The "Quite Period"

[dan_s]

During the last week of July, 2nd quarter results will start pouring in, followed by conference calls. 2nd quarter results will definitely be better than 1st quarter results and the companies can explain their strategies. Until then, the companies cannot defend themselves from this selloff.

Unless you believe oil and gas prices are going lower and will stay low FOREVER, our model portfolio companies are oversold.

You can download any of the individual company forecast models housed on the EPG website and lower the forecast oil, gas and NGL prices at the bottom of the Excel spreadsheet to see how the lower prices impact earnings, cash flows and stock valuations. For example, I went to the Gastar forecast model this afternoon and put in $50 oil, $2.75 natural gas and $20 NGL for all future periods and the valuation came to $4.35/share. GST closed at $2.38 today.

There is no way that today's oil price is sustainable. Most of the OPEC nations cannot survive much longer at today's oil price and there is no way to meet future oil demand at this price. Today the drilling companies and oilfield service firms are willing to lower prices to keep their good crews busy and maintain market share, but they cannot go on much longer at these dayrates. IMO Saudi Arabia is playing a very dangerous game. If oil prices stay this low through year-end, major projects will be cancelled all over the world. The "mega projects" cannot be turned on and off like a light switch. A MAJOR shortage of oil will follow and cripple the global economy.

There is also mass confusion over this Iranian deal. IMO it is not that big of a deal. RBC Capital believes at most the Iranians will bring 500,000 more barrels per day to market A YEAR FROM NOW. RBC believes (and I agree) that it will take Iran many year's to get their oil production back to pre-sanction levels. By then we will need every drop of that oil. U.S. oil production will decline by at least that much within a year and demand will be 1.5 million barrels per day higher. See chart at: https://www.iea.org/oilmarketreport/omrpublic/

RBC Capital: "It has been noted that roughly half of Iran’s production stems from fields that have been producing for more than 70 years. Old fields simply don’t bounce back quickly after being choked back for several years."

Once the U.S. tight oil plays go on decline, it will take a massive effort and lots of capital to reverse the decline.

BTW Saudi Arabia is really pissed at Obama over this Iranian deal. They will now have to pursue their own nukes since they can no longer depend on the U.S. to protect them. The next president is going to have a tough job repairing relations with our former allies in the Middle East. What a mess.

That is my "View from Houston" for July 16, 2015

[bearcatbob]

"BTW Saudi Arabia is really pissed at Obama over this Iranian deal. They will now have to pursue their own nukes since they can no longer depend on the U.S. to protect them. The next president is going to have a tough job repairing relations with our former allies in the Middle East. What a mess."

The box the Iranians were in can never be closed again. The world will give in with or without the US.

[bearcatbob]

https://www.middleeastmonitor.com/artic ... -this-year

[dan_s]

Thanks for posting that article. It brings up a very important point that we all need to understand. If you look at nothing but the cash flows from oil & gas operations in the OPEC countries, it is clear they can make money by selling oil at much lower prices than our domestic companies. HOWEVER, Saudi Arabia and most of the OPEC members depend almost entirely on oil sales to fund their budgets. So, there is no way they can keep oil prices down like this forever.

All but a few of the OPEC countries are broke today, meaning their bank accounts are empty and debts are piling up. Not a lot of bankers are eager to lend money to Nigeria or Venezuela.

There is going to be a lot of pressure to cut production at the next OPEC meeting.