“Water Is The New Oil”

Bloomberg: Water Is Almost as Precious as Oil in the Permian Basin

Demand for water to use in fracking in the Permian has more than doubled from 2016 levels, according to industry consultant Rystad Energy. Demand should grow to more than 2.5 billion barrels by next year, accounting for nearly half of all U.S. oilfield needs.

“It used to be you’d get a great cow ranch that had good grass for your cattle, and hunting or recreation was an add-value revenue stream and discovery of oil or gas was also this cream on the cake,” Uechtritz said. “Now, it’s wind and water.”

Net Exporter

How OPEC Is Helping U.S. Oil Reach a Tipping Point

Quick read here but a good one.  The subtext is that US production keeps exceeding expectations.

Soaring U.S. production, driven by the extraction of oil from shale, has transformed the country’s prospects. Two years ago, when the EIA first started publishing its detailed forecast for 2018, it saw U.S. output ending the year at 9.44 million barrels a day. It now sees last month’s figures at a staggering 11.8 million.

Its most recent forecast shows the growth trend slowing for much of 2019, before picking up again in 2020, following the expected start-up of new pipelines to carry oil from the Permian Basin to the Gulf coast in the second half of this year. A similar pause in growth was forecast for the summer of 2018, but it didn’t materialize. The EIA has consistently underestimated the U.S. production rate, and could do so again.

Major Spending

Chevron Touts Nimble Shale as Electric Cars Dim Big Oil’s Future

Hot and heavy but ready to shut down at a moment’s notice.  A big operator’s dream.  Portends high quarterly earnings vol at $TPL but we’ll (I’ll) take it.

Chevron Corp. will spend about half its capital budget on projects that yield quick returns over the next three years, underscoring the importance of shale as it prepares for growing uncertainty in how the world consumes energy.

The U.S. oil giant will spend about $9 billion to $10 billion a year on “short-cycle investments” through 2022, primarily focused on the Permian Basin, the world’s biggest shale oil region, the San Ramon-based company said in a presentation on its website Friday. The Permian is on course to make up about one in five barrels the super major pumps worldwide.

But now they’re investing heavily, attracted by the ability to ramp up production quickly and potentially reduce it if oil prices crash.

That’s a particularly useful trait when the future of oil and gas consumption is unclear, with electric vehicle usage growing and governments clamping down on greenhouse gas emissions.

The Other Side of the Checkerboard and !Abilene Christian!

Bloomberg: Texas Endowment at $31 Billion Passes Yale With Oil’s Help

The endowment was fueled by mineral rights from land it controls in the Permian Basin. It’s an area bigger than Delaware that has emerged in the past decade as the world’s fastest growing oil-producing region due to advances in hydraulic fracturing, or fracking. The state system shares the mineral rights revenue with Texas A&M University, which saw its endowment value surge to $13.5 billion.

The University of Texas controls 2.1 million acres of land in the Permian, which generated a record 5.3 million barrels in July as drillers built longer and longer horizontal wells to frack. The companies paid out a little more than $1 billion of royalties to the state school endowments in the year through August, the most since 2014 when oil prices topped $100 a barrel.

Get ready for this one…

Other schools that have benefited include Texas Christian University. The school in Fort Worth has 10 percent of its $1.6 billion endowment allocated to energy, with more than two-thirds in mineral rights it received from donors, said James Hille, the investing chief.

Abilene Christian University, a small private college west of Dallas, committed a quarter of its $450 million endowment to energy, including a big bet on the Permian region. The fund gained 15.8 percent in fiscal 2018, better than most wealthy U.S. colleges and eking past Bowdoin College’s 15.7 percent return.

Abilene Christian had a mix of energy investments when it decided in 2013 to ramp up its exposure with shares in Texas Pacific Land Trust, which controls vast tracts of land in the Delaware Basin in the western region of the Permian. The move proved prescient as Texas Pacific became the hottest oil stock from the U.S. shale boom, climbing more than 2,200 percent from 2010 before prices corrected in October.

The university had so much conviction in the investment it lifted its limit on how much the endowment may own in one company, said Jack Rich, the chief investment officer. A 3 percent commitment was increased to 11 percent this year and generated a 130 percent gain when some shares were sold, he said.

“That’s off the rails,” said Rich, who’s worked for the university’s administration for 28 years, creating an investment office about a decade ago. “We took some risk there.”

It’s rare for school funds to hold more than single-digit allocations to energy, said Fund Evaluation’s Busken. Many endowments and foundations have cut oil and gas under pressure to divest from fossil fuels.

Rich said Abilene Christian is diversifying into wind, solar and other sustainable energy producers. It’s also holding a position in Texas Pacific, even as the share price has tumbled with oil prices.

“Our edge is our willingness to buy into what we know, and that’s the energy market,” Rich said.

11% x 450MM = $49.5MM.  If Abilene Christian held that at the top ($870), it implies they held just under 57k shares.  Puts them in the Maurice Meyer ballpark at 0.8% of total market cap.

The quotes in the article are very “past tense” (“We took some risk there.”).  Selling all or part of 57k shares into TPL’s poor liquidity picture has to be a chore and presents one hell of a catalyst for the price to go lower.

XOM Turns It Up

Bloomberg: Exxon Becomes Top Permian Driller to Combat Falling Oil Output

I was asleep at the switch here.  This article is a few days old but worth reading.

It’s not hard to see why the Permian has become so important to Exxon. A series of strategic mistakes sent the oil giant’s overall production careening to a 10-year low by the middle of this year. Drilling wells in the the Permian, the world’s premier shale field, yields low-cost oil in months rather than the years required for megaprojects to begin producing crude.

Exxon isn’t alone in tapping U.S. shale after years of pursuing overseas resources. Chevron Corp. will spend the highest portion of its capital budget at home in at least a decade. The Permian now accounts for about 10 percent of Chevron’s overall production.

BP Plc this year agreed to spend $10.5 billion on BHP Billiton Ltd.’s shale assets to gain access to the Permian while Royal Dutch Shell Plc is mulling a bid for one of the basin’s largest private companies, people familiar with the matter said Monday.

Exxon’s escalation in the Permian is essentially a bet that it can drill wells so cheaply that they’ll be profitable despite crude’s tumble since early October. The company says its shale wells can make double-digit returns with oil at just $35 a barrel. On Tuesday, prices for oil produced from the Permian in Midland, Texas, dropped below $40 for the first time since August 2016. West Texas Intermediate traded at $47.25 at 2:03 p.m. in New York.

“The business we build in the Permian, we’re building for the long term,” Woods said in a Bloomberg TV interview last month. “It needs to be efficient, low cost and effective.”

Rountrip???

$455 as I write this.  Started the year at $444.  Does $TPL stay positive on the year?  YOY EPS will come close to 2.5x-ing but whatever.

Update 12/21/18:  With today’s close at $432 the Trust is offically under water on the year.  Recent trading patterns don’t have me optimistic about where the price will go during the last week of the year.  Guess we’ll get ’em in 2019.

I remain a buyer.  I’m spending more than I budgeted to pick up small blocks down here.  My kids will thank me.

tpl 2018 px action

Source:  Bloomberg

Safe Haven

Bloomberg: U.S. Shale Becomes Oil Industry’s Safe Haven as Prices Languish

The cost of shale production has fallen so much since then that it’s becoming a safe haven for major oil companies in times of volatile prices, providing rapid, reliable growth and quick returns even with crude trading for just over $50 a barrel, down by almost a third since the start of October.

ConocoPhillips said Monday it’s spending half its 2019 budget in the continental U.S., while Chevron Corp. is investing more at home than it’s done for more than a decade, with $3.6 billion going to the Permian Basin alone. Anadarko Petroleum Corp. and Hess Corp., both global operators, plan to increase spending on their American assets more than 40 percent.

Oil’s recent collapse caused “some different allocation going on within the budget,” Conoco Chief Executive Officer Ryan Lance said on Bloomberg TV. “We’re putting more toward our U.S. unconventional position,” he said, referring to shale.

Production growth “slows down at $50 but I don’t think it stops at $50, and it certainly continues if prices get back to $60,” Lance said. Skeptics thought shale “wouldn’t last long, but it’s here, it’s a huge resource and it’s going to be resilient and long lasting.”