The term key takeaway is overused in financial circles, but it is useful for analytical purposes. I started out on Wall Street calling investor relations departments to have press releases faxed and contacting an amorphous corporate library -- I never did figure out where it was -- to order up 10-Ks and 10-Qs that would be delivered later that day.
Obviously things are quite different today, but key takeaway is still a relevant concept. Faithful readers of my RM columns will know of my incredulity at the valuation attached to Tesla (TSLA) and my failure to understand the company's extremely aggressive accounting and reporting practices.
Well I sat through an hour of obfuscation on Tesla's conference call last night waiting for a key takeaway. That call included management's contention that "reservation figures are not relevant"-- after Tesla management had hyped Model 3 reservation figures incessantly since the company first accepted them in March 2016. Also there was no credible explanation for the 59% decline in Tesla's capital expenditures in the fourth quarter in a period in which production increased by over 200%. Finally, just before he hung up, Elon Musk gave us a key takeaway: our CFO is leaving.
While, according to Musk, Deepak Ahuja's departure will not happen for "a couple months" and he will remain an advisor to Tesla for "years," I couldn't help but feel that Elon buried the lede. The departure of the company's lead finance executive while the SEC and DOJ are -- presumably -- still investigating the company is a jaw-dropper, and it is all my auto industry contacts can talk about his morning.
I'll have more on Tesla in future RM columns, and I believe the filing of Tesla's 10-K -- the company usually does this about a week after the conference call -- will shed more light on Tesla's aggressive accounting.
One of the factors hurting incremental demand for Tesla's Model 3 in the U.S. is the persistence of low gasoline prices. Low gas prices stem from the reversal in pricing for crude oil that occurred in the fourth quarter. Oil prices have rebounded somewhat and are undoubtedly helped by a dovish Fed -- oil prices are denominated in dollars around the globe and Jerome Powell yesterday gave investors no reason to hope for higher interest rates in the U.S., hence slamming the dollar versus other currencies.
That said, I'm still looking at WTI quoted at $54/barrel and my supply/demand modeling shows it should be higher. The oil pits are ruled by sentiment just like all other markets, and sentiment on supply has been bearish owing to the increasing production from U.S. shale producers.
While the official figures do not bear out this perception of an inevitable, inexorable increase in output -- the EIA reported U.S. production at 11.9 million barrels per day last week, flat with the prior week's level -- perception becomes reality.
So, while attending the Proactive Investors Oil Capital conference in London today I had a eureka moment during the presentation of Jeremy Asher, CEO of Tower Resources. Tower produces in Cameroon and has assets in Namibia, South Africa and other African plays that are far removed from the massive deposits in the Permian in West Texas or Saudi Arabia's Ghawar field.
What Mr. Asher noted that I had never contemplated, though, is that U.S. shale is NOT the key factor impacting oil supply now. Shale wells have significant decline rates, and it is really longer-lived, deepwater deposits that move the needle on the world's potential oil exploitation, not shallow holes in Texas.
So, as always, I checked the data. IHS Markit's weekly global offshore rig count is telling. The world had 759 offshore rigs available for use last week according to IHS' data, down sharply from the year ago figure of 800. The marketed supply of rigs also sat at a lower level than a year ago -- 654 vs. 664.
So, the key takeaway is that current oil pricing -- $54/bbl WTI and $61/bbl Brent -- is not sufficient to incentivize the world's oil majors to initiate new programs in the deepwater space. Those programs are high-risk and long-tail, and magnitudes more risky financially than a horizontal well in Midland County.
So my key takeaway from the oil conference was: the market is overly pessimistic on the "supply overhang" in the global oil market. I'm bullish on oil and believe we will hit $60 WTI by the end of the first quarter.