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China Urbanization 2.0

Musings from the Oil Patch April 7th 2020 Thanks to a subscriber for this report by Allen Brooks for PPHB which may be of interest. Here is a section: When we look at the company’s costs and expenses per barrel of oil equivalent (BOE), we find they totaled $14.01 for 2019. 

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Comments of the Day

09 April 2020

 

 

Video commentary for April 8th 2020

 

Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area

Some of the topics discussed include: Stocks extend rebound on optimism the worst is over, oil steady amid improving sentiment,. UK mid caps outperforming again.

 

 

China Urbanization 2.0

Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

 

Eoin Treacy's view

A link to the full report is posted in the Subscriber's Area.

The virus scare has highlighted how susceptible China is to the export market. They have worked extremely hard to get factories back to full capacity but, having succeeded in that objective, they now find there are no orders.

 

 

Musings from the Oil Patch April 7th 2020

Thanks to a subscriber for this report by Allen Brooks for PPHB which may be of interest. Here is a section:

When we look at the company’s costs and expenses per barrel of oil equivalent (BOE), we find they totaled $14.01 for 2019.  Based on the company’s average oil price (which was not adjusted for its gas output given its low price), this translates into a cash profit margin per BOE of $36.88.  If we include the cost of depreciation, depletion and amortization expense (largely a non-cash expense), but indicative of the amount of investment the company needs to make to insure it replaces produced barrels and remains an ongoing enterprise, the cash profit per BOE falls to $19.06, or 37.4% of the average selling price after adjusting for hedging.  That is a pretty attractive return.  

With WTI oil futures prices falling to $20 per barrel, and assuming the location and quality discount remains at $6, Whiting Petroleum was looking at generating no positive cash from the oil it produced.  It also assumes cash operating expenses remain at 2019 levels.  This means Whiting Petroleum would be unable to invest in new exploration and development, which makes the company a self-liquidating entity.  In that condition, the company essentially has no value.  The bankruptcy filing indicates that reality, as current shareholders will only retain 3% of the shares of the reorganized company, as the debt holders will hold 97% in return for agreeing to cancel their bonds.  

Under today’s very depressed oil and gas prices, few producers will be able to fund operations.  If the companies have a significant amount of debt on their balance sheets, they will face serious challenges to sustain their businesses if they do not address their financial leverage.  To understand the precarious health of the producer sector, energy consultant Rystad has prepared a chart showing the debt maturity schedule and annual interest expense for a group of 29 significant producers.  While this represents only 29 producers, we believe it is indicative of the financial condition of the balance of the producer sector.  

 

Eoin Treacy's view

The only way the unconventional oil sector is going to make it through the current crisis is to reduce the cost of production. There is no getting around the fact hydraulic fracturing and horizontal drilling operations are considerably more expensive than conventional drilling. Technological innovation will help improve that spread but it will be impossible to eliminate. Therefore, scale and proximity to end markets are the primary route to reducing costs.

 

 

Eye on the Market

Thanks to a subscriber for this note from JPMorgan which may be of interest. Here is a section:

 

Eoin Treacy's view

A link to the full report is posted in the Subscriber's Area

The most useful way of thinking about the current environment I have seen was provided by a friend, Akhil Patel, who described it as a recession in reverse.

His rationale is a recession generally begins with some portions of the economy shutting down and spreads to increasingly more as the contraction expands. The recession eventually ends when the central bank overreacts and cuts rates aggressively.

 

 

Email of the day on vitamin C and supporting the immune system

On Coronavirus In 1970, the late eminent medical research scientist and Nobel prize winner Linus Pauling made quite a startling finding, albeit based on a fairly small sample of school children on vacation in the swiss alps. He found that there was a statistically significant group that were taking daily high doses of vitamin C which had a much lower infection rate with the common cold virus. Vitamin C has subsequently been found to help the cellular production of Interferon. Common cold viruses are also in the family of coronaviruses. Just a thought

 

Eoin Treacy's view

Thank you for this insightful comment. There have been stories from hospitals that vitamin-C is effective. I have also talked to rheumatologists who dismiss the claim it is possible to affect the immune system. That definitely seems to fly in the face of the fact that people have taken everything from oranges to lemons as home remedies for colds for centuries.

For example, my mother never treated a cold or flu with anything more than a hot drink made from fresh lemon juice, honey and sugar as well as the strong belief it was going to improve her symptoms. She maybe took one ibuprofen a year.

This interview, kindly forwarded by a subscriber, with Dr. Shiva Ayyadurai, who is running for the US Senate, is on the fringe of systems biology but he is making a number of compelling arguments about the lack of systems based biology in the medical field.

I was on a conference call today with someone who has recovered from the coronavirus. He was on a ski trip in Colorado with ten families in total. Eight people contracted the virus and none passed it the other members of their families. Testing was hard to get and no one has had an antibody test yet.

Eventually, we are going to get a vaccine for the coronavirus and that will be useful for people with compromised immune systems. There is no argument to counter the advice we should be looking after our personal wellbeing through sound nutrition. The vast majority of people are going to work through an infection with little need for hospital assistance.

 

 

Eoin's personal portfolio - Last updated March 27th

 

Eoin Treacy's view

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.

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