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TOPIC: DISCUSSION THREAD: Episode 17 - Art Berman

DISCUSSION THREAD: Episode 17 - Art Berman 6 months 5 days ago #1

  • NathanEgger
    Nathan Egger
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We've just published episode 17 with petroleum geologist Art Berman. Based on overwhelmingly positive feedback we've received regarding Art's previous appearances on MacroVoices, we already feel pretty confident that like us, you guys are huge fans of his work and analysis. We decided to have him back as we've reached this critical $50 level in crude oil prices, so that we can revisit some of the calls made in February on MacroVoices Episode 3, and generate some discussion about all that has changed since then.

Please share with us your thoughts on our latest visit with Mr. Berman, and if you'd like to see him appear more frequently (as in weekly/monthly), or less frequently, if that is the case. We just feel that it is hard to find guys who are such a wealth of information and at the same time, so willing to share that information and analysis with us and all of you listeners, and Art certainly meets both criteria.

We hope you enjoy!


--Nathan
Last Edit: 6 months 5 days ago by NathanEgger.
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DISCUSSION THREAD: Episode 17 - Art Berman 6 months 5 days ago #2

  • ErikTownsend
    Erik Townsend
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I almost fell off my chair when I heard myself say the FOMC meeting was "next week". Obviously it's week after next, but I somehow managed to make the same mistake at least twice. I guess I was so blown away by Art's excellent interview that I lost my senses! :P
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DISCUSSION THREAD: Episode 17 - Art Berman 6 months 5 days ago #3

  • blackgold
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I think Art nailed it... Shale will not come back quickly because they will have to grow organically rather than using access to cheap debt to increase production. I also think ppl are over estimating how low US shale marginal cost of production is.

From the research I have done, the cost structures of shale producers vary dramatically. You can have two wells near each other with completely different unit cost due to different geology... So to say that shale will come back online with a rush at $50-$60 per barrel is a big call IMHO as not all producers have a unit cost in the $50-$60 range...

And for those that do, once the wells are exhausted (shale wells have a very short half life vs traditional wells), they will then need to find the capital to dig new wells... And that requires capital - which debt markets will be reluctant to offer given what is happening right now with the bankruptcies in shale. Which means Shale providers will be forced to grow organically - you know old fashion investing profits back into the business - which makes growth much much slower...

The net net of all this: shale will start to come back as prices rise, but it will be a lot slower than many expect... The result? We will probably see the price overshoot a bit as demand growth has not stopped (maybe slowed a bit)...
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DISCUSSION THREAD: Episode 17 - Art Berman 6 months 4 days ago #4

  • ErikTownsend
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Hi @blackgold, and welcome to our forums. Thanks for weighing in.

I agree with your comments here. Shale isn't dead, but the over-done shale BOOM is unlikely to restart anytime soon.

Best,
Erik
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DISCUSSION THREAD: Episode 17 - Art Berman 6 months 4 days ago #5

  • tankumo
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Erik, you both mentioned about the cost of drilling oil, are those for frackers or conventional vertical well?

For conventional drilling, what is the average cost? Thanks.
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DISCUSSION THREAD: Episode 17 - Art Berman 6 months 2 days ago #6

  • PeterPan
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Quite possibly the most incoherent 15 minutes of tripe I've ever (in any context) had to endure. "Fundamentals", Art wouldn't know a fundamental if it jumped-up and bit him in the arse. Utter tosh from two people way, way out of their collective depth. Amazed, I made it to minute 22 before pulling the plug. I'd stick to the IT if I were you, and leave the "analysis" to people who can discern a tree from a wood.
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DISCUSSION THREAD: Episode 17 - Art Berman 6 months 1 day ago #7

  • tankumo
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If l look at Art Berman's website, it looks to me he knows fundamentals, and he also has a lot of clients.
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DISCUSSION THREAD: Episode 17 - Art Berman 5 months 3 weeks ago #8

  • AussiePat
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PeterPan wrote:
Quite possibly the most incoherent 15 minutes of tripe I've ever (in any context) had to endure. "Fundamentals", Art wouldn't know a fundamental if it jumped-up and bit him in the arse. Utter tosh from two people way, way out of their collective depth. Amazed, I made it to minute 22 before pulling the plug. I'd stick to the IT if I were you, and leave the "analysis" to people who can discern a tree from a wood.

PeterPan - maybe stick to selling CDOs....
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DISCUSSION THREAD: Episode 17 - Art Berman 5 months 3 weeks ago #9

  • AussiePat
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PS - Absolutely loved this podcast with Art Berman. Loved his quiet confidence in the cyclical nature of commodities.
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DISCUSSION THREAD: Episode 17 - Art Berman 5 months 3 weeks ago #10

  • ErikTownsend
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Thanks for your kind words of support, AussiePat.

As to the guy who found it necessary to create an account under an obvious pseudonym for the sole purpose of posting a hate message that contained lots of accusations but not a single shred of opposing viewpoint or objective critique as to what was wrong with Art's analysis, well, the Internet is the Internet...

Best,
Erik
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DISCUSSION THREAD: Episode 17 - Art Berman 5 months 3 weeks ago #11

  • jimbud
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Next time we get Art on, I would appreciate it if he would touch a bit more on the "if they say their production costs are below 50 bucks they are lying." It may be that I didn't catch the details, but I have seen a number of producers (including one of my favorites, EPM), talk about production costs at about 14 bucks.

I get the feeling that this is like the dot com era valuations, where people focused on "EBITDA, because it's like cash flow" or something else, but would appreciate a bit more of a primer on valuation.

Thanks again to both Erik and Art for spending their time with us on these interviews--Art is exactly the kind of guy I'd been looking for in the petroleum industry.

--jimbud
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DISCUSSION THREAD: Episode 17 - Art Berman 5 months 3 weeks ago #12

  • ErikTownsend
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@jimbud

Art is definitely more expert than I am on this subject, and we'll definitely keep this in mind next time we have him back on. Meanwhile, I can give you some insight on the discrepancy...

Art is talking about producer's total "break-even" cost. That is, how much they have to get to break even on the project overall. That includes the land lease, the cost of drilling the well, installing the casing and pump equipment, etc. From any reasonable "business profit and loss" standpoint, this is their true "all factors considered" cost of production.

If you are hearing numbers in the teens, they're talking about their lifting cost, which some people call the cash cost of production. This figure measures how much is costs to operate the well - cost of personnel and energy to run the lifting pumps to get the oil out., assuming the cost of leasing the land and drilling the well has already been paid for. Think of this like the difference between an airline's direct operating cost (cost of fuel, pilots and flight attendants), vs. the much larger all-in cost which includes amortization and depreciation of the purchase of the aircraft, long term maintenance, overhead, etc.

The cash cost of production is relevant primarily because if prices fall below that number, it makes more sense for operators to close in producing wells and shut down production. Above that cost, the oil company may be losing money overall (compared to their much higher all-in cost), but they are still better off to keep producing and take whatever cash they can get - so long as it exceeds their cash cost of continuing production. For this reason, the cash cost is sometimes referred to as "shut-in price", meaning if oil prices drop below that level, it makes more sense to shut in producing wells and cease production.

Hope this helps until Art's next appearance...

Erik
Last Edit: 5 months 3 weeks ago by ErikTownsend.
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