Thanks for the note. On the cost curve, are Canadian oil sands the most expensive barrel? Most of the oil sands companies report breakeven in the $30-40 level. What is your chart based on?
Omar, Realizing a fuller explanation of that slide is warranted for a broader audience. That graphs is GS's estimate of the cost of NEW fields. For existing projects where capital was spend years ago, break-evens are indeed much lower. And for new projects, factors like greenfield vs brownfield, quality of reservoir, etc. can have a huge impact. Some oil sands projects are lower than other regions. There are probably is a greater quantity of higher cost resource as well but that is in part because Canada is blessed with sizable resource.
Arjun, Thank you for your writing & thoughts! I enjoy your postings every time, share them shamelessly and look forward to continuing to see them with Veriten. Congrats on the new role and sharing your well thought out process for the move. Darren
Arjun, I would strongly suggest sticking with your principles rather than be tempted down the acquisiton and mega project road to destruction. You have had a ring side seat on the value destruction. Oil and Gas companies should continue to heed the advice and direction of most western countries, that they want them to slowly and methodology go out of business. Only through continuous conversative capital management will this cycle be different.
Oral, My apologies for the delayed reply but CERAWeek got the best of me. Always good to hear from you and thank you for sharing your views. I am going to push back though on the premise this isn't sticking with my principles. I'll say it this way, your retort is too broad-based relative to what I am saying. Yes, the oil & gas sector should stay disciplined. There is no call on my part for a return to drill-baby-drill. But, and without repeating all prior posts, I'll just simply say that at a time of max hunker down, there is no chance that that there aren't good opportunities for investment for some companies in some areas.
Arjun, Thanks for your reply, and i appreciate your views and maybe i was too general. Yes, of course, there are always going to be good opportunities and investments need and should be made. However messaging is critical, and old habits die hard in an industry that has a near impeccable history of destroying capital. (And investors and bank analysts are as guilty of supporting the bad habits). The message from investors/stakeholders/analysts must be clear and consistent and unambiguous. If given the rope and the opportunity the industry will be back to its bad habits. and some in the investor and analyst community will be back to their enabling ways.
Keep up your principled stand on fantasies like Netzero. People really need to be educated about what’s possible/feasible and you are an important voice.
Great news! 👍 I recommend Super Spiked to anyone I talk to about energy, great to see the partnership. Its going to be a really, really, interesting next few years.
Arjun, it was Texas Commerce Tower. Until 1990, it was the tallest building west of the Mississippi River. Also the original home of Pogo. Looking at it right now from our high rise on Kirby.
Thank you John. I was thinking it was Continental Bank Tower...but it was the building with the sky lobby on something like the 70th floor...which does appear to be Texas Commerce Tower. Pretty cool PPP was there.
I enjoyed this, Arjun, and agree overall. One disconnect: I'm not sure of your definition of "inventory". But in terms of known resources that will support decades of production, at least three Canadian E&Ps already have that -- TOU, ARX, and CNQ. (I'm long TOU and CNQ at present.) It would seem to me that growing the resources is not and should not be a major focus for those three, and perhaps a few others exploiting that wonderful geological miracle of the WCSB.
Thank you Paul. And I may have been a bit glib with the "if you aren't growing you are shrinking" line. Kind of the oil analyst version of the famous W Bush speech. For sure, there is a number of years where a company has a comfortable level of inventory. Worthy of a follow up in a future Q&A note. Thank you for the comment.
Awesome stuff Arjun. Best of luck with the new endeavour and I really appreciate your Super Spiked work and am glad that it will continue. Cheers John.
Thanks Arjun. Another great article and thanks for the new resource in the Veriten podcasts. The liquidate while you wait scenario sounds to me a bit like what Michael Kao described in a podcast as the strategy for his private equity investment in a shale company. (Kao's paper published recently for West Point and available on his Substack titled "USD Primacy in an Era of Economic Warfare" is fascinating.) But that strategy works for him, as he has his own family office since retiring. For those of us who are not that wealthy and must buy publicly traded equities, I like some of the Canadian companies, albeit the Trudeau government is making things difficult these days. So I'm doing my research and reading your posts for the big picture.
Thank you James. Michael and I are former colleagues that I really know him more from our Twitter interactions. His USD Wrecking Ball work is outstanding. He has been dead-on about China re-opening not being a straight line up. I am a big fan of the Canadian Oils.
i recently started following you - and I am grateful I did ! I really value your experience and outstanding writing. I am fascinated by the world of energy - it is what makes civilization possible. I invest in energy companies and attempt to follow the industry with a global perspective. your writing projects your personality as a "good guy" ! all the best and thank you!
Thanks for the note. On the cost curve, are Canadian oil sands the most expensive barrel? Most of the oil sands companies report breakeven in the $30-40 level. What is your chart based on?
Omar, Realizing a fuller explanation of that slide is warranted for a broader audience. That graphs is GS's estimate of the cost of NEW fields. For existing projects where capital was spend years ago, break-evens are indeed much lower. And for new projects, factors like greenfield vs brownfield, quality of reservoir, etc. can have a huge impact. Some oil sands projects are lower than other regions. There are probably is a greater quantity of higher cost resource as well but that is in part because Canada is blessed with sizable resource.
Congrats on the new role mate
Thank you Matt!
Arjun, Thank you for your writing & thoughts! I enjoy your postings every time, share them shamelessly and look forward to continuing to see them with Veriten. Congrats on the new role and sharing your well thought out process for the move. Darren
Thank you so much Darren!
Arjun, I would strongly suggest sticking with your principles rather than be tempted down the acquisiton and mega project road to destruction. You have had a ring side seat on the value destruction. Oil and Gas companies should continue to heed the advice and direction of most western countries, that they want them to slowly and methodology go out of business. Only through continuous conversative capital management will this cycle be different.
Oral, My apologies for the delayed reply but CERAWeek got the best of me. Always good to hear from you and thank you for sharing your views. I am going to push back though on the premise this isn't sticking with my principles. I'll say it this way, your retort is too broad-based relative to what I am saying. Yes, the oil & gas sector should stay disciplined. There is no call on my part for a return to drill-baby-drill. But, and without repeating all prior posts, I'll just simply say that at a time of max hunker down, there is no chance that that there aren't good opportunities for investment for some companies in some areas.
Arjun, Thanks for your reply, and i appreciate your views and maybe i was too general. Yes, of course, there are always going to be good opportunities and investments need and should be made. However messaging is critical, and old habits die hard in an industry that has a near impeccable history of destroying capital. (And investors and bank analysts are as guilty of supporting the bad habits). The message from investors/stakeholders/analysts must be clear and consistent and unambiguous. If given the rope and the opportunity the industry will be back to its bad habits. and some in the investor and analyst community will be back to their enabling ways.
Keep up your principled stand on fantasies like Netzero. People really need to be educated about what’s possible/feasible and you are an important voice.
Thank you J J. Very much appreciated and a major part of joining Veriten is to amplify the views.
Wow! Great news.
thank you Dwayne!
Great news! 👍 I recommend Super Spiked to anyone I talk to about energy, great to see the partnership. Its going to be a really, really, interesting next few years.
Thank you Investor!
Truth in Energy... couldn’t agree more. Congratulations on the new venture Arjun, excited to follow your analysis into this next phase.
Much appreciated Seb! You are one my favorite new contacts. Substack alumn.
Arjun, we love your work and are excited to keep up with you in this next stage! Thanks for the work you do!
Thanks so much Six Bravo.
Arjun, it was Texas Commerce Tower. Until 1990, it was the tallest building west of the Mississippi River. Also the original home of Pogo. Looking at it right now from our high rise on Kirby.
Welcome back to the Goldman diaspora!
Thank you John. I was thinking it was Continental Bank Tower...but it was the building with the sky lobby on something like the 70th floor...which does appear to be Texas Commerce Tower. Pretty cool PPP was there.
I enjoyed this, Arjun, and agree overall. One disconnect: I'm not sure of your definition of "inventory". But in terms of known resources that will support decades of production, at least three Canadian E&Ps already have that -- TOU, ARX, and CNQ. (I'm long TOU and CNQ at present.) It would seem to me that growing the resources is not and should not be a major focus for those three, and perhaps a few others exploiting that wonderful geological miracle of the WCSB.
Cheers! Paul
Thank you Paul. And I may have been a bit glib with the "if you aren't growing you are shrinking" line. Kind of the oil analyst version of the famous W Bush speech. For sure, there is a number of years where a company has a comfortable level of inventory. Worthy of a follow up in a future Q&A note. Thank you for the comment.
Awesome stuff Arjun. Best of luck with the new endeavour and I really appreciate your Super Spiked work and am glad that it will continue. Cheers John.
Thank you John. Very much appreciated!
All the best Arjun. I've really enjoyed reading Super Spiked. Your comments about family growing up are important. Very special time.
Thank you Peter. I appreciate the note.
Thanks Arjun. Another great article and thanks for the new resource in the Veriten podcasts. The liquidate while you wait scenario sounds to me a bit like what Michael Kao described in a podcast as the strategy for his private equity investment in a shale company. (Kao's paper published recently for West Point and available on his Substack titled "USD Primacy in an Era of Economic Warfare" is fascinating.) But that strategy works for him, as he has his own family office since retiring. For those of us who are not that wealthy and must buy publicly traded equities, I like some of the Canadian companies, albeit the Trudeau government is making things difficult these days. So I'm doing my research and reading your posts for the big picture.
Thank you James. Michael and I are former colleagues that I really know him more from our Twitter interactions. His USD Wrecking Ball work is outstanding. He has been dead-on about China re-opening not being a straight line up. I am a big fan of the Canadian Oils.
i recently started following you - and I am grateful I did ! I really value your experience and outstanding writing. I am fascinated by the world of energy - it is what makes civilization possible. I invest in energy companies and attempt to follow the industry with a global perspective. your writing projects your personality as a "good guy" ! all the best and thank you!
That is really great to hear, thank you Patrick! Everyone should learn more about energy. Whether they invest or not.
Great piece Arjun. If not for politics, Mexico, Canada, US combo could be a powerhouse producer for the globe.
Thank you Deborah! US+CAN+MEX is a dream combination...it's too bad we have our respective governments in the way. Maybe that can change some day?