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FWIW, Halliburton is planning for 2017 to be a big year. Starting 2 new frac crews to handle the workload. I'm not sure I see it, but hey, they know a lot more than me.

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2? Only 2? That won't even scratch the surface. They recently laid off 5000 so only time will tell. My friends there are not all that high on the coming year....

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I should clarify, that's 2 frac crews only in San Antonio. Halliburton is hiring throughout the southern U.S. It was 5000 globally with the majority being outside the U.S. I know both San Antonio and Odessa are hiring a lot right now. I see 2017 being better, but not as good as some seem to believe.

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have any idea where they are hiring out of?

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They had a job fair a couple weeks ago, but you can also check out https://jobs.halliburton.com/

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FWIW, Halliburton is planning for 2017 to be a big year. Starting 2 new frac crews to handle the workload. I'm not sure I see it, but hey, they know a lot more than me.

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2? Only 2? That won't even scratch the surface. They recently laid off 5000 so only time will tell. My friends there are not all that high on the coming year....

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I should clarify, that's 2 frac crews only in San Antonio. Halliburton is hiring throughout the southern U.S. It was 5000 globally with the majority being outside the U.S. I know both San Antonio and Odessa are hiring a lot right now. I see 2017 being better, but not as good as some seem to believe.

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have any idea where they are hiring out of?

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The internet. Will need someone with Hal to sponsor you to get a look.

Some old friends who were VERY senior engineer types from Genesis, Ensco and Technip have been let go. These are bad signs, they are not just house cleaning. These aren't mass layoffs , singular axe jobs. Very selective and very deep. The industry is eating its seed stock. The offshore industry seems to be in near death throes

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XOM earnings a disaster

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How are all of these companies continuing dividend payments and such? Are they not hemorrhaging money to do this? This downturn doesn't appear to have any end in sight, so what is their endgame here? Just do it until the company is run into the ground? They keep on having terrible earnings and yet nothing much changes beyond letting a few people go, which doesn't move the needle all that much when they are paying out vastly more.

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XOM earnings a disaster

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How are all of these companies continuing dividend payments and such? Are they not hemorrhaging money to do this? This downturn doesn't appear to have any end in sight, so what is their endgame here? Just do it until the company is run into the ground? They keep on having terrible earnings and yet nothing much changes beyond letting a few people go, which doesn't move the needle all that much when they are paying out vastly more.

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Their end game is to hope oil prices go back up Seriously these companies cannot continue to pay these dividend payments unless oil prices go back up. They are playing the waiting game and hoping they can hold out long enough until prices rise again. If prices do not rise and sustain above $50 to $60 per barrel for another year or two you will see a lot of dividend cuts.

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That's what I figured, but given the state of the industry that doesn't seem like a good idea. It really seems like the stock of many oil companies are way overvalued in the current environment.

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Some old friends who were VERY senior engineer types from Genesis, Ensco and Technip have been let go. These are bad signs, they are not just house cleaning. These aren't mass layoffs , singular axe jobs. Very selective and very deep. The industry is eating its seed stock. The offshore industry seems to be in near death throes

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I'm seeing the same thing. It really does not help that there is almost no one in the industry from age 35 to 50. We have one asset in our company where 5 people have a collective 200+ years of experience in the asset and there is no one else there who has more than 5 years of experience. All of those guys have said that if one of them leaves, the rest are gone as well, which pretty much kills the asset as a viable entity for us.

Sure I understand that a lot of the older guys were going to retire anyway, but the industry cannot handle another huge age gap like what happened in the 80s. I don't see how the industry survives if all of the old guys leave or are let go and they continue getting rid of younger staff as well. Trying to replace someone who has 30 years of experience with someone who has 5 is insane. I'm really good at what I do, but my boss had 30 years of experience when he retired and had forgotten more about the industry than I know. It would take me at least 10 more years to get to a level comparable to his.

It's going to be very interesting around the industry if the downturn lasts another year or two.

So I'm not a finance guru and I have a small knowledge of derivatives.

Are E&Ps still using derivatives to hedge against the low prices?

If so, will it be feasible to use derivatives long term to fight the lowering of revenue from reduced commodity prices?

That probably didn't make sense but basically can a company use derivatives to stay afloat in a sinking price environment? Do we get into shady deals if they are earning significant revenue from derivatives and not oil and gas?

Glad to know I'm not the only one. My company "retired" a guy with over 30 years experience and slotted me into his role with one month of overlap even though I only had rudimentary knowledge of his area. The first 6 months were brutal.

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So I'm not a finance guru and I have a small knowledge of derivatives.

Are E&Ps still using derivatives to hedge against the low prices?

If so, will it be feasible to use derivatives long term to fight the lowering of revenue from reduced commodity prices?

That probably didn't make sense but basically can a company use derivatives to stay afloat in a sinking price environment? Do we get into shady deals if they are earning significant revenue from derivatives and not oil and gas?

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yes, E&Ps are absolutely using derivatives to hedge, and you're statements show a misunderstanding of concepts.

a derivative is just a contract between 2 parties related to underlying asset. now, they can be super vanilla or extremely complex.

hedging is locking a future price for your product. nothing shady about that.
you know you'll produce x product, you know how much it costs, and you recognize price that makes you money.

speculating is taking risk. you are creating a position in the market and betting the market goes your way.

WTI $39....man.

Going to be a rough few years. Here in the Petroleum Engineering department us graduate students are super-stressed. Can't even find internships, in O&G, or non O&G fields!

To Furlock's point:
There is increasingly less upside available for hedging the out months. It's not like you can lock in next year's oil at $60/bbl in today's market. Add to that, some loan docs limit how and how much a producer can hedge while remaining in compliance. So there are limitations for some companies on how they do it. It's my understanding that the big boys don't generally hedge. They are price takers.

The smaller companies can generally hedge to a certain degree. For a simplistic and generalized case, and taking a quick look at the strip, 2017 oil can be hedged today at maybe a blended rate of $44/bbl. If you think you will produce 10k bbl/day and hedge half that amount, then you are getting roughly $22/bbl net in 2017 on the hedge and take the spot for the balance. So, if the spot for oil is $30/bbl for all of 2017, your revenue is roughly $37/bbl ($44 x 1/2 + $30 x 1/2 = $22+$15 = $37/bbl). This equates to gross revenue of $370K per day for oil. This sounds great if oil is $30/bbl in 2017. IF, however, oil is $60/bbl in 2017, you are getting paid $52/bbl, which equates to $520K per day in revenue. A spot price taker would get $600K per day. That extra $80K a day is the lifeblood for a smaller company, and the big boys thrive in this scenario. So, there is a risk / reward equation related to hedging. It's a double-edged sword. It breaks out as follows:

Case 1: No hedging:
At $30bbl oil: Revenue is $300K/day
At $60bbl oil: Revenue is $600K/day

Case 2: Hedge 50% @ $44/bbl:
At $30bbl oil: Revenue is $370K/day
At $60bbl oil: Revenue is $520K/day

Hedging helps smooth the revenue and a smaller (read: cash-starved) company can plan better and can manage their expenses to stay in the black. . . at least in theory.

Today, some companies are just arbitraging their spot prices against the strip in the front months (maybe only a couple months out) to smooth out some local market issues. They generally aren't making a ton of money this way, just trying to plug some holes where they can. In many cases it's too expensive to hedge this way as the market really needs to break substantially against the hedge for the hedge to be in the money.

It's much more complicated than this, but broadly speaking this is one way hedges are used by producers.

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XOM earnings a disaster

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How are all of these companies continuing dividend payments and such? Are they not hemorrhaging money to do this? This downturn doesn't appear to have any end in sight, so what is their endgame here? Just do it until the company is run into the ground? They keep on having terrible earnings and yet nothing much changes beyond letting a few people go, which doesn't move the needle all that much when they are paying out vastly more.

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COP had a pretty significant cut earlier in the year (although now they are touting a stock buy-back... morons). Kind of surprised CVX did not cut back in the winter as well, but with their yield around 4.3% I would not be surprised if they pull the trigger this fall if prices stay depressed.

XOM's yield is kind of frothy as well, but I have always heard they will guard the dividend to the end; of course GE and a lot of other blue-chips were saying the same thing in 2008 and see how that turned out.

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Some old friends who were VERY senior engineer types from Genesis, Ensco and Technip have been let go. These are bad signs, they are not just house cleaning. These aren't mass layoffs , singular axe jobs. Very selective and very deep. The industry is eating its seed stock. The offshore industry seems to be in near death throes

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I'm seeing the same thing. It really does not help that there is almost no one in the industry from age 35 to 50. We have one asset in our company where 5 people have a collective 200+ years of experience in the asset and there is no one else there who has more than 5 years of experience. All of those guys have said that if one of them leaves, the rest are gone as well, which pretty much kills the asset as a viable entity for us.

Sure I understand that a lot of the older guys were going to retire anyway, but the industry cannot handle another huge age gap like what happened in the 80s. I don't see how the industry survives if all of the old guys leave or are let go and they continue getting rid of younger staff as well. Trying to replace someone who has 30 years of experience with someone who has 5 is insane. I'm really good at what I do, but my boss had 30 years of experience when he retired and had forgotten more about the industry than I know. It would take me at least 10 more years to get to a level comparable to his.

It's going to be very interesting around the industry if the downturn lasts another year or two.

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I'm from the offshore contractor side. Fifteen years in. Upper-not-quite-senior-managment level (Dept Mgr) . I'm done. Don't plan on coming back. When my most recent company went bk, I left Houston. My friends there can't find anything.

XOM and CVX both still have strong balance sheets and can issue debt to cover their dividends for awhile. CVX said on their earnings call that they still plan to balance cash flow in 2017 at prevailing prices. In my opinion, neither of those two will cut their dividends in the next year. The only question is whether there is a symbolic 1 cent increase to maintain the streak of annual increases.

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XOM and CVX both still have strong balance sheets and can issue debt to cover their dividends for awhile. CVX said on their earnings call that they still plan to balance cash flow in 2017 at prevailing prices. In my opinion, neither of those two will cut their dividends in the next year. The only question is whether there is a symbolic 1 cent increase to maintain the streak of annual increases.

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Maybe I don't get it, but I don't think 90 days of runway from a cash perspective is indicative of a strong balance sheet. Sure you can take on more debt, but the incremental interest payments just widen the funding gap.

Both have fairly low net debt ratios and it's still fairly cheap to borrow.

The question to me is at what point does reinvesting in the business become a higher priority for their balance sheets? If they continue to cut capex, production will decline...and that trend can't continue forever.

Thanks

I guess I didn't mean shady as in illegal, but as in they could have significant income from derivatives as compared to their Oil and Gas revenues.

Yes. They can receive or lose substantial income from derivatives. If they are publicly traded, those figures are disclosed upon earnings release.

Maybe I am misunderstanding something

I am a producer and hedging half my production, would I be buying puts (guarantee I can sell at a price).

If the price goes up, I just let those puts expire worthless and sell for market. I'm out the cost of the puts. If the price goes down, I use the puts to get the agreed upon price. Hedging costs me money now to ensure a minimum price tomorrow.

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Some old friends who were VERY senior engineer types from Genesis, Ensco and Technip have been let go. These are bad signs, they are not just house cleaning. These aren't mass layoffs , singular axe jobs. Very selective and very deep. The industry is eating its seed stock. The offshore industry seems to be in near death throes

---

I'm seeing the same thing. It really does not help that there is almost no one in the industry from age 35 to 50. We have one asset in our company where 5 people have a collective 200+ years of experience in the asset and there is no one else there who has more than 5 years of experience. All of those guys have said that if one of them leaves, the rest are gone as well, which pretty much kills the asset as a viable entity for us.

Sure I understand that a lot of the older guys were going to retire anyway, but the industry cannot handle another huge age gap like what happened in the 80s. I don't see how the industry survives if all of the old guys leave or are let go and they continue getting rid of younger staff as well. Trying to replace someone who has 30 years of experience with someone who has 5 is insane. I'm really good at what I do, but my boss had 30 years of experience when he retired and had forgotten more about the industry than I know. It would take me at least 10 more years to get to a level comparable to his.

It's going to be very interesting around the industry if the downturn lasts another year or two.

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ibget the sense this is really only the case in the US.

Ahhh yes! Like I said it can be more complex than the scenario I laid out. You are inferring the difference between an option and a future. An option is a right, but not an obligation. A future is both a right and an obligation. So, in your scenario, you would only exercise your put option if it were in the money. Otherwise you let it expire. With a futures contract, you must deliver at the agreed upon price at the agreed upon date in the future. The pricing difference between the two is a potential arbitrage opportunity, but not for your average Joe Speculator. Again, it can all get extremely complex as people find more and more ways to skin that cat.

Puts are expensive. You may be able to finance the premium but that is not always available for some producers.

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Puts are expensive. You may be able to finance the premium but that is not always available for some producers.

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Yep. In the right environment you can even collar if you are happy with a range of prices (and are willing to give up some upside). Anyone can afford a costless collar.

Most companies will use some combination of puts, collars, price swaps and/or futures to hedge. All of it is generally disclosed in the notes to the financials if they're public.

There is extra documentation to complete if you want to account for derivative contracts as cash flow hedges. If you don't do that, then changes in the value of contracts you hold will be reflected in the earnings and on the BS as assets or liabilities marked to fair market value each period. Cash flow hedges would be recognized in AOCI until the actual transactions occur and would be booked as a gain/loss at that time.

Anyone familiar with the upcoming extraction O&G IPO?

Big boys, or typically larger publicly traded, don't hedge as investors want exposure to the volatility.

Anyone know how far out lenders typically require producers to hedge?

Any of you guys keen on "Overriding Royalty" or ORRI's?

I've seen some of these interests pop up on auction lists over the last year and I'm curious if they are worth the expense? I haven't the slightest clue what even a small interest sells for, but the idea of the income being cost free is interesting.

I presume they aren't worth it.

I think it's hard to make the blanket statement that an ORRI may not be worth it. All depends on what it is and how much it's worth, should be pretty easy to evaluate though which is the nice thing. In my opinion a lot better than owning an NPI.

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When you say big boys you mean the Large Integrated oil companies. They generally do not hedge bc they're integrated and want to be ratable to investors.

however, large independents like EOG, Anadarko, Apache etc all hedge. They may not to the same % basis as the sub investment grade credits but the employ hedging strategies.

COP doesnt hedge. They are however run by idiots that still view themselves as super major employees.

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Yes, they are both sellers (from the production side) and buyer (from the refining side) of oil. Essentially a self hedge, but a contracted price would help one business unit and harm the other.

Lawsuit was filed against the EPA by 14 states regarding Quad Oa today.

http://bit.ly/2aKNKAY

The list includes:

STATE OF WEST VIRGINIA;
STATE OF ALABAMA;
STATE OF ARIZONA;
STATE OF KANSAS;
COMMONWEALTH OF KENTUCKY;
STATE OF LOUISIANA;
ATTORNEY GENERAL BILL SCHUETTE,
For the People of Michigan;
STATE OF MONTANA;
STATE OF OHIO;
STATE OF OKLAHOMA;
STATE OF SOUTH CAROLINA;
STATE OF WISCONSIN;
COMMONWEALTH OF KENTUCKY
ENERGY AND ENVIRONMENT CABINET;
and, STATE OF NORTH CAROLINA
DEPARTMENT OF ENVIRONMENTAL
QUALITY;

Hopefully we can get the courts to rollback or eliminate many of the issues with Quad Oa that will hugely raise production costs. I'm honestly not sure how small operators could even comply with the rule from a monetary standpoint.