Is there a darker side to the oil story?

The retiring CEO of the fastest-growing major independent oil company in the country expresses doubts about the potential of the Permian Basin.

By Jim Cramer Nov 8, 2013 11:13AM

TheStreet.com logoOil drums © Kevin Phillips, Digital Vision, age fotostockI got a chill down my spine last night when I was interviewing Mark Papa, the retiring CEO of EOG Resources (EOG), the fastest-growing major independent oil company in this country.

 

After listening to how the technology that extracts oil from rock has improved to the point that two areas thought to be just holding steady -- West Eagle Ford and Bakken -- are now accelerating, I was eager to hear about how the Permian Basin could be accelerating.

 

Was the Permian, I asked, bigger than anyone thought? Was this revitalized field going to blow people away as Pioneer Natural Resources (PXD), the king of the Permian, said it would on "Mad Money" the other night?

 

The soft-spoken but clipped Papa answered, "No." The Permian is not going to be as big as I thought. It is not going to turn out to be the biggest new field in North America. It is not going to be the second-largest oil field after Saudi Arabia.

 

Plus, he said, it is time to curb my enthusiasm about finding oil and producing it in this country, because we may actually be near peak production even after all the new oil has been found and that the revolution, at least in oil and not natural gas, may soon start to become played out.

 

I was taken aback because I was thinking we are in its infancy and he was thinking that we are more mature.

 

Of course, if Papa is right, then the move in these hyper-growth oils is at its zenith, even, perhaps, EOG, although the company did grow production an astounding 39%.

 

I actually don't know what to make of this. I do know the Eagle Ford fields of EOG are every bit as bountiful as Saudi Arabia, and I know that Papa is a conservative man. But I think this is the first I have heard about how the renaissance may not get any better.

 

Papa, in short, is on the other side of the equation from Scott Sheffield, the CEO of Pioneer, who is saying the Permian is gigantic.

 

Who's right?

 

Frankly, that's not the question. The better way to put things is to simply say that it turns out there may be another side to the story of our new, reinvigorated oil exploration and production business in this country and it may not be as rosy as we thought.

 

Stay tuned to this. We need to find out if that skepticism, and not the sudden decline in oil, is behind the retreat of so many of the aggressive, senior-growth oils in this country.

Jim Cramer's headshot


Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

 




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182Comments
Nov 8, 2013 12:06PM
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The stock market is being manipulated, as usual, and big blowhards wave the flag back and forth, to keep the suckers confused. One minute, balls to the wall, next, retreat.
Nov 8, 2013 2:25PM
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When diesel costs $4/gal, it is obvious that prices are extremely manipulated.  Diesel comes off of the bottom of the distillation tower and requires little refining compared to gasoline.  Also, you can produce diesel from low grades of crude that are more common, whereas gasoline must be produced from lighter crudes that are more rare.  Now I know some will say that it's because of the lower sulfur content, but that's BS.  Diesel used to cost half what gasoline did, but now it costs roughly $1 more per gallon.  The increased cost of diesel is simply picked up by the consumers of all products that rely on transportation by truck, rail, etc.  These goods simply cost more on the shelf.
Nov 8, 2013 12:33PM
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Must have more oil --- Must have more oil --- must have more ... OIL !

to ....  build Starbucks and other "cool" cafes
to .... process coffee beans into expensive coffee
to .... manufacture the cool furniture and equipment at the cafe
to ... manufacture the cool electronics I will use there
to ... provide power for the A/C, heating, cool lighting and to charge my cool gadgets
to ... produce the cool clothes I will wear there

So I can be cool and meet with my cool friends to discuss how to fight "climate change", make the world more sustainable, and complain about those G.D. oil companies.
Nov 8, 2013 12:06PM
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I think Mark Papa is full of shidt..Maybe trying to keep pricing up, so as not to appear to have a glut.

 

With new technology they are bringing old wells back to life, and pumping additional product..

Fracking is releasing Nat gas and oil deposits...In several locations...Some were mentioned.

With more usage of NG, LNG or CNG, less demand on crude.

Better "clean coal" technology coming on line, one of our most abundant resources..

Some large proven targets and reserves discovered in the Gulf in a couple locations.

Possible deals, to bring more out of Mexico or develop wells or fields.

If the Canada to Gulf, K-line becomes a development, we would have some of that supply.

And then we have "Green Energy" starting to displace usage or demand on all the above.

 

We are not Saudi Arabia or the Middle East yet, but we are not a piker either.

And we are starting to look at more deposits on Federal lands and the Northern reaches of Canada.

Mostly what we need are a couple "super refineries" to serve our Country border to border.

Nov 8, 2013 12:07PM
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I know one thing for sure.......... it is hard to find a place to live in Midland, Odessa and the surrounding areas. It is boom time right now in that oil patch. Bust always follow.......... ALWAYS..
Nov 8, 2013 11:52AM
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Oh boy, sound the alarm. It's Friday, YAHOO
Nov 8, 2013 11:35AM
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It's a mistake to call EOG and Pioneer growth companies.  They are exploiting an opportunity that is available because

of high oil prices and plenty of undrilled acreage.  As acreage is developed and fewer wells are drilled, production will fall

like a rock.  If oil prices fall, drilling will slow, and production will fall like a rock.  Before that happens, some companies may achieve a modest return on investment.  Many will not.

 

Nov 8, 2013 12:41PM
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Shockingly good jobs report?  Whyis it when ever Obama gets hammered on something (pick any number of items he has messed up), there are surprisingly good economic statistics?  Manipulation for his benefit? Of course
Nov 8, 2013 11:57AM
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the last of the easy oil came out of the ground just a few years ago.  newer technologies will come along from here forward, but the fact that remains is oil now is the harder oil to get
Nov 8, 2013 2:17PM
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What diff does any of it make anyway. We could be drowning in oil but it will still be sold on the global market and we consumers will forever more pay out the azz for it. Nothing matters anymore except who can make the most $$ possible and die with the most toys.
Nov 8, 2013 1:35PM
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ReTog is correct ---- this papa guy is just trying to talk up the price and either cramer is too dumb to realize this or is in on the game ...
Nov 8, 2013 2:49PM
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Funny how China is both dumb enough to pollute beyond belief while at the same time, Smart enough to use bogus Fiat Dollars to plan for a Green Future that we aren't planning enough for. Soon or later, the tide will turn, we will be following, not leading.
Nov 8, 2013 2:32PM
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Jim, did you get a chill down your spine when the BB deal cratered?  On June 26, you said wait until Blackberry is $12 a share to buy.  Dang, I didn't do it and coulda been sitting on a tidy loss of -$5 share had I listened to you.
Nov 8, 2013 1:18PM
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Right MT Head, that's some of the newer technology, they don't mention...They don't just have hammer heads out there anymore, pulling a little at a time.

And many fields are not even developed yet...Back East, the Dakotas, and Western Texas.

Plus a large deposit or multi deposit in the Gulf.

 

When crude is close to $100 per bbl, everyone is producing and hauling..

Drops to $60 and wells are capped and wildcatters or exploration companies dwindle.

Nov 8, 2013 1:44PM
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Oil companies need to keep their prices up to gouge the public. So they will play down anything saying we have plenty of oil to spare. Its common sense to get more you have to make something more  rare.
Nov 8, 2013 12:49PM
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no mention of secondary and terciary development of older wells,i.e. water flooding and CO2 injection which can bring them alive again. also most of the older producing wells are vertical, not frackable in present  state, but there is the possibility of horizontal development...so the sky isn't really falling
Nov 8, 2013 2:36PM
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I agree we cannot keep up, using "fossil fuels" forever.

Every time green energy comes to the forefront it gets laughed at or shouted down..

And now we have emerging and developing Nations with a huge thirst for oil and coal usage..

We cannot stop that, but we can slowly change our own actions and set a better example..

 

With recent past investments in the Solar sector, they fell apart because of lack of subsidies in the Eurozone and better backing in the U.S..They are slowly coming back now, but we have dropped all.

So as an Investor and retiree you have to go where the money and good dividends are..

For the time being, that's oil/gas companies, pipelines, refiners and certain coal investments.

They are paying better then most for the time being... And I can't or won't fault it, as an investor.  

Nov 8, 2013 3:14PM
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Or an analyst, Mexbeach; Right?

 

ABS, your right Solyndra was a sort of a "bust"...No one is forgetting, you won't allow it..

There have been more then a few in the Green Energy field, battery companies come to mind..

And I'm pretty sure Tesla got some funds...Along with Windmill Farms..

But you tell me or all of us...WHERE DO WE START, so we can get off the oil tit...Do tell.

Private investment can't and won't do it all..

 

On top of that we subsidize big Oil, gave initiatives to Coal and Nuclear in the past..

Have helped Farmers in the Bio-diesel world...Taking away feed stocks from our food chain.

And a recent article on this page, we take $5 billion from the foodstamp program.

But still keep funding Millionaires and Billionaires in the Corporate Farming business.

Yup tell me WHERE DO WE START or STOP...??

 

 

 

Nov 8, 2013 3:24PM
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Well recently going down our hi-ways around here we have seen truck after truck hauling wide/long loads of windmill parts back East somewhere??

 

If you drive through the Midwest along major roads there are dozens of Wind Farms on hundreds if not thousands of acres...

 

And Warren Buffet has just made some major deals with I believe First Solar and his power company to build a huge Solar farm in Arizona or Nevada...

And there are many others..

Nov 8, 2013 4:14PM
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The tough part of this assessment is that we are selling it off when we should be putting it in our Reserves and buying Saudi oil, which is still comparatively plentiful and cheap. When the Peak is reached globally, it will be every nation for itself and we better have something up our sleeve besides an arm. Remember the fable about the ant and the grasshopper?
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