Posted on 11/28/2015 4:40:47 PM PST by Lorianne
The Energy Intelligence news and analysis creator and aggregator is not one to haphazradly throw around hyperbolic claims and forecasts. So when it gets downright apocalyptic, as it did this week in a report titled "Is Debt Bomb About to Blow Up US Shale?", people listen... and if they are still long energy junk bonds, they panic.
The summary: "The US E&P sector could be on the cusp of massive defaults and bankruptcies so staggering they pose a serious threat to the US economy. Without higher oil and gas prices -- which few experts foresee in the near future -- an over-leveraged, under-hedged US E&P industry faces a truly grim 2016. How bad could things get?"
(Excerpt) Read more at energyintel.com ...
Disagree with you on all three.
Congress can pass laws that provide relief to O&G companies and that provide incentives for banks to restructure the debt of O&G companies. Nothing in the Constitution says they can’t do that.
Putting a floor price on oil imports can be carried out in a number of ways. The historical way is to impose a tariff. It is entirely constitutional and is necessary to protect American industries from foreign dumping.
Deleting the money created out of thin air by the Fed in exchange for a BBA is entirely legal and necessary. The Fed must call the bonds back that were bought by bond traders who used Fed notes to purchase them. The Fed then disposes of the bonds as unrecoverable. The bond traders and hedge funds will be upset but ... who cares other than them? They had a good run. Party’s over for them.
You didn't say anything about congress passing laws, you said you would advise POTUS to have banks restructure debt. He doesn't have any such authority (and neither does congress).
Nothing in the Constitution says they can't do that.
That's not the way it works. Nothing in the Constitution says they can do that, which means that they can't, which is clear enough even without consulting the ninth and tenth amendments.
Tariffs (a really stupid idea) are not imposed by POTUS.
Your last paragraph is just utter nonsense.
BTTT!
Doesn't the US produce more oil than SA?
Because oil is a fungible product, flooding the market by the Saudis brings prices down all over the world.
I don't think this is a long term problem because Saudi Arabia can only afford to flood the market for just so long (they are already having cash flow problems) and the oil is still in the ground in the U.S.
Any defaults will first wipe out the equity investors...the debt holders still have a claim to the oil in the ground to the extent they are secured.
That said, bankruptcies of drillers will begin to affect debt holders after equity is wiped out based on the seniority of debt (i.e. junior/unsecured/junk liens are wiped out first, then up the ladder to senior debt holders last--if at all)
So when the US domestic producers produce tons of oil, that’s patriotic.
When the Saudis produce tons of oil, that’s a sinister plot to depress prices. Even though of course it hurts their prices, too.
I wonder what you would say if the Saudis got OPEC to cooperate and cut production and the price went to 150, would you throw them a party then for being pro-American patriots?
You are a moron, it’s just a fact.
i’ve been called worse. And I’ve called you worse in my head :)
haev a good one FRiend.
and to answer your question: yes, of course I @#$@#$ing love that 30 bucks fills the tank. But if 50 a barrel made the frackers money and would not throw us into the taxpayer bailout that is SURELY coming I would be happy to pay 35.
take a look at the billions and billions in debt, if you read the whole article.
another insane lending and borrowing spree, another disaster, another bailout by us.
The people you are so willing to have taxpayers subsidize, were the ones grinning ear to ear over $4.50 per gallon gas prices, no matter how much it hurt those on the bottom. They responded to a market demand, assuming the market would not change.
Who guaranteed them the market would no change? The taxpayers have enough of a problem paying peanut farmers billions this year because there are more peanuts being grown than anyone knows what to do with.
I like low gas prices because it allows people to so more with their income and their lives. I don’t like taxing them the difference just to enrich others in the Shale Oil business. No matter how many times you say “George Bush”. Btw so you realize what that makes you sound like?
Do you guys read what people write or just like to respond angrily.
if you read in that that somehow i was happy subsidizing them, get glasses or read twice.
I remember how tight mom and dad were (they were born in the 1911 era) and didn’t understand it until I was an adult and they explained life in the Great Depression. As life went on their experiences were merely a story in the past.
In 1979 here in South Texas I started my business in Corpus Christi. It was an industrial electronic/electrical business engaged in welding machinery repair and industrial machinery. Things were going very well and I expanded my workforce and increased tooling and inventory.
Then the stories of my parents came back to haunt me when the oil depression kicked off in early 1982. I remember sitting in my office a day before paying my employees and reading through the mail which contained numerous bankruptcy filings from my customers in the oil business. It was devastating and it even got worse as time went on. I eventually had to lay all of my employees off and run the business by myself to make it survive...although I almost didn’t. My only saving grace was that I financed nothing in the business and didn’t have any banks calling notes.
I then learned the lessons of my parent’s experiences back in the 20’s and that what it was to barely get by with hardly any cash at all. Life was hard and there were times I didn’t have the money to pay my personal bills and buy groceries but I would not lower myself to go on welfare. The other lesson I learned was that any oil related business goes through wild cycles of boom or bust. Sure enough the crash of 1986 came again and due to my experiences of 1982 I survived it too and still have the business to this day.
From those lessons I heard from my parents and my personal experiences I have a policy with only one exception...the purchase of a house...and that is “if you can’t pay cash for it...don’t buy it!” To this day I own everything outright....just in case the specter of an oil collapse comes again and it seems it will be here very shortly.
That was a long time ago and memories of exactly what impact a severe contraction of the oil business has on all levels of business has been lost in the fog of time and in most cases never experienced by those in both big or small business today. During that period of time I watched my fellow businessmen have their notes to the bank “called” even though they were not behind. The reason: To generate cash for the banks that were “left holding the bag” for huge losses due to a flood of bankruptcies of both companies and individuals affected by the depression.
It’s coming folks and if you are associated with the oil business in any way, all that I can say is be prepared, for that day will be here soon.
> “You didn’t say anything about congress passing laws, you said you would advise POTUS to have banks restructure debt. He doesn’t have any such authority (and neither does congress).”
The President and Congress have the authority to make laws together that gives them vast authorities limited only to what the Constitution enumerates. The Constitution allows Congress and the President to regulate its money and to tax directly and indirectly. They are authorized to make laws to fund O&G companies so that they survive for the public good. They can do this easily through long-term field contracts.
Right now there is an oil war between Saudi Arabia and the United States. The Saudis have clearly stated their goal is to cripple the emergent US oil industry. Therefore, it is for the public good that the US oil industry has protection from attempts by outside foreign entities to cripple it.
The same with the rest of your rant. One advises the President on what he should do and he then proposes to Congress what is to be done. If Congress doesn’t agree, it better have good reasons or else the voters will throw them out.
How is the last paragraph ‘utter nonsense’? The Fed calls bonds back routinely and retires them. They created the money from nothing, they can take it back.
In the case of US non-foreign debt, they can call a large series of bonds back valued in the trillions. It would demolish a good deal of the bubble bond market but no one cares because that bubble serves a very few.
The extremely low yield on those bonds does not serve banks, insurance companies or pension funds very well. They simply do not have enough capital to stay afloat on those bond yields. They rely instead on the carry trade with channeling the NY Fed digitally created money to treasury bonds. Once that carry trade goes belly up, they will need to direct their efforts to traditional investments which is what Trump has in mind for them. They will eventually be happier, but first they will bitch and moan because traditional investments are not so easy as the carry trade gravy train.
It is evident you are grasping at straws at some of the things that Trump can do to save the United States. Your argument is extremely weak and emotional. That indicates you are somehow affected and that your life may be turned upside down. The bad news for you is there are very few people that give a damn. You should exit what you are doing that is tied to the coming reforms and get into something else. If I was you, I would liquidate and work 24/7 on a new thing that is completely separate from the government bond market.
SA hasn't increased oil production. US produces more oil than SA. So how can the US complain that SA as flooding the market?
The point is SA isn't flooding the market.
The Saudis have a lot of control over OPEC. The Saudis have deliberately refused to CUT the production of oil in order to keep prices high. Hence, the price of oil has collapsed. The Saudis caused that.
And the collapse in oil prices was by Saudi design for the sole purpose of crippling the emergent US Oil industry. That’s documented fact.
What is needed now is a floor price to oil imports, either by tariff or by other means.
The average cost of extracting a barrel of oil from the ground in Saudi Arabia is about $6.
The average cost of extracting a barrel of oil from the ground in the US is about $32.
A floor price of $40 to oil imports will allow the US oil industry to survive and will allow for domestic gasoline prices to hover about $1.65 which is great for the economy.
US oil production at that time was 13.973 million bbl/day.
SA oil production at that same time was 11.624 bbl/day.
Given those figures, and as I said, "how can the US complain that SA as flooding the market?"
You do realize that having the government restrict goods coming into the country is the same thing as a tax?
Did you not complain about Saudi Arabia, and invoke “George Bush”?
To claim you did not call for subsidies rings hollow.
They have a much lower cost of production than our fracking industry and in fact they are driving our producers out of business.
I watch Closing Bell and Fast Money everyday and this is often a major topic of discussion. The people who are saying this is true are the oil traders who come on the show as guests.
Freereign, did not read post #33?
The Saudis are causing a flood to the US market by REFUSING TO CUT production and for refusing to influence OPEC to do the same.
The US oil terminal storage infrastructure is filled to the brim with oil. If the Saudis had cut production, that would not be the case. And they refused to cut production in order to see the US system flooded by its own production.
The comparative amounts of what the US is producing to the what the Saudis have produced are IRRELEVANT. It has nothing to do with the Saudis causing the US oil production to rise and exceed their volume to the US. That has nothing to do with it.
The Saudis saw the US oil production increasing rapidly and they had a chance to cut their own and OPEC’s production to stop prices from collapsing. But they chose not to do that so that they could cripple the US oil production industry.
They are responsible for the flood of oil in the US. You might say no, the US oil industry is responsible for the flood of oil. But US oil producers are working on US land, and the Saudis are trying to force their product in so that the US producers quit the field. The Saudis want to control the market. So they are the culprit. They are the cause for the flood of oil.
Yup. Right on target.
Saudi Arabia may go broke before the US oil industry buckles
It is too late for OPEC to stop the shale revolution. The cartel faces the prospect of surging US output whenever oil prices rise.
...The problem for the Saudis is that US shale frackers are not high-cost. They are mostly mid-cost, and as I reported from the CERAWeek energy forum in Houston, experts at IHS think shale companies may be able to shave those costs by 45pc this year - and not only by switching tactically to high-yielding wells.
Advanced pad drilling techniques allow frackers to launch five or ten wells in different directions from the same site. Smart drill-bits with computer chips can seek out cracks in the rock. New dissolvable plugs promise to save $300,000 a well. "We've driven down drilling costs by 50pc, and we can see another 30pc ahead," said John Hess, head of the Hess Corporation. It was the same story from Scott Sheffield, head of Pioneer Natural Resources. "We have just drilled an 18,000 ft well in 16 days in the Permian Basin. Last year it took 30 days," he said.
The North American rig-count has dropped to 664 from 1,608 in October but output still rose to a 43-year high of 9.6m b/d June. It has only just begun to roll over. "The freight train of North American tight oil has kept on coming," said Rex Tillerson, head of Exxon Mobil.
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