Posted on 05/29/2017 10:54:35 AM PDT by Lorianne
If they over extended themselves then declare bankruptcy and get out of the business.
No more taxpayer bail puts
Not our fault you had a lousy business plan
Solar Panels on the the Wall? Okay I’ll read the article sigh
For me their is a boy-who-cried-wolf effect going on with all these doomsday predictions about fracking. Every year there is another explanation about why fracking is stupid and going to go out of business any day now and it never happens.
$3 a gallon in Reno
“You must live in a high tax state. $1.97.9 / gal. here.”
Yeah, Taxifornia. The governor and his commie buddies just put another tax increase on gas to pay for our $20 BILLION dollars a year in illegal costs and their utopian state pension plan which has been broke before it was even implemented.
Tax and spend. Huge unfunded debt. Democrat control.
The per barrel price is sub $50 (or was sometime last week, when I last paid attention).
It was over $120 a barrel, and we started fracking like mad. Now the oil market is oversupplied, and many frack rigs are not profitable at the current price (I don’t know what it is today, but years ago it was $80 a barrel for break even).
So they got caught upside down. Just like a lot of farmers did with high corn prices. They bought high priced land and equipment, and suddenly have no way to cover their debt.
This is what my late grandfather called the “silly cycle”. Commodities fluctuate over time, and never follow your neighbors in a boom cycle, always buy in a bust. He was very successful. My father and uncle had the learn the hard way.
If I may ask, what dollars ( I mean by year) is that graph based on? If it is in the same year dollars ($20 in 1998 and $20 in 2017 with out inflation adjustment) that is not quite right.
In today’s dollars, the price per barrel is closer to the sub $18 in 1998. Gas prices were much lower in relation to the price of crude then. Today, with oil cruising at sub $50 in 2017 dollars, gas costs more in relation.
A better graph would be one were prices were normalized for inflation by having them adjusted to 2017 dollars (or roughly 2% per year). Of course, finding true inflation numbers is very problematic.
Geez, sounds like farmers. They get killed for high yields, they get killed for low yields.
The numbers in the Bloomberg chart are not consistent with the numbers in this article about a report from Moody’s:
http://www.marketwatch.com/story/junk-bond-market-facing-record-refinancing-cliff-moodys-2016-02-16
Moody’s says the total amount of high yield debt that matures between 2016 and 2020 is $947 billion, and if you add up the numbers in the Bloomberg chart you get over $500 billion just for the energy industry. But debt in the energy industry is only about 15% of high-yield debt, so one of these articles is incorrect. If I had to pick the one that’s correct, I’d go with Moody’s.
As the Moody’s article states, energy companies are starting to issue new bonds to refinance the existing debt. That’s how they’re going to get out of a possible trap, by refinancing the old debt with new debt. Because of still very low interest rates on investment-grade debt, there’s strong demand for high-yield bonds and most companies should be able to refinance their high-yield debt to pay back the maturing debt. A number of energy companies with the biggest debt loads have already gone through the bankruptcy process where they wiped out most or all of their debt, and they’re back in business producing oil and natural gas. So some of this debt is already gone. The key thing for investors is to stay widely diversified and don’t get too heavily invested in high-yield bonds in any one industry, especially energy.
You have the right to move across the border to Nevada or Arizona, or places further east. I left California a long time ago, never to return.
One last point: the amount of cash flow generated per barrel of oil produced at a $50 oil price is much higher than $10 in several large regions of North America. Profit is a different number that includes a lot of non-cash charges like depreciation of equipment and depletion of oil reserves. But I’ve heard some oil company CEO’s say that they can produce oil in some areas of Oklahoma and West Texas for only $10 per barrel in cash costs. Cash costs are just the total amount that is costs to drill the well, build storage tanks and pipelines, and pump the oil out of the ground. So the US oil industry is generating much more cash flow than the pessimists think in some big oil-producing regions. The productivity of oil drilling has increased dramatically in the last several years in North America and it’s still increasing.
Bond rating firms and bond fund managers put more weight on cash flow generated than reported earnings, so most companies should be able to refinance high-yield debt without much difficulty.
This looks a whole lot like something the CBO would produce with an assumption that only the government, not economic growth will fuel a demand and profits. This wall is as solid as the report on peak oil a few years ago.
Here's a better EIA link: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=f000000__3&f=m which shows unadjusted I think. Crude in 1998 was $8 to $13, call it $10. And here's a gasoline price from EIA: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_NUS_DPG&f=W Shows 1998 gasoline price of about a buck. So if those are both unadjusted, then 10:1 oil to gasoline in 1998 and 20:1 now.
I assumed neither graph was adjusted for inflation but I could be wrong. The crude oil link points here: https://www.eia.gov/dnav/pet/TblDefs/pet_pri_spt_tbldef2.asp and the gasoline points here: https://www.eia.gov/petroleum/gasdiesel/ Neither of those pages is very useful. I even downloaded the EIA spreadsheet but it only had 2010 data.
Here's a better EIA link: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=f000000__3&f=m which shows unadjusted I think. Crude in 1998 was $8 to $13, call it $10. And here's a gasoline price from EIA: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMM_EPMR_PTE_NUS_DPG&f=W Shows 1998 gasoline price of about a buck. So if those are both unadjusted, then 10:1 oil to gasoline in 1998 and 20:1 now.
Yes.
“...move across the border to Nevada or Arizona, or places further east....”
Oh, yes. In the planning stages now.
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