[Revi]

I got this recently and I think a lot of it may ring true.

What do you think?

[Revi]

He basically says that we are going to be in much worse shape when this fracking boom is over, so we may as well get ready for it. (good luck with that). This boon has been wasted, leaving us in worse shape than before. It's like we have been living a lavish lifestyle, run out of money and then find a $50 in the couch cushions. Instead of buying a bag of potatoes we go out to dinner and buy scratch tickets.

[ROCKMAN]

A very heated discussion here some months ago about the book. We'll see if folks want to rehash it. Not much has changed other then the recent softening of oil prices.

[onlooker]

I would not mind rehashing it because it is pertinent in so much as we are still in the so called "glut" time. Not reading the book I nevertheless feel that in keeping with other insights from this author he is right on. This has been and is a temporary reprieve from Peak Oil. Soon the very characteristics of Unconventionals will make them prohibitive and obsolete to society. Then what? We should have resisted this Snake Oil and gone instead for what could have been a more long lasting and stable sources namely Renewables.

[ROCKMAN]

Looker - All true. But: "Soon the very characteristics of Unconventionals will make them prohibitive and obsolete to society." I assume you mean the shale plays. Perhaps “soon" to some folks outside the oil patch and investor patch. But "soon" was the thought back last January. We're way beyond "soon" now. lol. Shales became “obsolete” to the oil patch and hedge funds once oil fell below $50/bbl. The cornucopians can think what they want but they aren’t the ones signing drilling contracts or writing checks for such investments.

The problem for many is to appreciate the lag time of these dynamics. But many have only current stats to focus on. In the oil and investor patch today we're focused on expectation for 2017. As far as we're concerned 2016 is for the most part already written. Maybe some movements here and there but nothing to make. The Rockman's company will start looking at acquisition possibility in earnest after the 1 Jan based on the expectation of far greater pain in the oil patch then what we've seen already. But as far as future expectations we don't think at all of 2016 except for perhaps more softening of the market. Our current plans are focused on 2017/18 expectations.

[Subjectivist]

Looker - All true. But: "Soon the very characteristics of Unconventionals will make them prohibitive and obsolete to society." I assume you mean the shale plays. Perhaps “soon" to some folks outside the oil patch and investor patch. But "soon" was the thought back last January. We're way beyond "soon" now. lol. Shales became “obsolete” to the oil patch and hedge funds once oil fell below $50/bbl. The cornucopians can think what they want but they aren’t the ones signing drilling contracts or writing checks for such investments.

The problem for many is to appreciate the lag time of these dynamics. But many have only current stats to focus on. In the oil and investor patch today we're focused on expectation for 2017. As far as we're concerned 2016 is for the most part already written. Maybe some movements here and there but nothing to make. The Rockman's company will start looking at acquisition possibility in earnest after the 1 Jan based on the expectation of far greater pain in the oil patch then what we've seen already. But as far as future expectations we don't think at all of 2016 except for perhaps more softening of the market. Our current plans are focused on 2017/18 expectations.

Rockman, in a couple places there is discussion about the coming write downs, but none of you field experts has chimed in yet. What do you think will happen in the next month or so?

[onlooker]

Yes Rock. We are all very curious how these write downs are going to shake up your industry. If in fact they are.

[jedrider]

Seems to me that if our goal was to have a more resilient society then Fracking was an outright failure. If the goal was to party for a few more years, then it was a success cause we currently have low oil prices.

Can,t imagine how much environmental damage it has caused that is irreparable, especially of water resources, but clearly that was of no concern to the party goers.

[C8]

"Snakeoil" would also be a great name for all of Mr. Heinberg's failed "Peak Oil/Peak Everything" predictions that last decade. Point the man North and he walks South.

[ROCKMAN]

sub - "...in a couple places there is discussion about the coming write downs..." You civilians are so far behind reality its funny. lol. Maybe many of the pubcos haven't posted official SEC write downs yet but those companies were flushed down our mental toilets many months ago. We don't need to see the lost values posted...we knew what they were from Day 1. And based upon those massive stock price declines for many of the pubcos months ago the Wall Street analysts didn't need to wait for 10-Q's to begin advising their clients to jump ship. It reminds me of the hype about folks like the city of san Francisco dumping their fossil fuel stocks back in 2014. Was it really a sudden surge of guilt (guilt that wasn't present when they decided to buy those holdings) or did they just have good advisors that recommended they monetize those profits before TSHTF? IOW the city raked in a nice profit before their stocks turned to sh*t...how environmentally friendly of them. lol.

And now, we noble cannibals are just holding our collective breaths waiting for the next big shoe to drop: the surge of depreciation as many of those oil hedges roll off. A lot of companies that were still getting $70+/bbl for all of 2016 still saw their stock values crater: imagine what those stocks will do when some of those pubcos start getting $35/bbl next month for oil they sold for $75/bbl in this month.

[Tanada]

sub - "...in a couple places there is discussion about the coming write downs..." You civilians are so far behind reality its funny. lol. Maybe many of the pubcos haven't posted official SEC write downs yet but those companies were flushed down our mental toilets many months ago. We don't need to see the lost values posted...we knew what they were from Day 1. And based upon those massive stock price declines for many of the pubcos months ago the Wall Street analysts didn't need to wait for 10-Q's to begin advising their clients to jump ship. It reminds me of the hype about folks like the city of san Francisco dumping their fossil fuel stocks back in 2014. Was it really a sudden surge of guilt (guilt that wasn't present when they decided to buy those holdings) or did they just have good advisors that recommended they monetize those profits before TSHTF? IOW the city raked in a nice profit before their stocks turned to sh*t...how environmentally friendly of them. lol.

And now, we noble cannibals are just holding our collective breaths waiting for the next big shoe to drop: the surge of depreciation as many of those oil hedges roll off. A lot of companies that were still getting $70+/bbl for all of 2016 still saw their stock values crater: imagine what those stocks will do when some of those pubcos start getting $35/bbl next month for oil they sold for $75/bbl in this month.

From the context of 'next month' I think you meant to type they were fully hedged through 2015, not 2016. What kind of numbers of companies are you talking about? 20 percent, 50 percent, 80 percent? I suppose unless you are a buyer you won't know off the top of your head. Does your company do hedges for future deliveries? If you do what kind of contracts are the buyers offering for 2016?

[ROCKMAN]

Yes: next month is 2016. lol. I hear different numbers for hedging roll outs but nothing showing the big picture. Ond of the complications is that hedging never stops: companies are hedging 2016 this December. Remeber one can lose money hedging when prices increase just as easily as making money when prices fall. A big company hedging 100% of their 2016 production at $35/bbl could lose hundreds of $millions if price jumps to $50/bbl soon.

I'll dig around and look for more detailed numbers.

[ROCKMAN]

T - Consider this report from just 10 weeks ago:

"This past week, as oil prices barreled over 9 percent higher to break out of a weeks-long trading range, U.S. shale producers jumped at the chance to lock in $50-plus crude for the first time in months, making up for lost time after holding off hedging during the market's late-summer slump.
U.S. crude oil futures for December 2016 delivery, a favored contract for hedgers, saw trading volume spike to a weekly record high of nearly 190 million barrels, twice as much as the average for the previous four weeks, in what market sources and industry executives said was the biggest wave of hedging since a fleeting rush in late August."

So how much of your savings would you bet on oil selling for $50/bbl in 12 months? lol.

[ROCKMAN]

T - And here's a long article from earlier this week that shows how convoluted the oil hedging biz can be:

The relentless slide in oil prices has led Origin Energy to take hedges so it can weather prices as low as $US10 a barrel next financial year, just three months after a $2.5 billion equity raising to ensure it was not overly exposed to price falls.

The Sydney-based integrated energy player run by Grant King will spend $82 million on put options on 15 million barrels of oil at $US40 a barrel, covering most of the oil price-linked LNG sales from the $24.7bn Australia Pacific LNG plant it is building at Gladstone with US major Conoco­Phillips.

The put options, at a cost of about $5.50 a barrel, means the company now has a floor price of $US40 on nearly all of its sales from APLNG in 2016-17 but maintains exposure to price gains.

It comes as Brent oil prices, the international benchmark, hit an 11-year low of $US36.32 a barrel on Monday night, falling below the $US38-$US42 level Origin in October said APLNG would need to break even on production and interest costs. Mr King said Origin still believed prices would eventually rise, and the fundamentals of supply and demand supported this, but that prices continued to fall to levels few had expected.

“We’re in a position where we have to take off the table the question, ‘what if they keep falling and what if they are lower for longer’,” Mr King said yesterday.

“We ultimately concluded that the certainty of $82m to take a hugely unknown risk off the table was worth doing ... by putting strikes in at $US40, we said even if it’s $US20, it’s limited, even if it’s $US10, it’s limited.” In October, when Origin announced its equity raising with oil prices trading around $US50 a barrel, the company said it expected to have to pay an extra $1.8bn to bring both LNG trains into production this ­financial year.

Now, if oil prices average $US20 a barrel in 2016-17, Origin’s exposure to APLNG would be limited to an extra $200m after the hedging deal ($2bn in total), compared to Macquarie estimates of about $630m without it.

“The hedge is expensive, but importantly removes a financial threat that has re-emerged with a falling oil price, namely additional capital contributions to APLNG,” Macquarie said.

“Already it is quite plausible in the prevailing environment that Origin would need to contribute additional capital to meet reserves.”

Oil prices, which started the year around $US57 a barrel, have continued to slide as Saudi Arabia keeps production flowing and US shale oil production remains in the market at low prices for longer than had been expected.

Expected production growth from Iran, OPEC’s decision to do away with quotas at its recent meeting, a US decision to lift bans on crude oil exports, uncertainty over Spanish elections and forecasts of a warmer-than-normal US winter have all contributed to the downbeat sentiment that has driven prices to new 11-year lows.

Three-quarters of the Origin put options are at $US40 and the rest are at $55 a barrel, giving it an extra hedge against potential ­unfavourable currency movements.

[Tanada]

Thanks ROCKMAN, I and everyone here really appreciates the insider insights you provide to the board. Have a safe and happy New Year celebration!