Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

More impact from low oil prices

Pumps on new wells being installed in 9/15. Not exactly a sign of a collapsed industry. Photo by James Ulvog.

Pumps on new wells being installed in 9/15. Not exactly a sign of a collapsed industry. Photo by James Ulvog. Check out that beautiful sky.

Two previous posts discussed OPEC’s decision to maintain production and some of the implications. Here are a few more articles on the impact of low prices. Also, great illustrations of how the assets will be bought up by stronger players at bargain prices.

12/4 – Reuters media at Dickinson Press – Shares of Bakken Shale oil producers plummet after OPEC decision – Lack of a production cut and realization that OPEC production will actually exceed their announced limit combined with Iran ready to jump into the market pushed oil prices down. That in turn pushed down stock prices of North Dakota producers.

One industry representative is quoted as saying OPEC’s goal is to

“… outlast {U.S.} shale oil exploration and production…”

Yeah, I think that’s the worldwide consensus on the OPEC, I mean Saudi, goal.

12/1 – Dickinson Press – US oil companies’ restructuring plans founder as prices plunge The first round of E&P companies working their way through bankruptcy were obviously the weakest. Article explains bankruptcy reorganization plans developed earlier in 2015 have fallen apart. The reason is that oil prices have fallen so much further that the current value of assets don’t support the reorganization.

What you should expect to see is assets sold off for a fraction of their previous value with stronger players picking up assets for a song.

Article provides several illustrations showing that is exactly what is happening.

Sampson Resources Corp. was bought out in 2011 for $7.2B. it was valued at $1.5B for its prepackaged bankruptcy. That is twenty cents on the dollar.

Dune Energy had assets with value of $229M in 9/14. It received $19M in its 7/15 bankruptcy auction. That is eight cents on the dollar. Assets include 15.5M boe in proved reserves.

Do you see how the assets will be reorganized?

Investors and lenders took a bath. However, another company picked up 15 million barrels of reserves for just over a dollar a barrel. Eventually, some day, the purchaser will make a killing.

A third company, American Eagle Energy, entered bankruptcy in 5/15 with assets valued at $211M at the time. Sale price? Only $37M in 10/15. No indication of what the valuation was before the price collapse. From entering bankruptcy to liquidation the recovery was only eighteen cents on the dollar. No hint of the recovery as a percent of value a year ago, which would be a lot lower than 18%.

Article says two other companies were able to quickly move in and out of bankruptcy, successfully executing their prepackaged plan.

Those losses are very painful for the investors and lenders. They don’t deserve your sympathy. That is the downside of the risk and reward equation.

If you invest in a tremendous opportunity, there’s a chance it won’t work. If you want to go for the amazing payoff on the upside you have to willing to absorb the amazing loss on the downside.

12/7 – The Guardian – Opec bid to kill off US shale sends oil price down to 2009 low Crude oil dropped $2 on the first full trading day after OPEC, I mean Saudi Arabia, decided to continue keeping the oil production valves in full-open position.

Drop in crude price is due to the market expecting there would be some cutback in production. That’s the understanding of the article. Those same expectations being dashed led to drop in US equity markets and prices on other commodities.

Several comments in article state an understanding by the author that the OPEC/Saudi goal is to knock out shale oil.

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