[SRSroccoReport]

rockdoc123,



Maybe you should tell that to the analysts at the EIA. They are the ones that created the first chart that shows the 75% interest expense ratio. But, maybe they are just flunkies who don't know anything about financial balance sheets of energy companies.

SRSroccoReport

https://srsroccoreport.com/

[AdamB]

$this->bbcode_second_pass_quote('SRSroccoReport', '[')b]U.S. Shale Energy Industry Is Choking On Debt & Interest Expense

Yeah... the Great U.S. Energy Superpower is choking on debt while it pays 75% of its operating cash just to service its INTEREST EXPENSE:

[AdamB]

$this->bbcode_second_pass_quote('onlooker', '@')SRSroccoReport
This is in line with the Etp analysis and current observations from the Hills Group

[AdamB]

$this->bbcode_second_pass_quote('Yoshua', 'I') guess we all can agree on that things could be better and that the oil industry has a problem right now.

[SRSroccoReport]

AdamB,

Ah... I see. Making lots of comments all at one time. I know children who behave in the same fashion.

However, if you FOCUS on the EIA Chart, you will notice that the ENTIRE INDUSTRY is suffering from a 75% Interest Expense, just not one or two companies.

While I appreciate you pointing out the obvious that a bankrupt company can be bought out by another... what happens when the ENTIRE INDUSTRY is in trouble??

I gather you would want the Fed & Central Banks to bail out the Shale Oil & Gas Industry. And why not. They purchased $1.5 trillion in assets in the first five months of 2017.

SRSroccoReport

https://srsroccoreport.com/

[AdamB]

$this->bbcode_second_pass_quote('SRSroccoReport', '[')b]rockdoc123,



Maybe you should tell that to the analysts at the EIA. But, maybe they are just flunkies who don't know anything about financial balance sheets of energy companies.

SRSroccoReport

https://srsroccoreport.com/

[AdamB]

$this->bbcode_second_pass_quote('SRSroccoReport', '[')b]AdamB,

Ah... I see. Making lots of comments all at one time. I know children who behave in the same fashion.

[ROCKMAN]

BANKRUPTCY. I'm wondering again if many folks using that word really understand what the f*ck they are talking about? I went over this a few weeks ago...maybe time for a refresher course. LOL.

Being in the biz for 41 years the Rockman can only guess how many companies he recalls that filed "bankruptcy": 20? 30?. But I recall only 2 going out of business. The vast majority came out ahead: reduced debt (often times completely flushing bond holders), reduced interest rates, longer repayment schedules, etc. But some times those bankruptcies led to corporate acquisitions which typically worked out better for the companies owning the notes/bonds: the acquiring companies would take that debt on.

Filing "bankruptcy" in the oil patch doesn't automatically mean a company is going out of business. It often means they get a new breath of life pumped into the while some of their creditors take a hard hit.

Do folks really have that bad a memory? From 2009:

"SINCE the start of the year it had seemed probable, and for several weeks inevitable. General Motors' application on June 1st for Chapter 11 bankruptcy protection from its creditors, triggering the biggest industrial bankruptcy in history, was nonetheless a momentous event."

And just 8 years later GM has a market cap of $58 BILLION.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'T')hey are the ones that created the first chart that shows the 75% interest expense ratio. But, maybe they are just flunkies who don't know anything about financial balance sheets of energy companies.

[ralfy]

$this->bbcode_second_pass_quote('ROCKMAN', 'B')ANKRUPTCY. I'm wondering again if many folks using that word really understand what the f*ck they are talking about? I went over this a few weeks ago...maybe time for a refresher course. LOL.

Being in the biz for 41 years the Rockman can only guess how many companies he recalls that filed "bankruptcy": 20? 30?. But I recall only 2 going out of business. The vast majority came out ahead: reduced debt (often times completely flushing bond holders), reduced interest rates, longer repayment schedules, etc. But some times those bankruptcies led to corporate acquisitions which typically worked out better for the companies owning the notes/bonds: the acquiring companies would take that debt on.

Filing "bankruptcy" in the oil patch doesn't automatically mean a company is going out of business. It often means they get a new breath of life pumped into the while some of their creditors take a hard hit.

Do folks really have that bad a memory? From 2009:

"SINCE the start of the year it had seemed probable, and for several weeks inevitable. General Motors' application on June 1st for Chapter 11 bankruptcy protection from its creditors, triggering the biggest industrial bankruptcy in history, was nonetheless a momentous event."

And just 8 years later GM has a market cap of $58 BILLION.

[Cog]

Bankruptcy destroys debt. This does mean the unpaid debt does not have ripple effects downstream. Suppliers do not get paid and therefore have to absorb this cost so its not painless.

[ROCKMAN]

ralfy - As Cog says: bankruptcy destroys debt. Or, in many cases reorganizes it into a more manageable form. And typically it is the unsecured bond holders that take the biggest hit and not the vendors and suppliers.

[ralfy]

$this->bbcode_second_pass_quote('ROCKMAN', 'r')alfy - As Cog says: bankruptcy destroys debt. Or, in many cases reorganizes it into a more manageable form. And typically it is the unsecured bond holders that take the biggest hit and not the vendors and suppliers.

[AdamB]

$this->bbcode_second_pass_quote('ralfy', '
')Also, debt becomes more manageable only if the opposite of peak oil takes place.

[ROCKMAN]

ralfy - "...vendors and suppliers can be hit if they are eventually forced to rely on the same unsecured bonds to produce and process more oil." I assume the "hit" you're referring to is declined business activity. The decrease in such work is much more a function of lower oil prices.

Actually a company going into Chapter 11 bankruptcy usually means more business and guaranteed payment for vendors and suppliers. The C11 order typically puts those folks ahead of bond holders and requires payment on a set schedule. Oddly many years ago Halliburton didn't want to do any work for a small operator that had built of a lot of debt pre-bankrutcy. But the bankruptcy judge ORDERED Halliburton to work for them since it was GUARENTEED payment for the new charges.

Bankruptcy judges are a lot more powerful then many realize. Especially when it comes to helping companies survey bad debt situations.

[rockdoc123]

another thing to think about regarding Chapter 11 insolvency is that many companies would actually prefer to take this route as it is often the least painful to solve their cashflow problems and gives them some breathing space to sort out the underlying problems. A number of companies have come out of Chapter 11 stronger and have been successful including GM and Chrysler. On of the main reasons why public companies want to avoid Chapter 11 is that if you are on the Board of Directors or an Officer of the company declaring Chapter 11 sits on your permanent record with the SEC or other trading commissions. That becomes hugely problematic when you want to start up or sit on the Board of another listed company. As a consequence Chapter 11 is the last resort in the minds of Directors and Officers even though it might make the most sense in terms of giving the company a better chance at a future.

[ralfy]

$this->bbcode_second_pass_quote('ROCKMAN', 'r')alfy - "...vendors and suppliers can be hit if they are eventually forced to rely on the same unsecured bonds to produce and process more oil." I assume the "hit" you're referring to is declined business activity. The decrease in such work is much more a function of lower oil prices.

Actually a company going into Chapter 11 bankruptcy usually means more business and guaranteed payment for vendors and suppliers. The C11 order typically puts those folks ahead of bond holders and requires payment on a set schedule. Oddly many years ago Halliburton didn't want to do any work for a small operator that had built of a lot of debt pre-bankrutcy. But the bankruptcy judge ORDERED Halliburton to work for them since it was GUARENTEED payment for the new charges.

Bankruptcy judges are a lot more powerful then many realize. Especially when it comes to helping companies survey bad debt situations.

[ROCKMAN]

At least a super power for a while yet. But:

"Reuters - U.S. oil drillers cut rigs this week for the first time since January and the pace of additions slowed this quarter due to declines in crude prices despite an OPEC-led effort to cut production and end a multi-year supply glut. Analysts, however, noted the weekly decline in the rig count was likely just a brief pause in a drilling recovery expected to continue through at least 2019.

Drillers cut two oil rigs in the week to June 30, bringing the total rig count down to 756, still more than double the 341 rigs in the same week a year ago, energy services firm Baker Hughes Inc said in its closely followed report on Friday.

That decline followed a record 23 consecutive weeks of rig additions, according to Baker Hughes data going back to 1987. Drillers have added rigs in 52 of the past 57 weeks since the start of June 2016. The pace of those additions, however, has slowed over the past few months with the decline in oil prices."

[rockdoc123]

Rockman.
I think the decrease in drill activity should signal that the best of the "prime locations" identified by companies like EOG have either been drilled or companies are waiting for higher prices so that they don't waste the early flush production on low prices (that is what I would do).

Would be interesting to see where the reductions were and if there were any areas/basins that saw an increase in rig count.

[ROCKMAN]

Ralfy - "C11 means less business because vendors and suppliers need the same businesses that are going bankrupt.". Actually just the opposite is generally true. If Company A flushes several $billion in bond debt and does so without having to liquidate any of its asserts its net revenue increases as well as its debt rating.

Even if it doesn't completely flush its bond/bank debt the " reorganization " of its debt (Chapter 11 is referred to as a "reorganization") the rates are generally reduced and the repayment period is extended. In essence the primary goal of the debt reorganization is to allow a company to expand operations in hopes of increasing revenue which would allow a greater opportunity to service its debt.

And that is done by Company A taking that increase in net revenue that can then be paid to the vendors and suppliers. IOW Chapter 11 filings will actually benefit those companies: more revenue spent on operations instead of repaying 100% of debt is good for the vendors. Also understand how vendors deal with operators with a problem dealing with their debt: the vendors require payment upfront. I've consulted for many small operators with questionable abilities to pay invoices. IOW more then once I've hand delivered a check to a vendor that then waited for it to clear the check before the followed up on their end.

As I pointed out early folks referring to the number of companies filing bankruptcy (typically Chapter 11) as the "death of the oil patch" have it 100% ass backwards. It actually allows those companies a chance to survive and potentially prosper. In my 41 years I've seen only one company liquidated. It's the bond investors that usually take the big hit: in Chapter 11 they are typically the lowest on the list of repayment priorities.