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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Bearcatbob who wrote (188358)	1/26/2015 8:52:46 PM
From: tom pope	Read Replies (1) \| Respond to of 206323

Calling Elmat's screed delusional implies you understood his point. I sure didn't.

To: Bearcatbob who wrote (188358)	1/26/2015 8:55:22 PM
From: 30 Years Plus	8 Recommendations Recommended By Bruce L Fiscally Conservative Jim P. MIRU roguedolphin and 3 more members Read Replies (2) \| Respond to of 206323

Before I reply to this post, I'd like to introduce myself. I have followed this board for at least 15 years and I am amazed at the knowledge of its regular members. I have worked in Canadian oil and gas for over 30 years, starting in the field and graduating to corporate headquarters in late 80s. My current position has allowed me to see the "shale miracle" unfold in Texas and Pennsylvania in what seems like a heartbeat. The changes it brought to conventional Canadian O&G are hard to fathom, but greater than that, the changes it brought to the mindset of running a successful company are mind boggling. There's been a dumbing down of management in many companies and those who adopted the factory approach of churning out thousands of repeatable shale wells are now reaping their predictable failures - of course fabulously compensated even as their companies crumble around them. The amount of technical expertise that has been cut loose during the transformation to shale is significant to say the least. If you have worked in this industry as long as I have, you will know the planners and spreadsheet monkeys to which I refer - they never understood the business, and when the investment bankers hired to chart out new shale strategies told them how easy this was going to be, it was the confirmation of something the planners always "knew" - engineers, geologists, and geophysicists weren't required. It was going to be so easy - those who ran the assembly line most efficiently would win. When that mindset took hold, growing production became the road to Nirvana. It didn't matter if you did it profitably, and damn the balance sheet, meeting volume targets was the only metric and goosing the stock price the desired outcome. Money was too cheap - way too cheap. "We" as an industry blew our brains out buying land. The blocks had to be big, and contiguous in order for the assembly line to work. If landholders were private, we competed to bid up the price of acreage, and we negotiated our way from 10% lessor royalties to 25%, or more. Every time the price of land went up, the buffoons at the top went back to the spreadsheet monkeys and found ways to meet the corporate hurdle rates - almost always by modelling in future cost reductions dreamed up by people that had never worked a project full cycle. When those numbers didn't add up, then we modelled in improving well quality, even though in many cases we had not drilled a single well. When players made a big splash acquiring land - the Duvernay, the Mississippian, the Eagle Ford, the Horn River, whatever - then more money poured in, and it was too cheap. Frequently it was the form of a third party who had no operational knowhow and who was falling all over themselves to get a piece of the shale dream, and hired those very same investment bankers to ferret out opportunity. These were parties that would pay 70 or 80 or 90 percent of capital to earn a 50% working interest, or less. How could they go wrong? They had seen the dream laid out for them by the bankers, and they were partnering with companies that had the best rock and the most acreage, who could drive down costs and drill better and better wells every pad. It had to be - it was right there on that Excel spreadsheet. When results started missing expectations, then selling non-core assets became the stopgap measure. Investment bankers worked hard to find willing buyers, and to maximize our shale potential, we sold cash flow positive properties, most of them conventional, with rock bottom lessor royalties, with rights from surface to basement held by production, and many of them that could be profitably rejuvenated by the new horizontal drilling technologies. And the one common thread - there was always more cheap money flowing into the business, and in many cases to its grave. Sure there were exceptions, but in aggregate, I often wonder if there has been a return on capital. Obviously in many cases there is not going to be a return of capital. We have lived through one of the most extraordinary periods in financial times in the last six or seven years. Central banking policy has morphed into something that we will not know the full impact of until a catastrophe unfolds. IMHO, the misallocation of capital in the O&G business is unprecedented. The damage done to the world's most important commodity cannot be understated; the effect this correction is going to have on sovereign entities alone is frightening. I don't think it's delusional to point at QE as the source of the shale boom. It might be simplification, but I don't think this was purely a business response to economics. It got pretty frothy and certainly merits consideration as at least Bubblicious. One thing I do hope comes out of this is the destruction of enough companies and their sources of funding to right the ship. I am not hopeful that's any time soon - I just have to look at the productivity growth in nat gas, given recent historical prices and the 2 handle on Nymex in the middle of winter.