Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on January 21, 2016 at 8:01

I don't think terming the SWN layoffs as "pushing 40 percent under bus?" is a fair characterization.  SWN is hardly alone in making major reductions in their work force.  Although regrettable it's what happens when the price of commodities plummet.

• ▶ Reply

Permalink Reply by Paul Butler on January 21, 2016 at 8:55

I have nothing but good will for the Southwestern folks.

I wish them a speedy recovery.

I didn't like the misadventure parts of their business plan.

Some criticism is fair comment.

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on January 21, 2016 at 10:49

Over half the mid-majors had shale misadventures to some degree.  It's easy to be critical with the benefit of hind sight.

• ▶ Reply

Permalink Reply by john goodday on January 21, 2016 at 13:36

1,100 real people lost their job because Bill Way & Steve Mueller ill-spent $5 Billion dollars in the middle of commodity price decline.  Absolutely the worst business decision in modern American history.  That kind of debt brings instant death to what once was a thriving well run business - not to mention what the consequences are for the stock holders .  

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on January 21, 2016 at 13:52

The same can be said of a couple of dozen E&P companies, at least.  I'm sure all the employees let go at those companies were real people also.  The business decisions of CEOs are certainly fair game for criticism.  And there are lessons to be learned, if not by industry execs, then by energy investors.  That discussion requires specifics as to the mismanagement.

• ▶ Reply

Permalink Reply by Joe Aldridge on January 22, 2016 at 4:03

Hey Guys,

I don't see where climbing on the bandwagon of blame Management is really productive. The guys I have contact with in Houston thought a year ago the the bottom would be $ 65. Then the Obama Administration pushed through the Iran deal and all bets were off. Now we have a temporary bottom in the 20's. That may be only temporary. The real bottom is yet to be found. The problem is speculation about mismanagement in this climate is not productive. Especially, when Company Management is trying to make deals that will grow the company.

I still think an import tariff the brings the price to $65 for imported oil is the best bet. That would provide money to pay down the debt (I see no other way) and stop the wholesale slaughter of employee jobs.  

• ▶ Reply

Permalink Reply by Paul Butler on January 22, 2016 at 6:33

Some commentators might want to rethink their status as apologists for the people that lost the staggering amount of money.

The position that this disaster was somehow inevitable and dems da breaks is not going to stand for long. 

It’s 180 degrees from what I’m reading in the high dollar financial and legal subscribed reference materials.

I’m hearing that, once the bankruptcy avalanche begins, many of these “assets”, i.e. oil & gas leases will have no value, no buyers interested

I’m a student of the patch’s history too.

In the old days most of the high risk money was equity.  This last go round, it was debt.

The people that lost the money and how they lost it is going to get much scrutiny. A level of scrutiny previously unseen.

In the old days, most of the scandalous stuff was kicked under the rug.

When they look at the leases and the title, they are really in for a shock.

When the creditors take possession of the leases, they will realize that, at most, they have color of title.  They thought they had marketable title. 

It’s going to be hard to sell once all the defects are known and many people that ended up with the stuff are going to want their money back.

The old landmen used to say: failure to drill a lease will cure all bad title.

Not this time. 

Many people will be called to account.  If I was one of the brokers that ginned the stuff up, I’d be feeling much anxiety right now.

2016 will turn out to be a full employment act for many lawyers.

 

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on January 22, 2016 at 6:49

Paul, I don't see any apologists in this discussion thread.  I do see comments that recognize that many companies made big bets that looked reasonable at the time of the Great Shale Rush but now look short sighted.  I could agree that anyone wanting to question the quality of due diligence in title review will have some specific examples to bolster their case.  I'm aware of quite a few here in the NW LA Haynesville Shale as much of my work is for law firms that represent land/mineral owners.  The fact here is that the clouded titles are a small percentage of the whole.  And although some land companies may share a portion of the responsibility it was the operating companies that called the tune.  Many of the assets in secondary U.S. shale basins that will have no value will not be due to title problems, they will have little or no value as they are perceived to be uneconomic at any price less than $90-$100/Barrel. It is impossible to know if those reserves will ever be developed

• ▶ Reply

Permalink Reply by Skip Peel - Mineral Consultant on January 22, 2016 at 11:10

Kathy, there was an FDIC office in Shreveport from 1987 through 1990 as part of the loan defaults associated with the Oil Crash of the mid-80's.  Back then the financial institutions involved were small local and regional banks without sufficient liquidity to cover their loans.  I expect that this time around the exposure to defaults is concentrated more among the Big Banks and a handful of equity firms that specialize in energy related investments.  I've read a number of articles lately about those Big Banks taking write downs and setting aside funds to cover the expected defaults.  That cohort of creditors should have the ability to survive the defaults and bankruptcies to come.  Those that made loans on "good rock" reserves may only experience a hiccup as there will be willing buyers standing by to acquire those assets.  Those that made loans in basins that now appear iffy economically for the foreseeable future may have to eat the whole enchilada. 

• ▶ Reply

Permalink Reply by Steve P on January 22, 2016 at 11:48

Having lived through the 80's in Louisiana and the toll it took on the State and its residents, I agree with Skip's analysis.  The housing mortgage crisis was far more devastating to the national economy because it wasn't limited to the oil patch.  As a result of the housing crash, Banks are required to have far more assets to cover future losses, and they try to have more diverse loan portfolios.  

Of course, equity firms are far less regulated, so they are free to loan as much as they wish to whomever they wish.  But they are dealing with their own and their investors money, so the losses will be focused on them and not the federal government.

will there be allegations of fraud as foreclosures become more common?  likely. But there won't be huge government bailouts like the housing crisis, or the banks down the street being closed, so I will be surprised if the fallout is similar to the 80's or the housing market collapse.

but who knows?

• ▶ Reply