Oil Falls 90% to $1 per Barrel - Impact on O&G IB?
Just today, front month contracts for WTI have fallen to $1 per barrel with potential to go negative by the end of the trading day. Does anyone have any info on the future of Houston O&G banking in this price environment? Is Houston O&G going to die a slow death or is there potential to shift to renewables?
Also interested.
This house is currently on fire, the fire department is about 30 minutes away and the fire is spreading very fast, what are the chances the fire can get put out?
buy oil calls
You gonna long the June contract? or take physical possession of thousands of barrels May 1st?
long on june. physical possesion requires you to store it somewhere, and it is super expensive to store oil right now. that is a major reason oil is down so bad
Front month contracts - sucks for unhedged operators but Aug 2020 contracts are still around $30/bbl
gotta put that stuff back into the ground
Tough to see. Was in a tough spot pre-Corona too.
The one thing that always gets thrown out here is a "shift to renewables." That is a dominant narrative but doesn't really make sense depending on your definition. Nat Gas has been replacing coal for things like electricity generation, but things like wind/solar as they exist can't and won't replace traditional energy. Nuclear would do the trick but gets people riled up for illogical reasons.
If you're talking about potential shift of IB coverage--this is possible but not plausible. Renewable groups already exist and are usually part of power/utilities and largely exist outside of HOU. Maybe they'll absorb O&G groups but doesn't change the outlook.
Remember when we were supposed to "run out of oil" by 1980?
Oil is not going to die a slow death at prices many multiples cheaper than renewables. This is a market meltdown over lack of storage. 30-50% of producers, especially those highly levered or unhedged, will get crushed but oil demand will be back eventually.
Crude's been trading negative, single digits, and teens in different regions of the country over the last month in the physical market. Today is just the realization on the financial product or futures market as the spot price contract is about to close. In addition, the futures curve is still trading above $20 in June and in the $30s over the summer. That's why O&G stocks aren't getting hit that hard in relation spot crude prices. I work in Midstream, our producers haven't really changed their shut-in schedule that much over the last two weeks because the basis has been shit for some time now. Corporates pushed back their rig schedules and started shutting wells in when Oil initially tanked. Will be interesting to see who's balance sheets can withstand the supply/demand in-balance. Also, curious to see what consolidation we will see and how it will be financed given the status of the capital markets.
June/July futures are down significantly, but are still $20ish. To not have a rerun of this in 4 weeks, you will need to see widespread shut-ins across any unhedged production as it doesn't look like demand is changing in a serious way until maybe July.
As far as IB goes, there will be RX work and the majors may do some land acquisitions. There could be some major mergers in the next couple of years (Chevron could finally get Anadarko, with Oxy as a bonus).
The 10 year IB forecast, in my opinion, is cloudy. It doesn't look like the capital markets are excited by the returns profile and its an easy win to claim ESG at the same time.
We will still need crude for the next century, with demand even expected to increase (pre-covid) for the next 20 years. And energy is a capital intensive space that will always need investment. However, the glory days are behind us and it looks more like automakers, tobacco, and railroads.
How do you see the Majors adapting to the changing landscape in the long-run? (20-30+ years out)
They are making some adaptations through diversification, both with investments in their midstream and downstream verticals, as well as investing in alternative energy technologies.
Through their downstream exposure, strong balance sheets, and trading arms they can make it through times like these. That said, I think the cost of capital will decrease in the space as the energy mix becomes led by natural gas and renewables. The risk/return profile of nat gas and solar/wind are just fundamentally different than crude. The types of investors will be dividend investors, not growth investors, and M&A will fade over time.
RBC Oil & Gas team still staying strong, according to the WSO official rankings.
what about ubs?
UBS houston team was already winding down right before corona. Theyve lost some of their superstar MDs and directors in the last 18 months so they were not in a good spot anyway. their new associates and analysts have been trying to jump ship or transfer to chemicals in nyc last i heard.
i would say evercore, moelis and lazard are best placed for restructuring mandates. Gonna be a bumper time especially for the former two. Citi, GS and TPH also always seem to find a way to do ok in this space.
Is RBC's team in Houston overrated? Can they compete with BB's?
Their A&D team is really solid (RBC acquired them) but I (and from what I see RBC itself) sees it as independent from the rest of the Houston team. Not sure how that team does on its own but don’t see their name on deals and stuff recently.
it's over folks. maynard & bobby just came through the bullpen with gold-leaf 1911s headshotting each & every analyst. wrap it up.
Did they really fire all the third-year?
nah lol
Source?
Can someone confirm?
Should we expect headcount reductions at other banks without competitive restructuring practices?
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