Several years ago World Oil magazine fired an editor for running editorials from Art Berman, one of a few oil field experts who claimed the Emperor had no clothes and the value of shale gas and shale oil plays were vastly over-rated. Art has continued to vet the “unconventional revolution” with his petroleum truth blog, http://www.artberman.com/blog/ . Meanwhile, he was dissed by the players and the oil trade magazines that depend upon those players for most of their revenue. No one speaks evil about the hand that feeds it. And all these Pollyannaish magazines are no exception.
That really takes away from the value of such magazines because they become unreliable when they are unable to ask the hard questions nor tell it like it is. World Oil editorialized this very month that there were “rays of sunshine amid the storm clouds…” Really? Well, my bet is that a number of larger independents will merge or go bankrupt. Sandridge is down to less than 50¢ (August 20, 2015). And even the editor’s page was rather mealy-mouth about how that the money pouring in from the hedge funds and energy banks was likely to dry up. Well, duh…the industry has taken to this money like a drug addict. They cannot get enough and the more they get the bigger the dose they need. Now it’s cold turkey as the hedge funds realize they’ve made some very bad bets. KKR must feel really stupid right now as Samson is driven to the wall and will soon file Chapter 11. Will heads roll at KKR. They ought to. My buddies thought it a bad deal in 2011. But what do they know? They’ve only been part of the oil patch since 1974 and survived the 1980s and 1990s. Lest we forget, the bust wasn’t the half of it circa 1981-1985, the entire decade of the 1990s were plagued by low prices and that may be the fate of the industry for the foreseeable future, perhaps into the 2030s when us old timers will mostly have returned to room temperature.
Oil & Gas Journal, Reporter, and Oil & Gas Investor all tout the notion that the cost of drilling is much lower and the economics is still viable. Nonsense. How many companies have to file bankruptcy for the trade magazines to admit the income is exceeding the hemorrhage of cash? Until we stop producing huge quantities of oil and gas in the face of a glut, it will continue.
The economics of drilling has been put on its head. The over-optimistic projections have led to over-estimated reserves by skewing the old Arp’s decline formula and in the end, oil and gas just isn’t there in the ground like they say it is. Further, the SEC, by allowing companies to book reserves for undrilled prospects and to do so for five years, means that many companies are all hat and no horse. When the five years is up, they have to unbook the reserves and as a consequence all that money they borrowed against them now means they are as underwater as a 2006 McMansion in Las Vegas. The AAPG cannot scratch up enough presentations for their meetings. An Oklahoma trade show was canceled for lack of participants. NAPE is a meeting between the desperate and the unexcited.
And the industry itself has been in denial. Harold Hamm, supposedly some sort of oil patch genius, cashed out the hedges Continental Resources held and now is watching the company implode. It’s only the beginning folks. You heard it here.
Canada is peddling oil at $23 a barrel. Some reports say Marcellus gas in places is selling for 55¢ per MCF, and most gas players nationwide are getting prices that were around in 1991 when I couldn’t sell a deal because gas prices were at $2 an MCF. Half the drill rigs in the U. S. are laid down as I speak. They will not be coming back on a moment’s notice. Small drillers who have borrowed money will simply fold up and these rigs await the same fate as many did in the early 1980s. Namely, they will be cut up for scrap metal and salvaged for parts.
This was all foreseen by the old heads. The old gray- or bald-headed guys that went through 1982-86 know that capitulation is coming. The final blow will downsize the U. S. industry. And the banks, if they have a lick of sense, will avoid them like the plague until the next generation of bankers flush with cash, create the next bubble.
Meanwhile the “Trades” will continue to bubble their foolish talk and talk up a business that needs to have a voice that will tell the truth like Art Berman was doing years ago. No one wants to listen to a Cassandra. But remember Cassandra told the truth, something sadly missing from the industry magazines of today.
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