Posted on 09/14/2015 2:44:09 PM PDT by bananaman22
“There’s just no cash.” That’s the Coles Notes from a senior banker describing the book of oil service loans he manages for one of Alberta’s leading lenders. There’s simply not enough cash flow to support current levels of debt.
Bankers and borrowers have kicked the can down the road about as far as they can as more oilfield service (OFS) and exploration and production (E&P) companies default on their loans and seek more relief on lending covenants. While a significant oil price increase to lift all the sinking boats will surely come, it won’t happen soon enough. More of the same won’t work.
Oil industry debt is everyday news. But the discussion is about the symptoms, not the ailment.
Companies cannot borrow their way out of debt. Equity capital is only available at distressed valuations. Specialized OFS assets will fetch only a fraction of replacement cost—if somebody actually wants them. Although oil and gas reserve valuations are down by half, borrowers are being forced to sell them anyway to repair balance sheets. The last four months of 2015 will be very difficult for any company with meaningful amounts of debt. Same for their lenders, the other signatories to the loan agreement.
As the banker said, “There’s just no cash.” Here’s what it means.
(Excerpt) Read more at oilprice.com ...
The illegal hussein administration is bowing to the middle east muzzies to not only destroy America’s oil industry but also Canada’s as well. Here in Texas, the artificially low price of oil is already having a crippling effect on our once roaring economy.
The primary reason for oil industry problems is the newly elected NDP. Their cabinet ministers are known to be hostile to the oil industry and the government created uncertainty by wanting to do a year-long revenue review at a time when no oil company is even making enough to break even. Because of the uncertainty, companies that would normally ride-out a slump are choosing to shelve projects and reduce existing operations.
Almost everybody here regrets the election and it was only a couple of months ago. Unfortunately, it was the result of poor management by the PC’s over 15 years. We might not be facing this issue if the PC’s had simply kept the province debt free, instead of giving my province an $18 billion dollar debt.
The early retirement/forced retirement meetings are happening at my spouses’ company. They’re a very conservatively managed group, always planning based on low $30 barrel price. I’m surprised at their actions this week, but maybe they see the writing on the wall.
The other side of the coin is, to assure decent margins, the cost of extraction and processing of the raw materials, in this instance petroleum, could it be reduced by improved technology? If, instead of, say, $40 a barrel, could various efficiencies be introduced to reduce this to, say, $30?
Engineers, you are kind of smart people. Rethink how and why current processes are put to use, using newer tools, and scaling up promising technologies.
Remember, all successful enterprises live in the margins that allowed by lowering the cost of production as compared to the strike price of the product being sold. If the strike price goes down, the cost of production must go down as well.
As price falls, consumption increases. As consumption rises above the current levels, price again rises.
Kind of an inflexible law in some ways, as it cannot be violated without serious consequences.
Alberta, like Texas, has the goods.
They have above average prosperity over time.
Now is a good time to hunker down.
Were you speaking of a provincial election? Apologies, if so, and my mistake.
Yes. My provincial election was a couple of months ago. The government immediately slapped the industry with a tax of $100 million dollars and everything stopped dead in its tracks.
Thank you! Shocking information! The NDP really hurt AB with that. Very sad. That might hurt the buildup of production, when prices go up again.
I’m an American, but Canada is a net energy exporter. We all need healthy production from Canada. American production is also slowing down because of the international price war. With hundreds of millions of people in developing countries wanting to be new drivers, production might not meet demand in the near future.
I remember bumper stickers from a couple booms ago “I won’t forget the last boom” up in Alberta. Oh, they forgot, alright. Many of them, anyway.
Yikes! they manage at 30/bbl, and are still in the portapotty? UGH! Tis ugly. Glad I took my drilling experience over to constuction. different, with big swings, but not like oil.
"Lord, please let there be one more oil boom. I promise not to pi$$ it away this time."
That’s it!
Most of those voting for the NDP were not Alberta born, but came here because their own provincial NDP screwed up their provinces.
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