Member Info for longtermthinker

The consensus is not enough, although am sure the big traders/hedge funds love it as it gives them opportunity to make money from swings as they big up the deal then trash the result.

I think Opec and Russia got it right though, gives the impression they want to help whilst still crushing shale as $21 WTI on the market will be more like $16/17 at the well head and no doubt as storage fills, nobody will want to take it.

Don’t get me wrong, this is terrible for the future, lack of investment and shut in production, should these low prices continue will come home to roost, survivors will reap rewards, but for now it just looks bad.

On a positive note, Trump will not be able to bale out shale, at least not in a meaningful way as he would be going totally against Russia and Opec after begging them to do something.

Oil will rebound without a doubt, just how high will depend on how long we stay in the $20-$30 range.

Buying op tomorrow me thinks. Good luck whether you are in, out or just watching the show!

LTT

I was thinking the same, the shale is there and without debt will it just come back stronger.

I think the answer is, those that buy at pennies on the dollar without further debt will only buy the premium spots and then will no doubt think long and hard at how profitable it is. They may keep it producing as an asset but with low oil prices the numbers won’t work to be worth drilling more wells at sub $50. Let’s face it they won’t have to drill baby drill as they are not on the debt treadmill. The only reason these guys have kept drilling is because they have had to! Think of it a simpler way, if Debeers found a Diamond mine where they could pull out Diamonds by the ton, would they flood the market and cut there own throats? Of course not, they would sit on it and just dribble them onto the market when needed. Shale would do the same if it were not for the incredible debt burden. They talk about protecting shale but it distorts the market, the natural order is if you are profitable you survive, if not you fail and make room for someone else that is.

They have known about shale for decades, it was only the high oil price and easy money on low interest rates that got it all started. Yes some folk have made money, but more from the pots and pans and buying acreage “with more oil than Saudi!” Only to realise the ones holding that acreage will only get 1 or 2% of that oil out if they are lucky. It is a massive Ponzi scheme and if the US Gov further distort things by supporting them and thus extending these low oil prices, we are all going to pay a price further down the road. So easily we forget the AAA rated mortgage loans, safe as houses, traded here and there until the last minute when everyone realised they were actually junk.

Let’s see what OPEC+ Decides to do, if nothing there could be a lot of pain all around, if they do something will it be too little too late!

LTT

You are right I think some shale will survive, without the debt around their necks they might make money above $40 a barrel, but anyone snapping up assets will think twice about piling in more money to raise production at these lower oil prices. The only reason they currently keep pumping come what may is because they can’t stop, they have to keep going just to keep up the payments on the debt. Profits of any kind are but a dream. If US decides to subsidise the shale industry then all bets are off, Russia will walk away and its a race to the bottom IMHO.

Monday will be interesting for sure!

LTT

As there is no alternative. Well there is, keep pumping, the price goes back to $20 and then once the storage options are full they will have to shut in. Shale would implode along with many other producers, it would be terrible.

Doing the right thing now will ultimately be better for all. A feel a lot of damage has already been done to the shale patch and many others around the world, this oil glut will not last for ever. Let’s face it, once the virus is on a back foot and things start to relax, businesses that have survived in all sectors will be hell for leather to catch up. Folk will be driving to the seaside, visit relatives, go on holiday to celebrate the end of lockdown. And those gaps in the market left by companies who have failed will be filled by the ones who weathered the storm and be prosperous. It won’t happen overnight, it won’t be easy, but it will happen, it’s the law of nature, survival of the fittest, those who can adapt, see opportunity.

It’s coming, maybe not next week, or next month, but it will come and things will get better.

LTT

Thanks Frank, interesting............ if they do, that would be good for PMO, they might be after the BP assets PMO were planning to buy! Of course it's important to bear in mind BP are selling them off as not core anymore, but still make money and have a decent future of revenues, all the big investment to get online is done.

LTT

Hi Mike,

hope your well and keeping safe. I don't see PMO going bust, yes they have 1.9B in debt, but they have 35/40% production hedged at $64 till June/July and put out a statement some time ago they can weather the year at $35 a barrel. So I suppose the question is, do you think oil will stay $20 and below for the next 9 months?

The way I look at it is, if oil stays around $20 and this virus is keeping us indoor in August, I think we will have far more to worry about than if our PMO shares are ok and if RKH will receive the SL license back!

The WHOLE of the shale industry without support would collapse long before then; how many other producers would be in dire straights too if this came to pass, at which point who would care to buy PMO assets in a fire sale? If oil is on the floor, would it be sensible for our loans to be called in and not extended so they could bankrupt the company and take on assets producing at a loss and try an sell them to recoupe their 1.9B debt from a company who's market cap is currently around $140m !?!?!?!?!?!?! It is all insane at the minute so why would someone make knee jerk reactions at this most unusual of times? PMO are managing to keep everything running and still make a profit to pay down debt, after July this will be more difficult for sure, but selling off assets to pay off debt not due to mature till 2021 (May I think) would be short sighted if not quite stupid!

As it stands the oil industry isn't just hurting or bleeding it is haemorrhaging, OPEC and Russia are the tourniquet, even a small gesture of a cut in a sense of good will would bring oil back to $30+; generate millions more revenue whilst still not assisting shale to recover.

So, sorry to ramble but again to my mind, PMO will not go under, it's not even in it's debtors interest to have them fold. If Trump steps in to support shale, there is no reason UK Gov will not help producers in the UK. We forget in all this stupidity and talking down of oil, the oil industry and the rise of Solar and Wind and electric cars. Despite what any stock market valuation may say, Oil is the life blood of every economy it is traded like it is any other commodity, but without it, we cannot have anything else at this moment in time. It is of strategic importance, its been the reason for many a war, it's not something well will allow to fail like the car industry and other manufacturing in the UK and go, "Well it's cheaper to just buy it from SA or Russia in the future, lets close the North Sea!", because if down the line Russia or SA don't like something, or want something, what position do we have to argue. Russia supplies Europe with gas, they could turn on and off the taps any time they like!.

LTT

Was Navatis meant to sign off this month? If they walk then all bets are off I think as everyone is just in survival mode. But would they walk?

To my mind despite the terrible starts of the markets, the oil price, the planet in lockdown! Do companies really make long term decisions based on black swan events?

Is this a Spanish Flu type event (no disrespect to Spain) if it is then 50m to 100m people will lose their lives. At the minute it seems nothing like those figures will come to pass, so once this moves into Southern Hemisphere Winter we should becoming out of the thick of it band it shouldn’t take long to get back to firing on all cylinders. I do imagine overseas holidays and airlines would take far longer to recover even in best case scenarios but after being cooped up for a month or more we will want to get back on to our consuming ways with abandon.

What interests me is how much damage is this doing to E&P, it’s been bad enough these past 5 years but now this. They talk about a glut and storage filling up but once things start getting back to some normality what amount of decline in production is or has not been replaced, if the norm has been 5/6% declines in the world and a couple of million barrels of shale disappears what state are we in then. Who’s to say Russia and Saudi get their market share back and then some? What is coming online to make up the slack? That’s why I feel PMO and the like need to be doing SL otherwise this virus will seem like a walk in the park to an oil shock. That’s why I just can’t see why they would cancel SL and Navatis walk away as their calcs for forward oil prices will be looking at 4/5 years down the line, not the next 6 months.

LTT

Mike,

yes I know what you mean, things have changed massively due to the oil price and I suppose you have to decide whether you believe oil is going to stay sub $30 for the next 3 to 6 months or not.
Not that long ago 75% of PMO's debt holders agreed to extend the debt to 2023 and allow them to buy BP assets that would have given a significant boost to their production, then Zama would have been a hefty sum off the debt too.

Its all changed in a blink, but for the debtors to be up for PMO's proposal they can't have seen them at deaths door. We really just need a change in sentiment to oil price and that will either come from Russia and SA appearing to be seeing sense for the sake of us all!; conflict or a big bankruptcy in the Shale patch.

I just feel at sub $30 dollars we will be in big trouble further down the line. Folk seem to forget WTI @ $29 is not what the Shale boys get, the well head will be much much lower as the costs to market eat into that. I read just the other day Cheapsake are something like 80% down, cutting div and apparently talking to restructuring lawyers to discuss their $9B debt pile, some feel it's a precursor to chapter 11. One of the pipeline owners is shaking as 20% of their revenue comes from Cheapsake. It just needs the domino to fall and who knows what will happen next.

We will just have to see.

LTT

Hi Mike,

I have taken a little punt at these low levels have dipped a toe into PMO two, yes a bit crazy with both intertwined but you have to be in it to win it.

My thoughts are (rightly or wrongly) Russia and SA will in the coming month get to some deal, if they carry on like this for much longer oil traders have a further field day, storage will fill up and it will take all the longer to get the oil price up and stable again. We are focusing on Russia and SA but this is doing so much damage behind the scenes. PMO recently said it can reduce its Capex by 100m to ride out these rough times, how many other companies will be doing the same, how much production that was earmarked to be developed, come on line or explored for will be put off till 2021 or later; how much decline will not be replaced with indrilling or new wells. You see all sensible run oilers expand or contract with the oil price while also keeping an eye on the outlook for oil longer term, it’s only Shale that carries on regardless, why that isn’t an alarm bell I don’t know! Like the 2008 mortgage crisis, it wasn’t until everyone was up to their waste in****** that they started to smell. By then it was too late.

But even if Shale can miraculously continue a pace and defy the laws of business and economics, surprisingly many mid caps cannot, there is not much out there pumping for less than $40 and be economical, and if it is, there will be no wiggle room for further development.

The traders may say there’s a glut, prices will be in the teens for the rest of the year, if so, 2020 will seem like a walk in the park compared to a coming oil shock. To my knowledge (I stand to be corrected) year on year world oil consumption has increased for a number of years. In fact before this crisis or just at the start they were revising down demand GROWTH, not the demand itself. Now we probably are going to see an overall reduction for the year, but once this virus is behind us, there is going to be a heck of a twang back in so many sectors, there always is. If we get hunkered down for the next 2 months stuck in, working at home, what’s the first thing we will do upon an all clear? Decide to stay in a bit longer, maybe visit Bridlington just to be cautious? Of course not, we will be out partying like it’s 1999!

So anyway excuse my rant. RKH is where it is, not due to anything other than sentiment, no shorting, no ulterior motives, just many are fed up and now expect it’s all over. Maybe it is. But not much point watching the paint dry here, PMO are the one to, if they get through this and reduce there debt, game on I think. IMHO

LTT

Problem is, are they able to pay? Italy in a desperate state, will a promise of 100m sometime down the line enough to help stabilise the company till PMO gets it's house in order?

LTT

Everything getting hit today, who’d have thought it after US and central banks reduce rates!

It does amaze me, I know it’s all about a fast buck, make in the way up, make on the way down, but really what benefit to crucify everyone, if all these companies start falling like dominos we tumble in to a deep recession! It’s insane. Suppose we needed a correction and this virus as brought that along sooner rather than later, that’s for sure. But are so many companies really trading on a knifes edge that they can’t ride out a month or two!

Also it’s ok central banks cutting rates, but are they going to give out loans to companies losing 80% in value!

Tin hats on me thinks!

LTT

Yes, have to agree. Also someone posted a link to an article saying although SA said it would flood the market, Asian buyers putting in orders are not having them all filled or not being offered the grades they want as they try to take advantage of the cheap prices.

I suppose what we need to hope for is a way for Russia and SA to back down and not lose face, they have to find a way back, which could be, “in light of the escalation in the Virus and concerns over the next few months, we have decided to restrict production to support all producers as this difficult time, and safeguard the world from a future oil shock due to producers going bust.”

It may sound silly, but do Russia and SA really want to crush not just Shale but other producers teetering on the edge! Sound great oil back up to $60+ in 3/4months but what if they kill 5m barrels over the next 3 months, when demand returns as it surely will, can they take up the slack long term? Lack of investment over past 5 years comes home to roost! Oil price shoots over $80+ and shale possibly starts up again and governments race more in to energy alternatives. These knee jerk reactions are not going to work.

Russia and SA picked the wrong time to do this without a doubt. They need to turn this around for everyone’s sake. They have flexed muscles and shown what they can do, so let’s move on and not cause a catastrophe. IMHO

LTT

However they are not buying it in one day and everyone else does with out!

Let’s imagine the consensus is that there are 3m barrels a day flooding the market, hence the drop to $35 ish, now USA decides to buy 3m a day to top up the tanks, that’s the glut gone and it will take them 1 month to do it if they buy every day.

Let’s see how the market sees it on Monday. Could we see oil heading back towards nearer $40

LTT

I don’t think so (could be wrong) but I think in the open market as Trump thinks it’s great to top up the tank with cheap oil and help the oil price for everyone, despite what US says about big producer exporter, as far as I am aware they are still one of the largest importers of crude because the shale stuff is not as good as the other grades Russia and SA produce. Brent being a premium because you can do more stuff with it, all to do with carbon chains and how you spit it up for different uses.

Bit complicated I know but liken it to Olive oil, the first press is the stuff you want for your salad, that’s like conventional graded from SA and Brent, the cheap brands of olive oil are from the pulp left over that is squeezed again, it’s still olive oil but not the best, that’s your shale, it’s not been cooked out of the rock into reservoirs it’s being forced out.

LTT

Funny isn't it, why is Trump not buying up all the shale oil and pay a premium to help out their guys making the US energy independent, let Russia and SA sell off their precious commodity and make losses!

Wasn't just last week it was about helping out shale in these troubled times, now he's helping left the oil price by topping up strategic reserves! Crazy times indeed.

If I was Russia and SA, bite the bullet, do a deal that keeps it about $45/$50 it will take Shale longer to collapse but it doesn't help out the US. Apparently this year and next HUGE amounts of debt needs paying or new terms negotiating (Makes PMO situation seem completely rosie!) keeping at around $45 a barrel will really hurt shale at that point.

One thing I keep hearing about Shale is, "It will never stop, as a company goes bankrupt, someone steps in for pennies on the dollar and can carrying not having the baggage of debt to pay". In a way that is true, but considering Shale wells as a rule deplete very quickly unless you are investing in drilling more wells, your revenue stream is dropping like a stone. The debt may have been wiped out, but who is going to lend you money to repeat the process, especially at average oil prices. Didn't shale really take off because of cheap money and oil prices above $80 (could be wrong here), so the thing to ask oneself is, if you were starting from scratch today with a bag of your own cash, would you start drilling for Shale oil? Is it a profitable exercise?

And why oh why are these guys not shutting in production while Russia and SA have a muscle flexing competition? wait it out till they finish and then start pumping again, getting more dollars for their oil? It's because they can't, they stop the treadmill and the house comes tumbling down. My belief is they are like just holding on, hoping other fail before they do, so oil prices my rise because there is not much else they can do, they are eating grapes and drinking wine while Rome burns.

Interesting end to the financial year to be sure! Will PMO hover around these prices till my 20/21 ISA becomes available?

LTT

Fecm so long as our directors don’t drain our coffers of any money received while we wait.

My biggest concern now is that even with a payout, it won’t be material enough to make much difference going forward. It can’t be paid out as a dividend and could disappear if PMO and Navitas kick the can down the road further!

It just seems that even if UKEF come through, unless there is some deal between Russia and SA to get oil into the 40’s + everyone will go in to preserve cash mode. Ultimately this is going to cause a crisis longer term as at these prices there has to be a multitude of mid and small caps hurting. This is because the usual business model for oil companies is skewed due to shale. In a normal demand driven environment competition weeds out badly run, none profitable companies, but the low interest rate environment and free money has enabled Shale to thrive. It’s got too big to fail and US will just bale it out.

Anyway, on the plus side there will be service companies and suppliers screaming out for a chance to secure projects such as SL that will keep them busy for a number of years, it’s just currently PMO and Navitas do not have the money to get it started and I fear FID could be 1 year+ away.

LTT

Well I didn't think this would get back down to 17p, but then thinking about its not such a surprise, I'm sure people who trade regularly and have much more detailed info on buys and sells would see all the buys under 17p and realise those folk would want to be out on a friday with a cheeky 25-30%+ and who can blame them, I would have done! There was probably a lot of buying in on the way down in the mid 20's longtermers thinking "Wow it's a steal, I'll get my average down", but it kept dropping, so now on the way up, long term holders would just be holding, so can't blame sub 20p buyers getting out.

I've been tempted as I want to be either part of the rise or part of the offer should we take on BP assets, it might seem risky but if we get oil heading north on a meeting with Russia and SA, Court case settled, the BP was cash generative and possible cost savings in the North Sea, how can that not be good for paying down the huge debt!

My simplistic view anyway. Good luck, "I'm not going to be out over the weekend" LOL, whether that is a good strategy or not I don't know. Good luck buy/sell/hold.

LTT

I also like they have not said they WILL continue with the BP deal, and have not said they WONT, because lets face it, they have not crunched the numbers for the deal taking in to account this Black Swan event, they are looking on projections over the coming year if not years.

Yes things have changed, but do we really want a board that have knee jerk reactions? Would we be happy if they battened down the hatches straight away, knocked everything on the head and put assets up for sale; then one week from now Russia and Opec come back to the table and agree some middle ground cuts in production that take us back to $40/$50 in a blink!

To me seems PMO is being proactive looking at ways to cut capex whilst also stating in B&W there position and now looking to get the hearing out of the way before deciding on anything. Sounds like a good plan to me.

Probably be a bit stop start from here though as anyone buying at sub 18p if they were lucky, would be hard pressed not to want to take profits in the current climate, 20/30% in the space of a couple of days can't be bad as long as you took the profit.

LTT

It doesn't make sense to stay on this track, if you do the numbers Russia is producing around 11.3m barrels a day at lets say $33 a barrel = $372.9m

SA asked them to be part of the Opec+ cuts, not sure how much they were expected to cut and I realise this was to be on top of cuts they were supposed to be already adhering too, but for arguments sake, lets imagine they agreed to cut by 0.5m barrels a day to help shore up prices and that stabilised things at around $43 dollars barrel.

The maths are now 10.8m barrels a day @ $43 a barrel = $464m

Why would you plan long term to do this, a few days, maybe a week as part of a "fissing" contest, but anything more is stupidity. It won't kill shale and if Trump has his way in an Election year, he won't allow it to fail, he loves saying "US is the worlds biggest producer of oil', biggest producer of bull excrement too, mostly from his mouth, but he won't let that fail on his watch as it would be a double hit to the American dream.

So trying to continue, looking at the simple maths, cutting production even more sharply than SA wanted, would make sense, it will bring in more cash than they are currently losing at these crazy lower prices, whilst pumping less oil.

I do understand why Russia has stood it's ground and in a way rightly so, why should they shoulder the burden when the US just goes flat out and be damned. It must be a bitter pill, they already have to sell their oil and handle the capitalist enemies currency, why should they help keep prices high also to keep the shale industry on life support. But this track is hurting themselves the most; shale debt is maturing in 2021, the house of cards will start to crack and crumble, not to mention under investment in oil coming home to roost, declines will be left, right and centre, that's when the production they have held back can be sold at much better prices than today. IMHO.

In this current climate, one sniff of them getting back around the table and we jump $10, a meaningful cut and it's a steady climb back to $50. What will happen to PMO share price then! IMHO

LTT

But is Zama now worth more than our market cap? Of course who is buying at the moment, but lets face it, Zama is not a piddly North sea 30-40million barrel, this is a world class discovery that had plenty of interest. Yes there might be some haggling and delays that will reduce the price a bit, but still oil companies are working on much longer timescales than a couple of months.

If anyone seriously thought oil was going to stay sub $45 for any length of time, they'd be crazy. The longer this stays sub $40 dollars, the more investment in bringing more oil to market gets deferred and kicked down the road (unless you are shale of course, you just carry on relentless because you can make money even if oil goes to zero apparently!) . So this very fact means that declines will set in, the longer it stays lower, the quicker the declines in production. Yes we hear about a revision down in world consumption but the decline has so far just been to demand growth, we are still on track to consume the same if not a little more than last year.

This situation is not sustainable. I read Mexico wants to mediate the madness of Russia and SA, this is surely a sign that even though Russia and SA say they can stomach $30, $25 even $20 for a period of time, all the other producers can not, and lets not forget Russia and SA and US only make up 45% of production, the rest is made up elsewhere, a lot from mid caps and companies like PMO. If 20 PMO's around the world went bust and had to shut in, that could be 1.5 to 2million barrels a day gone in a blink, can US shale, SA or Russia replace and sustain that so easily!

Let's see but it's an election year in US, they will do something to prop everything up.

LTT