The brokerage houses must have inventories of producers stocks that they’re trying to offload onto unsuspecting victims. I read an article yesterday stating how good a job Chesapeake had done and the glowing commentary had little to do with the facts of the firm. These comments coming the day before the producer would be publishing their fourth quarter results. Why would they comment the day before? Wouldn’t they be best served by waiting for the facts and provide their clients with those? Or were they thinking that the stock was going to be hit as a result of the inevitable poor quarter’s performance. Chesapeake has no money, no working capital, no cash flow, debts everywhere, and have lost $19 billion in 2015 and $3.9 so far in 2016. That’s a $3.9 billion loss on $5.8 billion in revenues. Results will be out soon after the posting of this blog post. Maybe the key factor when evaluating Chesapeake is that it’s 70% institutionally owned and some of those institutional investors are nervous.
As bad as the situation is in the United States you haven’t seen anything until you focus on the producers north of the border. Canada has much less “rigorous’ accounting requirements for producers. What you see in the U.S. is a reasonable, factual tale being presented based on the SEC requirements of Full Cost or Successful Efforts. The difficulty that I have is that producers have been reaching the limit of the ceiling test almost each and every fiscal year. The capitalization of any and all costs being the issue. In Canada you have to believe in unicorns in order to interpret the accounting. Cenovus, as an example, reported a profit for the fourth quarter. This as a result of negative depletion. Now I understand that this is possible, however, the company has outsized assets that will take 8.79 years to fully deplete at that rate. This is unreasonable. The CEO was also claiming in the text that cash flow was so strong that it funded capital expenditures and the dividends. This Cenovus categorically did not do.
Acceptance of this level of destruction throughout the industry is difficult. Acceptance of this level of misrepresentation is disheartening. What is going on in the industry? Lipstick on a pig? We were all led to believe that the difficulties in natural gas were about to expire and the industry would rebound. This “market rebalancing” being what has been expected since at least 2010. Natural gas prices were at almost $4 and have lately collapsed, once again, into the $2.60 range and are certainly headed lower at the speed and trajectory their taking. Oil inventories continue to build despite OPEC’s production cuts. North American producers have been increasing field activity and it may not be too long before we see declines in the oil markets. All as a result of overproduction and oversupply. Were we not just at this point six months ago?
The industry continues to swirl around the drain. 2016 is much worse than 2015. Prospects look very dim to me unless we obtain the three fold revenue increase these producers need. There is no discussion of the difficulties in the industry. Producers have their blinders on and only see their tiny part of the world and are unable to grasp the larger picture. Saying things are great isn’t going to make it so. This Ostrich like act is only leading to additional problems down the road as those who were in the industry are seeing less and less opportunity in the future, and are more motivated to get out of the industry permanently. We are not being productive but destructive. The forces of creative destruction are in operation throughout the industry. This is not a changing environment as much as the bureaucrats make it out to be. We will continue to cycle downwards until such time as we take control of the situation and that requires that the industry adopt the Preliminary Specification.
The Preliminary Specification, our user community and service providers provide the dynamic, innovative, accountable and profitable oil and gas producer with the most profitable means of oil and gas operations. Setting the foundation for North America’s energy independence. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy. And don’t forget to join our network on Twitter @piobiz anyone can contact me at 403-200-2302 or email here.