Long term OIL

[STT]

I have seen many articles in Bloomberg and Google Finance claiming that Aramco might be worth up to $3 trillion. I am quite skeptical about this. Rosneft produces about 4.5 million barrels a day, and still its market cap is only around $50 billion. What makes Aramco 100 times more expensive than Rosneft?

Not sure of the figures for each country but quality and ease of production is likely the biggest answer why Saudi Arabia has the greatest advantage and say in oil prices for the world.   Russia might have equal oil but its not nearly as cheap to produce so far as I know.
There was a big fuss about them exploring in the artic terrority they apparently control but even if they do that it wont be cheap to get at or transport to customers and so on.   Its possible the quality of oil and quantity is great but those are big hurdles to get over.

Its even possible Canada has equal oil but I heard of figures for production going upto 100 dollars a barrel which makes alot of what they have not that usable and again its not popular to extract in that country due to disruption and needed oil pipelines to transport.  I cant imagine another country beating Saudi Arabia on all the points of advantage they have, the only major minus is they are located in a volatile area of the world hence the alliance with USA I guess.   3tn might be cheap considering usa debt is 19tn, the contrast of those two securities if we are talking value I'll take the oil performing far superior to treasury debt over its 25yr term or more

[bryant.coleman]

Not sure of the figures for each country but quality and ease of production is likely the biggest answer why Saudi Arabia has the greatest advantage and say in oil prices for the world.   Russia might have equal oil but its not nearly as cheap to produce so far as I know.

I was not talking about the whole of Russia. There are a number of crude oil producers in Russia. In addition to Rosneft, they have Lukoil, Gazpromneft, Bashneft, Sibneft, Tatneft.etc. Cost of producing a barrel of oil for Rosneft is somewhere around $2 to $3 per barrel, which is comparable with that of Aramco. For the other producers, it is high.  

[STT]

That does sounds ridiculously cheap, I thought Russia was far worse off then that.  Rosneft has strong ties to the state I think, maybe part ownership and also BP have a stake in there so its good news if that is true.  Not saying it cant be but its not hard to imagine Russia suffered under investment on long term oil fields and correct development

[tyz]

Not sure of the figures for each country but quality and ease of production is likely the biggest answer why Saudi Arabia has the greatest advantage and say in oil prices for the world.   Russia might have equal oil but its not nearly as cheap to produce so far as I know.

Cost of producing a barrel of oil for Rosneft is somewhere around $2 to $3 per barrel, which is comparable with that of Aramco.

I would like to believe you, but do you have any proof for this (offical statement or announcement, or an international study)? I am folllowing the oil price development for over two years extensively, because I do a lof of (day) trading with oil certificates and options. But I have never read about such a cheap oil production price that you have stated. Would be interesting to verfiy this information. If it is right, I would need to change my trading strategy to Russian oil producers.

[jaysabi]

Well, I think the value has less to do with how many bpd it produces and more to do with total assets. The oil reserves Aramco owns are where the 2-3 trillion dollar valuation would come from. When Aramco files an IPO, they will have to disclose with the SEC exactly what their reserves are in their S-1 statement, which will give investors a clear picture of the financial asshets of the company, and let everyone calculate for themselves what the valuation should be.

I am not sure whether the Saudis will be honest in their S-1 statement. I have seen varying figures, claiming anywhere from 50 billion barrels to 500 billion barrels. The Wikipedia claims the amount to be 260 billion barrels. At a rate of 11 million barrels per day, the reserves will last at least 65 years. But the question is whether petroleum will remain in use up to that date?

For comparison, Rosneft claims a total of 77.118 billion barrels (Proven + Probable + Possible Reserves), with another 193.196 billion barrels in Prospective Resources.

If they're not honest, they won't be able to raise future funds. The investing world thrives on honesty and transparency. Perhaps civil injunctions and fines from the SEC are not scary to them, but if they want continued access to the capital markets, being deceitful in regulatory filings would be extremely detrimental.

[jaysabi]

Also, the cheap oil is definitely taking its toll on American firms:  http://www.nasdaq.com/article/sandridge-energy-files-for-bankruptcy-protection--3rd-update-20160516-01305

The highlights (low-lights?):

• SandRidge Energy, a shale producer, is the fifth energy company to declare bankruptcy in 5 days.
• Deloitte's energy consultants report that 175 oil and gas producers around the world are in danger of insolvency.
• Up to 160 ancillary and support companies dependent on the oil and gas industry are also in danger of bankruptcy.
• Even though it's only May, oil and gas companies have already defaulted on $26 billion of loans, compared to $17.5 billion for all of 2015.

[jaysabi]

More investment for life after crude for Saudi Arabia.


http://fortune.com/2016/05/23/ge-announces-deals-saudi-arabia/

General Electric  said Monday it made a series of deals with Saudi Arabia worth over $1.4 billion as part of the kingdom’s ambitious plan to wean itself off crude oil.

GE said $1 billion worth of projects would be implemented with the Saudi Arabian Industrial Investments Co., which formed in 2014 by royal order to boost the country’s manufacturing industry.

Another $400 million would go toward building a forging and casting manufacturing facility for the marine and energy industry in the kingdom, with hopes of it being operations by 2020 and providing over 2,000 jobs, GE said.

In the future, there’s a possibility of another $2 billion in projects coming on line as well, GE said.

...

[jaysabi]

Oil surpassed $50 a barrel for the first time in more than six months on signs a two-year surplus is coming to an end, lifting energy and mining companies and buoying currencies where oil is produced.

We made it guys! We did it! All the oil problems are solved forever! Right? Right???

On a serious note, it's promising that there are some signs to indicate the surplus may start to dwindle. US inventories dropped last week 4.23 million barrels, when a drop of only 2 million was expected. However, Nigera and Venezuela are both producing less; Nigeria because of terrorist attacks, and Venezuela because it's dealing with widespread power outages.

[STT]

Venezuela  nationalised private companies, its a failed market in of itself.  The country needs a new government and whole turn over of law probably.   They cant afford to produce oil at this price apparently, I heard similar of Iran which higher costs but really its about efficiency as its surely possible for innovation to find ways to produce.

  One of Indias main oil fields of which they have few was initially drilled then sold off as a loss as without viable oil, even when great reserves were found it was with massive problems with the oil solid at room temperate due to wax.   All these problems required global expertise and much risk and investment.   Venezuela cant do this because its a fascist country and everything is political, too much to risk and no company wants to enter that situation now unfortunately.  The people will suffer with wealth in the ground

[gcride]

price will go down in the long term as we transition away from oil

[guy_wonderful]

Midterm predict. ends at 30.05.2016 at 49.50
On monday, It's time to go SHORT  again.

[botany]

Midterm predict. ends at 30.05.2016 at 49.50
On monday, It's time to go SHORT  again.

People predict expect crude to gradually increase over the next year, now that a rally has started.

http://finance.yahoo.com/news/why-david-rubenstein-thinks-crude-160551507.html
Why David Rubenstein Thinks Crude Oil Could Rally to $70 in 2017

[bryant.coleman]

Not sure of the figures for each country but quality and ease of production is likely the biggest answer why Saudi Arabia has the greatest advantage and say in oil prices for the world.   Russia might have equal oil but its not nearly as cheap to produce so far as I know.

Cost of producing a barrel of oil for Rosneft is somewhere around $2 to $3 per barrel, which is comparable with that of Aramco.

I would like to believe you, but do you have any proof for this (offical statement or announcement, or an international study)? I am folllowing the oil price development for over two years extensively, because I do a lof of (day) trading with oil certificates and options. But I have never read about such a cheap oil production price that you have stated. Would be interesting to verfiy this information. If it is right, I would need to change my trading strategy to Russian oil producers.

Here:

http://rbth.com/business/2016/01/19/at-what-point-are-oil-prices-too-low-for-firms-to-survive_560695

Rosneft's CEO, Igor Sechin, said in fall 2015 that the company's cost of extracting oil is about $4 excluding transport costs and taxes, so it is ready to "continue the struggle for market share.”

Cost of production for Lukoil is slightly higher than that at Rosneft.

Lukoil's report said that the devaluation of the ruble in the first nine months of 2014 decreased Lukoil's unit costs of production in Russia by 35 percent to $3.68 per barrel excluding taxes and transportation costs.

[AndySt]

Not sure of the figures for each country but quality and ease of production is likely the biggest answer why Saudi Arabia has the greatest advantage and say in oil prices for the world.   Russia might have equal oil but its not nearly as cheap to produce so far as I know.

Cost of producing a barrel of oil for Rosneft is somewhere around $2 to $3 per barrel, which is comparable with that of Aramco.

I would like to believe you, but do you have any proof for this (offical statement or announcement, or an international study)? I am folllowing the oil price development for over two years extensively, because I do a lof of (day) trading with oil certificates and options. But I have never read about such a cheap oil production price that you have stated. Would be interesting to verfiy this information. If it is right, I would need to change my trading strategy to Russian oil producers.

Here:
http://rbth.com/business/2016/01/19/at-what-point-are-oil-prices-too-low-for-firms-to-survive_560695

Rosneft's CEO, Igor Sechin, said in fall 2015 that the company's cost of extracting oil is about $4 excluding transport costs and taxes, so it is ready to "continue the struggle for market share.”

Cost of production for Lukoil is slightly higher than that at Rosneft.

Lukoil's report said that the devaluation of the ruble in the first nine months of 2014 decreased Lukoil's unit costs of production in Russia by 35 percent to $3.68 per barrel excluding taxes and transportation costs.

These prices are necessary for the survival of oil companies. On the exploration and development of new fields then you can forget that still in the end will lead to hundreds of dollars the price per barrel.

[bryant.coleman]

These prices are necessary for the survival of oil companies. On the exploration and development of new fields then you can forget that still in the end will lead to hundreds of dollars the price per barrel.

Obviously. Corporations such as Rosneft and Aramco are producing crude at a cost of $3 per barrel, and they will be able to keep production even if the prices drop to $10 per barrel. The same can't be said about other producers such as Shell, Exxon Mobil, and BP, who normally produce crude at the rate of $30 or $40 per barrel.

[STT]

10 dollars in 2016 is not really possible unless its used locally for power production.   It might have been that low 2 decades ago but we had too much inflation and dilution of real dollar value to say thats possible now.
I believe just the cost of transportation would make that level of oil pointless and the market would close down.  They would do better to just store the asset until demand actually requires that resource to be available and profitable.

There is some ongoing improvement in efficiency and lowering cost of production

[bryant.coleman]

10 dollars in 2016 is not really possible unless its used locally for power production.  

I was just referring to a hypothetical scenario. Crude is unlikely to fall below $40 per barrel in the long term. The main reason is that a huge majority of the producers will not be able to stay afloat if it goes below that mark. Certain varieties of crude can go below the $10 per barrel mark. Ever heard about North Dakota Sour? Right now it is selling at around $1.50 per barrel. Check this:

http://www.bloomberg.com/news/articles/2016-01-18/the-north-dakota-crude-oil-that-s-worth-less-than-nothing

[deisik]

Ever heard about North Dakota Sour? Right now it is selling at around $1.50 per barrel. Check this:

http://www.bloomberg.com/news/articles/2016-01-18/the-north-dakota-crude-oil-that-s-worth-less-than-nothing

That was an accounting error when its price allegedly went below zero. At least, they came up with something to that tune later. Regarding oil prices below $40 long term, it also depends on the global economy. If the demand for oil collapses (say, something like a new Great Depression occurs), it can fall really low. A certain Nassim Taleb went so far as to predict oil prices as low as $4 per barrel...

That would definitely be a Black Swan event, lol

[bryant.coleman]

Ever heard about North Dakota Sour? Right now it is selling at around $1.50 per barrel. Check this:

http://www.bloomberg.com/news/articles/2016-01-18/the-north-dakota-crude-oil-that-s-worth-less-than-nothing

That was an accounting error when its price allegedly went below zero. At least, they came up with something to that tune later. Regarding oil prices below $40 long term, it also depends on the global economy. If the demand for oil collapses (say, something like a new Great Depression occurs), it can fall really low. A certain Nassim Taleb went so far as to predict oil prices as low as $4 per barrel...

That would most certainly be a Black Swan event, lol

Yeah... he shocked many with that prediction. Details here:

http://www.cnbc.com/2015/11/18/oil-the-case-for-low-for-longer-prices.html

Is it even theoretically possible to have such ultra-low prices? I assume that the $4 figure doesn't takes transportation costs in to account. Even then, almost all the producers will be pumping out crude at a net loss. What makes him think that they will produce crude at a loss?

[deisik]

Ever heard about North Dakota Sour? Right now it is selling at around $1.50 per barrel. Check this:

http://www.bloomberg.com/news/articles/2016-01-18/the-north-dakota-crude-oil-that-s-worth-less-than-nothing

That was an accounting error when its price allegedly went below zero. At least, they came up with something to that tune later. Regarding oil prices below $40 long term, it also depends on the global economy. If the demand for oil collapses (say, something like a new Great Depression occurs), it can fall really low. A certain Nassim Taleb went so far as to predict oil prices as low as $4 per barrel...

That would most certainly be a Black Swan event, lol

Yeah... he shocked many with that prediction. Details here:

http://www.cnbc.com/2015/11/18/oil-the-case-for-low-for-longer-prices.html

Is it even theoretically possible to have such ultra-low prices? I assume that the $4 figure doesn't takes transportation costs in to account. Even then, almost all the producers will be pumping out crude at a net loss. What makes him think that they will produce crude at a loss?

I guess exactly the same what actually makes the producers produce at a loss. That is, costs involved with freezing the production, and, what is more important, with the consequent restarting of production (including indirect costs due to lost market share and delayed consequences of higher orders, whatever they might be)...

You simply can't just take and plug an oil well and unplug it later, see what happened in the Gulf of Mexico in 2010