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Old 12-07-2015, 04:03 PM   #561
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Yes. But many producers borrowed heavily to build those wells and borrowed more last year as they and their investors hoped for a rebound in prices. If borrowing rates increase as credit worthiness goes down and profits drop it will be very challenging to deal with that debt. I suspect the companies with less debt or no debt will get very good bargins should that happen.

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Old 12-07-2015, 04:19 PM   #562
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What about shorting XOM somewhere around this $76 level? If oil falls into the $20s, it is definitely going to trade below $65.
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Old 12-07-2015, 04:34 PM   #563
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Yes. But many producers borrowed heavily to build those wells and borrowed more last year as they and their investors hoped for a rebound in prices. If borrowing rates increase as credit worthiness goes down and profits drop it will be very challenging to deal with that debt. I suspect the companies with less debt or no debt will get very good bargins should that happen.

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You have to look at each company individually when it comes to well payback. I was on a drilling project with Hess 2 years ago in the Bakken near Williston and they drilled several wells (9 I think) in 45 -60 days at a cost of about $12 million per well. Based on the well flow rates, the output at the time would have paid the well costs back within 6 months.

One can't generalize and say that all oil/gas producers are all facing loan default or asset sales to repay loans taken to drill wells in the last go around. Actually, the loans given out by the moron bankers in early 2015 were to a small number of mid-level producers, many of which will be screwed if prices don't rise soon. What will happen is that the banks will force an asset sale and the leveraged assets will be sold. That stuff is happening right now, BTW.

The big guns are pretty safe as they have a large asset base and were in the hot areas early on, roughly 5 years ago. Most of what they drilled and produced is paid for many times over. Those areas (oil only) are the Bakken (North Dakota), the Eagle Ford (TX), the Permian Basin (west Texas), parts of Colorado, New Mexico, Oklahoma, northern Ohio (Utica Shale), and a few others. The big guns include mostly Exxon/Mobil, Hess, Oxy, EOG Resources, Chevron, Anadarko, BP, Marathon, etc.

Natural gas - now that's another subject all to itself.
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Old 12-07-2015, 04:39 PM   #564
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What about shorting XOM somewhere around this $76 level? If oil falls into the $20s, it is definitely going to trade below $65.
If oil goes into the $20's we are all in trouble.

I like XOM at $70.
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Old 12-07-2015, 11:00 PM   #565
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This oil panic is a good way to test ones ability to take pain. Most days its been like water torture, but then every once in a while, like today, you get to have your finger nails ripped out and a cattle prod inflicted to the nether regions.

I read the Q-1s for the companies I own indirectly and everything sounds good. I mean nothing even sounds bad, like they are not even in a bad market. Then the paranoia kicks in and you think... maybe they are all lying... yes even though its 20+ companies all saying similar things, they are all lying.

Then I think... you know the stock market is not rational. Even a normal market is a manic depressive and lately its even been having complete mental break downs (flash crashes). So why should I believe the mentally unstable market over these lying companies?

How do I always end up getting myself into this type of poo situation

I may be the worlds most exciting investor. I don't necessarily make a profit but the drama is always full throttle.
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Old 12-08-2015, 08:21 AM   #566
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I did some tax loss harvesting with VGELX (Vanguard Energy Admiral) a little more than 30 days ago so I could offset a large portion of this year's capital gains distributions.

Sold it at 89.84 a share and parked the proceeds in VGHAX (Vanguard Healthcare Admiral).

Yesterday VGELX was down to 80.82 a share. $57 is where it would need to be for me to recoup my loss and regain the equivalent number of shares. Not sure if it will go that low but I'd like to get back in and I think it's got some more to lose so I'll wait a little longer and see what happens.
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Old 12-08-2015, 12:38 PM   #567
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SDLP has a 43.74% dividend yield now...

They don't have any rigs off contract until 2017 from what I remember and even then it was just like 2. They would still have a number of rigs on contract until 2020.

If I had any money I would be tempted.
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Old 12-08-2015, 12:42 PM   #568
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If I had any money I would be tempted.
Except you lose about 4x the dividend every month in share price for the past several months.

I have watched SDLP fall by dollars from $18 down to the current $5 and change.
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Old 12-08-2015, 02:27 PM   #569
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Well BHP is the poster child and a small study of what has occurred worldwide.

It is heavily in the commodities that have been in oversupply, and one of the major players in creating the oversupply. In 2008 it had 8 billion in debt and has borrowed another 22 billion to get to 30 million in long term debt at advantageous rate of 4 percent due to worldwide interest policies.
in 2011 on 72 billion in sales it had 5 billion in annual depreciation costs now with 71 billion in sales and falling it has 9 billion in depreciation.

It has another 12 billion in commitments for another 8 projects it has undertook, main attraction appears to be proposed split of their minerals division from the commodity oil and gas properties. Which will increase total debt to about 40-45 billion dollars, (currently with short term debt BHP's total debt is 35 billion dollars. While it is not costly in low interest rate environments to only pay 1.5 billion in interest on such a large sum of debt, this company has positioned itself for long term bull market in commodities in a time when commodity prices are in a major bear market, yet this stock is only off from 100 when the strategy appeared to be a very smart move.

From it's most recent presentation on 6 month performance review of July - Dec 2015:


From it's review you can see the 131 million barrels of oil realized an average sale price of 85 dollars per barrel, meaning the price decline of oil has not yet hit BHP. However taking that 131 million of production doubled for yearly production, if it sells for $45 per barrel you have a decrease of 11 billion dollars of sales forthcoming in 2015 just from oil (15 per cent of sales), with all of these dollars falling from the bottom line, meaning at 45 dollar oil BHP as a company is not profitable. I do not think this is reflected in the current stock price as investors instead are focused on the 85 realized and the dividends paid from that as opposed to the future with 45 dollar oil.

If you then layer in copper average of $3.00 per lb realized in 4th qtr now at $2.45 I do not see how this company can withstand current prices and maintain it's current stock price. Already they are announcing they are taking 200 million in provisional pricing for copper in the 4th qtr, a 350 million charge for failure of planned asset sale to go through of their Nickel West business and a write down of those assets, a 850 million tax charge for loss of a deferred tax asset in Australia, a 250 million charge for petroleum producing assets in Louisiana and announced while it plans to go forward with it's tar sand oil project it will review to optimize cash flow.

And this is before even discussing their plan to increase Iron Ore production by 30 percent in 2015 even while iron ore prices have dropped even more than oil.

I think this company is a very good proxy for the overall world process in oil and commodities and will be a leading indicator in 2015 of effects of large amounts of low interest debt tied to high production of natural resources.
BHP and many of the miners continue to be poster children for the devastation of low commodity prices. Hard to imagine there is any possibility of the dividend even being continued with this company next year.
The three words that you no longer hear in the energy/commodity arena are "we have hedges" and the impact of prices they could not and cannot fathom are affecting their balance sheets. Anglo American, an investment grade miner is closing or selling 60% of its locations and laying off up to 85,000 employees.

Looking like T Boone's guarantee of at least $70 oil by end of the year will not be reached, but not to worry he is sure that the fact it is not $70 means it will only be so much higher next year, they are now repeating that for 2016 on CNBC from Raymond James. Chevron CEO stated as much today, that global production will be cut in 2016, and Chevron which will produce 6% more next year will be beneficiary. Based on likely earnings I see Chevron increasing debt by 50 billion in the next 2 years if they are determined to keep their dividend as they pledge which is nwt absorbing more than 100% of earnings. Story is the same for Conoco, Exxon and every other large producer including OPEC. As a group they all exude confidence the industry will all be cutting production, but individually they all plan on increasing production based other own singular improved productivity.
Conco expects oil production in the US to drop by 500,000 barrels next year but Conoco will be beneficiary because they have learned how to make their wells more productive to be able to get more oil out of less capital and the same production costs.

There are these assumptions because the companies know they cannot continue to have stock prices where they are if oil price stays at $40 or below. Though if prices do not rebound on the oil front it will be the capital markets that will force discipline into these companies. Because if they are hedged at oil $45 they do not earn enough to pay the dividends they claim to defend with the vigor of an aging warrior at the Alamo.

I do not have a forecast for the price of oil for 2016, the effect on these companies on continued pricing at it's current level, which to me seems totally in the realm of possibilities and even more likely than not, is devastation for their balance sheets. To buy these companies you have to believe oil will begin that move up to $70, which I am not willing to gamble on yet.
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Old 12-08-2015, 10:30 PM   #570
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What about shorting XOM somewhere around this $76 level? If oil falls into the $20s, it is definitely going to trade below $65.
A far better short is COP if oil is in the $20's.
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Old 12-11-2015, 08:52 AM   #571
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Except you lose about 4x the dividend every month in share price for the past several months.

I have watched SDLP fall by dollars from $18 down to the current $5 and change.
See, now just today SDLP dropped from where we were talking about it ($5) down to $4.20.

I should have shorted something. COP, XOM, anything oil would have been good.
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Old 12-11-2015, 09:11 AM   #572
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The trick is knowing what will happen in advance .

My guess is that it's kind of a game of chicken where the companies that run out of money will stop pumping first and the ones that don't will benefit from the eventual price increase. when and how... Dunno. But that seems to be the game right now.

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Old 12-11-2015, 09:22 AM   #573
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See, now just today SDLP dropped from where we were talking about it ($5) down to $4.20.

I should have shorted something. COP, XOM, anything oil would have been good.
Chesapeake Energy (CHK) would have been a good short, but it may be too late now. They are facing bond payment default and could easily be bankrupt in a year or so. With natural gas prices near $2/mcf, they (and other gas producers) are in deep trouble.
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Old 12-11-2015, 10:57 AM   #574
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All we need now is for iran to open the flood gates. And that should get us to a trough.


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Old 12-11-2015, 11:06 AM   #575
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Ok, I'll admit that I haven't read all 29 pages of this thread.

But can someone explain, or steer me to a link as to why the drop in oil is impacting the entire market?

To me, lower fuel prices (outside of oil company dividends) would be a boon to the economy. It seem counter intuitive.
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Old 12-11-2015, 11:09 AM   #576
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I think because a lot of the market is linked in some way to oil. Banks are facing loan defaults, so that hits the financial sector. Coal, steel, copper, molybdenum are also at rock bottom.

True this doesn't directly affect dot com stocks but they are built on a house of cards anyway.
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Old 12-11-2015, 11:16 AM   #577
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All we need now is for iran to open the flood gates. And that should get us to a trough.


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That's coming, but it may take a while (a year?). They also need customers. I have read that they could export about 1 million BPD of crude oil, max. Too much crude on the open market causes a glut (as we know). Refinery capacity will determine how much crude gets processed.

Once the world runs out of crude storage and all the tankers are full, producing more crude oil will be difficult. This is starting to remind me of the mid-1980's when I worked for Big Oil.
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Old 12-11-2015, 11:18 AM   #578
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They were talking about high yield bonds and some funds or vehicles based on them defaulting.

Then Carl Icahn is saying the problem with high-yield bonds go way beyond those used to finance oil production.
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Old 12-11-2015, 11:21 AM   #579
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They were talking about high yield bonds and some funds or vehicles based on them defaulting.

Then Carl Icahn is saying the problem with high-yield bonds go way beyond those used to finance oil production.
Maybe he was hinting to other commodities like metals and mine ventures.
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Old 12-11-2015, 11:55 AM   #580
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I think because a lot of the market is linked in some way to oil. Banks are facing loan defaults, so that hits the financial sector. Coal, steel, copper, molybdenum are also at rock bottom.
.
But again, why isn't very low oil prices and eventual lower costs considered a good thing?
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