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OIL: The Real Outlook

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Recent events in the Oil Industry, both at home and globally suggest--demand--a fresh look at the entire field of Oil, Petroleum By-Products, and Energy. Warmest regards, Slim.

Publicada em: Economia e finanças
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OIL: The Real Outlook

  1. 1. OIL The Real Outlook
  2. 2. Introduction A while back I wrote, The Middle East will have to find ways to protect future oil revenues. It appears they have. Despite the falling price of crude from $100 a barrel to $80 a barrel, to $75 a barrel, to less than $50 a barrel, Saudi Arabia is maintaining production and other oil producing nations seem to be in sync. Remember, I said protecting revenues. Not prices, not profits—revenues. Falling oil prices, Middle East supply, and a slugging global economy are bad news for U.S. Oil Company revenue. Remember the basic business paradigm: Increased revenue from a rising demand curve ultimately results in a rise in capital investment and operations spending: buy more equipment, drill for more oil. (And now, natural gas.) However, spending money to increase supply is valid only if there is a demand curve growth and a reasonable expectation of increasing ROI.
  3. 3. 0 10 20 30 40 50 60 Supply & Production Series 1 Series 2 When Supply is going up and demand is going down, you do not increase production.
  4. 4. You can, of course, keep your product off the market. However, this works only when your competitor is not maintaining production to maintain supply. The oil producing nations are maintaining output to maintain market share. And, you are running out of storage space. • US production increases • Foreign Production • Sluggish global economy • Competition The result: Analysts predict energy stocks will fall along with profits. In addition, advances in alternative energy may further impinge on market share and influence future R&D—both the activity and the strategy & planning aspects.
  5. 5. I can’t describe the euphoria in $100+ a barrel oil as analogous to flappers drinking bathtub gin the night before the crash, however, there seems to be little evidence of the B School basics. We all remember Malcolm Forbes’ admonition, “Put all your eggs in one basket. And watch that basket.” The Oracle of Omaha, however, seems to have diversified his holdings. Berkshire Hathaway Real Estate, Berkshire Hathaway Energy, and so on. This spirit seems to be lacking in the Oil Industry. Reinvesting in your business is one thing. Ignoring the reality of the Global Economy is something else. The failure of Big Oil is the failure to invest a portion of its profits in areas that will benefit from an oil glut. Case in point—Solar.
  6. 6. Now, it may seem counter-intuitive to invest in your competition by investing in solar. That is, until you realise that Solar Power is part of the energy industry. (You don’t have to like it to profit from it.) Furthermore, the onus weighing heavily on solar is that it is usually associated with the warm and fuzzy, one-world, Al Gore hugging demographic. However, Solar Power can become profitable if private industry gets involved using basic business models. However, all of this has led to little advancement in the field as my 6th Grade Science Report shows. To make my point: Dateline: 1964 Science Class Teacher: Mrs. Hohmann Report: Solar Power. That was 50 years ago. In the past 50 years, little or nothing has happened. The reason for failure is that Government pays for activity, not for accomplishment.
  7. 7. Much has been written about Solar Power • Benefit to the environment • Global Warming • Saving money on Electric Bills • Government Support • Government Funding • Tax Incentives. • And so on…
  8. 8. Why Big Oil should invest in Solar Power. The business approach. Sound business fundamentals coming to the fore. • Rising Demand Curve • Declining Costs • Innovation • Economies to scale • Revenue growth curve • Tax incentives • Increasing return on investment
  9. 9. In addition, Solar Power is Clean Energy. • Less Government Regulation • Less Government Push-back • Less Consumer Push-back • Less Global Push-back
  10. 10. There is an incentive to do business in a country with a Solar Power Industry. (Invest in it) Solar Power is an easy sell in a country that does not have domestic oil production and/or does not have the money to import oil. (Invest in it.) Solar Power is a very cost-effective source of Energy. (Invest in it.) But wait. There’s more.
  11. 11. Sunlight is the fuel for Solar Power Generators. Sunlight is • Free • Globally Available • In abundant Supply • Unregulated • Not Subject to Embargo • Not Subject to Supply and Demand.
  12. 12. Of Course, there are a few problems attached to Solar Power. Sunlight is • Free • Globally Available • In Abundant Supply • Et. Seq.
  13. 13. Bottom Line? If the input is Free, the output is Profitable. The more people use, the more you make. Now, fossil fuels will be around for the foreseeable future...and maybe a bit more. However, the fossil fuel industry may need a new business model. A Plan B to adapt to that shift in the Global Paradigm. This brings us to the home grown revenue enhancement opportunities—Plastic. Plastic: the by- product of the Petroleum industry. (Another reason that Oil will never go out of business.) When Engineers apply their skills to plastics, it will become less necessary to defoliate the landscape. Also...
  14. 14. Plastic Girders will: • Replace steel in countries where it is cost-prohibitive or impractical or impracticable to use steel. • Replace wood where wood will suffer from mold, rot, warping, infestation, cracking and breaking. • Replace wood and steel where cost and weight and logistics make assembly, dis-assembly, construction, and reconstruction become compelling factors for using plastic products. • Everything from Archimedes’ Screw to bring water to a higher level to pipes to irrigate fields can be made from plastic.
  15. 15. However, we are talking about a shift in the Global Paradigm. Hence, to examine Big Oil investing in Solar Power: The SWOT Test Strengths: The global economy is heavily reliant and dependent on fossil fuels. Oil has a large capital investment infrastructure. Oil has experience and expertise. And there is this to consider: though fossil fuels will be around for a long time, perhaps, even a bit longer, very soon, gasoline (petrol) may become a by-product of the petroleum by-product industry.
  16. 16. Weaknesses: Fluctuating supply and demand The global Market structure leaves P&L subject to foreign competition and political as well as economic vacillations. Greater production means lower prices, hence lower revenues and lower investment. Higher prices move the market to alternative sources. Propensity of other countries to develop their own energy assets.
  17. 17. Opportunities: A growing need for, hence, a growing demand for petroleum by-products. Investment opportunities in renewables and alternative energy sources. A growing global population and the attendant increase in energy needs and petroleum by- products. Funds to invest in alternative energy and renewables.
  18. 18. Threats: Accelerated demand for and opportunities in technology, in renewables, and in alternative energy sources. Competitor investments in same. Other nations are less dependent on high oil prices and revenues. Propensity for other regions and nations to develop their own oil reserves.
  19. 19. And there is this to consider: though fossil fuels will be around for a long time, (perhaps a bit longer) very soon gasoline (petrol) may become a by-product of the petroleum by-product industry. I’ve written a few articles to help round out the discussion. The links follow.
  20. 20. Further Reading: Plastics Memo to Big Oil: Nuclear Power has lost its luster but not its glow. Warmest regards, Slim slimfairview@yahoo.com Copyright © 2014 Bob Asken as Slim Fairview. All rights reserved. PS: If you find anything here to be helpful, please don’t hesitate to send me a really tricked out MacPro and to tuck a bit of WAM into the envelope along with the thank you note. Thank you. Sincerely. Slim.

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