Posted on 10/29/2015 5:23:47 AM PDT by thackney
Like a puddle of spilled water on a Midland street in August, money is evaporating out of the oil patch.
Six companies alone will likely write off more than $60 billion from their balance sheets because the value of their oil and natural gas reserves have plummeted, according to a forward-looking story by the Chronicle's Collin Eaton.
Looking at the industry as a whole, including private companies that are not required to reveal their finances, hundreds of billions of investors' dollars could disappear. The number of oil and gas companies declaring bankruptcy continues to rise, which means even more losses as many debts will never be repaid in full.
Some of that money comes from oil companies themselves and more comes from private equity firms that gambled on oil prices never going down. But as the Associated Press recently reported, some of that money came from small investors looking for a higher return than the 0.25 percent currently offered by most savings accounts.
Most of those small investors should never have gotten involved in the volatile world of oil and gas. This where the Federal Reserve's policy of low interest rates gets people into trouble.
(Excerpt) Read more at houstonchronicle.com ...
New way to bet on oil wipes out billions in investor savings
http://www.chron.com/news/texas/article/New-way-to-bet-on-oil-wipes-out-billions-in-6590935.php?cmpid=gsa-premiumchron-result
When Karen Robinson’s husband died, she worried she wouldn’t have enough money to raise her two young girls and save for retirement.
Then she met a financial planner, Tom Parks, who told her about investment partnerships that would allow her to ride the boom in U.S. oil and gas production while receiving a steady stream of payments to help pay her bills.
“He showed me this picture of the United States, and said they were getting oil out of shale, and energy was the way to go,” says Robinson, a high school teacher from Cranfills Gap, Texas. She liked that Parks seemed so confident. “I trusted him.”
Two years later, her partnerships have plunged in value and Robinson has lost more than half of the $202,000 she invested, according to a complaint filed with regulators against Parks and his firm, Ameriprise Financial Services. Parks did not return phone calls and emails; Ameriprise declined to comment.
For years, brokers have been luring savers like Robinson into drilling partnerships with the promise of fat payouts. With yields on safer investments like government bonds so puny, it wasn’t a hard sell. But now this once hot business, a big source of fees for brokers and banks, is coming to a messy end.
In the past year, investors have lost $20 billion in publicly traded drilling partnerships, or $8 of every $10 they had invested, according to a report prepared by FactSet for The Associated Press. That figure does not include losses from $37 billion of bonds sold by the partnerships in the five years since 2010, many down by half in last 12 months, or losses from bets on private partnerships that don’t trade publicly and are difficult to track...
excerpted
Is it just me, or does this writer seem almost ghoulishly gleeful that there’s economic difficulty in the oil patch?
Would she have contacted regulatory authorities if her money doubled? It is this kind of government intervention that encourages dupes to go into risky investments. Moral hazard is real. Don’t invest in what you don’t understand. Liberty is all about consequences.
And even then, think twice.
Understanding an industry is not the same as understanding, predicting the market for that industry's products.
Absolutely. It makes no sense to risk more than 5% of your wealth on something like this. The only other great point is that much of this foolishness is driven by greed, but a large part by policy as well. Let the market set the interest rate.
The balance sheet numbers giveth and the balance sheet numbers taketh away.
Many companies are listed now wherein their equity value is far below their debt i.e. one company (SFY) has a market value of about 40 million and 1.1 Billion, with a B, debt load. Marathon cut its dividend today quite a bit to save about 450 million in dividend expenditures in an effort to keep their capex in tact. Will these companies survive, yes if they can pay their debt and continue to do a minimal development program till (?) the commodity prices go back up. If they sink further, there will be BKs. I don’t look for many buyouts though because in a buyout, the acquiror assumes the debt and in this market, they cannot justify the purchases and will just wait for great properties to arrive on the sale block.
Exactly. While I feel sorry for her, investment means risk.
Who I really feel sorry for is retired people who invested in stocks like AIG who really did mismanage funds and then asked for a bailout! while they screwed over their small-time investors.
Governments have always been against the little guy. That’s history which is why it is ironic that the little guy is always asking government to come in and help him out.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.