [deleted] »

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.

[deleted]

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

#79

Post by nradov »

MichaelGG wrote: post #38
ams6110 wrote: post #25

Earlier quoted context omitted.

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.

That's pretty much political though. Nuclear powered cargo ships have already worked, and Russia says they're putting theirs back into service in a bit. Although if foreseeable future means obvious stuff, then yes, the huge number of non-nuclear ships means it'll take a long time even if everyone liked the idea tomorrow.

Nuclear powered civilian ships are not going to be generally viable in our lifetimes due to real safety and security concerns that go beyond mere politics. Operating a nuclear reactor requires more, and more highly trained, crew members. Plus you need constant armed security on par with what land-based nuclear power plants have. Those additional costs outweigh any possible savings on fuel. Russia operates only a few of them on limited service in areas where security isn't a major concern, and they don't really try to make a profit.

The long-term future of merchant shipping will probably be larger, more efficient ships running on liquid fuels (biofuels or direct chemical synthesis), plus automated auxiliary sails.

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

#80

Post by lsc »

ryanjshaw wrote: post #40
MichaelGG wrote: post #3

I 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.

Eh, I would argue that it's different from buggy whips, because there is a (somewhat) limited supply of oil.

The idea being that if it turns out you are off by a few years (or a few hundred years) in the buggy whip vs. car situation, and buggy whips are a thing for a while longer, well, it's not that hard to ramp up buggy whip production. I mean, you've got some training effort, sure, but there are more buggy whips to be made.

The idea is that oil is different, simply because there's only so much of it. If it turns out you planned wrong and have to come up with a few more year's worth of oil, and you are out? yeah, you have a serious problem.

As an aside, the hole in my argument is what was shown by oil shale. There is a lot more oil available at $100 a barrel than there is available at $20 a barrel. but the point is that at some point, we'll actually run out of the stuff, and even before then, we won't be able to make more oil the same way we had made more oil in the past; to get more oil, periodically, you need to come up with new ways of getting oil, usually at great expense.

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