Always enjoy the thought provoking videos, thank you.
On the comparison of the European to US oil majors, for me the key difference (other than the historical valuation gap) is the increasing dependence of the US players on Permian shale while most of the Europeans are still focused almost exclusively on conventionals. I have some doubts about the long term profitability of shale, at least at current prices. In particular, I note the current breakevens for new wells in the Permian is about $65 (according to a Dallas Fed survey last March) and the shale oil is so light that is sells at a discount to WTI. Given the high decline rates and capital intensity of shale drilling, I am not sure what sort of returns the Permian drillers are going to generate with WTI at $70. Obviously operators like CVX, XOM and COP will achieve better drilling returns than the average, but in general, seems like as an industry, shale needs WTI well above $80 to really perform. PBR’s break even in the presalt is still below $45 and they are producing better, lower API barrels. Of course, Trump may offer a bunch of subsidies to US producers to get them to drill baby drill, but I don’t see how that really works at current oil prices and cash flow/ bbl. Also, as a general matter, I don’t think tax incentives to oil and gas drillers are any better than tax incentives to windmills and if operators can’t operate profitably without venting methane, maybe they need to rethink their business model. I also note the Europeans are more leveraged to LNG than the US majors, which I also think is a big long term advantage. Anyway, this point of view may just be my own confirmation bias, but my money is on the Europeans and PBR.
As an aside, I note that CVX’s reported Q4 ROCE of 7.6% was below the Q4 ROCE of TotalEnergies’ integrated power division, which was 10.1%. One quarter does not a trend make but this is interesting given the often heard criticism that alternative energy generation is “low margin” compared to the core oil and gas business.
Looks like Harold Hamm agrees with me on the $80 call… Not my place to advise you on content but I would love to hear your views on whether you think Permian shale can operate profitably at $65 WTI medium term. Given short cycle times of tight oil, at least we won’t have to wait too long to find out!
Another great video pod. Thanks! An idea for a future article if I may suggest one.
How to think about LNG and the way different businesses incorporate those financial results and opportunities. Europeans seem to have a larger trading focus. BP and Shell report trading results explicitly. Americans seem less clear or consistent with how increased LNG volumes impact the financial results.
For instance, it’s hard to tell if when companies increase their LNG exposure do they mean a higher percentage of equity gas converted to LNG and subsequent higher gas price realizations?
Do they mean increasing the bottom line gas volumes as well?
Are they talking more in terms of a euro company with trading and marketing?
LNG is unique where it’s the same base product at the wellhead in a different sales form. If a company says they are increasing NGL, condensate, crude or heavy/bitumen exposure we know we should be looking for those volumes to rise either absolutely or relatively to the past.
As far as I know, no company reports “% of equity gas liquified and sold as LNG” or something similar. It’s going to get more complicated with Gulf Coast LNG that isn’t directly integrated into its upstream assets in the same way as Qatar or Australia for example.
Spring is almost here: fairway, green, 2-putt, smile, repeat. Have a great weekend!
Thank you John! Really appreciate it. And your comments on LNG are spot on. There is a wide range of biz models, and the differences are probably not well understood.
Always enjoy the thought provoking videos, thank you.
On the comparison of the European to US oil majors, for me the key difference (other than the historical valuation gap) is the increasing dependence of the US players on Permian shale while most of the Europeans are still focused almost exclusively on conventionals. I have some doubts about the long term profitability of shale, at least at current prices. In particular, I note the current breakevens for new wells in the Permian is about $65 (according to a Dallas Fed survey last March) and the shale oil is so light that is sells at a discount to WTI. Given the high decline rates and capital intensity of shale drilling, I am not sure what sort of returns the Permian drillers are going to generate with WTI at $70. Obviously operators like CVX, XOM and COP will achieve better drilling returns than the average, but in general, seems like as an industry, shale needs WTI well above $80 to really perform. PBR’s break even in the presalt is still below $45 and they are producing better, lower API barrels. Of course, Trump may offer a bunch of subsidies to US producers to get them to drill baby drill, but I don’t see how that really works at current oil prices and cash flow/ bbl. Also, as a general matter, I don’t think tax incentives to oil and gas drillers are any better than tax incentives to windmills and if operators can’t operate profitably without venting methane, maybe they need to rethink their business model. I also note the Europeans are more leveraged to LNG than the US majors, which I also think is a big long term advantage. Anyway, this point of view may just be my own confirmation bias, but my money is on the Europeans and PBR.
As an aside, I note that CVX’s reported Q4 ROCE of 7.6% was below the Q4 ROCE of TotalEnergies’ integrated power division, which was 10.1%. One quarter does not a trend make but this is interesting given the often heard criticism that alternative energy generation is “low margin” compared to the core oil and gas business.
Nat, Thanks so much! Appreciate your perspectives here.
Looks like Harold Hamm agrees with me on the $80 call… Not my place to advise you on content but I would love to hear your views on whether you think Permian shale can operate profitably at $65 WTI medium term. Given short cycle times of tight oil, at least we won’t have to wait too long to find out!
https://www.bloomberg.com/news/articles/2025-03-13/wildcatter-hamm-says-shale-needs-80-oil-to-cover-costly-fields
Questions that can be answered in content always welcomed. It's a good one to address.
Thanks for sharing your views which are on point.
you're welcome and thank you
Another great video pod. Thanks! An idea for a future article if I may suggest one.
How to think about LNG and the way different businesses incorporate those financial results and opportunities. Europeans seem to have a larger trading focus. BP and Shell report trading results explicitly. Americans seem less clear or consistent with how increased LNG volumes impact the financial results.
For instance, it’s hard to tell if when companies increase their LNG exposure do they mean a higher percentage of equity gas converted to LNG and subsequent higher gas price realizations?
Do they mean increasing the bottom line gas volumes as well?
Are they talking more in terms of a euro company with trading and marketing?
LNG is unique where it’s the same base product at the wellhead in a different sales form. If a company says they are increasing NGL, condensate, crude or heavy/bitumen exposure we know we should be looking for those volumes to rise either absolutely or relatively to the past.
As far as I know, no company reports “% of equity gas liquified and sold as LNG” or something similar. It’s going to get more complicated with Gulf Coast LNG that isn’t directly integrated into its upstream assets in the same way as Qatar or Australia for example.
Spring is almost here: fairway, green, 2-putt, smile, repeat. Have a great weekend!
Thank you John! Really appreciate it. And your comments on LNG are spot on. There is a wide range of biz models, and the differences are probably not well understood.