US Growth

Generali

Thrugelmir wrote: »

Hasn't stopped the Saudi's from pumping 10 million barrels a day the highest rates since 2002. Nor the Russians who are also pumping at record levels to maintain their level of income. The losers could well be in the North Sea where platforms will become financially unviable over time.

Not a good time to be Norway or any other small country that is reliant on expensive oil to balance the budget.

cells

Generali wrote: »

The cost of getting oil out of the ground in the US is only going one way and companies are already working out better was to use capital equipment. The rig count is falling but production isn't falling with it.

My best guess is that as the $500bn of debt comes up to be repaid, companies are going to seek Chapter 11 protection and someone is going to end up with some very cheap oil assets. I suspect that $45 oil is here to stay.

why would a bank force bankruptcy of the loan if the businesses are cash flow positive?

by all accounts even at todays prices a frack well pays for its cost in about 1 year because the first year production for both gas and oil is massive (it reduces after that but fast payback is extremely important economically)

I think most the frackers will survive, if someone wants their assets they are going to have to offer them more than the book value.

also I cant be bothered to check it fully but one of the biggest chesapeak has ~$10B of debt and they are about 10% of all fracking in the USA. If thats a guide the industry has ~$100B of debt which sounds more reasonable and believable than $500B of debt. Even at peak gas and oil prices the total fracking industry revenue was ~$220B so I doubt any bank/lender would allow the industry to gear up its debt to over twice its annual sales.

Generali

cells wrote: »

why would a bank force bankruptcy of the loan if the businesses are cash flow positive?

by all accounts even at todays prices a frack well pays for its cost in about 1 year because the first year production for both gas and oil is massive (it reduces after that but fast payback is extremely important economically)

I think most the frackers will survive, if someone wants their assets they are going to have to offer them more than the book value.

The $500bn refers to bonds outstanding and due to mature over the next 5 years. Restructuring a bond issue is an order of magnitude harder than persuading the bank to extend and pretend for you.

http://www.bloomberg.com/news/articles/2015-08-26/oil-industry-needs-to-find-half-a-trillion-dollars-to-survive

Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent.

As more bonds are downgraded, fewer funds will be able to invest in them as most fixed income funds have a minimum level of credit rating in which they are allowed to invest. Increasingly, bonds will end up in the hands of hedgies and vulture funds who don't really give a damn about anything other than getting as much money out of the companies as quickly as possible. As a result, companies will either find themselves in a position where they can cut a deal or be forced to sell off assets at whatever price they can get for them.

It'll be a great time to be Exxon or Royal Dutch Shell in a couple of years I reckon.

cells

Generali wrote: »

The $500bn refers to bonds outstanding and due to mature over the next 5 years. Restructuring a bond issue is an order of magnitude harder than persuading the bank to extend and pretend for you.

http://www.bloomberg.com/news/articles/2015-08-26/oil-industry-needs-to-find-half-a-trillion-dollars-to-survive



As more bonds are downgraded, fewer funds will be able to invest in them as most fixed income funds have a minimum level of credit rating in which they are allowed to invest. Increasingly, bonds will end up in the hands of hedgies and vulture funds who don't really give a damn about anything other than getting as much money out of the companies as quickly as possible. As a result, companies will either find themselves in a position where they can cut a deal or be forced to sell off assets at whatever price they can get for them.

It'll be a great time to be Exxon or Royal Dutch Shell in a couple of years I reckon.

all their problems are self induced. They are producing so much they are devaluing the price of their output products.

There will be some relief as winter approaches and the first of many LNG plants start exporting this winter.

Thrugelmir

Generali wrote: »

Not a good time to be Norway or any other small country that is reliant on expensive oil to balance the budget.

In the news today Total is selling $900 million of North Sea Assets. Squeeze is truly on.

http://www.ft.com/cms/s/0/891d6e58-4c19-11e5-b558-8a9722977189.html#axzz3k6UAN82f

Generali

cells wrote: »

all their problems are self induced. They are producing so much they are devaluing the price of their output products.

There will be some relief as winter approaches and the first of many LNG plants start exporting this winter.

It's the problem of producing into a market that is basically operating under conditions of perfect competition which is over-supplied.

Game theory explains the problem quite neatly. What is best for everyone in the industry is that supply is reduced. What is best for each member of the industry is that they individually increase supply while others reduce theirs.

As oil supply is no longer a cooperative game, each actor will act in their self interest, that is increase their own output and try to gain market share at all costs.

Thrugelmir wrote: »

In the news today Total is selling $900 million of North Sea Assets. Squeeze is truly on.

http://www.ft.com/cms/s/0/891d6e58-4c19-11e5-b558-8a9722977189.html#axzz3k6UAN82f

I can't imagine that pulling oil out of the North Sea is one of the cheaper ways of producing oil.

SunSunSundegei

cells wrote: »

why would a bank force bankruptcy of the loan if the businesses are cash flow positive?

The Bank(s) can oppose the Chapter 11 application if it so chooses.

A Chapter 11 filing is made when a business believes cannot service it's debts and therefore requires the protection such an order will give them. It can be opposed, and isn't necessarily always successful.

Generali

SunSunSundegei wrote: »

The Bank(s) can oppose the Chapter 11 application if it so chooses.

A Chapter 11 filing is made when a business believes cannot service it's debts and therefore requires the protection such an order will give them. It can be opposed, and isn't necessarily always successful.

The $500bn isn't owed to banks, it's owed to bondholders. There will be other money owed to banks.

[Deleted User]

Interesting take by Bill Maher on the American economy -

https://www.youtube.com/watch?v=-ygeC-oeIO4

... worrying direction of travel he describes.

WR

Thrugelmir

Wild_Rover wrote: »

... worrying direction of travel he describes.

Americans are insulated from the wider world.