Energy & Commodities
Reserve life, breakeven price, OPEC dynamics, and upstream vs midstream vs downstream
In 2020, West Texas Intermediate crude briefly traded at negative $37 per barrel — producers were paying people to take oil off their hands because storage was full. In 2022, the same barrel traded above $120. ExxonMobil earned $36 billion in net income that year.
In between those two extremes, nothing about Exxon's reserves, its technology, or its operational efficiency fundamentally changed. What changed was the price of a single commodity. This is the defining feature of energy investing: company quality matters, but the commodity price dominates everything.
An excellent oil company in a $40 oil world barely survives. A mediocre one in a $100 oil world prints cash. Learning to invest in energy means learning to separate what the company controls (costs, reserves, capital allocation) from what it doesn't (the global price of oil).
The energy value chain splits into three distinct businesses with radically different economics.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 6 sections and ends with 5 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1The three segments: upstream, midstream, downstream
- 2Reserve life: how long can the company produce?
- 3Breakeven price: the survival threshold
- 4Upstream breakeven costs by basin (approximate)
- 5OPEC dynamics: the cartel that sets the floor (and ceiling)
- 6ExxonMobil: reading the integrated major