For the U.S. Oil and Gas Industry, the Time for Alarm Has Arrived

Today’s Energy Update 

I’m no fan of alarmism, whether it be about energy, the environment or any other subject, but the situation for the domestic oil and gas industry has grown somewhat alarming over the past two months. Since early January the S&P Oil & Gas Index has plunged 32%. Investors appear convinced not just that there is oodles of oil in the world but that the spread of Coronavirus brings the risk of economic flatlining in the biggest growth market for oil — China.

With the virus set to spread and the OPEC+ group running out of options to contain the oil glut, the price of West Texas Intermediate (WTI) crashed through the important $50 level this week, and promises to slide further. Chevron yesterday sent home 300 workers in London over virus fears. Thus, a year that began with a fairly promising outlook is rapidly devolving into one that will present a fight for survival for some domestic producers.

The statement on Tuesday by Dr. Nancy Messonnier, an official at the U.S. Centers for Disease Control and Prevention (CDC), that spread of the Coronavirus in the U.S. was “inevitable,” and that citizens here should begin preparing for an outbreak will certainly work to further inflame the markets. President Donald Trump has reserved television time for a statement designed to calm the situation on Wednesday night, but it could come too late to prevent further disruption in the commodity and financial markets.

Meanwhile, the U.S. market for natural gas remains chronically over-supplied with no real relief in sight. Although the NYMEX price per MMBtu has remained fairly stable during the first two months of the year, it is stable at a price that is far too low for many natural gas producers to remain profitable.

All of these factors now combine to create a precarious situation for heavily-leveraged companies as they head into debt re-determination season. Chesapeake Energy is a good example. When I wrote about that company’s long, difficult struggle to survive last November, Morgan Stanley had just lowered its price target for CHK stock from $2.25 per share to $1.25.

But it isn’t only independent producers who are finding the current market conditions to be challenging: Even ExxonMobil, despite its prime position in the Permian Basin and major international discoveries over the past two years, is experiencing a disturbing rate of value destruction. As noted by Bloomberg, XOM stock dropped to a 15-year low on Monday and fell further on Tuesday, “just over a week before Chief Executive Officer Darren Woods is scheduled to present the oil explorer’s long-term strategic plan to investors and analysts.” For the year, XOM is now down by almost 25%.

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Carlos Dangler

……..and there was a massive refinery fire at a Marathon plant in California this morning.

Jimmy MacAfee

Doesn’t help that everybody is jumping on the “electric-everything” bandwagon. That’s psychological warfare, not reality. Just like “climate change.” Psy-Ops.

So is the coronavirus: how did one company already have a vaccine – to try – in such a new virus? The thing is more of a creation of Madison Avenue/Mockingbird than ISIS! Not that it isn’t real; it’s very real – and anticipated. The Chinese manufactured this specific strain, and we’ve known that they’re engaged in these activities, so if we haven’t been working on a counter? We’d be derelict. And I surmise that we haven’t been derelict. It’s like someone anticipated Pearl Harbor, and let them fall into their own trap, and the attack turned into a bloodbath – for the attackers. I wonder how many other little gems the Chinese have in their laboratories? To spring upon the West, particularly the US?

Fact is, the Chinese are saying that native Americans are Chinese, therefore they were here first, and we should either just die or move to our original lands! They ARE saying this, as much as some Russians are talking about Alaska. To all of the above I say: please bugger off. You won’t get your boy Mikey to disarm us; we will not be disarmed, and you won’t be suicidal and start a nuclear war. Put your money where your people are, not in militarization and conquest. Africa will be your graveyard, as it has been for so many European countries.

Gasoline prices are down, caused by the low per barrel prices; that hurts companies, and it helps consumers. Who else does it affect? Russia? Iran? Venezuela? Not good news for Iran, who may be cheating vis a vis China and others. Costs them a lot to extract oil. Russia? Besides making machines to make war, they don’t do much of anything other than produce gas and oil. Venezuela unwisely borrowed money that they couldn’t repay – much as we see other world producers heavily leveraged. Chevron is taking a huge hit, kind of a double whammy.

But oil and gas will come back. Electric vehicles may have a virtually limitless supply of lithium – but extracted from the oceans at a high cost. Perforene, which is incredibly hard and can be made into sheets for water filtration (not just for desalination) may be Lockheed Martin’s magic bullet; they don’t hold patents on a lot of other graphene products, but last I heard, they do for this material. Production? Not on a level soon enough to have an impact. Short term, oil and gas are the major options.

And the coronavirus which is shaking up the markets? Well, maybe the Chinese should put more money into the well-being of their people, instead of thinking of ways to colonize the US.

And as far as climate change goes, biggest producer of carbon in the world is China, which is doing the least about it. Maybe the Chinese can stop the mindless attacks on carbon dioxide, which is not responsible for warming, but IS responsible for a planet that has an increasing growth cycle of vegetation almost worldwide. Take away carbon dioxide, and you kill more trees than you save! I vote for more carbon dioxide and more trees.

Which leads us back to oil and gas. Burn, baby, burn! Leading to a greener future.

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