O&G investing?
I am currently a corporate strategy intern at a supermajor. My boss has suggested that I complete a research project by the end of the summer on a topic of interest. He has really given me free reign, just asking me to run the idea by him before starting. Although I am somewhat knowledgeable on current events and their geopolitical consequences, I would like to do more research on the finance/investment side of O&G markets, since my ultimate goal is to go into banking/private equity, perhaps in the energy space.
What topic(s) would be most beneficial for me to study, and most impressive to interviewers at banks in the future? Any suggestions?
bump
Hmm, there's a lot out there but most involve service companies and private equity.
It may be worthwhile to look into the shortage of midstream assets in Texas. Could be a problem by year end with production as high as it is. Definitely would be good to talk about in a banking interview, I may or may not have been asked some questions about midstream infrastructure when I was recruiting.
Not really applicable to supermajors but you could also look into all the SPACs that have come out in the last year. Another not applicable but interesting project could be trying to digest Aramco's strategy for the future.
koalalove there are a lot of areas you could look into...here are a few I'm interested in:
1.) Changing business model within OFS (i.e. Move towards a total well solution where you do everything from geo-mapping to extraction of hydrocarbons) and its impact on M&A of technology companies and startups.
2.) Technological changes within the industry (i.e. Move away from 10-15 guys on the rig to a computer-aided process for drilling managed at a data hub). Gives rise to venture capital funds for companies like Schlumberger.
3.) Look at current pipeline network and tie into major shale plays and try and predict new routes. Harder to do but would really make you stand out.
Here are a few that should be very relevant to your boss: which path should a large O&G company take to maximize long-term shareholder value through the cycle:
Answering all of these questions is an ambitious task, but if you understand all the parameters of an oil and gas company model (exploration, M&A, production, cash flows, down to a 3-statement NAV) you should be able to run different scenarios and tweak the choices above to see the results under different price and cost assumptions. For example, your views on oil prices, service cost inflation, and long-term interest rates / dividend appetite would all impact the answers to the above questions. The answers would also likely change depending on the size and profile of the company / team / shareholder base. Understanding how all of this fits together would probably be good prep for future PE interviews in the space.
These are all really interesting questions. Like I mentioned, since I'm not very familiar with the finance angle (M&A, NAV), do you think I could potentially use this as a networking opportunity and cold email alum in the energy ib/pe space? Do you think they would be willing to talk more about it, or would it come across as bothersome?
It's definitely worth a try... you have nothing to lose by reaching out to people in a polite and concise way.
in terms of the research itself, where should I start? i suppose looking at what has and hasn't worked for the supermajors in the past... what specifically should i look for in the financial statements?
Are you in upstream, midstream or downstream?
well the company is involved in all activities of the supply chain, but I work at the representative office so I don't necessarily focus on one area of production
Focus on which process interests you the most. If you're stuck on where to start, you could look at some research on seeking alpha from people that have written about the energy space. They've got some good analysis about current affairs. All the banks out here in Houston love guys that already know how the value chain works, they can teach you all the accounting. Or any of the big boys like oxy, chevron, shell, Exxon like to recruit if you already have experience
Investing Opportunity in Oil? (Originally Posted: 03/13/2017)
I used to love discussing the oil market on cnbc before they got rid of the comments section. With the large drop today and relative weakness the last few weeks in oil I was wondering what everyone's opinion on the sector is currently. With OPEC showing record compliance to the deal to cut production and turbulence in Libya is oil overreacting to the downside? I personally was planning on adding to my positions in some American fracking companies following this weakness.
Are there any good sites to reference for following this sector? I primarily utilize oilprice.com and follow all the major reports (eia, iea, opec, etc.)
OilPro Energy Manager Today Greenbiz oilandgasinvestor pennenergy The IET
I think the space is pretty attractive at this point with hedgies focusing on distressed debt:
"Many distressed debt strategies, which topped both lists, got a boost from the rally in commodities. On average these funds gained 15.3 percent, and were among last year’s top performers along with energy-focused equity strategies, which rose 18.1 percent on average, according to HFR. Overall, event-driven strategies performed well in 2016."
It seems like energy IPOs are being filed more often now as opposed to last year, just a thought.
I actually invested in FRAK (VanEck energy etf), when it was hovering around 18$. That was really low, for the time, and it's fallen down to 16$. I'm definitely going to hold and sell, once the price of oil goes back up.
I'm trying to decide where I want to invest in tomorrow. Regardless, this is clearly a fantastic time to buy.
I am buying some EOG and PXD at open. I couldn't find much info on FRAK, but due to the name I am assuming it is focused on tracking US fracking companies. What drove you towards that strategy? I picked up US frackers under the idea that they would emerge from the price crash much more lean then before. I've had great returns so far so hopefully oil turns back up later this year.
Since the OPEC announcement was made in November and the US has grown production 600kbpd and added 100+ rigs in the Permian alone. So, is OPEC going to extend the cuts or allow the US producers to eat their lunch again. Get ready for round 2 of $30 oil.
While it is definitely cause for concern that US production has grown so significantly, I think that costs of production will keep a cap on a sustained, accelerated rise in US production. What I mean by that is I think that break even costs were as low as they were for US frackers due to lack of demand for support functions by companies. With a rise in demand, these costs should go up leading to a higher breakeven cost.
When it comes to OPECs decision I think that people are currently under estimating the potential for instability if prices were to collapse again. While I think they may hesitate to extend the cuts, they likely are not going to let prices slide back to the 20's or 30s again. But I would never rule out in this market it happening, I would just purchase more in that scenario.
NAM is picking back up, especially in the Permian. Simmons had a report from their energy conference saying that demand for field guys is so high that a large OFS company turned down a large independent's work order in the Eagleford. Would definitely go long on guys that have holdings in the Permian, thinking guys like PE, APA, PXD. You can probably make a decent return on those over the next 12 months, everything else is going to take longer. If you're okay with buying and holding, offshore/subsea may have some value over the next few years but it's severely depressed right now and probably won't come up for a while.
"Simmons had a report from their energy conference saying that demand for field guys is so high "
Demand is growing extremely fast.
I agree on Permian but I think all of those have priced in higher oil prices already. I just don't see a good buy out there. I think the only play in the Permian is going after the small services or midstream companies with good infrastructure out there, but I can't say I have any names that really like yet.
I read about a double short with UGAZ and DGAZ...can anyone give a time table when these ETNs go to zero? If that's even possible...
There's probably some deals to be had in the royalty trusts. Extreme bearishness in general despite profitability, although penny stocks often go lower.
Just no on royalty trusts. They have pretty much zero flip value, mediocre RoR for long term holds, they be way overvalued in market right now. PV-9% discount rates on blowdown analysis? Give me a break, bro.
I think when the Aramco IPO comes out next year or so that will throw a major wrench into the viability of US Shale plays. Thus, I'll probably be looking to put a play on that, but I feel everything leading up to that is going in blind given the relative non-compliance OPEC has had outside of Canada, US, and UK.
I'm glad someone bought up the IPO; Saudi Arabia - which is essentially OPEC, in terms of market power/being the 'marginal barrel' - has a vested interest in keeping prices high. I think the Saudis are willing to stick to cuts internally and try to enforce them with the other OPEC members in order to help keep prices elevated until at least late next year when they go public.
We shall see I suppose, but they are off to a surprisingly disciplined start.
Yeah, but once the restrictions are off, I'm pretty sure Iraq and Iran will step up to increase production. I think the obligations expire in summer this year.
A number of different opinions/points on this thread so far. Figured I'd just do one post rather than reply to several prior ones.
In rough order of how I saw them:
1) Overall, there's less value around than there was this time last year (obvious). There's some value but probably not a lot. Oil is down YTD given need to see inventory draws in the U.S. Global inventories are moving in the right direction. If we don't see inventory draws sometime this spring when refinery turnarounds abate then that's a problem. Oil was flat YTD until last week but most positively correlated energy names were going down before last week. Likely given investors losing patience. I'd seen some estimates that U.S. oil and NGL focused E&Ps were pricing in low $60 WTI at the end of last year (impossible to pinpoint but ballparking that number seems reasonable). Market has stabilized around $50 (give or take $5) given a number of U.S. producers can grow production roughly within cash flow at that price. Strip moving it's way back to backwardation, which is good.
2) Dakota Access will not improve differentials much (most likely) out of the Bakken. It will improve transportation costs slightly (maybe). Because of the rollover in production there, the Bakken differential to WTI has been less than $2 for a while. Continental Resources has some slides on expected needs for rail takeaway this year. Probably only producers in core of core will grow production in Bakken for now meaning probably not much new need for takeaway. DA will help but it's not a huge deal.
3) OPEC is unlikely to let prices slide back to $20-30. They can't handle that anymore than U.S. and Canadian onshore producers can. The political masters of the oil ministers probably got them to agree in the first place. Since 2014 OPEC has regained about 2 million barrels of market share. The OPEC members that matter (middle east, Nigeria and Libya) are stable to increasing. The bigger story that gets overlooked is the rate of declines elsewhere. Other OPEC producers, like Venezuela, couldn't increase production even if they wanted to. Instead, they've probably been declining for a decade. Cheating may happen to some degree but probably not as much as in the past. Also, non-OPEC ex-US production is also declining meaningfully, primarily China and Mexico.
4) At the end of the day, supply declines and demand increases since early 2015 have put us in a much better position globally. Don't try to predict oil prices over a 6-12 month period. You will likely be unsuccessful. Think about it longer term. Are we in as good of a buying opportunity now as we were this time last year? As I said already, the answer is no. Are there still opportunities? Sure. The mentality of the industry in the U.S., in my opinion, has changed a lot in the last 5 years from being a wildcatting approach to now more of a focus on the manufacturing process of oil and gas production. E&Ps that can grow production within their cash flow, or close to it, will probably be the winners. Some other more idiosyncratic opportunities exist as well but it varies company to company.
150k gross locations in the US with $40/bbl breakevens. 200k with $55/bbl breakevens. Thats at least 10-15 years of replacement production available at $40/bbl. We have 200 more oil directed rigs than are necessary for sustaining production at ~9mmbpd. This will not end well.
Lol how right was I? Hope u fools didn’t go into energy...better luck this decade
Favorite crude oil investments? (Originally Posted: 12/30/2010)
Its been discussed a few times how the USO is not an effective long-term investment for retail. I want to allocate some funds in the new year to crude, and im wondering what the best 'paper' way to do this is. Leveraged ETFs are obviously out as a long term investment, and since this is a longer term investment account, oil futures (the CL contract) are out as well.
I was looking at the DBO etf and noticed it tracks spot crude pretty well, expense fee isn't the worst either.
Should i be looking at any other potential vehicles? My thesis for this investment is that, since the recession is over and everything, oil should be on its way to the 2008 highs as demand picks up and supply won't ever increase past its production peak.
why dont you look at investing in an oil company? ive been looking really hard at BP ...check out my topic "what are you invested in"
Yes, ive participated in that thread.. it got me thinking of pure crude oil investments as one would when buying the CL futures contract - like an ETF. Indeed BP has looked attractive, and still does on a NBV basis, but id still prefer strict exposure to the commodity itself.
Why not XOM, BP, CVX LEAPs? Jan 2013 should give you a long enough horizon as not to lose much value from Theta... assuming you're not holding for more than a year. If you are, just roll to the next furthest LEAP as soon as it is traded.
I tend to use xop for oil exposure
Question for investors in upstream oil & gas stocks (Originally Posted: 10/08/2014)
Can anyone suggest what set of indicators one should use to assess the following:
The maturity of the upstream firm's oil & gas reserves: is it trend of production of BOEPD over time? years of production remaining (implied by current P1 reserves and latest production figures)? Some times, I see firms with sizable resource base of proven reserves (29-32 yrs of production left) but with annual output over years that hardly grows (or even declines)? How can I distinguish between one upstream company having mature/exhausted resource base and the other one having "young" assets with high output Growth potential? Are there any industry metrics/benchmarks to make such conclusions?
The remaining potential of upstream firm's existing resource base for future exploration - ?proven reserves as % of 3P? - I am trying to assess potential Growth in Proven reserves w/o the firm having to purchase new assets or do M&A. When examining independent reserve reports (by the likes of Miller & Lents), are there any indicators I should be looking at to assess the quality of probable and possible reserves?
As usual, I would be extremely grateful for any informed advice and suggestions.
Regards,
I'm not a pure dyed-in-the-wool O&G guy but I've looked at enough of them over the past year and this is how I think about it...though I look forward to hearing from guys here who have grown up in the space. I'm going to caveat this by saying my experience is strictly in the mid- and junior E&P-only space (no integrateds or large-caps).
Not really sure what you mean by maturity, but the key here is really understanding the company's capital efficiencies. What is the corporate decline rate and how much E&D capex is involved in producing one flowing barrel? For example, if Company XYZ produces 10,000 boe/d, has a 30% decline rate and capital efficiencies of $40,000/boe/d, then next year it is looking at $120MM of capex. If the resources are there, it's simply a matter of understanding how quickly they deplete and how much it costs to keep production level or grow it. At a more granular level, if you want to understand resource quality, you should be looking at the IP and decline rates (and IRRs) of new wells they are drilling and how those comp to other guys in the area, and where the plays themselves fit on cost/return curves. Lots of investment banks (particularly Canadian ones, or energy-focused ones), publish industry reports that cover economics/production by play and producer.
Just look at drilling inventory in addition to the usual suspects such as %PDP and %1P -- these are usually touted in investor presentations. For example, if Company XYZ owns 100 sections of land and can do 4-6 wells per section, then it has a "drilling inventory" of 400-600 wells. Based on the average NPV per well (also in investor presentations) you can start figuring out what that inventory is worth.
Also, you should look at how successful the company has been with enhanced/secondary recovery techniques (such as waterflooding), which can extend reserve life and flatten decline curves.
As a final note, I think most market analysts focus too much on production growth and not enough on ROIC and reserve quality.
Again, look forward to more informed input than mine.
mrb87, BatMasterson,
Thanks a lot; this is the exact experience-based insights I was looking for. Sorry for my ignorance, but regarding the decline rates, should I take the average production rate over the past 3-4 years or there are some industry empirical figures that I can use?
Regards,
As for metrics widely looked at: R / P Ratio (Proved Reserves / Annual Production), which is in years, % Proved Reserves out of Total Reserves, and % of Oil Mix.
Also relevant:
Maintenance Capital Spending =Three-year Average Finding, Development and Acquisition (FD&A) Cost * Current Production.
Growth Capital Spending =Total Capital Spending – Maintenance Capital Spending.
Free Cash Flow = Discretionary Cash Flow – Maintenance Capital Spending – Dividend Payments.
+1 to previous answer.
For small to mid-size oil companies (or just an oil field in general), it can be helpful to look at BOEPD/well and whether it is increasing or decreasing. This is often used as a measure of efficiency, but it can also tell you something about the maturity of the assets. For a less mature asset base (at least onshore in the U.S.), BOEPD/well will typically be trending upwards, while for a more mature asset base it will be trending downwards. The great thing about this measure is that it's simple to calculate and you don't need to look at a company's assets well by well. Just take BOEPD over the number of wells that they have and do that for several different quarters that you have the numbers for and it tells you something about the quality of their overall asset base.
thanks for sharing insight!
Average returns on oil investment (Originally Posted: 08/21/2008)
Hey guys, pretty random question but I'm trying to figure something out. Does anyone know the average return on oil investment? Also what the average returns are for gold/silver arbitrage. Thanks
5.73%
really? thought it would be more
You cannot answer that question without a lot more detail. What specific kind of oil investment?
The drilling company drills it for $10-20 per barrel, sells it to you and me $120 .. Of course Bush makes a couple dollars per barrel(MINIMUM 2M Per hour) from every oil company who made him a president, and Vice president, Do we even have one? Oh yea the fella that never has been on TV in 2 terms of presidency of George bush and the time he was on TV He had shot someone in the face which was not suppose to be a mistake, He mis aimed...
You know math
over nine thousand.
on a serious note: banknnyc, wtf are you talking about? if that's not sarcasm I have to say this: you, sir, are an idiot.
What type of oil investment are you referring to?
just like people who long and short crude
Average daily return? Weekly? Monthly? Yearly? Futures? Physical?
yea, say like futures, yearly returns
If your John Arnold.... A LOT...
arnold's a gas man
Yeah, didnt know the biggest crude player off the top of my head.
Canadian Oil Sands – A Good Investment? Not in Europe, Apparently (Originally Posted: 10/11/2011)
Any American watching cable TV over the past few months can hardly fail to have noticed the seemingly ubiquitous advertisements extolling the virtues of extracting oil from Canadian oil sands, which the commentators assure their audience has a carbon footprint largely comparable with traditional fossil fuels, and which, if developed will provide not only millions of new jobs but billions of dollars for governments as well as energy security by weaning the Western Hemisphere off its addiction to terrorism-tainted Middle East oil.
But don’t break out your checkbook just yet.
Apparently those pesky Eurocrats in Brussels haven’t gotten the message, as on 4 October the European Commission proposed that oil sands crude be ranked as a dirtier source of fuel compared with oil from conventional wells.
The move has unsettled Ottawa, as all of the world’s oil sands reserves are in northern Alberta and Saskatchewan. While Canada does not currently ship any of its oil sands production to Europe, the Canadian Full article at: Canadian Oil Sands – A Good Investment? Not in Europe, Apparently
Oil Sands just don't have the same margin as crude production...
..Yeah but soon enough that isn't going to matter at all.
Returns on O&G investment (Originally Posted: 06/08/2012)
Quick question:
In the US, what are the after-tax (or pre-tax) returns on Oil/Gas PDP's and PUD's (2P) these days?
Thanks
depends on where look at investor presentations for Whiting, Kodiak, Halcon, EOG, Goodrich, LINE, other E&P companies and see what IRRs they get but it will be different depending on play, location in play, completion expertise, commodity pricing, and numerous other factors
E&P Investors (Originally Posted: 10/20/2013)
Need some help gentlemen. Can anyone please provide me with a list of names of companies that invest in O&G E&P projects... It would be greatly appreciated and SB's will be awarded! Thanks for the help monkeys!
Location does not matter.
Simple Answer: Companies that invest in Exploration and Production projects are... Exploration and Production companies. Seriously, most mature E&P companies have enough free cash flow from their current production to fully fund their capital expenditures for new projects. If they don't have enough cash on hand, they typically can raise debt quite easily by selling forward a portion of their proved reserves.
Although there are a number of Energy PE firms that provide growth equity to early stage E&P companies. These companies are usually too young to have enough cash flow to fund their development programs, so private equity investments can be quite helpful. Some energy PE firms that invest at least a little bit in E&P companies are: Riverstone, Encap, Quantum Energy Partners, Natural Gas Partners, Denham Capital, Lime Rock, First Reserve, etc.
KKR to Open Canadian Office With Focus on Energy Investments (Originally Posted: 01/20/2014)
link http://online.wsj.com/news/articles/SB10001424052702303848104579310830886124534
Cooool
what's so cool about this...
direct investments in onshore oil and gas assets (Originally Posted: 04/12/2014)
Aethon Energy is a private firm that is focused on direct investments in North American onshore oil and gas assets. Since inception in 1990, Aethon has maintained a focus on acquiring under appreciated assets, where opportunities exists to add value through lower risk development, operational enhancements and Aethon's proprietary technical knowledge. AethonÂ’s 20-year plus track record spans multiple energy cycles and has consistently provided compelling returns through disciplined buying and value creation. aethonenergy com
Sounds like a great company, wishing you all the best :)
Investing in energy: Where do I start? (Originally Posted: 07/01/2014)
Hi all,
I currently manage my own portfolio but would like to focus in on a specific sector with the hopes of becoming somewhat knowledgeable in that area. I think energy would be a good place to start and I really want to establish a baseline knowledge before I start throwing around money. I am looking for recommendations for any books to read or anything that might be of use. Also, if anyone is particularly knowledgeable in the energy sector and wants to help me out I would gladly throw some SBs your way. I hope that doing this will help me to differentiate myself in 2015 SA recruiting. Any advice is appreciated.
--Thanks
a few options:
I'm decidedly in the equity camp, but there's more than one way to skin a cat.
google oil & gas primer or energy industry primer, plenty of resources (http://www.ferc.gov/market-oversight/guide/energy-primer.pdf). I don't know of any books
Read Oil 101 by Morgan Downey.
What do you mean by 'investing in energy?' Just buying some stocks?
Investing in America's energy independence (Originally Posted: 07/16/2014)
Given the tremendous boom in crude oil production in the US over the past few years, what are your views on investing in highly leveraged speculative shale gas plays?
Is the boom sustainable and (most importantly) would you invest in the industry given the political nature of oil export policy?
Don't take everything here at face value but this should be food for thought: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/10957…
Anyhow, you are a very late mover at this point and break-even costs are pretty high now. The two problems with that: 1) logistical and political constraints have been depressing WTI vs Brent. 2) Even with the spread tightening, there is a lot of potential supply coming to market in Libya, Iran...
But you're asking about shale gas plays?
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