Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Politics of Energy -- Ignore unavailable to you. Want to Upgrade?

To: J_F_Shepard who wrote (1443)	8/10/2008 7:02:59 PM
From: Brumar89	Respond to of 86355

Markets are too complex to forecast price with any degree of detail. If the markets and oil business is so complex no one can understand it, maybe the oil moguls believe in an Oil God who tells them where to drill and how much money they will make. There is risk involved in investing big bucks in projects which won't give a payoff for years in the future. And no one knows for sure how much money they'll make in such a project. They can estimate if the price is X, Y, or Z, our discounted ROR w/b A, B, and C. I've run such analyses myself in the past - its not my job now though. Each company has to decide how much risk they'll accept. There are lots and lots of people who work on these problems I've known a lot of people who work on precisely those problems over the years. ....ask Dick Cheney and his secret task force members. My company was asked to provide input to that task force. They posted their input on the internet. No secrets on our part. "I know for a fact that major oil companies can not reliably predict the price of oil or natural gas" If you want to establish your expertise in this area, you're going to have post qualifications other than to say they drilled in my back yard.... I wish someone would drill in my back yard. I don't care what you think about my qualifications. I've seen companies invest big bucks in projects and enter into agreements that needed high energy prices to be profitable only to end up losing. Here's an example that doesn't involve my company directly (though we were one of their natural gas suppliers and we were partners on a few projects): Published: August 1, 1991 The Columbia Gas System Inc., one of the largest natural gas companies in the United States, filed for bankruptcy yesterday, citing old contracts that commit it to buy gas at prices of up to five times the current market price. query.nytimes.com The recession of the early 1980s hit Columbia's remaining industrial users hard, causing demand to fall. At the same time, energy prices worldwide collapsed. Columbia still had long-term contracts with producers to buy natural gas at the high prices of the late 1970s--gas it had to buy whether or not it could be sold. In 1982 the company tried to cancel all its contracts, claiming that the catastrophic effects of the recession on Columbia's customers constituted a force majeure, nullifying the contracts. Producers and other pipelines serving Columbia refused, offering only to renegotiate. Major lawsuits followed in 1983, and, although gas producers eventually did renegotiate with other pipelines and distributors owing to the difficult economic times, Columbia was dealt with less cordially. In 1985 Columbia faced possible bankruptcy. Still bound to long-term contracts, the company offered its major suppliers $800 million to settle the take-or-pay contracts. Faced with little choice, the producers took the deal. Columbia reduced prices and sold its gas at a total of $1 billion below cost over the next two years. .... In 1990 unusually warm weather caused gas prices on the spot (short-term) market to remain much lower than expected. Customers began to buy low-cost gas on the spot market, while Columbia was still obligated to buy at the high prices specified in its long-term contracts signed with gas producers in the 1980s and even earlier. The company was again in serious financial straits. The company began negotiations to break some of its long-term contracts, in exchange for a $600 million settlement. But the issues were complicated, and could not be resolved quickly. Columbia suspended its dividend payment in June 1991, and Columbia and a subsidiary, Columbia Gas Transmission, filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code in July. fundinguniverse.com Columbia Gas had plenty of experienced intelligent people working for them. I knew a number of them when I lived in WV. The company made some big mistakes nevertheless.