Dan Dicker > Quotes

“I know that oil is limited, and that every well, whether fracked or not, ultimately decays to zero. But shale is different from every other kind of oil-procurement technique. Shale wells get used up at a rate almost 10 times faster than other oil projects and therefore force shale oil producers into constantly chasing more activity in successively less and less promising acreage, to just stay even. That is entirely unique for shale. In order to actually grow, shale oil companies need an absolutely furious pace of investment and drilling, paying off early investors and bondholders, attracting new investors, and spending ever more capital. That outline for continued success sounds familiar in many ways to me.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“The Keystone XL pipeline argument has become a ridiculous proxy for the environmentalist lobby’s complete disdain of the oil companies and a very pro-business U.S. energy policy Equally, the irrelevant case of Solyndra became the headline for the ‘uselessness’ of government incentives for renewable technology development. We should expect to see all the partisan dumbness this country can so easily muster on both sides when a gas tax to support renewable energy development is introduced. No matter. Its time has come, and I hope the next President of the United States has the courage to at least suggest it and force a discussion. Our current one clearly doesn't.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“The performance of Astenbeck could not have been good during the downturn in oil prices in 2014, but in early 2015, after formally leaving Phibro entirely, Mr. Hall came out of hiding to again predict a major demand-based spike in oil prices: “Prices at current levels (or lower) are not sustainable for very long,” Hall wrote in his yearly letter to investors. “The current surplus could thus easily set the stage for a future deficit.” Mr. Hall predicts both an increase of demand from lower oil prices, but also a very significant fall in production: he believes 2.4 million barrels a day of conventional oil is likely to disappear. Further, he accentuates the strength of shale producers as swing producers by noting the differences between 2015 and 1986, the last time a major drop in prices inspired a demand-based rally.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“If you have a demand for 92 million barrels of oil a day, it is the breakeven price of the most expensive one you need to produce that will set the fundamental cost for every other barrel, no matter how cheaply the rest of them are produced.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“When the legendary Steve Schwarzman's firm went public in 2007, I was convinced that this was merely an opportunity to take advantage of a huge spike in the stock market for the partners in Blackstone to cash out and ultimately call it a day. I saw the public offering then as an unworthy investment, which could only serve to fill the partners' pockets while they proceeded to 'mail it in' for their new shareholders. But I have been proven completely wrong. Blackstone's history since its public offering is a continued history of success stories, and I believe the current energy restructuring opportunity will be no different. Elsewhere in this book, I talk a bit about the deal it made with Linn Energy, with very advantageous terms for Blackstone. As a long-term hold, I can find no better (public) PE firm to invest in.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“More preposterous is an outlier company like Encana, whose hallucinations led to even more bright optimism. For 2015, the Canadian natural gas behemoth decided not to cut spending at all, taking a complete blind eye towards collapsing prices. Instead, it chose to increase spending for 2015 from $2.55b to $2.8b. In this strategy, Encana is virtually alone in the oil space. CEO Doug Suttles has called the oil drop merely an “annoyance, but not threatening” and is continuing with his two-year plan to increase Encana’s ratio of oil production from natural gas. What made Encana so special? Why was it alone choosing to step on the accelerator while virtually everyone else was feathering the brakes? Well, it probably had a bit to do with Suttles’ mistimed buy of Athlon Energy, a Permian basin start-up company that rocketed in share price in its less-than-two-year life span. In September 2014, Encana had the idea to buy Athlon for an astounding $5.9 billion, paying more than $58 a share for the fledgling company. That buy should have been accepted as a monumental error in timing, but instead has seemed to fuel the Encana fantasy. But if you’ve bought the top of the oil market, as Encana’s Doug Suttles has, then why not—I suppose it makes perfect sense to double down and ignore collapsing oil and gas markets going forward. Encana plans to increase oil production by 26% in 2015.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“This time around, I believe Exxon's focus will be on crude- and liquids-focused U.S. shale players that have very deep assets that would yield decades of production growth. The list for players like this is actually quite short and includes Anadarko Petroleum (APC), Hess (HES), Continental Resources (CLR), and perhaps a few others. But no matter who the ultimate target is, I'd much rather bet on the company with the money, patience, and long-term outlook to benefit from a buyout of a major shale player than try to guess at the company that is going to get bought. In this, I still find Exxon-Mobil to be the best long-term play among the majors for taking advantage of the shale bust—and ultimate next boom.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“Cutting budgets or slashing prices to customers are actually the easiest things that oil companies and services firms can do. For producers, cutting spending doesn't affect the bottom line immediately, as reductions in capital expenditures (capex) won’t result in production declines—and therefore profits—for months in the future. You can even claim continuing high production results despite major drops in capital expenditures, a counter-intuitive result but still at least immediately genuine. Almost all of the independent oil companies have done precisely this through their reporting up to the 4th quarter of 2014, reporting slashed spending yet increasing production forecasts. In fact, at least for the first 6 months after cutting capex, oil company executives can look like stars, chopping off the top line with little immediate effect on the bottom. Further, the projections on capital expenditures are a bit of an accountant’s dodge in that they can be adjusted several times over the year to adapt to changing market conditions. An oil company can talk about an extreme cut in spends at the start of the year, but should oil prices allow, it can still ramp spending back up later. Looking responsible using the accountant’s pen is a pretty easy way to initially react to a low price environment, and just about everyone is doing it.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“Ultimately, and far sooner than most analysts believe, U.S. shale production will consist of ever less productive wells that cost more to drill, take longer to pay themselves off, and generate less oil. The EIA believes that nothing like that will occur for at least the next 25 years. I think that the peak of U.S. shale potential will be reached in the next 10, if it hasn’t been reached already. Once that peak is realized, the pyramid will begin to fall apart—and quickly.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“Andrew Hall may be positioning himself now for the next coming boom cycle, but the market will need more than the predictions of some good traders to turn around. One thing that absolutely must happen is a real and measurable leveling off of production here in the U.S. Early in the bust phase for shale, with crude prices, budgets, and rig counts collapsing, I was of the opinion that indeed, production cuts would come a whole lot sooner than either the EIA or most of the bank analysts believed was possible. But I’ve been impressed by the free flow of capital that has come in to the markets looking to ‘save’ shale oil companies from their excesses, and slowing what I thought would be a violent progression of bond defaults and outright bankruptcies. In a recent note on the state of E+P, Morgan Stanley also noted the trend, when one of its analysts, Evan Calio, wrote: “Secondary offerings have been positively received by investors as a means to shore up balance sheets and pre-fund drilling programs in light of falling crude prices. Secondary offerings remain a logical way to delever [a financial term meaning to reduce debt], but also has the potential to extend the trough rather than hasten its arrival.” (emphasis mine). In other words, there is too much money still chasing oil for a quick weeding out of the weaklings. We might see a longer period of ‘survivability’ before the real wall hits.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“And overwhelmingly, that is what happened in shale. (As an aside, there are some conservative players who did hedge more: Devon, for example, had 80% of its shale production hedged before the 2014 crash. Apache, as an example of the extreme opposite pose, did not hedge its 2014 production at all.) The point I'm leading to is that, on balance, access to the financial markets hasn't altered the sensitivity of shale oil players to the market much.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“And what I know about price—what has been proven to me again and again—is that oil prices have become ever more unreliable as the systems that work on it become ever more financialized. Of all the things I have studied and correctly and incorrectly forecasted in my 30+ years in the oil markets, the one unshakable truth I have held onto is that the wide ranges of prices for oil we have seen in the last 15 years have been tethered far more to unrelated financial inputs than to the underlying fundamentals of oil. It has been those financial “gremlins” inside the machine that have made oil prices go so far above any logical expectation so many times, particularly in 2007 and 2010 and equally foolishly low as in 2009 and in 2015. Those wide extremes in price have done more than make and lose fortunes in the oil world. They've affected just about everything politically and socially in the rest of the world.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“When demand cycles increase or supplies drain low, the U.S. shale industry now sits there with the quickest tap to twist on. But when producers get “too enthusiastic” about oil prices and supplies glut, or when economics compress global demand, or when renewables partially displace fossil fuels, it will be the U.S. shale producer who will be forced to cut back. Now it's easier to see why the United States will have a much more difficult road to being energy independent: you can't rely on U.S. shale to get you there. No matter whether the oil market stays depressed for three months or three more years, the production numbers for the U.S. won’t ever be stable enough to make the United States independent of foreign oil. Only a consistently and reliably high market price can do that, something that the oil bust of 2014 proved is still hardly guaranteed. U.S. shale oil is first in line to be the supply source that must contract when the market demands it.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America

“As usual, the mass media’s thoughts on oil’s ‘demise’ have been facile and incomplete. It is never (or almost never) correct to see a big event through the lens of only one or even two changing conditions, and the 2014 oil crash had five huge distortions that I saw converge at once. We need to understand each of them before concluding how the ‘new oil market’ will impact shale production in the future and the viability of “Saudi America.” In no order of importance, I see the top five reasons for the collapse of oil prices in 2014 as: 1.   The rise of the U.S. dollar. 2.   The defensive market share posture of Saudi Arabia inside OPEC. 3.   The increasing production in U.S. shale and the resultant ‘oil glut.’ 4.   The continuing malaise of China and European economies. 5.   The demise of U.S. investment banks’ commitment to oil marketing—the hiatus of the “endless bid.”
― Dan Dicker, Shale Boom, Shale Bust: The Myth of Saudi America