VBIN's oil stock thread.

[EricL]

(11-02-2020, 02:31 AM)vbin Wrote: Will you guys be kind enough to help me understand this tweet: "The supply side of the equation for the last half decade has benefited from mega projects from the $100 oil period. The people that got it wrong the last downturn got it wrong because the mega projects took time. That ended last year." ? What ended last year?

Coming back to the topic, Let's assume oil starts trending at ~$70 I have no insight into how easy is it for US majors to ramp up oil production and crackers to returns, a day? a week? a month?

How much u.s majors will benefit if oil is trading $70+? From both of your inputs it seems even if Oil trades at $100, golden days of u.s. oil majors are gone.

Mega oil projects take five or more years to build and complete. Think about the massive deepwater projects in the Gulf of Mexico or off the coast of Brazil. These are multi-billion dollar projects that were planned and budgeted for between 2008 and 2014 when crude prices were generally in an $80-110 range.

Many of those projects are now complete, and them coming online contributed to the supply glut. However, with oil in the $20's-$40's now, new projects of those types have been cancelled or put on the shelf. For example, US offshore rig count has dropped from the 60's in 2014 to just 13 today, Brazil offshore rig count has dropped from around 50 to just 7 today.

With those projects having huge lead times, that portion of supply can't respond very quickly with a spike in prices. This is why XOM and CVX have shifted towards the Permian Basin, since those wells are much cheaper and quicker to bring online.

I've read there is roughly a 6-9 month lag between rig count and production when looking at US shale. With most of the big cuts being made in March and April, those cuts are just starting to impact US production, and production has already dropped by 2 million barrels a day. That production can recover, but keep in mind that most of the small players are either bankrupt or seriously hamstrung by debt. I think production recovery will take some time.

As for price impact to the majors, Exxon produces 2.4 million barrels of liquids per day, while Chevron produces 1.8 million. At $75 you are talking $40 more than today's price, which is almost $100 million a day for Exxon and $72 million for Chevron. Take that over a quarter and you are talking $9 billion for Exxon and $6.48 billion for Chevron. Obviously taxes and other costs will drop those numbers a bit, but you can see how the equation changes immensely at higher prices.