Half of U.S. Fracking Companies Will Be Sold OR Dead This Year

Half of the 41 fracking companies operating in the U.S. will be dead or sold by year-end because of slashed spending by oil companies, an executive with Weatherford International Plc said.
There could be about 20 companies left that provide hydraulic fracturing services, Rob Fulks, pressure pumping marketing director at Weatherford, said in an interview Wednesday at the IHS CERAWeek conference in Houston. Demand for fracking, a production method that along with horizontal drilling spurred a boom in U.S. oil and natural gas output, has declined as customers leave wells uncompleted because of low prices.
There were 61 fracking service providers in the U.S., the world’s largest market, at the start of last year. Consolidation among bigger players began with Halliburton Co. announcing plans to buy Baker Hughes Inc. in November for $34.6 billion and C&J Energy Services Ltd. buying the pressure-pumping business of Nabors Industries Ltd.
Weatherford, which operates the fifth-largest fracking operation in the U.S., has been forced to cut costs “dramatically” in response to customer demand, Fulks said. The company has been able to negotiate price cuts from the mines that supply sand, which is used to prop open cracks in the rocks that allow hydrocarbons to flow.
Oil companies are cutting more than $100 billion in spending globally after prices fell. Frack pricing is expected to fall as much as 35 percent this year, according to PacWest, a unit of IHS Inc.
While many large private-equity firms are looking at fracking companies to buy, the spread between buyer and seller pricing is still too wide for now, Alex Robart, a principal at PacWest, said in an interview at CERAWeek.
Fulks declined to say whether Weatherford is seeking to acquire other fracking companies or their unused equipment.
“We go by and we see yards are locked up and the doors are closed he  said. “It’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”

Oil: Value trap or buying opportunity?

 

Oil Well cartoons, Oil Well cartoon, funny, Oil Well picture, Oil Well pictures, Oil Well image, Oil Well images, Oil Well illustration, Oil Well illustrations

 

Oil: Value trap or buying opportunity?

Depends if you are investing or a speculating/trading. The previous week’s oil inventory numbers show U.S. crude oil inventories are at the highest level for this time of year in at least the past 80 years. (Source: U.S. Energy Information Administration 11Feb15 for week ending 6Feb15) Investors reacted Tuesday to Citigroup indicating that $20 oil/barrel may soon be on the way. They must have an awful lot of short positions they need going back the right way: “Oil Could Plunge to $20 & this Might be the end of OPEC”: Citigroup goes on to say, “The recent surge in oil prices is just a “headfake,” and oil as cheap as $20 a barrel may soon be on the way, as it lowered its forecast for crude. Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup’s global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out. A pullback in production isn’t likely until the third quarter, Morse said. In the meantime, West Texas Intermediate Crude, which currently trades at around $52 a barrel, could fall to the $20 range “for a while,” according to the report. The U.S. shale-oil revolution has broken OPEC’s ability to manipulate prices and maximize profits for oil-producing countries.

“It looks exceedingly unlikely for OPEC to return to its old way of doing business,” Morse wrote. “While many analysts have said in past market crises ‘the end of OPEC,’ this time around might well be different,” Morse said. Citi reduced its annual forecast for Brent crude for the second time in 2015. Prices in the $45- $55 range are unsustainable and will trigger “disinvestment from oil” and a fourth-quarter rebound to $75 a barrel, according to the report. Prices this year will likely average $54 a barrel.” (Bloomberg 9Feb2015)

Thursday, Swanzy Quarshie of Sentry Investments was on BNN and gave some of our historical favorites some exposure. Her macro-view of the sector/market is a positive outlook for energy and energy related equities for 2015, however, Sentry remains cautious in the short term. Although much of the issues inherent in the oil markets have been priced into the commodity, they see the possibility of a retest of the oil price lows of January driven by growing crude inventory levels globally (levels are at an 80 year high!). For now, they are firmly in the camp that the current demand/supply imbalance is driven by excess supply and expect the market to move closer to equilibrium towards the end of the year with a slowdown in North American drilling activity. At this time, they do not expect demand to have a negative impact on the imbalance. In this environment, they favour companies with strong balance sheets and good cost structures who can take advantage of this downturn to further strengthen their businesses. They prefer oil weighted producers in the short to midterm given the structural challenges in the North American gas market. In the longer term, they are optimistic that growing export channels and increasing industrial demand for natural gas will help to strengthen the North American gas market. Her Top picks: Bankers Petroleum (BNK-tsx), Raging River Exploration (RRX-t) and Whitecap Resources (WCP-t). Legendary value investor Seth Klarman has built a position in Bellatrix (BXE-tsx): According to reports, legendary value investor Seth Klarman has built a position in Bellatrix. Klarman has purchased 21,839,400 common shares of BXE, representing 11.4% of the company’s shares outstanding. Separately, Orange Capital, LLC at last report held 28,146,263 common shares of BXE, representing 14.7% of the company. This week, Canaccord Genuity Energy Analyst Anthony Petrucci initiated coverage on BXE and highlights the company is currently trading at 7.1x 2015E EV/DACF, which is a discount to its peer group at 10.3x. Likewise, its P/NAV of 0.6x is also discounted to the group average of -1.2

In Petrucci’s view, the discount for Bellatrix is too severe, particularly given the company’s asset base and growth profile. While a 2015E D/CF (trailing) of 4.8x is concerning, Petrucci notes BXE’s ability to spend JV dollars to bridge the gap during the current pricing environment. Forbes refers to Klarman as an “investing demigod.” Here is one of Klarman’s most notable quotes, “In capital markets, price is set by the most panicked seller at the end of a trading day. Value, which is determined by cash flows and assets, is not. In this environment, the chaos is so extreme, the panic selling so urgent, that there is almost no possibility that sellers are acting on superior information. Indeed, in situation after situation, it seems clear that fundamentals do not factor into their decision making at all.” (CG 11Feb2015) due to the length of the report, please call/email us if you would like it in its entirety.

 

Offshore Portfolio : http://www.youroffshoremoney.com

Oil Extends Drop : Worsening Glut – With Oil Companies and Investors In Denial

Oil extended losses to trade below $45 a barrel amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than 5 1/2 years.

Futures fell as much as 2.6 percent in New York, declining for a third day. Crude inventories probably gained by 1.75 million barrels last week, a Bloomberg News survey shows before government data tomorrow. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will stand by its plan to expand output capacity even with “unstable oil prices,” according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs Group Inc. said crude needs to drop to $40 a barrel to “re-balance” the market, while Societe Generale SA also reduced its price forecasts.

“There’s adequate supply,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone today. “It’s really going to take someone from the supply side to step up and cut, and the only organization capable of doing something substantial is OPEC. I can’t see the U.S. reducing output.”

West Texas Intermediate for February delivery decreased as much as $1.19 to $44.88 a barrel in electronic trading on the New York Mercantile Exchange and was at $44.94 at 2:26 p.m. Singapore time. The contract lost $2.29 to $46.07 yesterday, the lowest close since April 2009. The volume of all futures traded was about 51 percent above the 100-day average.

U.S. Supplies

Brent for February settlement slid as much as $1.31, or 2.8 percent, to $46.12 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $1.24 to WTI. The spread was $1.36 yesterday, the narrowest based on closing prices since July 2013.

U.S. crude stockpiles probably rose to 384.1 million barrels in the week ended Jan. 9, according to the median estimate in the Bloomberg survey of six analysts before the Energy Information Administration’s report. Supplies have climbed to almost 8 percent above the five-year average level for this time of year, data from the Energy Department’s statistical arm show.

Production accelerated to 9.14 million barrels a day through Dec. 12, the most in weekly EIA records that started in January 1983. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

OPEC Output

The U.A.E. will continue plans to boost its production capacity to 3.5 million barrels a day in 2017, Al Mazrouei said in a presentation in Abu Dhabi yesterday. The country currently has a capacity of 3 million and pumped 2.7 million a day last month, according to data compiled by Bloomberg.

OPEC, whose 12 members supply about 40 percent of the world’s oil, agreed to maintain their collective output target at 30 million barrels a day at a Nov. 27 meeting in Vienna. Qatar estimates the global surplus at 2 million a day.

In China, the world’s biggest oil consumer after the U.S., crude imports surged to a new high in December, capping a record for last year. Overseas purchases rose 19.5 percent from the previous month to 30.4 million metric tons, according to preliminary data from the General Administration of Customs in Beijing today. For 2014, imports climbed 9.5 percent to 310 million tons, or about 6.2 million barrels a day.

Oil Companies and Investors In Denial : Portfolio Profits At Risk

My rant – the  curse of Cassandra :

Cassandra, daughter of the king and queen, in the temple of Apollo, exhausted from practising, is said to have fallen asleep – when Apollo wished to embrace her, she did not afford the opportunity of her body. On account of which thing :

when she prophesied true things, she was not believed.

I have written :

Managed Accounts Year End Review and Forecast

How $50 Oil Changes Almost Everything

 Investors are in denial but bankers see the problem:

  • Lenders are already doling out tough love to companies,  with some lenders wanting to see producer plans for handling further price drops while others are urging asset sales.
  • The 10 highest ratios of net debt/EBITDA from the last 12 months, according to S&P Capital IQ, belong to KWK, AR, WRES, GDP, REN, HK,XCO, REXX, MPO, EPE.


Photographer: Andrew Burton/Getty Images
U.S. shale oil production.

The plummeting price of oil means no more trout ice cream.

Coromoto, a parlor in Merida, Venezuela, famous for its 900 flavors,closed during its busiest season in November because of a milk shortage caused by the country’s 64 percent inflation rate, the world’s fastest.

That’s the plight of an oil-producing nation. At the same time, consuming countries like the U.S. are taking advantage. Trucks, which burn more gasoline, outsold cars in December by the most since 2005, according to data from Ward’s Automotive Group.

The biggest collapse in energy prices since the 2008 global recession is shifting wealth and power from autocratic petro-states to industrialized consumers, which could make the world safer, according to a Berenberg Bank AG report. Surging U.S. shale supply, weakening Asian and European demand and a stronger dollar are pushing oil past threshold after threshold to a five-and-half-year low, with a dip below $40 a barrel “not out of the question,” said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees about $120 billion.

Oil prices are the big story for 2015,” said Kenneth Rogoff, a Harvard University economics professor. “They are a once-in-a-generation shock and will have huge reverberations.”


Photographer: Daniel Acker/Bloomberg

Travis Simmons, a driver for Yo-Mac Transport, stores a filling hose after delivering..

Weak Prices

Brent crude, the international benchmark, fell as low as $49.66 a barrel today, dropping below $50 for first time since 2009. Prices dropped 48 percent in 2014 after three years of the highest average prices in history. West Texas Intermediate, the U.S. benchmark, plunged to as low as $46.83 today, about a 56 percent decline from its June high.

“We see prices remaining weak for the whole of the first half” of 2015, said Gareth Lewis-Davies, an analyst at BNP Paribas in London.

If the price falls past $39 a barrel, we could see it go as low as $30 a barrel, said Walter Zimmerman, chief technical strategist for United-ICAP in Jersey City, New Jersey, who projected the 2014 drop.

“Where prices bottom will be based on an emotional decision,” Zimmerman said. “It won’t be based on the supply-demand fundamentals, so it’s guaranteed to be overdone to the downside.”

The biggest winner would be the Philippines, whose economic growth would accelerate to 7.6 percent on average over the next two years if oil fell to $40, while Russia would contract 2.5 percent over the same period, according to an Oxford Economics Ltd.’s December analysis of 45 national economies.


Inflation Outlook

Among advanced economies, Hong Kong is the biggest winner, while Saudi Arabia, Russia and the United Arab Emirates fare the worst, according to Oxford Economics.

One concern of central bankers is the effect of falling oil prices on inflation. If crude remains below $60 per barrel this quarter, global inflation will reach levels not seen since the worldwide recession ended in 2009, according to JP Morgan Securities LLC economists led by Bruce Kasman in New York.

Kasman and his team are already predicting global inflation to reach 1.5 percent in the first half of this year, while sustained weakness in oil suggest a decline to 1 percent, they said.

Negative Inflation

The euro area would probably witness negative inflation, while rates in the U.S., U.K. and Japan also would weaken to about 0.5 percent. For what it calls price stability, the Federal Reserve’s inflationtarget is 2 percent. Emerging-market inflation would also fade although lower currencies and policies aimed at slowing the effects on retail prices may limit the fall.

As for growth, a long-lasting price of $60 would add 0.5 percentage point to global gross domestic product, they estimate.

Even as cheaper fuel stimulates the global economy, it could aggravate political tension by squeezing government revenue and social benefits, Citigroup Inc. analysts said in a Jan. 5 report.

Either way, previously unthinkable events now look more likely. Byron Wien, a Blackstone Group LP vice chairman, predicting that Russian President Vladimir Putin will resign in 2015 and Iran will agree to stop its nuclear program.

Iran Losses

Iran is already missing tens of billions of dollars in oil revenue due to Western sanctions and years of economic mismanagement under former President Mahmoud Ahmadinejad.

President Hassan Rouhani, elected on a pledge of prosperity to be achieved by ending Iran’s global isolation, is facing a falling stock market and weakening currency. Iranian officials are warning of spending and investment cuts in next year’s budget, which will be based on $72-a-barrel crude. Even that forecast is proving too optimistic.

“Iran will stumble along with less growth and development,” said Djavad Salehi-Isfahani, a professor of economics at Virginia Tech in Blacksburg, Virginia, who specializes in Iran’s economy. “The oil price fall is not reason enough for Iran to compromise.”

The Russian economy may shrink 4.7 percent this year if oil averages $60 a barrel under a “stress scenario,” the central bank said in December. The plunge in crude prices prompted a selloff in the ruble with the Russian currency falling to a record low against the dollar last month and tumbling 46 percent last year, its worst performance since 1998, when Russia defaulted on local debt.

Russian Production

“The risk is that, as a badly-wounded and cornered bear, Russia may turn more aggressive in its increasing desperation, threatening global peace and the European economic outlook,” said Holger Schmieding, Berenberg Bank’s London-based chief economist. However, “the massive blow to Russia’s economic capabilities should –- over time –- make it less likely that Russia will wage another war.”

Russian oil production rose to a post-Soviet record last month, showing how pumping of the nation’s biggest source of revenue has so far been unaffected by U.S. and European sanctions or a price collapse. The nation increased output to 10.667 million barrels a day, according to preliminary data from the Energy Ministry on Jan. 2. That compares with global consumption of 93.3 million barrels a day, based on the International Energy Agency’s estimate for 2015.

Venezuela, which relies on oil for 95 percent of its export revenue, risks insolvency, Jefferies LLC said in a Jan. 6 note. The cost of insuring the country’s five-year debt has tripled since July, Citigroup said. President Nicolas Maduro is visiting China to discuss financing and expects to travel to other OPEC nations to work out a pricing strategy.

Confounding Investors

The U.S., still a net oil importer, would accelerate economic growth to 3.8 percent in the next two years with oil at $40 a barrel, compared with 3 percent at $84, the Oxford Economics study found. The boost to consumers could be offset by oil companies’ scaling back investments, according to Kate Moore, chief investment strategist at JPMorgan Private Bank. Producers are cutting spending by 20 percent to 40 percent, according to Fadel Gheit, an analyst at Oppenheimer & Co.

The mixed picture is confounding investors. The Standard & Poor’s 500 Index of U.S. equities fell 1.9 percent on Jan. 5, the biggest decline since October, as oil brought down energy shares and stoked concerns that global growth is slowing.

While cheaper oil helps consumers, business spending has a bigger effect on equities, and oil companies are set to cut investments. Oil at $50 a barrel could trim $6 a share off earnings in theS&P 500 Index this year, according to Savita Subramanian and Dan Suzuki, New York-based strategists at Bank of America Corp.

Bets on high energy prices have mashed share prices of companies such as Ford Motor Co., Tesla Motors Inc. and Boeing Co.

Redistributes Income

Fifth Third Bancorp (FITB), one of the regional lenders that tried to chase the fracking boom, is down 12 percent since June 20.

Caterpillar Inc., Joy Global Inc., Allegheny Technologies Inc., Dover Corp., Jacobs Engineering Group and Quanta Services Inc. are all down more than 20 percent since oil peaked at almost $108.

Despite those losses, Morgan Stanley last month concluded cheaper fuel is a net benefit for the U.S. economy.

“Any massive redistribution of income can raise political tensions,” Schmieding of Berenberg Bank said in the Jan. 6 report. “But, net/net, strengthening the U.S., Europe, Japan, China and India, while weakening Russia, Iran, Saudi Arabia and Venezuela, is likely to make the world a safer place in the end.”

Houston, We Have An Oil Investor Problem : Survival


Photographer: Dmitry Beliakov/Bloomberg

Hedge Funds Cut Oil Bets After Worst Drop Since 2008

 

 

 

(And it will get worse –

Oil Companies and Investors In Denial : Portfolio Profits At Risk – Jack A. Bass)

Oil’s dramatic fall in price will have serious effects on revenues and spending in the sector, according to some industry analysts, with one investment firm predicting a sector-wide “recession” that will last for several years.

Both U.S. crude and Brent futures fell to fresh 5½-year lows on Tuesday, with the former slipping below $48 at one stage. Weak global demand and booming U.S. oil production are seen as the key reasonsbehind the price plunge, as well as OPEC’s (Organization of the Petroleum Exporting Countries) reluctance to cut its output.

This sector slump will lead to a fight to the death for oil firms, according to analysts at Bernstein Research. The research firm likened the current environment to the Hollywood movie “The Hunger Games”, which portrays a dystopian post-apocalyptic future where the main protagonists battle each other to survive.

“Our research convinces us an oil services recession is largely unavoidable at even $80 a barrel…The Hunger Games have begun,” Nicholas Green, a senior analyst at the company, said in a note on Tuesday morning.

Bernstein’s Green believes that offshore activity will also face a “structural recession.” He predicts that there will be only half of the new work available in 2015, compared to last year, and forecasts no material recovery before 2017.Hedge funds reduced bets on rising oil prices for a second week as futures extended their worst plunge since 2008.

Speculators pared their net-long positionin West Texas Intermediate crude by 3.6 percent in the week ended Dec. 30, U.S. Commodity Futures Trading Commission data show. Short wagers jumped 12 percent, the first gain in six weeks.

The U.S. benchmark price sank 46 percent last year as domestic oil output reached a three-decade high and OPEC produced more than its target for a seventh month. The International Energy Agency has cut its estimate for global demand as economies outside the U.S. are expected to grow more slowly, adding to a supply glut.

Oil Prices

“You had the combination of weak fundamentals and a shift in market psychology,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said yesterday. “People realized that there’s no imminent market tightness, and this caused big selloffs.”

WTI fell $3, or 5.3 percent, to $54.12 a barrel on the New York Mercantile Exchange in the period covered by the CFTC report. Futures declined $1.16, or 2.3 percent, to $48.88 a barrel at 8:46 a.m. after sliding to $48.47, the lowest since April 2009.

U.S. crude production was 9.12 million barrels a day in the seven days ended Dec. 26 after reaching 9.14 million two weeks earlier, the highest in weekly government data since 1983.

Global Production

Crude stockpiles in the U.S. were 385.5 million barrels as of Dec. 26, while gasoline suppliesincreased to 229 million, the highest seasonal levels in weekly Energy Information Administration data.

Russian oil production rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesman Asim Jihad said.

“The consistent production around the world is overwhelming demand,” Michael Hiley, head of energy OTC at LPS Partners Inc. in New York, said yesterday. “It looks like prices will keep making new lows.”

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which have unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

Saudi Prices

“Everybody is producing as much oil as they can,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “With the shale revolution flooding the market with oil and OPEC not cutting at all, the market is fundamentally weak.”

The Organization of Petroleum Exporting Countries, which pumps about 40 percent of the world’s oil, produced 30.24 million barrels a day in December, according to a Bloomberg survey. The group decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna.

Saudi Arabia, the world’s biggest oil exporter, raised its price yesterday for February deliveries of Arab Light to Asia from the biggest discount in at least 14 years. The price cut last month was followed by Iraq, Kuwait and Iran, prompting speculation that Middle East producers were protecting market share.

“The Saudis refuse to cut and lose market share, to prop up prices for the rest of the world,” Hiley said. “As the price goes down, it doesn’t mean production goes away.”

Natural Gas

Net-long positions for WTI dropped by 7,551 to 199,388 contracts of futures and options in the week ended Dec. 30, according to the CFTC. Long positions fell 0.4 percent to 259,613 and short bets climbed to 60,225.

In other markets, bearish wagers on U.S. ultra low sulfur diesel increased 11 percent to 27,087 contracts as the fuel sank 6.1 percent to $1.8688 a gallon.

Wagers on U.S. natural gas swung to net short position of 12,130 contracts in the week ended Dec. 30 from net long of 3,648 in the previous week. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Nymex natural gas dropped 2.4 percent to $3.094 per million British thermal units.

Bullish bets on gasoline tumbled 10 percent to 44,226. Futures slumped 7.4 percent to $1.4537 a gallon on Nymex in the reporting period.

Regular retail gasoline dropped 0.5 cent to an average of $2.194 yesterday, the cheapest since May 2009, according to Heathrow, Florida-based AAA, the country’s largest motoring group. U.S. drivers may save as much as $75 billion at gasoline pumps in 2015, AAA said on Dec. 31.

“People realized how bearish the fundamentals are,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s probably the worst of times for hedge funds. For drivers, it’s probably the best of times.”

 

The impending writedowns represent the latest blow to an industry rocked by a combination of faltering demand growth and booming supplies from North American shale fields. The downturn threatens to wipe out more than $1.6 trillion in earnings for producing companies and nations this year. Oil explorers already are canceling drilling plans and laying off crews to conserve cash needed to cover dividend checks to investors and pay back debts.

The mid-cap and small-cap operators are going to be hardest hit because this is all driven by their cost to produce,” said Gianna Bern, founder of Brookshire Advisory and Research Inc., who also teaches international finance at the University of Notre Dame.

An index of 43 U.S. oil and gas companies lost about one-fourth of its value since crude began its descent from last year’s intraday high of $107.73 a barrel on June 20.

Have you avoided these sectors  ?– you would have been better off  and now you have to decide for 2015.

No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Jack A. Bass Managed Accounts

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds at the rate of 1 % monthly if you require an income stream.

Contact information:

To learn more about portfolio management , tax reduction,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Telephone  Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffshoremoney.com

 

OIL Declines – (as we forecast) – Expect ” more of the same “

Oil Falls to 5 1/2-Year Low as Russia, Iraq Boost Output

Oil dropped to the lowest since May 2009 amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China.

Futures headed for a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest level in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday.

Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.

Oil Prices

“We’re seeing more of the same,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The Chinese and European PMI figures signal weaker demand, while there’s ever-increasing supply. Nobody is cutting back on output and now the Russians are posting post-Soviet production highs.”

Brent for February settlement fell 53 cents, or 0.9 percent, to $56.80 a barrel on the London-based ICE Futures Europe exchange at 11:31 a.m. It declined to $55.48, the lowest since May 7, 2009. Volume for all futures traded was 30 percent below the 100-day average. The European benchmark slumped 48 percent last year, the second-biggest annual loss on record behind a 51 percent tumble in the 2008 financial crisis. Brent traded at of $3.24 premium to WTI.

West Texas Intermediate for February delivery rose 32 cents, or 0.6 percent, to $53.59 a barrel on the New York Mercantile Exchange after dropping to $52.03, the least since May 1, 2009. Volume for all futures traded was 34 percent below the 100-day average. Prices are down 3.2 percent this week.

The surge in oil supplies in Iraq and Russia signaled no respite in early 2015 from the glut that’s pushed crude prices lower. The two countries provided 15 percent of world oil supply in November, according to the International Energy Agency.

Russian oil output rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data e-mailed today by CDU-TEK, part of the Energy Ministry. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesmanAsim Jihad said.

The final two burning crude-storage tanks were extinguished at Es Sider, Libya’s biggest oil port, National Oil Corp. spokesman Mohammed Elharari said by phone from Tripoli. The fires started Dec. 25, when Islamist militants shot rockets at the port in a second attempt to capture it.

OPEC Production

OPEC’s production slid by 122,000 barrels a day from November to 30.24 million last month, led by losses in Saudi Arabia, Libya and the United Arab Emirates, a Bloomberg survey of companies, producers and analysts shows. The 12-member group has a collective target of 30 million a day.

U.S. oil production averaged 9.12 million barrels a day in the week ended Dec. 26, according to the Energy Information Administration. Output increased to 9.14 million a day through Dec. 12, the most in weekly data that started in January 1983.

Inventories of gasoline surged in the week ended Dec. 26 as production climbed to a record, EIA data showed.

Gasoline futures declined 3.14 cents, or 2.1 percent, to $1.4407 a gallon in New York. Diesel decreased 3.18 cents, or 1.7 percent, to $1.8018.

Regular gasoline at U.S. pumps fell to the lowest level since May 2010. The average retail price slipped 0.9 cent to $2.231 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

Sector will respond to the lower commodity price but their share price will decline – example;

NEW YORK (MarketWatch) — Linn Energy LLC LINE, +15.20% said Friday it has approved a 2015 budget that cuts oil and natural gas capital spending to $730 million from about $1.55 billion in 2014, the latest company to respond to the recent slide in crude oil prices. “After careful consideration, LINN’s senior management proposed and the Board of Directors approved a 2015 budget that contemplates a significantly lower current crude oil price than in 2014,” Chief Executive Mark Ellis said in a statement. The budget assumes an unhedged NYMEX price of $60 a barrel. The company is cutting its annual dividend to $1.25 a share from $2.90, he said. Linn Energy has signed a non-binding letter of intent with GSO Capital Partners LP, the credit arm of The Blackstone Group LP BX, +0.56% to fund oil and gas development. GSO has agreed to commit up to $500 million to fund drilling programs. Shares were down 6.2% in premarket trade.

Three weeks after Chairman Steve Schwarzman said it’s going to be the best time in years to invest in energy, Blackstone Group LP (BX) is putting money to work.

Blackstone’s $70 billion credit arm, GSO Capital Partners, committed as much as $500 million to fund oil and natural gas development for Linn Energy LLC (LINE), according to a statement today. The Houston-based energy producer rose as much as 18 percent after the announcement, after losing almost 70 percent of its value in six months as crude prices plummeted.

Private equity firms, while taking steps to shore up energy companies in their portfolios, are hunting for investments in oil and gas producers after Brent tumbled more than 50 percent since June. Energy presents the best opportunity for Blackstone in many years, especially for the New York-based firm’s credit unit, Schwarzman said at a Dec. 11 conference.

“There are a lot of people who borrowed a lot of money based on higher price levels, and they’re going to need more capital,” he said at the conference in New York. “There are going to be restructurings to do. There’s going to be a fallout. It’s going to be one of the best opportunities we’ve had in many, many years.”


Photographer: Patrick T. Fallon/Bloomberg

Steve Schwarzman, co-founder, chairman and chief executive officer of Blackstone Group

Under the five-year agreement with Linn, Blackstone would fund drilling programs at locations selected by Linn for an 85 percent working interest in the wells, according to the statement. If the projects produce a 15 percent annualized return for Blackstone, its stake will drop to 5 percent.

Oil ‘Crisis’

The plunge in oil may usher in a new era for investing in distressed debt, according to Howard Marks, the billionaire co-founder of Oaktree Capital Group LLC. In a letter to clients last month, Marks said his Los Angeles-based firm is becoming more aggressive as companies that borrowed heavily in the low-interest rate environment now come under pressure.

“We knew great buying opportunities wouldn’t arrive until a negative ‘igniter’ caused the tide to go out, exposing the debt’s weaknesses,” Marks wrote. “The current oil crisis is an example of something with the potential to grow into that role.”

Linn, a master-limited partnership, is the latest producer to cut spending on expectations of lower oil and gas prices. The company said today it expects oil to average $60 a barrel in 2015, although it has hedged about 70 percent of its expected output at higher prices. Brent fell 1.9 percent to $56.23 a barrel at 2:38 p.m. in New York.

Active Developer

The agreement with Blackstone, which is non-binding, is “designed to allow Linn to be an active developer of assets with growth capital,” Mark Ellis, Linn’s chief executive officer, said in the statement. “This agreement creates a dynamic alliance.”

The company’s shares rose 13 percent to $11.44 at 2:47 p.m. in New York.

Please see our recent articles published this week on  2015 Energy Sector Forecasts ( archived) 

 

Natural Gas Investors In Denial

Natural Gas Declines After Stockpiles Drop Less Than Forecast

” Investors have to face this ” new normal”, Jack A.Bass

The Energy Information Administration said stockpiles dropped 26 billion cubic feet in the week ended Dec. 26 to 3.22 trillion. Analysts estimated a decline of 34 billion while a survey of Bloomberg users predicted a withdrawal of 30 billion.

“It’s another bearish withdrawal in a series of bearish withdrawals,” said Aaron Calder, senior market analyst at Gelber & Associates in Houston. “The last nine months we have been oversupplied. The bearish fundamentals already had a head start and they are supercharged by mild weather.”

Natural gas for February delivery slid 8.1 cents, or 2.6 percent, to $3.013 per million British thermal units at 12:04 p.m. on the New York Mercantile Exchange. Gas traded at $3.041 before the storage number was released at noon. Volume was 50 percent below the 100-day average. Prices are down 29 percent this year, heading for the first annual drop since 2011.

The EIA released the supply report a day early because of the New Year’s holiday.

The storage withdrawal was the smallest for the last week of the year since 2005. Supplies fell 108 billion the same week last year while the five-year average decline is 114 billion.

A deficit to the five-year norm narrowed to 2.5 percent from 4.9 percent the previous week. Supplies were 7.8 percent above year-earlier inventories, up from a surplus of 4.8 percent in last week’s report.

“The market keeps coming under pressure without the seasonal demand support,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

Heating Season

Stockpiles may end the heating season in March, when storage levels bottom out as the peak-demand period ends, at 1.6 trillion cubic feet, double year-earlier levels, McGillian said.

This December is about 8.3 percent warmer than a year earlier based on natural-gas weighted heating degree days, Matt Rogers, president of Commodity Weather Group LLC, said in an e-mail. The number of heating degree days next month may drop to 975, down 6.7 percent from January 2014, he said.

Weather models indicate a stronger cold front pushing across the Midwest and Northeast next week before giving way to more seasonal readings on Jan. 10 through Jan. 14, a Commodity Weather report today showed. The rest of the U.S. will see mostly average or higher readings during the period.

New York

Manhattan’s low on Jan. 9 will drop to 19 degrees Fahrenheit (minus 7 Celsius), 8 below normal, before rising three days later to 35, according to AccuWeather Inc. in State College,Pennsylvania. About 49 percent of U.S. households use gas for heating.

Marketed gas production will expand in 2015 for the 10th consecutive year as new wells come online at shale deposits such as the Marcellus and the Utica in the East, the EIA said in its Dec. 9 Short-Term Energy Outlook. Output will rise 3.1 percent to 76.68 billion cubic feet a day, a record for the fifth straight year.

Speculators cut net-long positions in four benchmark gas contracts by 23,613, or 87 percent, to 3,648 in the week ended Dec. 23, the least since the market was net short in January 2012, a U.S. Commodity Futures Trading Commission report yesterday showed.

Long-only positions fell 4.2 percent to the least since November 2011, while shorts rose 3 percent.

“Right now we have more to go in this selloff; that is what the record amount of gas is doing to the U.S.” said McGillian.

 

 

Energy Forecast 2015 : Oil Prices Won’t Be Bouncing Back

The surge in production comes as growth in global demand hit a five-year low in 2014, due to "a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan," the IEA said in its December report.

The surge in production comes as growth in global demand hit a five-year low in 2014, due to “a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan,” the IEA said in its December report.
  • ANALYSIS

The world’s major producers continue to pump oil at record levels, dimming hopes of a price rebound in the near future.


Jack A. Bass tax planning and investing guru says the prolonged stretch of low oil prices to come will bring on economic and geopolitical changes that not so long ago were unthinkable

U.S. crude has lost half its value since the summer, as eight of the world’s Top 10 producers cranked up production at or near record levels, with no one willing to rein in output.

On Tuesday, the global benchmark Brent settled up 2¢ at US$57.90. U.S. crude settled up 51¢ at US$54.12 a barrel. Both measures hit 5-1/2-year lows Monday before rebounding slightly.

International Energy Agency data shows U.S. oil production has risen by 4.7 million barrels per day during the past five years, while Canada’s production is up one million bpd and Saudi Arabia has climbed by 1.7 million bpd.

The surge in production comes as growth in global demand hit a five-year low in 2014, due to “a sharp slowdown in Chinese oil demand growth and steep contractions in Europe and Japan,” the IEA said in its December report.

The global oil market appears heavily oversupplied during the first-half of 2015

At the same time, Saudi, Canadian, American, Iraqi, Kuwaiti, Russian and UAE production were at or near their highest-ever levels.

“The global oil market appears heavily oversupplied during the first-half of 2015, with global stock builds becoming more manageable during the second-half of next year,” said RBC Capital Markets in a Dec. 18 report. “On an annual basis, we estimate the global oil market is approximately 1 million bpd oversupplied in 2015, but should tighten in 2016 as non-OPEC supply growth decelerate.”

There are few upside risks for oil at the moment. Markets barely registered news of a rocket attack last week on an oil terminal in Libya that saw up to 1.8 million bpd of oil wiped out from the market.

Related

CLICK TO ENLARGE

CLICK TO ENLARGE

Indeed, a deal between Iraq’s central government and the autonomous region of Kurdistan could see up to 300,000-bpd of oil entering the market by the first quarter. On Tuesday, the U.S. administration released more details on what kind of petroleum is allowed to be shipped under the 40-year ban on crude exports, that could further encourage production.

“I think we are in an era of low oil prices for some time to come,” said Phil Flynn, a Chicago-based analyst at The Price Futures Group Inc. “We ended the year in the U.S. with record inventories, we have OPEC basically on track to produce two million barrels per day more than the demand for their oil; and then we have other non-OPEC countries not showing any signs of cutting back in production — the glut is going to go on.”

Oil companies have started to take some action with rig counts at an eighth-month low in the U.S., but it will take a while for the process to filter through the supply chain.

In a sign of the lag, RBC expects non-OPEC supply growth to rise by 1.8 million bpd (compared to its previous estimate of 1.7 million bpd) in 2014, 1.1 million bpd (versus 1.3 million bpd) in 2015, and finally taper to 300,000  to 400,000  bpd in 2016 (compared to its previous estimate of 900,000 bpd).

While smaller, leveraged companies are expected to bear the brunt of the oil price plunge, the bigger, well-capitalized players will likely benefit from the purge of marginal barrels.

“The well-integrated oil companies are loving this,” Mr. Flynn says. “They are going to be able to ride it out and pounce on opportunities when others are going to be tight for cash.”

Few analysts expect an oil price recovery within the next few months, but some  believe markets are underestimating supply threats hovering over the horizon.

“We believe oil prices will rebound for three reasons,” said Leslie Palti-Guzman
, senior analyst, global energy and natural resources at Eurasia Group.

“Markets are underestimating the Libyan crisis, the U.S. Congress will impose more sanctions on Iran, curtailing its production, and Saudi Arabia and its Gulf allies will take some action.

 

You Have Options:

What To Do ?

Here is our recent letter:

Managed Accounts Year End Review and Forecast

November 2014 – 40 % cash position

Oil/ Energy I am very happy for the call in natural gas prices – out at $12 and into oil. When oil was above $100 we lessened positions and that is our saving grace in the past two weeks. We are not bottom feeders and will wait for a turn in the market before reentering drillers or producers.On Friday November 27th, crude oil prices dropped to below $72 and the slide has continued into the weekend, with Brent crude oil at $70.15 as I write this post. Shares of major oil companies traded down on Friday. Our former energy sector holdings are down another between 4% and 11%, including SDRL, which dropped another 8% following Wednesday’s 23% plunge…

Have you avoided these sectors – you would have been better off to follow our advice in 2014 and now you have to decide for 2015.
No one – and I am not being humble here – can project the future with great accuracy but our clients continue to do very well and we offer that experience to you.

Fees : 1 % annual set up and a performance bonus of 20 % – only if we perform.

You can withdraw your funds monthly if you require an income stream.

Alternate Guaranteed Income Payments

Private client funds Minimum $10,000 Maximum Loan $500,000

Our client is seeking funds to expand their tanker fleet .

Interest 12 % compounded – paid 1% per month

Floating charge of the full $500,000 against the fleet – valued at  more than $ 1 M

 

Contact information:

To learn more about portfolio management ,asset protection, trusts ,offshore company formation and structure for your business interests (at no cost or obligation)

Email

jackabass@gmail.com OR

info@jackbassteam.com  OR

Call Jack direct at 604-858-3202

10:00 – 4:00 Monday to Friday Pacific Time ( same time zone as Los Angeles).

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

Tax website  Http://www.youroffs

Civeco Plunge Typical of Downdraft Trend in Energy Stocks

Civeo Sinks 50% After Halting Dividends, Closing Camps

Civeo Corp. (CVEO), the Houston-based owner of so-called man camps for energy workers, dropped 50 percent after suspending its dividend and closing lodges in response to lower demand for its services.

Civeo cut staff in Canada by 30 percent and in the U.S. by 45 percent this year as oil prices fell by almost half since June, according to a statement late yesterday. Capital spending next year will drop by an estimated 78 percent to $85 million, and Civeo warned it may need to write down the value of some of its assets.

The company halted its 13-cent quarterly dividend. Cutbacks by oil-sands producers have reduced demand for its services in Canada and coal companies in Australia are suffering from “persistently low” prices, Civeo said. It has closed two lodges in Canada and is evaluating other locations.

“There are few major oil-sands construction and expansion projects forecast for 2015, reducing the demand for labor and accommodations,” Chief Executive Officer Bradley Dodson said on a conference call yesterday, adding that the Athabasca oil-sands region is oversupplied with rooms for workers.

Civeo dropped to $4.14 at 12:18 p.m. in New York after plunging as much as 52 percent, the most on record.

The company was spun off by Oil States International Inc. (OIS) and began trading publicly in June at $23.25, when West Texas Intermediate crude was above $100 a barrel. The U.S. oil benchmark has since fallen to less than $54 a barrel.

Spending Cuts

Large U.S. oil companies in shale formations have reduced spending by 25 to 50 percent, and major producers in Canada’s oil sands have forecast spending for 2015 that’s 15 to 20 percent lower than this year, Dodson said. Civeo has limited work commitments in the oil sands after the first three months of 2015, he said.

Projects in the oil sands, where the extraction of thick bitumen requires multibillion-dollar mining operations or drilling that includes vast amounts of steam, are among the most costly to develop. About one-quarter of oil-sands projects need crude prices of at least $80 a barrel to be profitable, according to the International Energy Agency.

Cenovus Energy Inc. (CVE), a Calgary-based oil-sands developer, said this month it will reduce spending next year by 15 percent, including a 64 percent reduction at its Narrows Lake project and a 46 percent cut to other emerging projects in the region.

Civeo said occupancy rate for rooms contracted in Canada has plunged to 35 to 40 percent in 2015 from more than 75 percent this year. In Australia, the rate has also dropped to 35 to 40 percent from more than 55 percent at the start of the year.

First-quarter sales will be $160 million to $175 million, down from $252.8 million a year earlier, Civeo said. Full-year sales next year will be $540 million to $600 million, missing the average estimate of $815 million compiled by Bloomberg from four analysts.

A private club in North Dakota’s Bakken shale that once charged membership fees as high as $25,000 and served jumbo shrimp cocktail was evicted this month in a sign that oil’s plunge is undercutting the region’s go-go years.

The Bakken Club was ordered on Dec. 17 to vacate its premises on Williston’s Main Street after failing to pay rent, state court records show. The club owed $21,598 for rent plus $1,329.90 in late fees, the landlord, On The Spot Development LLC, said in a Nov. 25 complaint. One check bounced.

The eviction, in the capital of the oilfield that set off the record surge in U.S. output, comes as a price war casts doubt on the boom’s future. The benchmark for U.S. crude oil fell as low as $52.70 a barrel today, the cheapest since May 2009, from more than $107 in June. Drillers such as Continental Resources Inc., the Bakken pioneer led by billionaire Harold Hamm, are idling rigs and cuttingspending.

 

Read More – our previous article :

Oil Falls : Sector Update Dec. 29 – and worse to come ( as we forecast)

Tax Planning for 2015  see http://www.youroffshoremoney.com

 

 

American Eagle Energy BUY Target Price $6 Next Spring Not Today

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

 

AMZG : NYSE MKT : US$1.33
BUY 
Target: US$6.00

COMPANY DESCRIPTION:
AMZG is an independent E&P company focused on
developing the Bakken and Three Forks shale oil
formations in the Williston Basin of North Dakota and
Montana. The company is based in Denver, CO.

Energy — Oil and Gas, Exploration and Production
CONSERVATIVE YET FLEXIBLE PLAN FOR ’15
Investment recommendation
We like AMZG for its inventory of relatively low-risk, high return Bakken
and Three Forks (TF) locations in the Williston Basin (WB). The
company has ~46.8K net acres in Divide County, ND, and while IP rates
and EURs are not as high as in deeper parts of the WB, lower costs
provide attractive rates of return. With new financing in place and the
stock getting essentially no credit for its undeveloped acreage at its
current price, we believe AMZG offers promising risk/reward.
Investment highlights
 AMZG laid out what we believe to be a prudent base-case 2015
capital plan, in which it intends to run one rig starting at the end of
Q1/15 and keep it going for the rest of the year. That would yield 10
net wells and equate to ~$60M in capex. At that pace of
development, the company would be able to grow production as
2015 progresses; we estimate ~3.1 MBoe/d (47% growth) for 2015.
The company said it would think about scaling up activity at a ~$90
WTI oil price and could bring on a second rig quite quickly.
 Following the positive results from the Eli well (405 Boe/d 30-day
IP), AMZG intends to use slickwater fracs for the Byron and Shelley
Lynn wells. Those wells are scheduled to be fracked in November.
The company estimates it will bring on 4 gross (3.7 net) operated
wells by the end of 2014. It could possibly add 2 additional gross
(1.3 net) wells if the Shelly and La Plata State are online in time.
 Liquidity of $84M at the end of Q3 should be more than sufficient to
fund the $60M capex program.
Valuation
Our new $6 price target represents a 30% discount to a ~$8.40 NAV

Similar to wise buying decisions, exiting certain underperformers at the right time helps maximize portfolio returns. Selling off losers can be difficult, but if both the share price and estimates are falling, it could be time to get rid of the security before more losses hit your portfolio.

One such stock that you may want to consider dropping is American Eagle Energy Corporation(AMZG), which has witnessed a significant price decline in the past four weeks, and it has seen negative earnings estimate revisions for the current quarter and the current year. A Zacks Rank #4 (Sell) further confirms weakness in AMZG.

A key reason for this move has been the negative trend in earnings estimate trend. Although for the full year, we have not seen any estimates moving down or up in the past 60 days, the consensus estimate has moved lower, going from 25 cents a share a month ago to its current level of 21 cents.

Also, for the current quarter, American Eagle Energy has seen 1 downward estimate revision versus no revision in the opposite direction, dragging the consensus estimate down to 4 cents a share from 6 cents over the past 60 days.

Follow

Get every new post delivered to your Inbox.

Join 2,290 other followers