Official (Alberta) Oil Discussion Thread

[Bring_Back_Shantz]

Originally Posted by polak

They'll just pass it on to the consumer.

This way they get to look green while you still need to buy their oil. Any extra costs placed on them will be handed down to us.

Dude, that's not how commodities work.

Oil companies don't decide what they sell their product for, they can't pass costs on to their customers, they get paid what the market is buy oil for.

Besides, Shell isn't the one who is paying a carbon tax on what they produce, they are paying a carbon tax on what they burn to produce it.

If Shell's (or anyone else for that matter) cost goes up because they are using fuel to produce their product, they can't say "well we'll just sell our oil for $x more" they have to eat those costs and it goes straight to their bottom line.

If you're talking about a carbon tax on say gasoline, then yeah, that gets passed on to the consumer because you're the end user/the one being taxed. Saying they are going to pass it on to the consumer is like saying they are going to pass on the cost of GST.

[CliffFletcher]

Originally Posted by Ozy_Flame

Oil giant Royal Dutch Shell is to increase its spending on renewable energy to $1bn (£800m) a year, its chief executive announced as he warned the public’s faith in the industry was “just disappearing”.

Ben van Beurden suggested the public backlash against fossil fuel firms could threaten the industry’s future.

He also said it was essential that countries imposed a price on carbon emissions to help phase out the use of coal and oil, sources of large amounts of greenhouse gases that are driving climate change.

That's pretty nutty.

May sound nutty in Alberta. Or even North America. But the public in the UK and Europe (where Shell is based) loathe the oil industry, and believe the end of civilization as we know it is imminent because of global warming.

[polak]

Originally Posted by Bring_Back_Shantz

Dude, that's not how commodities work.

Oil companies don't decide what they sell their product for, they can't pass costs on to their customers, they get paid what the market is buy oil for.

Besides, Shell isn't the one who is paying a carbon tax on what they produce, they are paying a carbon tax on what they burn to produce it.

If Shell's (or anyone else for that matter) cost goes up because they are using fuel to produce their product, they can't say "well we'll just sell our oil for $x more" they have to eat those costs and it goes straight to their bottom line.

If you're talking about a carbon tax on say gasoline, then yeah, that gets passed on to the consumer because you're the end user/the one being taxed. Saying they are going to pass it on to the consumer is like saying they are going to pass on the cost of GST.

Shell and all of the other majors will be able to pass along costs through their downstream arm. They will all have to pay any new carbon tax implemented anywhere. Gas prices will just go up as their production costs go up.

[Fuzz]

Originally Posted by polak

Shell and all of the other majors will be able to pass along costs through their downstream arm. They will all have to pay any new carbon tax implemented anywhere. Gas prices will just go up as their production costs go up.

Oil companies are cost takers, not setters. They take whatever the market is paying. So if their costs go up, they can't pass it on, it's a hit on their balance sheet.

It would only work if there is a carbon tax globally, which there is not, and never will be.

[polak]

Originally Posted by Fuzz

Oil companies are cost takers, not setters. They take whatever the market is paying. So if their costs go up, they can't pass it on, it's a hit on their balance sheet.

It would only work if there is a carbon tax globally, which there is not, and never will be.

The spread between Oil Price and Gas Prices (at the terminal) are built to include their overhead and other costs. Sure, they might lose money upstream but if all the majors in a given region incur more costs (like they would if you brought in a carbon tax) I seriously doubt they just won't increase the spread to make up that loss in production costs.

If you're suggesting that marketers would import product, chances are you'd be importing from the same majors so they don't lose anything in the big picture.

[monkeyman]

Originally Posted by Fuzz

Oil companies are cost takers, not setters. They take whatever the market is paying. So if their costs go up, they can't pass it on, it's a hit on their balance sheet.

It would only work if there is a carbon tax globally, which there is not, and never will be.

Just to add to what Fuzz is saying.
Alberta has to compete globally with Oil and gas projects, more profitable projects will get financed and developed before less profitable ones. That's precisely why Imposing a carbon Tax, and increasing royalties in Alberta is so detrimental, it drives up the cost of production and makes our projects less desirable.

[red sky]

Originally Posted by Slava

Yeah, I'm well aware that it was an accounting exercise, but thanks for the condescension. The thing is that write-down is based on the profitability of the reserves, and frankly I doubt any company is eager to drop 14% of their value and that kind of magnitude. And yeah, they can just write it up again when prices rise, but even so its not exactly good news. I don't think the end is near for oilsands projects, but when super majors are taking these actions its not completely irrelevant either.

Under US GAAP you cannot write up assets which is why impairments and consequently net income are not valuable measures for oil and gas companies. Unfortunately that is what the newspapers always seem to use for their headlines.

[Slava]

Originally Posted by red sky

Under US GAAP you cannot write up assets which is why impairments and consequently net income are not valuable measures for oil and gas companies. Unfortunately that is what the newspapers always seem to use for their headlines.

Is the reserve value being written down an impairment though? I thought it would be more like a marked-to-market situation? (Clearly this wasn't my favorite portion of the CFA curriculum!)

[Bring_Back_Shantz]

Originally Posted by Slava

Is the reserve value being written down an impairment though? I thought it would be more like a marked-to-market situation? (Clearly this wasn't my favorite portion of the CFA curriculum!)

Yup definitely an impairment.

Every year you have to do a ceiling test of your Reserve value (based on trailing prices) vs the Property & Equipment on your balance sheet. If you're reserve value is lower you need to write down the difference as an impairment on your earnings report, and you can't ever write it back up. If your reserve value increases and goes over the value of your P&E on your balance sheet you don't get to add that to your earnings.

Basically Reserve value must always be higher than or equal to your P&E or you have to take an impairment of the difference.

[red sky]

Originally Posted by Slava

Is the reserve value being written down an impairment though? I thought it would be more like a marked-to-market situation? (Clearly this wasn't my favorite portion of the CFA curriculum!)

Here is some more detail but yes.

https://www.iasplus.com/en-us/public...ght/og/issue-4

Also:

Recognition of Impairment Loss
When recognizing an impairment loss, companies that apply the full-cost method should reduce the carrying value of the full-cost asset pool and record the excess above the ceiling as a charge to expense in continuing operations. Like the successful-efforts method, the full-cost method precludes companies from reversing write-downs

[TheAlpineOracle]

Originally Posted by CliffFletcher

May sound nutty in Alberta. Or even North America. But the public in the UK and Europe (where Shell is based) loathe the oil industry, and believe the end of civilization as we know it is imminent because of global warming.

The majority of the UK also voted for Brexit, and that's all I need to know about their level of intelligence.

[Hammertime]

Even if Shell loses money in carbon taxes, they can just write it off.

[CliffFletcher]

Originally Posted by TheAlpineOracle

The majority of the UK also voted for Brexit, and that's all I need to know about their level of intelligence.

And Brexit showed us that it doesn't matter whether people's opinions are based in fact or myth, they can still cause political hurricanes. Shell believes political winds are now blowing strongly against the oil industry. And when it comes to Europe, where the oil industry has about as much goodwill at the tobacco industry, they are absolutely correct.

[TheAlpineOracle]

Originally Posted by CliffFletcher

And Brexit showed us that it doesn't matter whether people's opinions are based in fact or myth, they can still cause political hurricanes. Shell believes political winds are now blowing strongly against the oil industry. And when it comes to Europe, where the oil industry has about as much goodwill at the tobacco industry, they are absolutely correct.

Don't disagree on the political winds, but Shell is taking some of the money they are getting from the CNRL sale and buying Marathon's assets with CNRL aren't they not?

[Frequitude]

A GHG fight is brewing here between Shell and the other majors and it is going to be fascinating to watch. Shell is rapidly divesting of oil, investing in gas and already lobbing bombs at "dirty oil".

[Frequitude]

Originally Posted by polak

They'll just pass it on to the consumer.

This way they get to look green while you still need to buy their oil. Any extra costs placed on them will be handed down to us.

Which is exactly where they should be handed down to. You're the one creating CO2. Don't want carbon taxes "handed down to you"? Don't burn carbon.

Originally Posted by Hammertime

Even if Shell loses money in carbon taxes, they can just write it off.

That doesn't make the loss go completely away. Tax rates are not 100%. They still lose money. Which means the concept of a carbon tax is working...that incents them to produce oil without burning carbon.

[polak]

Originally Posted by Frequitude

A GHG fight is brewing here between Shell and the other majors and it is going to be fascinating to watch. Shell is rapidly divesting of oil, investing in gas and already lobbing bombs at "dirty oil".

Shells going to win.

Luckily we have plenty of Gas here too?

[Bill Bumface]

Originally Posted by Frequitude

That doesn't make the loss go completely away. Tax rates are not 100%. They still lose money. Which means the concept of a carbon tax is working...that incents them to produce oil without burning carbon.

I'm pretty sure that was a tongue in cheek replication of many people previously not understanding what write-offs are.

[burn_this_city]

If Shell wants to play the morality card, one only has to look at their Nigerian operations for their credibility to implode.

[bizkitgto]

Originally Posted by burn_this_city

If Shell wants to play the morality card, one only has to look at their Nigerian operations for their credibility to implode.

The whole morality thing is just public relations image thing to make sure investors in Europe stay happy with Shell. Shell is a major blue chip in Europe and is in every major pension fund, and with the growing hostility from public opinion in the EU towards oil companies you can bet Shell is getting nervous. That, and they have a lot of debt associated with their BG takeover. I don't think Exxon cares as much as Shell about their clean/morality image.

Originally Posted by Frequitude

A GHG fight is brewing here between Shell and the other majors and it is going to be fascinating to watch. Shell is rapidly divesting of oil, investing in gas and already lobbing bombs at "dirty oil".

Why are they going balls deep into gas? Is there just no more oil to go after outside of OPEC?