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The U.S., energy producing superpower

General discussions of the systemic, societal and civilisational effects of depletion.

Re: The U.S., energy producing superpower

Unread postby SRSroccoReport » Sun 18 Jun 2017, 19:55:11

rockdoc123,

Image

Maybe you should tell that to the analysts at the EIA. They are the ones that created the first chart that shows the 75% interest expense ratio. But, maybe they are just flunkies who don't know anything about financial balance sheets of energy companies.

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Re: The U.S., energy producing superpower

Unread postby AdamB » Sun 18 Jun 2017, 19:57:10

SRSroccoReport wrote:U.S. Shale Energy Industry Is Choking On Debt & Interest Expense

Yeah... the Great U.S. Energy Superpower is choking on debt while it pays 75% of its operating cash just to service its INTEREST EXPENSE:


Well, I recommend you not invest then. But one thing you can be sure of, as the bankruptcy is declared by whomever, during the bankruptcy, and immediately following it when the new owners move in, the oil and gas will continue to be produced.

Just like it was in 1986.

What part of industry cycles and history did you choose to ignore, prior to pretending you discovered something NEW?

How many companies have you ridden with, into bankruptcy, or more illustrative, purchased from the courts and make economic again? I've done 5 purchases out of bankruptcy, having worked for one of those "keep your powder dry and buy when their is blood in the streets" kind of companies, the same kind that will survive the current "not even a bad downturn yet". You would know this already if you wanted to, therefore you don't want to, most likely because it interferes with a good gold bug story.
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Re: The U.S., energy producing superpower

Unread postby AdamB » Sun 18 Jun 2017, 19:59:49

onlooker wrote:@SRSroccoReport
This is in line with the Etp analysis and current observations from the Hills Group


They are gold bugs as well? Because of...thermodynamics? Makes perfect sense...for a zealot....find ANYTHING to agree with that shows doom tomorrow..and just go with it! Sounds like Etp analysis and current observations are right in line with Harold Camping's predictions as well.
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Re: The U.S., energy producing superpower

Unread postby AdamB » Sun 18 Jun 2017, 20:07:38

Yoshua wrote:I guess we all can agree on that things could be better and that the oil industry has a problem right now.


Depends. Things can always be better, and some folks in the oil industry, the kind that have done this before and are doing it now, are like kids in a candy store, making their bones for the next upswing. I recall the last downturn as kids in candyland, for those who were prepared for it. The company I was doing acquisitions for quadrupled in size in terms of well count, and that excludes non-operated wells. The boomer folks? They are screwed, and should be, for thinking that the basic rules of commodity sales had been revoked during the last upturn. This exact problem is why you keep old gray hairs around, to make sure you don't get caught when the floor falls out from underneath you.

Yoshua wrote:It is pointless for me to try to tell people in the industry what the problem is... since I have zero experience from the oil industry and since I have no solution to the problem.

I believe that it's a net energy problem.


Now that sounds like a completely reasonable statement. I disagree with the net energy angle, but I understand it, and can also understand why some people are sympathetic with it. I've even seen it ventured at quite a high level within the geologic community. Unfortunately, those who were venturing the idea also were clueless about the project economics of oil field development, and therefore couldn't put their ideas within the context of the mechanisms that the industry has been following for at least the better part of a century now.
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Re: The U.S., energy producing superpower

Unread postby SRSroccoReport » Sun 18 Jun 2017, 20:10:52

AdamB,

Ah... I see. Making lots of comments all at one time. I know children who behave in the same fashion.

However, if you FOCUS on the EIA Chart, you will notice that the ENTIRE INDUSTRY is suffering from a 75% Interest Expense, just not one or two companies.

While I appreciate you pointing out the obvious that a bankrupt company can be bought out by another... what happens when the ENTIRE INDUSTRY is in trouble??

I gather you would want the Fed & Central Banks to bail out the Shale Oil & Gas Industry. And why not. They purchased $1.5 trillion in assets in the first five months of 2017.

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Re: The U.S., energy producing superpower

Unread postby AdamB » Sun 18 Jun 2017, 20:11:14

SRSroccoReport wrote:rockdoc123,

Image

Maybe you should tell that to the analysts at the EIA. But, maybe they are just flunkies who don't know anything about financial balance sheets of energy companies.

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Your chart does not indicate if Rocdoc's completely valid comments were taken into consideration in the creation of that sheet or not. Why don't you call them and find out?
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Re: The U.S., energy producing superpower

Unread postby AdamB » Sun 18 Jun 2017, 20:24:51

SRSroccoReport wrote:AdamB,

Ah... I see. Making lots of comments all at one time. I know children who behave in the same fashion.


And I know gold bugs who never graduated the 4th grade who spin their tale better than you do.

SRSroccoReport wrote:However, if you FOCUS on the EIA Chart, you will notice that the ENTIRE INDUSTRY is suffering from a 75% Interest Expense, just not one or two companies.


You focus on the chart. Rocdoc makes a completely valid comment about depreciation, answer that about the chart, and then we can consider its value. The one FACT I am certain of is that CFO's are paid to make those financial statements sing nearly any tune desired, and do just that. But the EIA folks are quite good at what they do (they don't use thermodynamic models and don't factor gold into their projections), so call them up and ask how they built that chart, and if they have taken RocDoc's info into account.

SRSroccooReport wrote:While I appreciate you pointing out the obvious that a bankrupt company can be bought out by another... what happens when the ENTIRE INDUSTRY is in trouble??


Sounds like 1986. Did you happen to notice the entire industry being in trouble then, or did you, as most consumers did, appreciate the abundance and low prices that their success made available? I'm betting you didn't care any more than any other consumer. For those of us who were in that industry, and in trouble, during that time, we did the best we could. And survived. And part of that survival was acquisitions being sold by the bankruptcy court.

SRSRoccoreport wrote:I gather you would want the Fed & Central Banks to bail out the Shale Oil & Gas Industry. And why not. They purchased $1.5 trillion in assets in the first five months of 2017.

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https://srsroccoreport.com/


Nobody bailed out the industry during the 1986 collapse except one all important, all powerful, near God like force.....global consumers of hydrocarbon energy. You can keep your ridiculous faith in people playing games with money, or gold, other other financial shenanigans, all that industry needs are folks like pstarr, and you, and every other peaker and environmentalist in the world doing EXACTLY the same things they have been doing.

Bitch, complain, whine, lambaste the industry, make fun of it, pretend to swear off your support of it, it is amazing that the very people doing this will make their trip to the nearest liquid fuel acquisition point and collect their rations, fly in the planes and buy the products made from petrochemicals.

Don't need no stinkin' fed. Just give me the natural production decline of every field and well on the planet, and the hydrocarbon consumer, and rocco...the future looks so bright, industry has to wear shades.
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Re: The U.S., energy producing superpower

Unread postby ROCKMAN » Sun 18 Jun 2017, 21:10:46

BANKRUPTCY. I'm wondering again if many folks using that word really understand what the f*ck they are talking about? I went over this a few weeks ago...maybe time for a refresher course. LOL.

Being in the biz for 41 years the Rockman can only guess how many companies he recalls that filed "bankruptcy": 20? 30?. But I recall only 2 going out of business. The vast majority came out ahead: reduced debt (often times completely flushing bond holders), reduced interest rates, longer repayment schedules, etc. But some times those bankruptcies led to corporate acquisitions which typically worked out better for the companies owning the notes/bonds: the acquiring companies would take that debt on.

Filing "bankruptcy" in the oil patch doesn't automatically mean a company is going out of business. It often means they get a new breath of life pumped into the while some of their creditors take a hard hit.

Do folks really have that bad a memory? From 2009:

"SINCE the start of the year it had seemed probable, and for several weeks inevitable. General Motors' application on June 1st for Chapter 11 bankruptcy protection from its creditors, triggering the biggest industrial bankruptcy in history, was nonetheless a momentous event."

And just 8 years later GM has a market cap of $58 BILLION.
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Re: The U.S., energy producing superpower

Unread postby rockdoc123 » Sun 18 Jun 2017, 21:18:47

They are the ones that created the first chart that shows the 75% interest expense ratio. But, maybe they are just flunkies who don't know anything about financial balance sheets of energy companies.

simple answer is yes. They look at numbers that make sense to them, not numbers that make sense to oil companies who are actually out there and operating. Look I know this, was involved for many years at a high level. Unless you are inside the company you have absolutely no idea how much money they are churning;, especially if you can't read a balance sheet that is public info and understand it.
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Re: The U.S., energy producing superpower

Unread postby ralfy » Wed 21 Jun 2017, 20:02:22

ROCKMAN wrote:BANKRUPTCY. I'm wondering again if many folks using that word really understand what the f*ck they are talking about? I went over this a few weeks ago...maybe time for a refresher course. LOL.

Being in the biz for 41 years the Rockman can only guess how many companies he recalls that filed "bankruptcy": 20? 30?. But I recall only 2 going out of business. The vast majority came out ahead: reduced debt (often times completely flushing bond holders), reduced interest rates, longer repayment schedules, etc. But some times those bankruptcies led to corporate acquisitions which typically worked out better for the companies owning the notes/bonds: the acquiring companies would take that debt on.

Filing "bankruptcy" in the oil patch doesn't automatically mean a company is going out of business. It often means they get a new breath of life pumped into the while some of their creditors take a hard hit.

Do folks really have that bad a memory? From 2009:

"SINCE the start of the year it had seemed probable, and for several weeks inevitable. General Motors' application on June 1st for Chapter 11 bankruptcy protection from its creditors, triggering the biggest industrial bankruptcy in history, was nonetheless a momentous event."

And just 8 years later GM has a market cap of $58 BILLION.


From what I know, the debt is passed on to others, so it's still in the system and has to be paid one way or another. And that can only be done through the opposite of peak oil and limits to growth in general.
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Re: The U.S., energy producing superpower

Unread postby Cog » Wed 21 Jun 2017, 20:32:53

Bankruptcy destroys debt. This does mean the unpaid debt does not have ripple effects downstream. Suppliers do not get paid and therefore have to absorb this cost so its not painless.
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Re: The U.S., energy producing superpower

Unread postby ROCKMAN » Wed 21 Jun 2017, 21:31:15

ralfy - As Cog says: bankruptcy destroys debt. Or, in many cases reorganizes it into a more manageable form. And typically it is the unsecured bond holders that take the biggest hit and not the vendors and suppliers.
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Re: The U.S., energy producing superpower

Unread postby ralfy » Thu 22 Jun 2017, 08:45:54

ROCKMAN wrote:ralfy - As Cog says: bankruptcy destroys debt. Or, in many cases reorganizes it into a more manageable form. And typically it is the unsecured bond holders that take the biggest hit and not the vendors and suppliers.


Bankruptcy destroys not only debt.

Also, debt becomes more manageable only if the opposite of peak oil takes place.

Finally, vendors and suppliers can be hit if they are eventually forced to rely on the same unsecured bonds to produce and process more oil.

That's why listening to Cog is a waste of time.
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Re: The U.S., energy producing superpower

Unread postby AdamB » Thu 22 Jun 2017, 08:55:42

ralfy wrote:Also, debt becomes more manageable only if the opposite of peak oil takes place.


Well, the opposite of peak oil has been happening all those times peak oil hasn't been happening, such as the late 1970's, the late 90's, the one claimed by idiots and LATOC groupies in 2008, etc etc.

ralfy wrote:Finally, vendors and suppliers can be hit if they are eventually forced to rely on the same unsecured bonds to produce and process more oil.


And your experience in the oil field supply industry indicates that they rely on BOND sales to stay alive? As opposed to, you know, the thing they have been doing in a couple centuries now? Did you learn this from your astrologist group leader from LATOC?
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Re: The U.S., energy producing superpower

Unread postby ROCKMAN » Thu 22 Jun 2017, 09:01:29

ralfy - "...vendors and suppliers can be hit if they are eventually forced to rely on the same unsecured bonds to produce and process more oil." I assume the "hit" you're referring to is declined business activity. The decrease in such work is much more a function of lower oil prices.

Actually a company going into Chapter 11 bankruptcy usually means more business and guaranteed payment for vendors and suppliers. The C11 order typically puts those folks ahead of bond holders and requires payment on a set schedule. Oddly many years ago Halliburton didn't want to do any work for a small operator that had built of a lot of debt pre-bankrutcy. But the bankruptcy judge ORDERED Halliburton to work for them since it was GUARENTEED payment for the new charges.

Bankruptcy judges are a lot more powerful then many realize. Especially when it comes to helping companies survey bad debt situations.
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Re: The U.S., energy producing superpower

Unread postby rockdoc123 » Thu 22 Jun 2017, 11:14:55

another thing to think about regarding Chapter 11 insolvency is that many companies would actually prefer to take this route as it is often the least painful to solve their cashflow problems and gives them some breathing space to sort out the underlying problems. A number of companies have come out of Chapter 11 stronger and have been successful including GM and Chrysler. On of the main reasons why public companies want to avoid Chapter 11 is that if you are on the Board of Directors or an Officer of the company declaring Chapter 11 sits on your permanent record with the SEC or other trading commissions. That becomes hugely problematic when you want to start up or sit on the Board of another listed company. As a consequence Chapter 11 is the last resort in the minds of Directors and Officers even though it might make the most sense in terms of giving the company a better chance at a future.
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Re: The U.S., energy producing superpower

Unread postby ralfy » Fri 23 Jun 2017, 06:53:56

ROCKMAN wrote:ralfy - "...vendors and suppliers can be hit if they are eventually forced to rely on the same unsecured bonds to produce and process more oil." I assume the "hit" you're referring to is declined business activity. The decrease in such work is much more a function of lower oil prices.

Actually a company going into Chapter 11 bankruptcy usually means more business and guaranteed payment for vendors and suppliers. The C11 order typically puts those folks ahead of bond holders and requires payment on a set schedule. Oddly many years ago Halliburton didn't want to do any work for a small operator that had built of a lot of debt pre-bankrutcy. But the bankruptcy judge ORDERED Halliburton to work for them since it was GUARENTEED payment for the new charges.

Bankruptcy judges are a lot more powerful then many realize. Especially when it comes to helping companies survey bad debt situations.


I am referring to that, junk bonds, and increasing debt.

C11 means less business because vendors and suppliers need the same businesses that are going bankrupt. They also need more consumers to buy more oil in a situation involving less business activity.

In the end, it's nice to imagine that it's only about "bad debt situations" and not a POD that goes in only one direction given limits to growth.
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Re: The U.S., energy producing superpower

Unread postby ROCKMAN » Fri 07 Jul 2017, 17:34:52

At least a super power for a while yet. But:

"Reuters - U.S. oil drillers cut rigs this week for the first time since January and the pace of additions slowed this quarter due to declines in crude prices despite an OPEC-led effort to cut production and end a multi-year supply glut. Analysts, however, noted the weekly decline in the rig count was likely just a brief pause in a drilling recovery expected to continue through at least 2019.

Drillers cut two oil rigs in the week to June 30, bringing the total rig count down to 756, still more than double the 341 rigs in the same week a year ago, energy services firm Baker Hughes Inc said in its closely followed report on Friday.

That decline followed a record 23 consecutive weeks of rig additions, according to Baker Hughes data going back to 1987. Drillers have added rigs in 52 of the past 57 weeks since the start of June 2016. The pace of those additions, however, has slowed over the past few months with the decline in oil prices."
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Re: The U.S., energy producing superpower

Unread postby rockdoc123 » Fri 07 Jul 2017, 17:44:30

Rockman.
I think the decrease in drill activity should signal that the best of the "prime locations" identified by companies like EOG have either been drilled or companies are waiting for higher prices so that they don't waste the early flush production on low prices (that is what I would do).

Would be interesting to see where the reductions were and if there were any areas/basins that saw an increase in rig count.
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Re: The U.S., energy producing superpower

Unread postby ROCKMAN » Sat 08 Jul 2017, 21:12:47

Ralfy - "C11 means less business because vendors and suppliers need the same businesses that are going bankrupt.". Actually just the opposite is generally true. If Company A flushes several $billion in bond debt and does so without having to liquidate any of its asserts its net revenue increases as well as its debt rating.

Even if it doesn't completely flush its bond/bank debt the " reorganization " of its debt (Chapter 11 is referred to as a "reorganization") the rates are generally reduced and the repayment period is extended. In essence the primary goal of the debt reorganization is to allow a company to expand operations in hopes of increasing revenue which would allow a greater opportunity to service its debt.

And that is done by Company A taking that increase in net revenue that can then be paid to the vendors and suppliers. IOW Chapter 11 filings will actually benefit those companies: more revenue spent on operations instead of repaying 100% of debt is good for the vendors. Also understand how vendors deal with operators with a problem dealing with their debt: the vendors require payment upfront. I've consulted for many small operators with questionable abilities to pay invoices. IOW more then once I've hand delivered a check to a vendor that then waited for it to clear the check before the followed up on their end.

As I pointed out early folks referring to the number of companies filing bankruptcy (typically Chapter 11) as the "death of the oil patch" have it 100% ass backwards. It actually allows those companies a chance to survive and potentially prosper. In my 41 years I've seen only one company liquidated. It's the bond investors that usually take the big hit: in Chapter 11 they are typically the lowest on the list of repayment priorities.
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