Oil And Gas Industry InvestorLit 2017 Review*

Authored By: Bruce Grantier | Publish Date: February 22, 2017

This review looks at three main topics:

  • “The Oil and Gas Industry” CFA Institute Publication is a 124-page industry guide written by an oil analyst, Jen Zimmerman and published in March 2016. It is available on the CFA website.
  • Oil and gas publications by Alliance Bernstein, Energy Aspects, and RBC which are all are very recent and were provided by John Berry, a senior manager at Foyston Gordon Payne (FGP) who was also one of FGP’s former oil analysts.
  • Oil and gas articles from a collection of publications which include the Economist and Bloomberg.

The Oil and Gas Industry ‒ CFA Institute Publication1

This publication has 10 chapters on oil and gas industry topics, of which we discuss these five:

  • World energy prices are shown from 2000 to date and after a recent decline from about $100 per barrel in late 2014 oil hit a long-term low of about $30 in early 2016. Oil has now recovered to about US$53 per barrel.
  • Crude oil production locations around the world are significantly cheaper in Middle East countries while Western Canada’s oil sand production costs rank among the heaviest of all other production.
  • Shale oil production is located mainly in the U.S. and is found in about 10 areas and must require oil prices of at least US$50 per barrel to break even.
  • LNG production locations are found around the world in about 10 locations and consumption thereof is found around the world in about the same number of generally different locations.
  • Our fifth and final comment on this CFA institute publication is an outline of literature on industry references which includes five books, six periodicals, 11 research and data providers, three government and international agencies, and seven trade associations and industry training. We can provide copies.

Oil And Gas Publications By Alliance Bernstein And RBC

As mentioned earlier, these three publications were kindly provided by John Berry of FGP.

We begin with several publications by U.S. investment firm Alliance Bernstein who write very good oil and gas publications.  It explains how U.S. oil production goes lower or higher, depending on how oil prices vary. U.S. production is currently at nine million barrels per day with oil at about $53 per barrel. Secondly, it notes that the 14 OPEC countries’ production is led by Saudi Arabia’s current 10 million barrels per day, followed by the next two biggest producers also in the Middle East ‒ Iran and Iraq – each producing about four million barrels per day.

Thirdly, we show the following exhibit which reveals cost of production plus estimated amounts of production by 19 countries. Saudi Arabia has the lowest cost at $20 per barrel and Canada’s Oil Sands the highest at $100 per barrel.

Oil Prices And Production

And finally we show some exhibits from a Royal Bank of Canada (RBC) publication, also produced in January 2017. One of RBC’s first exhibits is shown below and it is very consistent with our other quotes. It shows past, current, and expected prices of oil, natural gas, and NGL prices.

RBC then shows past and expected oil field services in the US for various sources, plus the Canadian production of conventional and crude oil, as shown below; past present and expected future.

Past And Expected Oil Field Services

Oil And Gas Articles From Collection Of Publications

Finally, we cover readings from three publications: the Globe and Mail, the Economist, and Bloomberg.

We begin with Globe and Mail articles on oil and gas in December 2016 and January 2017 and we offer brief quotes plus website references where possible.

The December 2 article with charts on three oil pipelines in Canada: Edmonton to Burnaby BC, Alberta to Lake Superior, and again Edmonton to Kitimat, BC. The article reflects the oil industry’s new-found optimism, following Ottawa’s approval of these pipeline expansions. The December 13 issue covered a discussion of OPEC countries agreement to modify production to OPEC rival consumers, resulting Canadian sharply higher energy stock prices. A December 24 article quotes a McGill professor who discusses Canada’s renewable energy supply and demand in all 10 provinces and shows Canada’s great involvement with energy, in spite of Canada’s small population compared with many other world energy producers. And finally, a December 29 article discussed natural gas prices which have risen significantly in 2016 from just over US$2 to about US$4 in 2016 – almost a doubling in price.2

Turning to January 2017, we quote quite a few articles, beginning with one on January 17 which looks at the threat of the U.S. border tax on Canada’s energy sector.3 In this article, Canada’s energy sector faces a threat as U.S. President Donald Trump’s new Republican Congress pushes a border adjustment tax measure that would enable U.S. refiners to buy domestic crude, petroleum products, and natural gas. This is followed by a January 19 article which again discusses Trump’s Republican Congress impact on tax reforms – leading to a slight decline in oil prices. In a January 24 article, Ottawa’s Liberal government has pushed for Canada’s improved status as a U.S. oil ally, given Canada is by far the largest source of oil imports into the U.S. with volumes exceeding all of OPEC. The article goes on to note how Trump’s administration is expected to approve the Keystone XL Pipeline which would deliver about 830,000 barrels of crude a day to the U.S. Gulf Coast refineries. This discussion is followed on January 25 by a piece on the Keystone Pipeline in which Trump revives the once abandoned pipeline. As a result, Trump also bets big on oil prices and the Canadian oil industry cheers the Keystone XL revival.

Following these articles on the Canada and U.S. oil business, the Economist’s has several articles on oil and gas in its November and December 2016 issues.

The November 26 issue has a special report on oil4 which covers:

  • producers who are inclined to improve oil prices
  • investors whose concerns are very important to oil companies
  • vehicle transport and how driving habits have led to increasing oil demand
  • India and China have expected future consumption of oil and gas which are bigger than U.S. and Europe
  • The future of oil company’s businesses is positive given their exploration of new lines of business

Overall, this article is good international reading and positive about an eventual improvement in the world price of oil.

The December issue discusses how an OPEC deal could mark the beginning of the end of cheap oil.5 Saudi Arabia coaxed OPEC members, including itself, to reduce production slightly, resulting in the following Brent crude price increase as shown in the exhibit following.

Finally, the December 10 issue discusses oil companies and their new approaches to finding crude. The article generally supports executives of oil and gas companies and their efforts to embark on this pursuit and their expenses in doing so.6

Bloomberg covers the topic in its December 2016 and January 2017 issues.

The first December issue covers ‘North Dakota Pipe Dreams,’ an article based on U.S. oil production from Bakken, ND, transferred by via rail to Washington State, East Coast, and Gulf of Mexico refineries. This significant production constitutes a very significant oil project for North Dakota.

The next December issue discusses the technology derived from ‘US Oilfield Cleanup Tools.’ these consisting of mobile transportation of oil and the many forms of oil refining, plus the cleaning up of oil and fracking of oil. These are all significant forms of innovation in U.S. oil treatment.

Finally, the January 2017 issue on U.S. energy covers the significant production of shale oil, its expansion of the LNG export market, and the success of these markets given the current cheap crude prices related to these today.

Bruce Grantier (BASc, MBA, CFA, CAIA, ICD.D) is managing director of Airth Inc. and founder of InvestorLit.


*This review is an update of a topic which InvestorLit has written about several times in the past. This is a revised version of the original and if readers would like to see the longer version, I would be glad to send it.

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