Newsletter, Links, & Opinion

Prediction Time for 2019

At the beginning of the year I like to write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint. We've been MOSTLY accurate (taking out 2014) and in the past, have felt confident we can make a decent prediction with some caveats.

To recap 2018, our prediction in the beginning of the year was very close to actual. What we didn’t expect was the significant downturn in Q4 in the markets, which in turn with a bit of oversupply, to drive the markets down everywhere. We did, however, predict the low on West Texas Intermediate (WTI) correctly. Also, we didn’t expect natural gas go to $4.50...even though it was very short lived and completely predictable it would come back down to earth.

So let’s talk about what we saw in 2018 on the world market:

• The US has become the strongest player on the world oil market.  The US controls both imports and exports in their hemisphere and what they will and can take from the Middle East.
• Large US producers created several periods of oversupply due to technology enhancement on new and re-entered wells...the same technology that helped the US become #1.
• China's economy did not make any significant gains due to internal and external factors, therefore not attributing to any significant demand for hydrocarbons on the world market. 
• The spot price of Midland WTI dropped significantly compared to WTI from other areas, some differences I heard as much as $17 less! 

This year, we anticipate the following:

•  Although optimistic budgets were set by most large exploration companies in Q3 2018, we expect rig count to be declining throughout Q1 2019 and pick up in late Q2. 
• OPEC+ members will keep playing “ball”. They really have no choice.
• Neither China nor India will develop enough new demand to outpace supply based on their current overall economic conditions. This was the case last year and we even expect some contraction.
• Midland WTI pricing will stay suppressed until Q3 when pipelines are in place to move product.
• LNG export market will increase, but not at a pace to significantly affect price.
   

Of course, there are possible factors that could fluctuate prices rapidly:

•  Wall St. types are predicting growth but with volatility especially Q1. This will create a little chaos with WTI and natural gas pricing. Hedge funders may get killed trading (we don’t play that game here).
•  Possible Middle East tensions disrupting oil flow (like almost any year)
• Iran Sanctions (and how they are applied)
• Trump Factor (again, the wild card)

So, what does this mean for the direct oil and gas investor today? It's a year of volatility up close but with slight uphill trend, which means that both buy and sell side will stay in balance as it did much in 2018.  We are anticipating no fire sales of leases, production, or equipment nor any soaring prices of operating expenses or leases either. 

It's the long game, which I feel will pay significant dividends for the direct investor in the next 2-5 years. 

We’re predicting no lower than $42 WTI/ $2.10 natural gas and no higher than $65 WTI/$3.10 natural gas for 2019 (for extended periods).

Happy New Year!

John Mink, CEO

And the Winner is: USA! 

The US has become the strongest player on the world oil market. 

The biggest reasons for this declaration are due to improvements in completion technology (fracking shale) helping to release more reserves, lifting of the crude oil export ban in 2015, the SURPRISING fiscal responsibility of large producers after the 2014 crash, and the fall or distaste of oil-producing countries’ product due to their corruption. 

The US has been the largest producer of oil for the past 2 months and its companies deliver on product promised. This has helped maintain a stable hydrocarbon global economic environment for those who “play nice”.

So, what’s does this mean to upstream investors like yourself?

It means that we can anticipate oil prices to stay relatively stable as well as expenses for drilling, testing, and completion for the foreseeable future. In this market, you will see very few “fire sales” and price gouging will be kept at minimum unless you’re selling over 1000 bopd leases. Some predictable circumstances for seasonal oil price fluctuation or increased field costs are delayed pipeline development in West Texas, weather (Texas had it’s rainiest October ever, halting almost all field activities in areas), and labor shortages. 

Being stable is being happy...and allows everyone to sleep peacefully. If you want this feeling from your investments, check out our opportunities page.

John Mink

Alert...Crude is Staying Up!

Over the past month, we’ve been watching the West Texas Intermediate Crude Oil (WTI) prices, just like you, go up 10%.  It’s up +20% for the year. we’ve been trying to determine if this is a simple rise due to the season, physical oil stock manipulation, geopolitical events, or if there’s more to this. We predicted in January that the low would be $50 and the high would be $70 for WTI for the year.

We checked my “go to” numbers that tell me right away if there will be a “correction” coming; weekly physical WTI stock and rig count. For the past 2 years, a lowering of WTI stock (usually in Cushing, OK) correlates to the prices goes up, in which follows an increase in rig count. This, in turn, drives the price down. It’s been a predictable cycle. But right now, there are no big increases in rig count and WTI stocks are relatively stable (although the Permian is in oversupply and taking an average of a $13 hit to WTI due to transportation).

We also looked at futures and general trading activity compared for the past year. Both categories are up from last year and futures price is not going crazy as one would expect from previous years. Looks like there are actually grown-ups in the room!

Finally, we’ve been reviewing what we see on the ground. Oilfield services availability is getting tight (no price increase yet...but coming). Lease pricing and activity is up.  Price for ideal production purchases (30/60 produced vs remaining, shallow decline curve) is up at least $10k per barrel of oil a day (BOPD) from January. And not least, investor interest in working interest programs is up. 

Now the question is “why” and the answer is simple...demand is up! 

Both worldwide and domestic demand from consumer and industrial markets has been steadily rising for 6 months. Not only is the US economy on the upswing, so are the other open economies throughout the world. Contributing factors such as improved economic relations with China and Saudi Arabia key drivers, but not as much as good ol’ American Optimism.

On a lesser note, the US and other free market oil producing countries are supplying the world with reliable product, which keeps rogue or government-controlled oil countries (I call them Klep-tocracies) in the dark. 

We predict that going forward for the remaining year, we are estimating the bottom price from $58 and the top price to $82 for WTI (would not be surprised if it goes to $90 in December). 

Saying that...there should be a 4-week bubble for oilfield service prices to catch up to the price increase for the past 3 months. All our programs work at $50 oil.  

So in short, invest now while there still an in-balance for better returns.

John Mink, CEO

Prediction Time for 2018

At the beginning of the year I like to write an opinion regarding where we think the industry will be domestically for a calendar year and where the advantage may be from an investment standpoint.We've been MOSTLY accurate (taking out 2014) and in the past, have felt confident we can make a decent prediction with some caveats.

To recap 2017, there were some significant moves and non-moves made in the oil and gas market. It mostly has to do with the realization on a world-wide basis that oil is not scarce and exploration and production costs do matter to the bottom line.

   · OPEC and non-OPEC allies played very well with each other this year.  We thought, based on history, one of the allies would go over-quota and start a price war again.  Really didn't happen.

   · Large US producers did not get overzealous and over-produce with small spikes in market price.

   · US is now exporting more product than ever, due to the US's ability to deliver product on an honest basis and build-up of infrastructure (even though it may be more $ per barrel than dealing with other factions)

   · China's economy did not make any significant gains, therefore not attributing to any significant demand for hydrocarbons on the world market.

This year, we anticipate the following:

   · OPEC and non-OPEC members have agreed to continue production cuts through 2018.  Since they kept to the game plan in 2017, we give them the benefit of the doubt for 2018

   · Although US corporate tax cuts are significant, industrial growth will follow a little slower than most expect due to the strength of the dollar.

   · Neither China nor India will develop enough new demand to outpace supply based on their current overall economic conditions.

   · Large US producers will stay the course and mostly develop what's in reserves (PDP) and stay onshore.  ANWR will not affect price for years to come (as an Alaskan I'm thrilled it's now open to possible exploration and production).

   · "Cheaper" oil on the market from questionable sources will keep US oil export demand steady

Of course, there are possible factors that could increase prices rapidly:

   · How many US dollars will be "re-patriated" back into the economy from overseas accounts and IF it correlates to rapid industrial growth.

   · Foreign investments have dramatically increased in 2017 into US oil and gas assets (and other industries) and may increase in 2018. Knik Energy has seen an increase of 55% more in funding from 2016 from clients living abroad with accounts in the US. This may start bringing up domestic prices on programs, including the ones we offer.

   · Possible Middle East tensions disrupting oil flow (like almost any year)

So, what does this mean for the direct oil and gas investor today? It's a year of stability with slight uphill trend, which means that both buy and sell side will stay in balance as it did much in 2017. 

It's the long game, which I feel will pay significant dividends for the direct investor in the next 2-5 years.

I'm predicting no lower than $50 WTI/ $2.80 natural gas and no higher than $70 WTI/$3.30 natural gas for 2018.

Happy New Year!

John Mink, CEO

Alert...Crude is Going Up!

Over the past month, we've seen oil prices rise 15%.  This has to do with many factors.  The biggest one so far this month is the escalation of regional posturing in the Middle East, having both political and real consequences on the flow of oil.  Another factor is the supply/demand is fairly balanced in the US with rig count slightly under.  I won't be surprised if we see $65 oil in a month and holding for the first quarter.

Coincide this with end of year potential tax savings, it could be a good time to get some working interest.  Check out our opportunities page.

For those looking to directly participate in direct oil and gas ventures for the first time, I suggest reading this article to start. We will be creating a presentation that will be topical but comprehensive (Investing 101) available within the month.