Fed never saw the oil route coming ... Unintended consequence of the debt fueled oil boom in US.. Yellen cited oil today in her speech.. and it threw a wrench into their normalize rates everything A-Ok now plans.. Now they have to dig deeper and wait for the cleansing to occur.. Problem is what other problems are lurking by digging deeper if you manage to keep things afloat while the oil guys fight for survival.. And it takes a while to work through the current oversupply problem..
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Dreaded 'stealth' supply becomes reality as U.S. drillers turn on 'ducks' | Reuters
By Liz Hampton and Devika Krishna Kumar
HOUSTON/NEW YORK (Reuters) - A dreaded scenario for U.S. oil bulls might just be becoming a reality.
Some U.S. shale oil producers, including Oasis Petroleum (OAS.N) and Pioneer Natural Resources Co (PXD.N), are activating drilled but uncompleted wells (DUCs) in a reversal in strategy that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices.
When oil prices started their long slide in mid-2014, many producers kept drilling wells, but halted expensive fracking work that brings them online, waiting for prices to bounce back.
But now, with crude futures hovering near multi-year lows and many doubting recent modest gains that brought oil prices near $40 a barrel CLc1 can hold, the backlog of DUCs is already shrinking in some areas. In key shale areas such as Eagle Ford or Wolfcamp and Bone Spring in Texas such backlog has fallen by as much as a third over the past six months, according to data compiled by Alex Beeker, a researcher at Wood Mackenzie.
"If the number of DUCs brought online is surprising to the upside, that means U.S. production won't decline as quickly as people expect," said Michael Wittner, global head of oil research at Societe Generale. "More output is bearish.”
In the Wolfcamp, Bone Spring and Eagle Ford, the combined backlog of excessive wells remains around 600, Beeker estimates.
About 660 wells could be the equivalent of between 100,000 and 300,000 barrels per day of potential new supply, according to Ed Longanecker, president of Texas Independent Producers and Royalty Owners Association (TIPRO).
For now, most of the wells are activated in Texas, where proximity to refiners allows producers to sell their crude closer to benchmark prices, and by well-hedged companies that have locked in higher prices.
Still, the pace of fracking of the uncompleted wells may quicken if cash-strapped producers facing debt repayments can no longer afford to store their oil in the ground.
While the potential additional supply is a fraction of total U.S. production of around 9 million bpd, the fresh flow would reinforce concerns about a growing global glut just as Iran ramps up output and inventories in domestic storage tanks from the Gulf to Cushing, Oklahoma, test new highs on a weekly basis.
DISAPPEARING BACKLOG
Wood Mackenzie reckons that the backlog of excess DUCs will decline over the next two years, and return to normal levels by the end of 2017. It is expected to fall 35 percent from current levels in the Bakken and 85 percent in the Eagle Ford by the end of 2016. (Graphic:tmsnrt.rs/1PgAf4i)
With service costs down, now is a good time to bring a well online if a company has hedged its production and covered its costs, said Jonathan Garrett, an analyst with Wood Mackenzie. The U.S. crude breakeven for such wells is one-third lower than for new ones, according to Wood Mackenzie.
Typically, average DUC inventory is around 550 in the Wolfcamp/Bone Spring formations and around 300 in the Eagle Ford, Beeker estimates.
In each of those formations, the excess has fallen by about 150-175 over the past six months, bringing the surplus to around 300 wells in each. "We're just going to be continuously completing the wells there (in the Permian) with our fleets and so you will not see any DUCs in Midland basin," Pioneer Chief Operating Officer, Tim Dove, told a recent earnings conference.
Rival Oasis is also focusing on drawing down its backlog this year, executives said during the company's last earnings call.
Both companies have locked in future sales at prices well above current levels. Oasis has 70 percent of its oil production for 2016 hedged above $50 a barrel and roughly 20 percent of its 2017 production hedged at about $47 a barrel.
Similarly, Pioneer has locked in a minimum price for 85 percent of this year's production.
Not everyone can do it.
In North Dakota, the second-largest oil-producing state where producers like Whiting Petroleum Corp (WLL.N) sell their oil at steep discounts, it might not be economic.
There, the number of DUCs climbed above 1,000 in September before falling to 945 in December, according to the latest data from the state's energy regulator.
Bakken producer Continental Resources Inc (CLR.N), which made waves when it unwound its hedges in late 2014, has said it would continue to defer completions until prices rise.
Bakken discounts were just too steep, said Garrison Allen, a research associate at Raymond James.
"It doesn't make sense to do anything up there."
(Reporting by Liz Hampton in Houston and Devika Krishna Kumar in New York; Editing by Josephine Mason and Tomasz Janowski)
Millennials who have had to live through the bad economy and are more aware of the true health of the overall economy (vs the spoiled baby boomers) are pulling the Japanese and increasing savings with rates uber low.. Bad news for the propers and status quo protectors
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[h=1]The one habit millennials should keep[/h]
(iStock)
Millennials get a bad rap for being irresponsible with money.
But new studies show that not only are they carrying less debt than they did in previous years, they are actually pretty good at saving. Millennials are saving more aggressively than they have in the past, and in some cases they’re saving more than their older counterparts, according to a new study from Bankrate.com.
“There is a greater inclination toward saving among millennials than we’ve seen in previous generations,” says Greg McBride, chief financial analyst for Bankrate.com.
Sixty-two percent of millennials, defined in the survey as consumers between the ages of 18 and 29, are saving more than 5 percent of their pay for retirement, emergencies or for other financial goals, the study found. That’s up substantially from the 42 percent who were saving at least that much last year.
It’s also greater than the roughly 50 percent of consumers between the ages of 30 and 49 who were saving as much.
[h=2]Millennials are stashing more cash[/h]Some 62% of millennials are saving more than 5% of their pay, up from 42% last year, according to Bankrate.com.
A look at last year’s survey helps to illustrate the shift. The portion of millennials saving the bare minimum, less than 5 percent of their pay, fell to 19 percent this year from 37 percent lastyear. And the share of people saving more, between 6 percent and 10 percent of their pay, increased to 33 percent this year from 20 percent in 2015.
[5 ways you can trick yourself into becoming a better saver]
So how is it that some millennials are able to save so much more now? Some workers may be stashing away more money as they move up in their careers and earn higher wages, says Karen Carr, a financial planner with the Society of Grownups, a financial company that targets millennials. For instance, some people may have moved from part-time jobs to full-time positions. Others may have upped their savings rate after landing a promotion or raise.
The unemployment rate for people between 20 and 24 years old fell to 8.6 percent in February from 9.9 percent a year before, according to the Bureau of Labor Statistics. Wages and salaries are also higher for people of all ages, by 4 percent in February from a year earlier, according to the Bureau of Economic Analysis.
Having cash on hand for emergencies could also be a huge motivator for young people who may have struggled to land a job during the recession or who saw family members get laid off, says McBride of Bankrate. “Even if they weren’t directly impacted, they saw the effect on their parents or their grandparents,” he said.
That could explain why when asked about the motivation behind their saving, the highest share of millennials — 40 percent — said they were setting aside money for an emergency, according to a separate report from the American Institute of CPAs and the Ad Council.
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[h=1]The one habit millennials should keep[/h]
Millennials get a bad rap for being irresponsible with money.
But new studies show that not only are they carrying less debt than they did in previous years, they are actually pretty good at saving. Millennials are saving more aggressively than they have in the past, and in some cases they’re saving more than their older counterparts, according to a new study from Bankrate.com.
“There is a greater inclination toward saving among millennials than we’ve seen in previous generations,” says Greg McBride, chief financial analyst for Bankrate.com.
Sixty-two percent of millennials, defined in the survey as consumers between the ages of 18 and 29, are saving more than 5 percent of their pay for retirement, emergencies or for other financial goals, the study found. That’s up substantially from the 42 percent who were saving at least that much last year.
It’s also greater than the roughly 50 percent of consumers between the ages of 30 and 49 who were saving as much.
[h=2]Millennials are stashing more cash[/h]Some 62% of millennials are saving more than 5% of their pay, up from 42% last year, according to Bankrate.com.
A look at last year’s survey helps to illustrate the shift. The portion of millennials saving the bare minimum, less than 5 percent of their pay, fell to 19 percent this year from 37 percent lastyear. And the share of people saving more, between 6 percent and 10 percent of their pay, increased to 33 percent this year from 20 percent in 2015.
[5 ways you can trick yourself into becoming a better saver]
So how is it that some millennials are able to save so much more now? Some workers may be stashing away more money as they move up in their careers and earn higher wages, says Karen Carr, a financial planner with the Society of Grownups, a financial company that targets millennials. For instance, some people may have moved from part-time jobs to full-time positions. Others may have upped their savings rate after landing a promotion or raise.
The unemployment rate for people between 20 and 24 years old fell to 8.6 percent in February from 9.9 percent a year before, according to the Bureau of Labor Statistics. Wages and salaries are also higher for people of all ages, by 4 percent in February from a year earlier, according to the Bureau of Economic Analysis.
Having cash on hand for emergencies could also be a huge motivator for young people who may have struggled to land a job during the recession or who saw family members get laid off, says McBride of Bankrate. “Even if they weren’t directly impacted, they saw the effect on their parents or their grandparents,” he said.
That could explain why when asked about the motivation behind their saving, the highest share of millennials — 40 percent — said they were setting aside money for an emergency, according to a separate report from the American Institute of CPAs and the Ad Council.
Patsfan on the solar front I see sun Edison heading for bankruptcy most likely.. Shares are pennies now.. Good news for solar city assuming they weather the storm and they got musk to back it if necessary.. Can also swoop in and gobble up desired sunEdison assets for cheap... It's still gonna be a rough go for them all short term
Yeah, SunE has terrible management. Tried to expand too fast with M&A, took on tons of debt and underestimated the competition. The founder of the company, Jigger Shah, is a smart guy but the current management seems like idiots.
Tough break ILTW. A lot of $ made and lost in the early stages of a new product.
Tough break ILTW. A lot of $ made and lost in the early stages of a new product.
Back to tesla see that the gigafactory way behind schedule.. Some workers walked out recently as well..
long write up by a tesla bear regarding this...
http://seekingalpha.com/article/391...t-tesla-gigafactory-problem-skeptic-solutions
model 3 rollout gonna be interesting..
long write up by a tesla bear regarding this...
http://seekingalpha.com/article/391...t-tesla-gigafactory-problem-skeptic-solutions
model 3 rollout gonna be interesting..
Not a big fan of Seeking Alpha in general. Most of their stuff is classic pump/advertising by the writers but this is what I was saying before. It is a lot easier to make 25k luxury cars to early adopters that don't care about price than it is to pump out 300k mass-market cars a year. There is a reason automotive start-ups don't come along everyday, the the barrier to entry is a bit tougher than something like social media, to say the least.
Even Model X way behind schedule.
Musk does a great job keeping people at bay when it comes to being critical of the company but at some point they will have to produce results and they aren't the only game in town anymore.
The demand is definitely there, they just need to get the supply chain and production right and they will atleast be ready to go. Stock still way overvalued tho...
Even Model X way behind schedule.
Musk does a great job keeping people at bay when it comes to being critical of the company but at some point they will have to produce results and they aren't the only game in town anymore.
The demand is definitely there, they just need to get the supply chain and production right and they will atleast be ready to go. Stock still way overvalued tho...
What you think of sunpower patsfan looks intriguing now that I've been looking at solar industry more..
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panic buy everything and anything!!! Party on!!! Fed sprinkles more fairy dust... Curious to see if they manage to ramp well into new highs or it fades soon.. Either way the bust on the other side gonna be a site to behold.. "They" are desperate as the stock market is their last thing standing to protect the facade of a healthy economy.. and trump may have a thing or two to do with it too.. As the fed/financial types lean left...
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panic buy everything and anything!!! Party on!!! Fed sprinkles more fairy dust... Curious to see if they manage to ramp well into new highs or it fades soon.. Either way the bust on the other side gonna be a site to behold.. "They" are desperate as the stock market is their last thing standing to protect the facade of a healthy economy.. and trump may have a thing or two to do with it too.. As the fed/financial types lean left...
Haven't looked at them recently but IIRC they are big on the manufacturing side pretty sure.
Problem with that is the commodity they're manufacturing (the panels) still going down in price 7% a year and there is tons of competition from China in panel manufacturing, makes margins low. Big reason manufactures aren't doing well. Total owns 2/3rds of the company so they definitely have inroads in Europe where there is more gov't support for solar.
They seem to have a good pipeline of deals with corporations and muni's but probably just another 1 to put in the "after the bust" bin, whenever that happens. Who knows these days.
As the product gets better the utilities will have to cave. Rooftop not as efficient as utility-owned but you don't have to pay investors, employees, overhead, etc either.
A lot of utilities starting to wakeup to the fact they gotta change their business model and accommodate solar. Obviously they have responsibility to investors to protect profit but if the panels continue on the cost/efficiency curve they've been on for the last 7-8 years then it will be tough to ignore.
Solar obviously not the solution for global energy demand but you put some panels on a roof in Arizona and it is going to generate electricity.
You should look into storage, that is going to be huge. Probably awhile before it is economical for homeowners but for businesses it is already starting to grow.
A lot of utilities starting to wakeup to the fact they gotta change their business model and accommodate solar. Obviously they have responsibility to investors to protect profit but if the panels continue on the cost/efficiency curve they've been on for the last 7-8 years then it will be tough to ignore.
Solar obviously not the solution for global energy demand but you put some panels on a roof in Arizona and it is going to generate electricity.
You should look into storage, that is going to be huge. Probably awhile before it is economical for homeowners but for businesses it is already starting to grow.
Does anyone think Tessa's model of basically ordering online will one day filter down to GM, Ford, and Toyota etc... And basically make local dealerships a thing of the past?
Personally I would not be against that.
I always seem to compromise on the exact color I want or the exact features I want on my vehicles because nobody has the EXACT thing I want 250 miles from my house. So I end up compromising just a tad on something I keep for 4 or 5 years and it always ends up bugging me the whole time I own the vehicle. Would be kind of nice to custom order something exactly the way I want it.
Personally I would not be against that.
I always seem to compromise on the exact color I want or the exact features I want on my vehicles because nobody has the EXACT thing I want 250 miles from my house. So I end up compromising just a tad on something I keep for 4 or 5 years and it always ends up bugging me the whole time I own the vehicle. Would be kind of nice to custom order something exactly the way I want it.
In a perfect world? Sure.
But car dealership lobbies have tremendous influence at the local and state level. Texas is considered to be a libertarian/free market utopia as far as US goes and they wouldn't even allow direct to consumer car purchases. They support little league teams, local charities and most of the big car dealership moguls are old $ types that are pretty friendly with state/local politicians.
Obviously the purchasing process being something like "Look up car online, watch video of it, study its features yourself then go to corporate-owned showroom and make customized purchase" would happen in a perfect world but gotta protect the middleman.
Honestly people in my line of business laugh anytime we read people say these shale wells are so turn key.
I have no idea where all this comes from but it's epidemic . Everyone keeps repeating the same thing over and over again and it's simply not true.
Its is a lot more time consuming and expensive to drill a horizontal shale well then it is a sand zone well and it's not even close.
If you look hard enough and enter the correct search terms you can find a few people who really know what they are talking about can confirm what I'm saying.
There is a big reason why this fracking is realitively new on a large scale .
The tech has been out for a while .
Its because it's not justified without extremely high oil prices.
Shale wells will never act as a cap for oil prices.
It takes long sustained 80+ oil prices for them to even enter into the picture .
As old coal plants go offline the utility guys are replacing with solar that is now just as cost competitve .. Solar 1% of utility industry currently.. 20-30% down the road doable IMO.. That's a lot of room to grow.. Plus that 20-30% is always increasing as energy demand for mankind continues to balloon
thought this article good overview of why so many solar companies have failed over the years.. First solar seems a bit too conservative for my tastes and not sure they will be able to keep up with the new advances.. Sunpower seems more into optimization of existing technologies and keeps up with advanced and at same time has fairy healthy balance sheet while projections of new projects next 5 years look healthy.. Only thing that concerns me on sunpower is recent trend in last few years of falling cash flow.. Still mulling it over..
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[h=1]the Enemy of Solar Stocks[/h]
Rooftop solar is becoming big business, but it costs billions to create the manufacturing capacity to build solar, and someone has to finance the long-term cash flows these systems generate. Image source: SunPower.
On the surface, you would think renewable energy companies that can grow quickly and exploit the industry's massive potential should be the kind of companies investors will want to buy and hold for the long term. But time after time, the companies that grow the fastest have been abysmal investments. Suntech Power, LDK Solar, Yingli Green Energy, and SunEdison (NYSE:SUNE)are just a few of the former industry highfliers that have gone from darling status to bankruptcy, or that teeter on the verge of financial insolvency. They also provide a similar story of growth, debt, and massive losses that couldn't be overcome by even more growth.
So, why is growth such a bad thing for renewable energy companies, and why have slow or no-growth companies like SunPower (NASDAQ:SPWR) and First Solar (NASDAQ:FSLR) been able to survive while others rise and fall around them? The answer lies in what companies have to do to grow in the solar industry in the first place.
Growth adds debt
To fund growth, solar companies have to invest a lot of money in capital projects. Whether you're a solar installer like SolarCity (NASDAQ:SCTY) putting systems up on roofs across the country or a manufacturer like Yingli Green Energy, it takes capital to build out capacity.
In most cases, the capacity being built will pay off over 10 to 20 years, either from selling products like solar panels or from collecting customer payments. So, solar companies are spending billions up front to generate a long-term payoff, and usually that means adding a lot of debt to fund operations.
Debt isn't necessarily a bad thing for growth companies, but solar is different than most industries. Falling costs create a larger market for the solar industry, but they also create challenges in making enough money to pay off debt.
Falling solar costs are bad for growth
For most businesses, growing volume is the path to long-term growth. But in solar, it can be a path down the rabbit hole, because costs are falling so fast. The phenomenal returns you've projected for that new manufacturing plant or fleet of installations in year one can quickly dry up once the growth train stops.
Let's take a solar panel manufacturer as an example. This hypothetical company starts off with a brand-new manufacturing plant that has initial production of 100 MW; over the course of the first four years of operation, that capacity will be increased to 300 MW. Total cost for this plant is $300 million ($1 per watt), and debt used for funding construction has an 8% interest rate.
Assume that the cost of solar panels from the manufacturing plant begin selling for $2 per watt but decline in cost 25% per year and generate a consistent gross margin of 20%.
| Metric | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
|---|---|---|---|---|---|
| Volume | 100 MW | 200 MW | 250 MW | 300 MW | 300 MW |
| Sales/Watt | $2.00 | $1.50 | $1.13 | $0.84 | $0.63 |
| Sales | $200 million | $300 million | $282.5 million | $253.1 million | $189.8 million |
| Gross Margin | $40 million | $60 million | $56.5 million | $50.6 million | $38.0 million |
Author's calculations.
You can see that in year one the company's gross margin was $40 million, and in year two, that grew 50% to $60 million. But by year five the company was generating less gross margin than ever before and had little hope of increasing margins in the future, because solar costs are going nowhere but down.
If we also assume that operating expenses might be $30 million for this company, we can see the dilemma starting to unfold. $54 million in gross margin would be needed to pay for the $30 million in operating costs and $24 million in interest on the debt, so this company goes from a profit in years two and three to losing $16 million by year five.
This is just an example, but if you look at what happened to companies that built out manufacturing capacity with debt (Suntech Power, LDK Solar, Yingli Green Energy), you'll see similar story lines playing out. Falling costs in the solar industry lead to falling profits unless you have enough volume growth to make up for the lost margin. And growing margins require even more capital investment.
[COLOR=rgba(0, 0, 0, 0.65098)]
[/COLOR]
Financial engineering works -- until it doesn't
One way many solar installers got around the growth conundrum I described above is by using financial engineering, particularly on the installer side of the business. If I sign a contract with a customer for 20 years, I can divvy up the contract payments and tax benefits, selling them to different parties and taking a profit along the way. This is what SolarCity has done with tax equity and asset-backed securities.
Another method that became popular was funding growth through yieldcos, which could continually issue shares and debt to buy projects. As long as the cost of debt and equity was lower than the returns, these projects providing this structure could go on indefinitely. This is what SunEdison did when acquiring billions of dollars in businesses over the past few years, assuming it could fund acquisitions through its yieldcos.
Both structures make a lot of sense on paper, but they're reliant on strong market sentiment to allow financing to remain open -- and market sentiment can be fickle. When the price of yieldco stocks began to fall, it crushed the thesis that SunEdison could grow indefinitely and just fund projects through its own yieldcos. And when investors started to question how long SolarCity could keep up growth at the margins it promised, and if those margins would ever be realized in the first place, the stock was hit hard.
When you're reliant on financing from third parties to fund growth, then your very business model isn't very self-sufficient. Financial engineering can make solar companies look really good, but until you have the cash in your pocket, the projections these companies put out are just that -- projections. And that's a tough thing to build a business on.
Building a solid foundation is hard
Growth seems like it would be a big advantage in the solar industry, but too often it's been a road to ruin for both companies and investors. Using debt to fund growth built on falling costs and the volatility of businesses built on financial engineering have played a major role in the demise of some of the industry's biggest players.
Left standing are SunPower and First Solar, two companies that won't knock over anyone with their growth but that continue to churn out profits year after year. They do this by managing their balance sheets conservatively and by not overinvesting in growth, even when the opportunity in solar seems too big to pass up.
SPWR Revenue (TTM) data by YCharts.
The dislocations happening in high-growth companies have also become an advantage for First Solar and SunPower, which can sell utilities and commercial customers on their stability and long-term viability, which should help to expand their margins above competitors'.
Yieldcos, which were SunEdison's weakness, could be a strength for both companies because they have financing flexibility. Their lack of leverage in the past means they have flexibility to build projects on the balance sheet, sell them to third parties, or sell down to the yieldco at their leisure.
Sometimes a conservative approach wins in the long term, even in high-growth markets. And it looks like those companies that chose to build a fundamental advantage before growing at breakneck speed will be the ones that pay off for investors in the long run.
The next billion-dollar iSecret
The world's biggest tech company forgot to show you something at its recent event, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Maybe once Tesla finally "makes it" as a carmaker then GM, Ford and Nissan will turn on the dealerships and offer a similar direct to consumer model.
Obviously they have a lot of incentive to go along with the dealership BS now because if they didn't then it would give Tesla a huge leg up by making it far easier for them to operate.
You definitely don't think of dealerships as some powerful lobbying business, but on a micro level it absolutely is. Tesla isn't creating jobs/tax rev in the state of Texas the way Lee Freeman's 326 all-purpose sales, maintenance, repairs, financing dealership network is.
Obviously they have a lot of incentive to go along with the dealership BS now because if they didn't then it would give Tesla a huge leg up by making it far easier for them to operate.
You definitely don't think of dealerships as some powerful lobbying business, but on a micro level it absolutely is. Tesla isn't creating jobs/tax rev in the state of Texas the way Lee Freeman's 326 all-purpose sales, maintenance, repairs, financing dealership network is.
http://www.investopedia.com/article...15/cost-shale-oil-versus-conventional-oil.asp
just to save you guys some time I went ahead and did the Google search for you and pasted the link above.
Now compare what this guy is saying in the above link to what gets repeated over and over again in the media from people who have never even seen an oil well and tell me how so many people can repeat the same thing over and over again that is 100% the opposite of the truth?
Not only is a shale well WAY more expensive and time consuming them a conventional well.
They also deplete much faster also effecting the ROI. It requires much more manpower to keep flowing.
just to save you guys some time I went ahead and did the Google search for you and pasted the link above.
Now compare what this guy is saying in the above link to what gets repeated over and over again in the media from people who have never even seen an oil well and tell me how so many people can repeat the same thing over and over again that is 100% the opposite of the truth?
Not only is a shale well WAY more expensive and time consuming them a conventional well.
They also deplete much faster also effecting the ROI. It requires much more manpower to keep flowing.
Well one way everyone can be happy is maybe have a few models at a dealership that you can test drive to get a feel for the ride then make your custom order online and then pick up your custom car at the dealership when it comes in.
This would require less staff at the dealership and they would still need to keep the service centers open for mechanical work.
Kind of like the Best Buy order online and pick up at the store model.
