In a week where another oil and gas exploration and production company filed for bankruptcy (see Cobalt Energy International), private equity firms are putting millions of dollars of dry powder to work by backing proven operators. Here, Warburg Pincus LLC has made one of the largest private equity investments ever in shale, agreeing to invest $780mm in an E&P team with two meaningful previous exits. Interestingly, this comes as OPEC continues to discuss prolonged oil supply restraint. Not that the frackers care: the International Energy Agency says that OPEC's efforts may be offset by US shale companies increasing production as oil hovers near $60/barrel. Curious: where do readers think oil will be for most of 2018?
It's crazy how quickly oil and gas companies defaulted and, in turn, how quickly restructurings swept through the space. Now, default rates there are way down while retail is picking up some of the slack...
There Will Be Blood
This is a must read by Josh Brown on the rise of the robots. It's particularly relevant in a week where the FANG stocks went absolutely bananas. From a (financial) survivalist perspective, his point is hard to argue (and easier to support than investments in these stocks on the basis of valuation). That said, there does appear to be conflicting narratives on the automation point. Contrast this (oil & gas jobs are never coming back) with this (there aren't enough people to fill oil & gas jobs). Curious. We tweeted at Josh to see if he had thoughts on this contrast but he hasn't responded. Maybe because we only have 194 Twitter followers. Public service announcement: please follow us on Twitter.
The industry still isn't in the clear as a variety of oil and gas companies continue to struggle to survive in the new lower-oil-price reality. Not helping matters? BNP Paribas decided to cutoff business (firewall) with companies whose primary business is oil and gas extraction from shale deposits and/or tar sands - an aggressive measure to reduce exposure to fossil fuels. Obviously this is an opportunity for the shadow bankers. Also not helping matters: the US continues to export over a million barrels a day, exporting into foreign markets and counter-balancing OPEC's efforts to curtail supply. Nevertheless, theInternational Energy Agency lowered its forecast for 2018. And a group of oil and gas execs surveyed by Deloitte see crude oil prices remaining below $60/barrel through 2018 which will require producers to continue focusing on lowering costs (thereby further squeezing oil field servicers).
Oil & Gas Execs Disagree with Trump Administration Plans
Offshore exploration and production is a relatively expensive process unjustified by $50 barrels of oil. That, though, didn't stop the Trump administration from considering changes to 11 marine sanctuaries that would allow for more drill-baby-drilling. All in the supposed name of jobs and "energy needs." Energy industry reps, however, are lukewarm on the prospect. Because it may damage marine habitats and coral reefs, you ask? Of course not. Because it wouldn't be economical? Bingo! Indeed, shale drillers - after shedding costs to the bone - will, according to Moody's, continue to struggle if oil remains in the $50 range. Elsewhere in gas world, coal and nat gas are likely to fight for marginal megawatt-hours like "cats in a sack." We love that. You're definitely gonna be hearing that phrase again in the future.
Ah, Poor Headlines...
Bloomberg is getting a little lax here with this headline, "Filing 'Chapter 22' Becomes Enticing Option for Ailing Retailers." We get what they're TRYING to say here which is that restructuring retail right now is really tough. And that a number of retailers, e.g., Wet Seal, American Apparel, General Wireless & Eastern Outfitters, have filed for bankruptcy twice in a short time span. Get it? Chapter 11 + Chapter 11 = Chapter 22. So creative these restructuring folk. Anyway, we've highlighted this issue too (see "Rewind II" here). But to suggest that filing a 22 is "enticing" is a bit of a stretch, yeah? All four of those businesses are effectively gone now and a lot of investor money was lost along the way: not much "enticing" about any of that. But they make tons of money and we do a free newsletter so what the hell do we know? P.S. the article short-changed the industry-agnostic, cough, appeal, of a chapter 22: it neglected to mention Venoco LLC and the possibility of a few solid oil and gas 22s to come.
This is from last month but it's still interesting to see the slowing growth in the Permian basin.
Memories are short.
Chalk it up to fewer oil and gas bankruptcies.
In the least surprising offshore oil and gas news of the year so far, Seadrill Ltd. announced that it is likely going to file for bankruptcy on September 12. This filing - and that date, for that matter - have been telegraphed previously which makes this statement all the more puzzling:
We nailed the 9/12 date in our last newsletter. See:
As for the newness? Really dude? Is this guy even paying attention to the debtload on that company and the offshore industry, generally? Stock was down 31% on the news (granted to $0.18/share). Suckers.
Not looking like much growth is happening in North Dakota...
This doesn't bode well for prices. "The record gas resources assessed by the PGC, in addition to robust domestic production levels and booked reserves, paint a picture of strong supply of natural gas in the U.S. for many years to come." A lot of hedge fund hotshots sitting on panels talking up their nat-gas and oil books aren't gonna be swinging so large go-forward. Likewise oil. Short Hamptons homes.
Earthquakes and Oklahoma. Lots of waste water disposal happening there (though the regulators are curtailing it now a bit) starting right around the time that dark brown line spikes up. Causation or correlation?
Oil is dipping down towards $40/barrel, energy high yield spreads are reflecting higher risk.
It has been a bloodbath for the midstream segment of the oil and gas industry the past two years. With oil mired in the mid-40s and talk of peak supply, "It is now consensus that global oil markets will swing into surplus in 2018 and the burden of proof that this will not happen lies with the bulls," said Morgan Stanley analyst Ole Slorer. Others are calling oil to $30. Ruh roh.
For the first time, wind and solar accounted for 10% of US electricity generation and coal may be DOA sooner than people think. Meanwhile, people seem to be getting pretty worried about peak oil supply...in 2018. Also sooner than most expected/modeled. Elsewhere in energy, this really doesn't paint an optimistic picture for the recently bankrupt coal-fired Homer City Generation LP power plant operation. #MAGA!