RE: RE: On track but the market cares not..... There are a number of factors impacting the share prices of Canadian listed Oil producers (we already know what has happened to the poor gas producers)
- Canada in the doghouse as the government and oil industry was quite stupid and complacent as the US shale oil complexes were being developed so now there is a major discount to WTI which as already discounted to Brent. So the international investment money sees a company listed on the TSX and says no thanks. So the baby gets thrown out with the bath water. The Ithacas, Bankers etc. that do not even pump in Canada and also get Brent pricing.
- The second is the major macro of the oil sector in general being in the doghouse because of share oil being the savior of the petroleum industry in supposedly now more than meeting global demand grow in the future as what has happened in the US happens elsewhere in places like Russia, China, Argentina, Europe and Australia. The real quetion with shale oil is the decline rates. This is not a big pool of oil as in conventional discoveries but rather lots of little pools reached by a horizontal well that is fracked and the propant jammed in the fractures under high pressure to keep a passage way open to allow the oil in all these little pools to flow up the well. This cannot have the same decline curve as a large conventional pool, but the market is looking at the headlines rather than the science and I wonder if this will not come home to roost at some point. the market does not like uncertainty in general or in a sector and the crude price projections are all over the map but many analysts feel that supply will outstrip demand so with the oil producers being so leveraged to the performance of the commodity price, the high quality oil producers with a very low F&D cost will get the investment dollars in the sector.
I for one do not buy the headline that shale oil is the savior of the peak oil threat. Saudi Arabia is planning 20 nuclear power plants. I wonder why when the produce 9 mmmbbls per day at a cost of about $8 a bbl?
Conventional oil finds are extremely rare and costly to extract because of where they are located (like 8,000 feet below the Atlantic etc.) and the existing ones are depleting as we speak.
So maybe a rotation will occur if and when the word gets out that supply is not as robust as all the talking heads say it is?
Resources in general are not infavor. Investors would rather pay 15 - 20 times cash flow for a Transcanada pipeline because of the perceived safe haven and yield that 2.8 times cash flow for a Bankers for the potential capital appreciation. Problem is if there is insufficient demand for their shares then the appreciation will be lethargic or worse.