Best Business Opportunity, Ever, Part XVI
Producers are missing their Wall Street targets. Missing them by significant, serious amounts. If this trend continues heads will roll. Reading these financial statements reflects the scope of the devastation that has taken place. It appears to me that the producers would need almost three times as much revenue just to be considered solvent. They are absolutely gutted, capital destroying machines. Money goes in, mixes with other money, and it all gets lost. Sinking ships unwilling to admit the end is here.
What it’ll take to turn these around is beyond me. What is there? A recapitalization? There isn’t that much money, anywhere. No investor or banker is going to absolve these firms of their bad past behavior. Especially when nothing has been done to correct the issues in the industry. Pretending that all is well doesn’t sell well when the financial statements are this devastating. The only thing that I can see is an attempted rehabilitation over the long term. Funded by the sale of properties to pay off debts. As the assets are sold the debts are paid and when nothing is left the doors are closed. That may be an optimistic scenario.
We should look at these producers from the perspective of a rational accounting methodology. To adjust for that, take the net asset balance of property, plant and equipment and write it off. This leaves the producer with the massive losses that the firm has really incurred during its lifetime. The debts that it has incurred in creating those losses, and reflects that those assets, in reality are nothing but an albatross on the back of the producer. The cumulative producing assets of the industry earn nothing in terms of financial return. Therefore they are worthless. The producer would perform better financially if they didn’t have any properties. That is the best way in which to evaluate any producer today.
Producers have over the course of the past forty years “believed” in the accounting magic of the SEC that enabled them to capitalize everything to the balance sheet. They then have left those assets on the balance sheet for as long as there are reserves on that property. For accounting purposes, which is to evaluate the performance of the management, would you allow the management to capitalize a concrete building for the period of time the building would be standing, or approximately 100 years? No rational management would do so. Yet we have the equivalent accounting treatment in oil and gas for the past forty years. Creating the belief that the more that the producer spent, the more valuable they became and the more profitable they were. Creating a culture of spendaholics with no concept of value or consideration of the overinvestment they were causing in the commodity markets. The only time producers were subject to a write down of their assets was during the ceiling test. Taking all of the reserves at today’s prices, or the total gross future revenues of the producer, and ensuring that the net asset value wasn’t higher! Ludicrous. Investors and bankers used to participate in these spending binges by funding them. They’ve finally caught on to the game. Now the curtain has been pulled back to reveal the extent of the real damage and the producers think it’s time to carry on!
So what to do. It’s time to start over with a startup oil and gas producer. One that doesn't’ currently carry the albatross of yesterday’s property values and performance. The amount that you spent to build your house has no impact on the value of your house. The amount that a producer may have spent on a property has no impact on the value of that property. Today’s oil and gas property values are history. If the market needs more time to realize this then the startup can wait. The existing producers aren’t going anywhere but down. Leaving the best business opportunity, ever for those startups that can participate. And don’t forget that People, Ideas & Objects, our user community and service providers also provide the opportunity of a lifetime.
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.