July 31, 2019
My mother pointed out that I like to use the word “stud” and that historically, this has been a gender specific term. I want to make clear my definition of the word “stud” is as follows: a person who is amazing and impressive. Gender has 0 relevance to me. Only competence. Speaking of….
How about CNX?! They announced that they will have flat production in 2021 (good); will spend 37% less capital in 2020 vs 2019 (better) and have dropped from 5 rigs at the beginning of the year to 3.. and headed to 2 in 2020 (best!!). Guess what – their stock went up 32%.
Hey mom – everyone on the board, the management team and the staff are studs! hottakeoftheday
P.S. congrats on finishing chemo!! Love you. You are the original stud.
July 30, 2019
This is the hottest/coldest/wettest/driest summer/winter/fall of my life! We like to attach this “xyz ever” label to a narrative of events that often isn’t “the worst ever”. But what then, pray tell, do we make of the current down cycle in oil and gas? Is it actually the worst ever?
It certainly feels like it. Any day the market is open is another day for energy stocks to fall. More directly, energy has underperformed the S&P in any duration of time you select. It’s so bad that Energy companies now compose less than 5% of the S&P index which is the lowest back to at least 1990 (I stopped checking before that due to depression). And yet- energy consumption globally is at an all time high – north of 100 mmbo/d.
To me, most telling is the performance of the big 4 ($XOM, $BP, $RDS, $CVX) – all have yields above 3.8% and no one else is close. And… they are outperforming the equity of their smaller rivals. DRAMATICALLY.
What is clear is that oil and gas investors don’t want mid sized independents anymore (God forbid you should be public and smaller!). You MUST pay a big dividend and MUST strive to be >$100b in market cap. That these 4 are “healthy” when everyone else is down so much tells you this is not a cycle – this is a change in the game.
July 29 2019
We don’t spend enough time thinking about unintended consequences. Let’s take a simple example like plastic straws.
Seems like a simple thing to eliminate. Lots of plastic in the ocean – not to mention sewage- and really who needs a straw anyway? So we have moved to metal ones. Unfortunately, a 60 year old woman in England tripped, impaled herself on one and that was that.
It’s pretty clear that production growth has had the unintended consequence of making the US Energy company its own worst enemy. With earnings starting in earnest this week, we shall see who reduces the number of metal straws we are putting in the ground and stop killing ourselves with low prices.
July 28, 2019
A number of years ago, I was asked what I thought of a dress code for work. My response: if you bring your brain, you can wear your pajamas.
At OneEnergy Partners, we put that (and other concepts) to the test. Our office was virtual (we worked in 4 different cities and the “office” was an all day video chat room/screen share); we replaced all meetings with a CRM tool that auto emailed summaries of every external interaction the moment it happened; and at least one of us (me!) did wear pajamas. A lot.
But that was a unique situation. What made it work were not the circumstances but the people. If you have the right people, you don’t need rigid rules or codes or performance meetings. You need to give them space, let them run and simply ask “how can I help?”
It’s the reason the “who” matters so much more than the “where” (or wear). If you have the right people, success takes care of itself. And, more importantly, it will be a lot more fun.
July 27, 2019
It’s time for the hotquestionoftheweek and this week, I’m paraphrasing a rather long message: why are you calling the industry out? (IE. He who lives in a glass house shouldn’t throw stones)
I love this industry. I love what we do for the world in terms of providing clean, inexpensive fuel that powers every part of our lives. To take the example of food- the machines, transport, packaging, heating/cooling of the store where we buy it – none of it is possible without energy. But the decisions Leaders and Boards of companies in this industry are making have consistently caused oil and gas companies to deliver horrible returns to investors. Investors make our industry work and we need to do better. The problems (and causes) are not that hard to resolve.
Yes, OPEC+ can swing volumes but they have since the 60’s and in modern time the US is the swing producer. This is a NAV business – $10/bbl higher (pure margin) more than fixes a lack of growth.
Finally, I love the humor and cleverness of Mr. Skilling (parody) and Energy Cynic on TwItter. They are hilarious. But someone with a real name, reputation and experience in this industry has to call people out if we hope to change behaviors. For lack of a better option, that person appears to be me.
July 26, 2019
With Q2 reporting kicking off in earnest next week, I fear we are going to see “this” far too often. Please, someone, prove me wrong.
Houston/Denver/Midland- We (xyz company) are pleased to report our Q2 earnings. Well, they weren’t really earnings because of one time non recurring (but recurring) charges, depreciation and S,G&A so can we will pivot to EBITDA please? Great. In the quarter, we came in 1% below capital guidance because we stopped fracing for the last 18 days of June but you can’t tell from our volumes because, well, timing.
10% of our rigs are drilling lease obligation wells but we like to make you THINK it must be like 85% because we are going to keep rigs flat through the remainder of the year -in part because we signed 3 year contracts in 2017 when you wanted production growth and in part because we are praying you will stop paying attention to capital discipline.
Finally, a topic of interest has been executive compensation and we want you to know we are really, really focused on that. Because we get paid A LOT and would prefer to keep getting paid A LOT. Please stop asking us to merge with someone and lose our income. Thank you. Oh, and we are doing another layoff. Sorry about that, the investors are asking for us to be disciplined.
July 25, 2019
In this week’s edition of “press releases that make me laugh” we have the two runners up – First – a company cut its annual budget by $2 mm (1.5%) while cutting its drilled wells from 50 to 32 (36%). Ummmm… walk me through that math?
Second – an OFS company that apparently doesn’t read my hottakes: “Our expectation of seeing the bottom of the Company’s rig count during the quarter turned out to be premature…” and now isn’t forecasting a bottom. I am!! 700 Hz rigs. That’s down another 20%.
But – the clear winner is a company that (non) operates in the Bakken – a basin you may have heard of and is fairly mature. They introduced a new term to the world: “ground game acquisitions!” Let’s be clear. Everything in the Williston worth owning is HBP so they are buying people’s non-op interests after they have thrown their hands in the air and proclaimed “why the F did I buy this in 2014… that was soooo stupid!” Buzz words are fun. Buzz phrases are sooo much better.
In fairness, there was a glorious nugget in that last press release – with gas capture a huge issue in ND, Q2 was curtailed 7% from potential. With higher GOR wells being drilled in the basin and limits on takeaway- the Williston could see a decline in activity in H2 which is music to my ears.
July 24 2019
As many of you know from reading my hottakes, I love me some Vicki Hollub. Forget her bidding for (and winning) Anadarko; or selling assets to Total before the deal closed; or even raising money from Buffet. She gave a town hall to Anadarko employees to explain the vision and the future that got 5 stars across the board on Yelp. We need more CEOs like her.
The $APC merger will be her legacy; whether it succeeds or fails. And so will go her time with Oxy. I said this out loud recently, and the response was, “She is the only woman leading an oil and gas company. Getting rid of her would be a horrible decision.” But wait.. wasn’t this deal HER decision?
She is a stud AND this is HER deal. If it works – she is gonna “Jack Welch” this shit right into a book deal and speaking engagements everywhere. If it fails… she will get her ass kicked. She knows it, and she owns it. I love it. The deal closes August 8th and then she gets to starting proving people – right or wrong.
Either way – let’s embrace that the CEO – regardless of gender, makes the ultimate call – and if they make a bad decision – they should get the axe. Man, woman, black, white, gay, straight… May competence drive employment.
July 23 2019
ing Ding Ding! Ladies and Gentlemen, we have a heavyweight bout! In the corner to my left, Vicki Hollub, my personal Industry hero and super stud. To my right, the man, the myth, the legend – Carl Icahn. Aggressive CEO vs. Activist investor. FINALLY!!
I was driving when Mr.Icahn released his letter but I was so excited to read it, I convinced my family to do a dramatic reading. And it was worth it! Mr. Icahn went right to the core of today’s social issue: compensation and governance. It’s a political hot button and guarantees lots of press on this one. And it’s a great question: Is Ms.Hollub’s pay of $270,000 per week appropriate comp when the median employee makes $2,387? Should the Chairman make $81,600 per Board meeting which is 4x the median FULL time employees annual comp.
I have long written I think what Ms.Hollub did was incredible. CEOs should be more aggressive and transformative. But, it’s true, she did circumvent the shareholder vote and made $CVX and $APC the big winners to date. So – when this deal is judged SHE should be given all the credit or all blame for the results.
It’s too early to assess the deal but the first punch has been thrown (hard) and the fight with Icahn is just getting started.
July 22 2019
Schlumberger raised eyebrows Friday when they named Olivier Le Peuch as the new CEO. This is not because Mr. Le Peuch is good, bad or indifferent but a CEO change like that usually means a disagreement with the Board in the direction of the company. After all, Paal Kibsgaard had the role for 8 years as CEO and 4 years as Chairman.
But the eyebrow raiser to me was that at the same time, Mark Papa was named the new Chairman. Mr. Papa is the current CEO of CDEV, an upstream E&P producer and he has been a historically significant figure in industry with his role growing EOG to what it is today. Personally, I like the Chairman move a lot. The Chairman SHOULD be a separate and distinct role from the CEO and, at the end of the day, it is producers who set activity levels and push the direction technology and service needs to go. OFS companies execute that vision.
So in my view, having someone of Mr. Papa’s experience and insights leading the Board has to be good for SLB. I think the open question is “what does this mean at $CDEV?” Their Q2 conference call is August 6th. Stay tuned!
July 21 2019
Not that you need my permission, but you have it. You absolutely, positively should not care what others think of you if what you are doing is working.
Did you know that Rick Barry, a 10 season NBA Hall of Famer, shot 89.98% on free throws during his career. Underhand. In fact, he’s the number 4 free throw shooter of all time, a feat he accomplished shooting granny style. Can you imagine the $hit he took every game? But- it made his team better and they won the 1975 NBA Championship while he won the MVP en route to getting into the Hall of Fame. So you know what…. haters can go fornicate with themselves….
So the next time someone questions why you do something a certain way or you feel like you should want their approval, think of my man Rick Barry.
July 20 2019
Why do operators continue to tell the market “don’t worry, we are maintaining double digit production growth?” Are they insane?? – SM hotquestionoftheweek Short answer: I have absolutely no idea.
Longer answer: I think at the core a lot of management teams are utilizing HOPE as a plan… hope that prices go up and that with higher production, that alone will improve their cash flow enough to make investors love them. But the deeper issue is that I think some companies realize that when they show the amount of maintenance capital to keep production flat – it will be a big read through to the type of wells they are drilling and THAT will lead to questions about their real NAV/share. (This is as opposed to the guys with awesome inventory and are economic at $50 per bbl and are drilling because of sense of “I told them I would, so I am)
We are within months of a “financial cliff of reality” (and hopefully sanity) that will lead to flat production as a country in 2020. I’ve been wrong before but the bell I’m hearing in the distance proclaims the coming of a financial apocalypse for many, many companies.
June 16 2019
Every Monday morning, I wake up full of excitement and expecting that at long last, like Noah’s Ark, Management Teams pair up two by two and announce deals they negotiated over the weekend.
Alas. My hopes are crushed and it turns out like the last 10 seconds of a basketball game: with four TV time outs, 10 fouls, a bunch of anticlimactic hyperbole and takes 30 minutes to reach the foregone conclusion.
Make no mistake, the flood waters are rising. The data on corporate hedging – 29% of 2019 oil volumes are presently hedged at an average of $59/bbl and most of that being in the small and mid cap space. Flash forward to 2020 and hedge volumes fall to 8%. Worse – the forward strip looks more like $52 at this point which isn’t very tempting.
As bank price decks fall, the last remaining liquidity for struggling companies – reserve based borrowing – will get cut off and then …. desperation. And everyone knows, no one wants to be at the bar when the lights come on, you have $20 in your pocket and you are left struggling to find someone to partner up with. Time is running out. Best grab your neighbor and head for the ark. Because there are a lot of drunk and ugly companies looking for partners…
June 15 2019
I’m in Washington and from what I can tell, everyone is a protected class. Which – don’t get me wrong – is a good thing. To think of the world my parents grew up in; and the one I grew up in – is SO massively different than the one my kids grow up in.
Example. My son told me at dinner last night that a number of his friends have come out as lesbian or gay – and doing so is like declaring “I like Nike over Adidas”. No one cares. Life is hard enough; people judging you on who you like is a bridge too far.
However, as a ginger with 3 bouts of skin cancer to date (yes – check!!! Often! I can recommend dermatologists) – I am offended that I am not a protected class. I mean for F$@k sakes. Germ-a-phobes get sanitizer at every location; is it too much to ask for sunscreen??!
Yeah. I went there.
June 14 2019
Every once in a while – I get a truly fantastic InMail message. As a result of “this” one, I’m changing the format of all future Saturday posts.
“Long time listener, first time caller, love the hot takes. I’m struggling to understand the valuation rational behind the public minerals companies. HotQuestionOfTheDay
Brilliant. Given that E&P companies are excellent and spending ALL their cash flow drilling AND drilling too tightly spaced wells, the best way to get direct exposure to oil price without those two risks is to own minerals. Capex and spacing don’t matter if they keep drilling.
Where the risk to minerals return profiles lies is in timing of development so I think the public Minerals guys get a “PV5” kind of PDP value and a PV10 kind of “undeveloped” value. Where the flux is: do they drill it this year or in 5 years? Some guys will predict timing very well (they know the operator for instance and have very direct exposure: FANG-VIPER) and sometimes they won’t.
So I won’t comment on specific valuations but I do believe proliferation of public mineral companies running a consolidation strategy is the next wave and the business model makes a lot of sense.
Great question. Keep them coming.
June 13 2019
You know you’ve made it when your mom signs up for LinkedIn so she can read your hottakes. Some days I’ll make her proud but most days … probably not so much. No matter how old your children get, parenting never ends – just ask her!
As it happens, I’m writing this post from Washington, DC – my first visit to the city. While my oldest son is touring Europe on a school trip and discovering not all buildings are made of glass and large houses are a relatively local phenomena, I’m with my youngest son who is learning about the City at the center of the American politics and the Twitter universe. From Europe to the US, to think of the changes in the global power structure and technology in the last 30 years is staggering – much less the last 1000!
As I reflect on the world I grew up in and the one my children are experiencing – the trade war with China, Iranian sanctions and increased Middle East tensions, persistently low interest rates at home and widening income disparity hint that a dramatic change in the world order is coming. And depending on the day, sometimes it makes me want my mommy. Both she – and I – truly hope it doesn’t come to that.
June 12 2019
Just when I was about to throw my hands up, say oil should just hit $0 and call it a day – a suspected tanker attack puts oil up 4%.
Notwithstanding oil is now back to where it was last week, and that one attack doesn’t materially change the supply dynamics, it does give people something to be optimistic about (if you ignore the fact there was an attack, environmental damage was done and the news likes to call things an attack when an equally likely explanation is someone left their hairdryer plugged in).
However, there is no way to sugar coat the fact that 2019 has been dreadful for energy investors (are there any left?!). At a time when the S&P is almost back to all time highs, my favorite energy names have been crushed. My least favorite names have been turned into penny stocks and even equity for equity M&A is made almost impossible when stocks are trading 25% below where they were a month ago.
The only thing I can find to be optimistic about is: at least the Bruins didn’t add to Boston’s championships this year. So there is that.
June 11 2019
It might just be me, but I think that Rice and EQT aren’t going to be on each other’s Christmas card list this year.
The letter battle of “who’s prettier” continues and their stock is the 3rd worst performer over the last month- down 20%. Oh, and did I mention gas is below $2.50/mcf and they produce…. gas.
Entertaining though it is – no amount of management is going to fix the fact that gas is a priced in such a way that returns are challenged and that doesn’t seem like it’s going to change anytime soon. Instead of a letter writing campaign, both management and Rice should be thinking about cutting rigs, increasing the dividend, paying down debt and surviving long enough to see enough gas players in marginal basins close their doors. But that’s not nearly as exciting.
June 10 2019
As those who have been reading my hottakes for a while can attest, I have been predicting that the horizontal rig count in the US would fall below 700 by July 1. As that day approaches – my timing is looking aggressive and it looks very much like I will be buying a colleague dinner at Elway’s. Sometimes putting your money where your mouth is – is expensive.
This week, hz rigs dropped by a mere 7 to 855 and to be honest, other than the Woodford (which is down 40% YOY) – it has remained shockingly stubborn. However, I still maintain the best way to manage cash flow in 2019 is to drop rigs and complete DUCs (of which there remain almost 8400). I’m pushing my estimate out to September.
Oil inventories are rising as production surpasses 12.4 MMBO/d- growth of 700 MBO since December – and that is pressuring price, whether or not we solve the trade war(s).
Production growth as a model is no longer a valid model. The answer instead: net asset value. And while some companies will be caught fully unprepared to see their assets analyzed for NAV instead of CF multiples, only then will the truly great companies separate themselves from the rest with the ability to buy back A LOT of stock AND operate within cashflow.
June 9 2019
Comstock Resources…. come on down!! YOU are the next contestant on “Can That Price Be Right?!”
If you want to understand just how horrible the M&A market is, this deal is pretty instructive: a $470 mm company with $1.25b in debt is making a $2.2b acquisition of Covey Park, a Denham PC using a big equity infusion from Jerry Jones and allowing (forcing?) Denham to receive $170 mm in stock. Add $400 mm of 10% preferred stock …. and you create a “Haynesville Basin leader”.
If you are confused with all that, you should be. It was a confusing press release that spent the first 75% telling everyone how great the new company will be and the last 25% glossing over the new, crazy capital structure. But, beggars can’t be choosers and both Comstock and Covey Park were stuck in no man’s land so a marriage of convenience is a logical step. Stuck-Co! They will not be the last.
However, just because you can use the word “leading” in a press release doesn’t make it so and a bigger, more cost effective gas company with a lot of debt and a whack of preferred is still no more investable than it was on Friday. But, it should continue the wave of Private Equity taking common and preferred stock to get deals done because there is simply no other choice.
June 8 2019
I was at the Garth Brooks concert in Denver last night – which even as a casual fan – was awesome to see a legend putting on such an incredible performance. If you can believe it – I even took a couple videos of him singing – corny but hey, nice memories.
But the thing that blew my mind – and I really need help understanding – is people and their selfie video montages. I saw so many people filming themselves and then watching the video back rather than watching the actual performer. My question to the LinkedIn universe: why does anyone think anyone else wants to see selfie videos of YOU singing Garth Brooks songs? Are your friends different than my friends??
My friends like to look at pictures and videos of themselves. I promise you – they have very little interest in videos of me…. unless it’s tripping down the stairs, hitting an exploding golf ball (great prank) or doing a keg stand and typically I’m not the one sharing those.
Anyway. I don’t get it. To me, selfie videos are like birthdays. You might think other people care … but they don’t. Or, maybe it’s just that my friends are just from lower places….
June 7 2019
In May 2012, Anadarko saw Jim Hackett step down and the man who’s brainchild was the Kerr-McGee acquisition take the reins. The day the change was announced Anadarko stock traded at $85/share.
Flash forward to 2019 and Anadarko is being sold to Oxy for roughly $70/share in cash and stock. In terms of winners and losers – I’m going to go ahead and give Chevron first prize. $1 billion cash. Risk free break up fee. Even Charlie Sheen would agree, winning.
Second place has to go to the Anadarko EC who makes $300 mm which is the best odds Powerball ticket ever sold (because they set the odds!!) And in third place, Vicki Hollub -because she had breakfast with Warren Buffet and became my new CEO crush in the process (now she gets to prove to the world if she was right)
But. Let’s be clear. $1.3 billion was extracted by people who AREN’T going to be running Anadarko’s assets in the future. And btw, the stock was 20% higher the day Mr. Walker was announced as CEO.
Being a CEO is hard and comes with a lot of personal sacrifice. But their interests should be aligned with shareholders and I for one am wondering – what’s the $300 mm for? And more than that- who on the board approved that? Just wondering because I may know of a board seat for you….
June 6 2019
On Friday, it was my father in law’s first birthday since he passed away. He had two really great quotes I thought I’d share.
“The FIFO principle. Fit in. Or f off.” And I promise you, he didn’t miss 3 letters.
“You build your career by saying yes.” Fact.
He was a great man. And he is missed. Life is short. So for goodness sakes – figure out what’s important.
June 5 2019
There is a lot of talk about how “capitalism is bad” and wealth inequality is as high as ever. And yet- there are a tremendous number of actor/celeb business tycoon’s that are revered for creating huge empires in short periods of time that no one is complaining about.
Kylie Jenner- famous for being a Kardashian and full of star power and influence – has built a $900 million dollar net worth is less than 3 years selling beauty products to millennials. According to some studies, the net worth of the “average millennial” is $8,000.
Amazon + star power + marketing on social media is a caustic combination when it comes to driving consumerism and making horrible financial choices. We were so scared of debt coming out of school, we never vacationed, rarely ate out and put every spare dollar into our mortgage.
Building wealth is about saving, investing and eating ramen noodles. But fitting in and wearing shoes like Drake seems to have taken over and maybe we should spend some time criticizing “that” instead of picking on the usual and politically convenient suspects.
June 4 2019
Today we are going with a two for one public service announcement: One. If you are boarding an airplane, choose to have a carry on and can’t physically lift it into the overhead bin… either do weights or buy a bag you can lift. Two. Uber: Please please PLEASE add a “$5 surcharge” to pay the driver to NOT talk at me for 25 minutes. If I hear about one more Prius that does 550,000 miles, the 300/month ride share insurance and tire changes every 40,000 miles – I’m going to switch to Lyft. Or walk.
June 3 2019
I had a dream about the elephant in the room. It was trying to climb on my dining room table to get at this little elephant statue we have on it. It was weird. And it reminded me of gas prices.
Natural gas is below $2.50 and at Waha it’s -0.50/mcf spot. That tells you that the market is broken. It also tells you producing natural gas in the Permian is DETRACTING from Economics. Oh and did I mention oil is sub $53 and even the best companies have their stocks down 25%.
It’s time to get serious about running the business. The rig count is 20% too high. Fracs over 2200 lbs/ft and 45 BW/ft are too big and are eroding inventory. Parent child relationships are a huge issue and can only be addressed by spacing wells further apart and shrinking fracs. Flush production allows you to shut wells in for short durations of low prices and make ALL that volume back when you turn it on. There are 8400 DUCs in the US that have half cycle economics that are much better than full cycle wells.
This business isn’t hard: It’s complicated. It’s expensive. But producing gas that you have to pay to take away is about the dumbo-est thing ever.
June 2 2019
Man, I thought I was a cynical guy… but when I saw “Mr. Skilling (parody)” on Twitter over the weekend, my face melted. You want some real calling out of the energy sector (and MLPs in particular) – read that!
In fairness – I’m using my real name, my real reputation and my real opinions so maybe I’m handcuffed (but most who read this every day know I don’t let that limit me too much) – but I’ll tell you what, Bravo Mr. Skilling (parody). It takes a lot to drop my jaw…. and it did.
To pick up on a theme of his (or her)- when a company is heading for bankruptcy…. I have to think the management team members should not be clearing $10 million a year … each. I won’t name names but “he” does!
Compensation is a tricky thing – no doubt – but some of these public company pay packages are ridiculous and their boards of directors and large private investors (bonds and equity) should be ashamed of allowing it to happen.
I don’t know what the right answer is- but my rule of thumb is that if the employees at a given company saw the total comp packages of their executives – they should say “yeah, I agree that’s fair” and if they don’t.. something is wrong.
June 1 2019
The golden rule of communication is “communicate with others as THEY would have you communicate with them”. However, after the email controversy of last week- I want to get feedback on an increasingly common practice as I am second guessing my opinion.
When a phone call goes to voicemail the message says “Thank you for calling, but don’t leave me a message- text me” or my favorite “The best time to call me is to message me”. Personally. I agree with it. I especially hate 2 minute voicemails clearly made from the car while traveling between meetings…. but I digress.
Bottom line: I can read 5x faster than you can speak so I prefer short messages or text. But. As I learned about 10:30 pm emails – many people have passionate views that differ from mine.
Good, bad or indifferent- comment away.
May 31 2019
Whoa. It’s ugly out there and I’m confused. Investors rightly said to E&P companies “cut capital. Increase dividends. Buy back stock. Don’t do dumb M&A”…. And for the most part, companies have complied.
Then why are energy stocks down 25%?!? Oh. Hold on. I know this one… my LPs still don’t like the energy space. Somehow fake meat and cab companies get all the love.
Here’s a new thought: Buy back as much stock as possible. Merge. Cut rigs and completion crews. Hide out for the rest of 2019 and go back to business as usual in 2020. Can stocks perform worse while getting capital structures in even better shape? No. They can’t.
The best cure for low prices is low prices and rig count is about to get CRUSHED.
May 30 2019
Life is too short for “fine”. Perfect is the enemy of great. You have to figure out the balance.
May 29 2019
I fully admit I was wrong: I didn’t think it was possible for Devon to exit Canada – at any price. That they did at almost $3b is a huge win for shareholders (of which I am one… and you know why).
A wise man once told me: you can’t put a price on clarity. Devon is now a much cleaner story; CNRL continues to build its brand as the company likely to “turn out the lights” on the WCSB and it shows that M&A is slowly (like molasses slow) coming back.
So I’m adding Devon and Mr. Hager to my “Wall of Studs” right beside Oxy and Ms. Hollub with room for a lot more.
May 28 2019
The trade war has transitioned from a battle over economic interests to a fight for nationalistic pride – which never bodes well when it comes to the potential for a win-win resolution.
What do we know? 100% – American consumers will pay more for goods (as discussed, the importers pay the tariff and pass it on through increased prices short term). This should lower demand and therefore slow growth and negatively impact the stock market in the short to medium term. The long term question – and the one that makes me ask “is Trump a mad genius or … not” is how quickly do American companies move manufacturing out of China into more “friendly” (aka- less powerful) countries and has that become the real objective of this quest?
Bottom line though is that the US has become a service based economy and manufacturing jobs will never come back here – especially with our immigration laws restricting those coming into the country who might do the jobs Americans don’t want.
So – American consumers will pay more for goods and maybe Vietnam will be better off – but it is the unintended consequences of this that scare me the most.
May 27 2019
“If you don’t want to be criticized… say nothing, do nothing, be nothing.” – Elbert Hubbard.
Imagine my surprise when a hottake was seen 300,000 times…. about 15x the usual readership – and over a fairly tongue in cheek remark about “evening email strategies.” Who knew it was such a hot topic??
Of all the posted comments: the most frequent seemed to be “turn off your notifications” (aka- I’m gonna keep doing what I’m doing). Maybe it’s just me but that’s like saying- if you don’t want to get hit by a speeding car, stay the hell off the road. True, but…. I digress.
Thank you for caring, sharing and posting. I’m glad the discussion was had. The biggest takeaway for me was “man- it must be hard to be a politician these days.” No matter what you think, say or do- half of the people will disagree and want to let you know about it. But- discussion and at least “considering” other’s points of view is how we advance as a society. So keep the comments coming: many lives were lost fighting for the freedom to speak, assemble and be the best we can be.
Happy Memorial Day.
May 26 2019
In the last month, the average small cap E&P company is down 26% while the independents are down 16%. This on the back of a significant takeover, prices 20% higher than companies budgeted and a wave of quarterly calls that included the phrase “we are focused on profitability and free cash flow”. What gives?
Certainly oil falling 10% in 2 days didn’t help sentiment but it would seem to me – the move to “risk off” assets in the wake of the trade war is significantly overdone in the energy space. If there is a bright side for investors (medium term) the volatility has accelerated delistings, chapter 11’s and companies that need to die are dying.
But – until we see the move in rig count to below 700 horizontal rigs, oil inventories which grow relentlessly week over week flatten and see incremental consolidation – it’s hard to believe we are out of the woods when it comes to stocks reflecting the underlying business.
I guess the best advice is to make sure the companies you own are the best in class and to stop looking at stock prices until mid July.
May 25 2019
Today – in my third installment in a one part series on email etiquette, I am going to be totally without controversy and ask that everyone please stop using the Reply All feature to say things like “Thanks” “Got it” or “Ok” when you aren’t the intended recipient or the 3rd person replying. Quit clogging our inboxes. You’re welcome.
May 24 2019
I love the comments and discussion that can occur on LinkedIn. The forum keeps it professional (more or less) and hopefully the content makes people think and weigh in.
101,000 views in 24 hours (5x any topic I’ve posted- ever…) says emails at 10:30 at night are a very big deal. In reading some of the comments I did wonder – do you ever think that sometimes…. maybe…. we take ourselves a little too seriously and others a little too literally? As one person said “now I know who I want to work with and who I don’t”. Point being – these posts and life in general- are about nuance and critical thinking.
There are times for 10:30 texts and calls and emails. And times when they are selfish. It’s up to you to decide when they fall in which category. And it’s up to your colleagues to decide if you made the right choice. But either way you decide to go in your communication choices – I practice what I preach: I wrote this at 10:30 last night and waited to post it until this morning (write drunk, edit sober).
May 23 2019
Some advice: Stop sending emails at 10:30 at night. Your poor time management all day should not cause me stress before I go to bed. There is software that allows the email to send the next morning. I’m really glad it’s off your mind… but don’t be selfish. If you really want to impress people with how hard you work, send it at 2 pm so I can do something about it while I’m sitting at my desk.
May 22 2019
I hate to be the bearer of bad news … but is it any wonder analysts are calling for Tesla to trade at $36?? It’s the case of a great brand… horrible stock.
It’s been public for 9 years and it doesn’t make a profit (still); it only makes 3 kinds of cars; and everyone in America who wants one… already has one. Funny – it’s goal is to put oil and gas companies out of business… and yet, it does less to be free cash flow positive than any energy company.
So. Love the brand or hate the brand…. don’t buy the stock.
May 21 2019
In perhaps the most anti climatic takeover battle this year, QEP is back in the news. With all the love letters between Kimmeridge and PDC, Elliott and QEP act more like ex-high school sweethearts, only following each other on LinkedIn.
But! Bloomberg scooped that Blackstone, Callon and Whiting are all looking. As a Callon shareholder expressly for the purpose of it being bought – I forbid them to bid (I’m not sure they will listen, even though it makes 0 sense). Whiting on the other hand makes a ton of sense and ultimately QEP “should” go to a Bakken player looking for another basin entry. Whiting has a new CEO, a new culture and a need to grow into the Permian to remain relevant (and since Jagged Peak was started on Whiting assets….
I’m gonna say the Delaware is a bit of a sore spot for them). But my dark horse is Encana. Sure- they are still integrating Newfield but the Midland asset is contiguous and the Bakken … well it’s close to Canada. So there’s that.
May 20 2019
On behalf of all companies who’s stock is down more than 65%, I am announcing a strategic alternatives process for you…. you’re for sale, put up the sign.
I know, I know … “How can you accept an offer when you are trading more than 65% below where you were last year??” Because investors have woken up and realized – asset quality matters, basins matter, balance sheets matter… and that’s why you are down 65%+.
Roan Resources is the latest to “officially” announce it saying they have had a number of inbounds. Of course they have – and what ever offers they are seeing are the best they are going to get, so hit the bid, take their equity, cut management and staff G&A and let’s get this consolidation show on the road.
May 19 2019
In a stroke of truly politically correct and reactionary genius – the SAT’s have added an “Environmental Context Dashboard” to assess a students “resourcefulness to overcome adversity”. It measures things like crime rate and poverty levels in a community and adds the score for universities to see and help make better diversity decisions.
Ironically, administrators are missing the point. With tuition rising at 7% a year, and many private colleges costing more than $60,000/year – a college degree is going to become less of a screen for employers as it becomes less accessible to middle class families (low income will get financial aid, high income can just pay). So yes – some rich parents photoshopped their average kids face into a “crew team photo” and got admitted to college. But if you can’t get a job that pays off the investment – what’s the point??
I met a kid who had just graduated with a political science degree – we met because he was making my sandwich at Whole Foods…. when college grads can’t get jobs with degrees that cost $240,000… parents are going to start questioning the investment.
We need a better system for education – unquestionably. But an Environmental Context Dashboard is not solving the problem.
May 18th 2019
How does the private equity model evolve to address the fact that the great resource play land grab is over? Bakken. Eagleford. Permian. All extensively drilled with the limits of the fields pretty much known and understood. So returns are generated through drilling, rather than “lease and flipping” which means much bigger capital and much bigger teams required.
How to cope? Teams have started resorting to “drill fund” structures where investors invest in a basket of wells and earn a guaranteed return with a tail. Ultimately as drilling becomes a bigger focus of private equity teams with longer duration companies – I would expect PE funds to raise drill funds as a side car to their own asset level investments – both to provide leverage and capture the “leakage” of high rate mezz like loans.
The wave of bankruptcies will put assets into the market and returns will have to be drilled. Expect PE to evolve to take advantage of the new rules of the game.
May 17th 2019
A help wanted ad I see coming in the very near future…
WANTED: Debt investors need deeply experienced workout group to help us not lose all the money we invested in horrible companies with tragic balance sheets. Oh, and did we mention the assets aren’t good so you can’t drill or sell your way out of the problem.
Required skills: must be able to take a beating all day every day; must take the blame for our horrible investment so we can blame you when you can’t fix it; MUST NOT have thought buying the equity was a good idea.
May 16th 2019
A little misconception I’d like to clarify: It takes one woman 9 months to make a baby. 9 women can’t make one baby in one month.
Translation: throwing people at a problem doesn’t always solve it faster. Some things just take time.
May 15th 2019
Saudi Arabian…what are we calling it…sabotage? Iranian sanctions. Venezuelan supply falling off a cliff. In the good old days, these events would have driven oil up 10% but with tariff concerns, prices remain in the low 60’s. With so much noise in China-US trade, quietly and unnoticed, energy companies are being given a second lease on life (well, some of them).
Budgets were set at $50 oil and activity was front end loaded. Excess cash is being used for stock buybacks and debt management and G&A is being cut to reflect a cliff coming for activity. The $hit-cos are seeing their stock prices crushed and are quickly headed for Chapter 11 – which will punish debt and equity holders alike for not paying more attention to asset quality.
All these things are why I stand by my belief that horizontal rig count is going to fall below 700 in July and will see significant downward pressure on pricing in the service industry improving well level economics and profitability.
So while investors continue to hate the sector and are distracted by tariffs, these developments and current pricing are enabling the best of the best to position themselves for a really strong 2020 which I think makes some of these companies very compelling to invest in.
May 14 2019
Now that the OXY-APC-CVX drama has run its course, I find myself compelled to watch the massively entertaining “letter war” between Kimmeridge and PDC and Rice and EQT.
To me- the most amusing part is that the companies instigating the fight are the companies that sold their assets in the first place (Kimmeridge and Rice both got wonderfully … attractive prices in 2016 and 2017 when they sold). Both took stock in the acquiring companies and now that stock has got beat up because EVERY ENERGY COMPANY IN THE WORLD has. It’s like selling your house to “We buy Ugly Houses” and then complaining when the housing crisis of 2008 hits and shouting “you didn’t get enough for my house!”
I get it – I want a 25% takeover premium for the companies in my portfolio too but don’t pretend you can run the assets better …. there was a reason you sold and a reason the acquiring company is struggling (maybe the assets aren’t that good…).
But – I digress. Keep up the wonderful letters, they are a welcome distraction to the tariff battle over Twitter.
May 13 2019
UBER is public and after the debut of LYFT it’s no surprise that it’s down 15% from the IPO price. The company has a $70b market cap, hasn’t ever turned a profit and is burning cash like an oil and gas company in 2014! I’m not convinced it should have a larger market cap than EOG – but what do I know about tech company valuations??
I do love UBER as a service though – I really do. The convenience and low cost have been big factors in reducing in DUI’s by 33% according to some studies and you have to believe it’s been a big boost to restaurants as patrons don’t need to worry about how they are getting home after.
I also think that having a single company so impactful to transportation (which is the cause of 28% of GHG emissions) should draw focus to the fact that it is driving cars – not producing oil for cars – is the cause of the emissions and the best way to reduce them.
However – maybe it’s just me – but my biggest complaint is that sometimes I feel like I am the driver’s therapist: I mean I love that we CAN have a great conversation – but do we ALWAYS have to? Can’t we just sit in silence and ponder the business model instead of you telling me about how you want to become a dog trainer? Just saying.
May 12th, 2019
Save this article for later
May 11, 2019
I am seriously considering starting an event driven hedge fund that invests in oil and gas companies. Here would be the rules.
If – in investor and quarterly meetings – a company talked about its net asset value under a variety of scenarios; lived within cash flow; paid a great dividend and was actively paying down debt- I would buy it.
If – however – a company used the words “weather related delays”; “non recurring (but recurring) operating cost increases”; “we will be cash flow positive NEXT year” and generally doing things that make management look like they don’t listen/ are stupid – or both – I would short the hell out of it.
What’s my point (yes, I have one): we are in the end game now and you truly don’t want to own companies that are so obviously in trouble they are going to declare chapter 11 or worse – languish as their shares fall to near 0. There are some incredible opportunities to buy the right companies – companies doing the right thing and likely to be taken over in the next year- and you can make outsized returns. Bottom line – if you want to gamble… go to Vegas. If you want to invest – the wheat is being separated from the chaff- all you have to do is look.
May 10, 2019
And with the stroke of midnight, our country is MUCH STRONGER with tariffs of 25% instead of 10% hitting $200 billion of imported Chinese goods. That’s the news. Our economy is better. Have a nice day…
Actually, I’d like to ask a question if I could: if I can buy an imported Chinese apple (tasty!!) for $1 and there are 25% tariffs on them, doesn’t the exporter still get $1 because they have raised the price to $1.25? Aren’t I actually paying the tariff through higher prices?
No? (Actually yes, but let’s pretend). Are you saying that demand goes down to drive prices from $1.25 to $1.10 so the thing I really wanted I don’t buy because it’s more expensive? But with higher prices, inflation goes up which makes the fed raise interest rates and then I’m hurt by the debt burden and pay higher interest rates?
No? (Actually yes, but let’s pretend). Oh- so then the economy slows, consumers pay more for goods we like to buy cheap and the stock market falters delaying everyone’s retirement and forcing their parents to move in with them when they run out of money.
I feel MUCH STRONGER. Thank you sir, may I have another.
May 9th, 2019
And now, we return to our regularly scheduled and topical hottakes. And what a week it’s been!!
We have to go all the way back to Monday when Amplify and Midstates agreed to a merger of equals (that’s not a real thing by the way, but sounds good in a press release). Many, many more to come so a good start.
Pioneer annnouced quarterly results with the strangest asset sale I’ve ever seen. A $450 mm divestiture for which they receive $25 mm today and the rest, based on a whole bunch of factors between 2023-2025… if ever you wanted a reason to sell companies that own Eagleford assets -that’s the one! Oh, and on the conference call he said “I didn’t come back here to sell PXD” and the stock promptly got crushed -which was a nice way of the investment community telling him “too bad”
PDC, EQT, QEP and Carrizo are having fun with activist investors (which is cute when spreadsheet jockeys tell management how to model type curves) and will be a template for future moves.
And- Mr. Wirth has made Madame Hollub very happy and won’t raise its bid for APC and plans to use the $1b to boost its buyback. I can only assume he got my note. So other than a full blown tweet – I mean trade – war that has the potential to drive the market down 10%… its quiet uptown.
May 8th, 2019
Another week, another shooting at a school but don’t worry, I am not advocating for any sentence that includes the word “gun” or “control”. I learned my lesson on alluding to that debate last time – and I like to think I’m a fast learner. No thank you!! For clarity in the sentence above, I am simply stating facts. There was a shooting at a school in North Carolina last week and there was a shooting at a school in Denver this week. Definitely NOT talking about gun control. Agreed? Please don’t post comments about the 2nd Amendment or anything like that.
Instead, I am proposing a much more practical solution: a no appeal trial with capital punishment for the guilty party AND the legal owner of the gun. I think this is a far more realistic solution that does not infringe in anyone’s personal rights and addresses the concept of public safety and justice. And I am all about practical solutions.
May 7th, 2019
Dear Mr. Wirth (Care of LinkedIn)
Thank you for your interest in Anadarko. I know right now you are thinking about raising your bid but I don’t think you should and here’s why (in case the people working for you don’t write in bullet form memos… on LinkedIn)
1. You get a billion break fee! Not bad for writing an offer. You planned to increase the buyback from $4b to $5b after the acquisition anyway- now it’s free money and you can still do.
2. You were going to sell $15-$20b of assets – likely DJ, PRB and Algeria. Who buys the DJ? That feels risky on execution with politics here. It’s all about the Permian position anyway.
3. There is this trading partner you’ve done a whole lot of coring up with and is a pure play Permian player… they look pretty. Really pretty! Maybe you should ask them to dance.
4. I am crushing hard on Madame Hollub and I don’t want you to disappoint her. A bigger Oxy is a better Oxy and makes COP and RDS get tickets to the dance too. That’s good for the industry.
So. Hopefully this has been helpful. Love and hugs,
May 6th, 2019
It’s official: I have a new crush and it’s Vicki Hollub. She is one tough, creative and feisty cookie and I like it a lot!
In the span of 2 weeks, Oxy has gone from unrequited admirer trying to get Anadarko’s attention to superhero calling all the shots. I thought the Buffet play was creative – a touch expensive but hey, the things we do for love.
But now…. pre selling an asset they don’t even own in the largest risk area of the deal’s integration to raise cash and leave the 3- D’s behind (DJ, Delaware, Deep Gulf of Mexico)…. be still my beating heart!
I love when companies stop playing by some antiquated and outdated rules designed to keep incumbent management teams in control of a process when they should be maximizing shareholder value instead. Elliot Management started strong in QEP but faded fast and appears to have lost without even a fight (the last press release on that deal was January!!) but this…. this is incredible.
So, here’s to you Madame Hollub. Can’t wait to see what you do next.
May 5th, 2019
Do you know what I’m thankful for? Everything.
I was at a luncheon fundraiser for ACE in Denver this week, and I am grateful for the reminder. Each year, ACE gives $6 mm and 2000 scholarships to allow low income kids to go to private local schools and change their opportunity set in life. Education- and the access to a safe, Learning focused environment- changes lives. From life time earnings expectations, delaying child rearing and creating new role models for the community to look up to- access to a quality education is a key way to close the income gap. Would I be where I am had I not been born into a family that could access a high quality education? No.
Where does ACE get much of it’s money in the local community and who are the founders and leaders of the organization? The Oil and Gas industry. My friends and colleagues in this industry are so generous with their time, their resources and their knowledge it is hard to understate the industry’s positive impacts in all the communities we live.
I am proud to be in Oil and Gas. I am proud to provide low cost energy to the country that lifts families out of poverty. And I am grateful to have been given the opportunity.
May 4th, 2019
Business school professors might tell you that in an acquisition, you should take the best of both companies and make the Newco “better”. That’s why I wrote the book – “…What They Didn’t Teach You In Business School”. Most people teaching have never been through an acquisition personally and just interviewed some CEO 10 years after the fact for a paper they wrote and think they understand corporate culture. They do not.
The people that work at Oxy and CVX do so because they like it; they fit the culture; and they understand the politics. If they didn’t, they would leave or be forced out. From what I know of those cultures – I would be a horrible fit and they would be best to be rid of me ASAP. I did work at APC for a long time and I would say generally I was a good fit. So. Post merger – OXY and CVX would have to get rid of me and all the “like me’s” to keep us from rocking the culture boat. And how would they know who those people are? They don’t but they can’t make a mistake.
That’s why they have to get rid of almost everyone and post every job they need and invite applications from EVERYONE to find people who will fit at best OXy or CVX. Because a warm body WILL NOT do when there are so many people available.
May 3rd, 2019
After the school dance this week, I had to tell my son “If they gossip to you, they gossip about you.” Just a good reminder for all the grownups.
May 2nd, 2019
Taking a stand is good: it lets people know what you think and lets people react to it.
Patagonia has decided that it only wants to brand clothing of brands that are like minded and in that, financial services and oil and gas are out. Did I mention that they use fleece in their products so I should probably mention that fleece is made of polyester and of course that is derived from petroleum based products.
So in addition to not buying clothing from Patagonia, I can also safely call them misinformed about where they get the material to make their products. Like people who drive electric cars to “save the planet”, it would help them to realize the plastics and the energy required to fuel the car came from oil and gas too.
May 1st, 2019
Earnings season has kicked off, and for once, companies – and the stocks that reflect their decisions – are performing in sync. Show capital discipline and get rewarded. Outspend, and watch your stock get crushed. Tier 1 assets (pronounced Delaware) are allowing companies like CXO, DVN, CVX, XOM to crush expectations. Tier 2 and 3 assets have “weather impacts”, “third party curtailments” and “midstream delays”. Yeah… ok. G&A reductions, share buybacks and free cash flow are mentioned in every press release – which shows that even if they aren’t executing, they know what to say. These are good developments and are making it clear who the winners will be at the end of 2019.
April 30th, 2019
Just when I was going to write a wonderfully motivating hottake on team work…. some guy name Buffet shoved Anadarko back in the spotlight. 8% is really hard to make on large amounts of capital without taking a lot of risk- and through 2008 and the financial crisis, Buffet made a killing supporting banks with great preferred returns and warrants. So one must take notice when he commits 10 billion (with Warrant kickers) to Oxy’s bid for APC. Not surprisingly, the market re-valued CVX with a lower probability of winning and reflected Oxy’s higher likelihood bid by driving their stock lower. If I’m Chevron, and I love me some Permian- their is another company I would covet more than APC. Let’s see how quickly “it” gets into play.
April 29th, 2019
What’s a Monday morning without a little M&A news from Sunday. Anadarko has decided to talk to Oxy….. and wow, does that look bad on the Board. So you get an offer from Oxy – well 3 actually- and then accept Chevron’s proposal and $1b break fee; and then Oxy writes a letter and now with egg covering your face, you think it’s time to engage. I stand by my view CVX doesn’t raise its bid and now, with Oxy looking more likely, Oxy stock falls to match expectations they have to issue a lot of stock to get the deal done. But let this be a lesson to other Boards who are currently in negotiations: assume everyone will know everything one day so don’t make decisions you wouldn’t like on the front page of the WSJ.
February 24, 2019
There is a book called “The myth of the ethical consumer” by Gianna Eckart. I haven’t read it but I heard her on a podcast and let’s be honest, the title tells you everything you need to know.
Consumers can hate where a product comes from or how it is made and still buy it. The only way behavior changes is to legislate it out. And on the topic of legislation- let’s get real about carbon emissions: if we want to reduce them, consumers MUST pay more.
Here’s a fun stat. The US uses 9.33 million barrels of oil for gasoline each day and a 0.25/gallon gas tax would reduce it to 9.23 million (that’s not a lot).
Here’s another stat: ride sharing services have increased total miles driven in cities by 160%. The problem of reducing emissions is easy: dramatically raise gasoline taxes and tell consumers (voters) we are saving the planet. Now which politician is brave enough to actually tell the truth??
February 23, 2019
Remember the 1980’s? Acid rain, leaded gasoline and a hole in the ozone. It was all that anyone talked about. It’s now 2019 and, it appears, crisis was averted.
The peak size of hole in the ozone was 11.5 million square miles in 2000. Since banning CFCs worldwide in 1996, the hole has shrunk to 2.3 million square miles – shrinking 1.3 million square miles in last year alone. Replacing CFCs was estimated to cost $36 billion over 90 years from 1991.
The EPA banned leaded gasoline in 1995 the lead in children’s bloodstreams dropped 80% driving their IQs 3.5 points higher (study period 1976 to 1999). And it only cost 3 cents a gallon more.
Acid rain became a problem of the past (in North America anyway) when the Clean Air act was amended in 1990 dramatically reducing the emissions of SOx and NOx, in large part from power plants using coal.
Humanity has a history of solving problems. Agreeing on what the problems are appears to be the bigger challenge for politicians these days.
February 22, 2019
I went to a fundraiser for a local councilman and it illuminated a number of things for me (I was aware I’m totally unelectable before this evening so THAT wasn’t one of them…..).
1. Upper-middle class folk who are fiscally conservative and socially liberal and who think they are the silent majority – are delusional. They represent about 14% of the electorate and aren’t a focus group for either party.
2. US National politics doesn’t enable governance to the middle of the bell curve where centrists live – and so the skew to one side or the other drives rhetoric. This is silly and needs to change.
3. There are two types of politicians. Those who want to BE someone. And those who want to HELP someone. Let there be more of the the latter in the future.
I truly commend all those who choose public service. More people should try.
February 21, 2019
“An optimistic oilman is someone without enough experience.” “The best well you drill is the one you sold pre drilling.”! “Please let there be another boom, I won’t squander it all away this time.” These expressions all rattle around my little brain all day long.
And yet….Oil at $57; Energy equities are one of the best performing sectors this year; Modest capital cuts and generally a flat rig count haven’t upset the world supply balance; Saudis playing ball.
AND…. the China trade deal looking like it’s happening! Federal reserve is being accommodative on interest hikes!! It feels so good!!! Can I get a glass of wine?!
….Isn’t this the time in a horror movie when the killer climbs in your window with a chainsaw?
February 20, 2019
At the risk of not having an original thought each morning, I have to reiterate two hot takes from days gone by (Jan 11 and 12 if you are tracking!)
The average life expectancy of an American male is 79 years old and 71% of S&P 500 companies have a mandatory retirement age- with 43% setting it at 72.
So I ask, purely mathematically, should a 77 year old man really be running for President when the inauguration isn’t until he’s 79?? Dude… book a cruise, take up golf, introduce Jane to her next husband …. Something else! Anything else!
I want to play in the NHL but I’m 41 and I don’t skate very well…. so I too have reluctantly let that dream go. Instead, I live vicariously through my children in hopes they send me on a cruise when I’m 77.
February 19, 2019
I went out to a long time business partner’s family ranch yesterday and learned a surprising amount about raising exotic animals. It’s not a business I’m familiar with, despite being a relatively rough and tumble guy- as those who know me can attest.
Some fun facts. The females are worth more than the males (as they create the value). You only really need one male because they attack each other over the women and risk mortal injury. So- you keep the “best” one around and sell the rest to be shot. I often say it’s as important to be lucky as good and on an exotic animal farm, a good looking, lucky male has a much better time of life.
My takeaway: If you are a 9 point buck, best not be born to a 10 point because you are going to be sold and shot. BUT- perspective as to your place in the world matters! If there is shooting to be done — a 10 point buck would be a wonderful friend.
February 18, 2019
From my NAPE summary note, a common question arose: “I know the asset market is dead…. but why?” Here’s my take:
1. Asset acquisitions are about high grading one’s portfolio. To do that, the key requirement is access to capital. Pubco’s with “tier 2/3” assets can’t raise capital. Period. Pubco’s with Tier 1 assets have decades in front of them and don’t need more inventory. Ergo, unless they can use equity, deals aren’t getting done.
2. Private equity is the ONLY group WITH capital BUT they have portco’s they can’t sell (refer to point 1). This means they are long assets in old funds so unless a new deal is dripping off the page- they can be patient: cash is king. Buyers want a screaming deal and sellers aren’t distressed enough (yet) to take a low bid.
3. Finally, there is no market for new prospects because PE hasn’t switched to a drill your returns model yet. 5,000 acres in XYZ basin with HZ potential might be the greatest idea ever – but if you can’t drill it ALL THE WAY and sell your PDP at exit, it’s not buyable at entry. There is no source of low cost of capital for a PDP buyer today since the MLP market blew up.
This too shall pass- but you need to see a lot change before it does.
February 17, 2019
It has been argued that social media’s biggest drawback is “peacocking”. Pictures at the beach. Pictures at new jobs. Happy, sunshine and lots of nice looking teeth.
I have never seen a selfie of someone crying after being broken up with, losing a job or having a parent pass. But those things happen far more often than the former.
To live is to fail. It’s what makes the success feel so good and the best way we learn what not to do. Everyone has failed. Everyone has been down. And luck and timing play a huge factor in success. I am reminded why I started posting on LinkedIn. And why I started writing in the first place in 2012.
No “peacocking” today: Here’s the article that started my journey and to remind everyone – everyone fails. More importantly, there are many people to help pick you up and make you smile. All you have to do is ask.
February 16, 2019
As we start our Saturday, there are 600 million heavy trucks and buses on roads throughout the world as well as 597 million passenger cars and trucks. And all these have combustion engines. There are 3 million electric vehicles. How much lithium and electric power generation would we need to change that? (And for kicks, Google how you get and where to find Lithium)
38% of the world’s electricity is generated from coal, not to mention its use in iron and steel. 7% of global carbon emissions are used to make steel which is used in every part of wind turbines. To turn silicon dioxide into solar panels – you need to run something called an electric arc furnace… an ELECTRIC ARC!
I love the oil and gas industry and what we do to power the world economy. I just wish politicians in Washington would think their “green” ideas through a bit more. Maybe AOC should follow me on LinkedIn…..I’m easy to find.
February 15, 2019
I leave NAPE with pains in my liver but a bounce in my step – which for a near perma-bear is a dramatic shift! What were my take-always?
1) Water is the new oil. It is, perhaps, the last frontier of “lease and flip” and is mirroring the trajectory of the horizontal resource play boom.
2) There are a lot of midstream dollars looking for a place to happen and it feels like we are going to be over built in the near term.
3) Technology, AI and data management tools are finally attracting real investment and the number of new products that are dramatically better than the incumbents are impressive. I mean seriously – how is anyone still using Aries?? Grab an abacus and make fire from rocks.
4) In spite of my constant worrying about the supply – demand fundamentals of crude oil in particular – 600 mmbbls of storage availability for China’s strategic reserves probably put a floor under oil prices as they were active buyers in December when crude was in the 40’s.
5) The asset market remains dead with no end in sight. “Drill your returns” is the only thing that works. One day soon, there will need to be a real market to sell PDP heavy assets.
Our industry is filled with amazing people doing amazing things and I’m grateful to be a part of it.
February 14, 2019
Houston…. we have a problem! I think the NAPE conference goers bought the Four Seasons out of booze last night.
Has anyone seen my name tag? If “he” said something offensive … it wasn’t me… it was the guy that stole my badge.
February 13, 2019
While I dislike 530 am flights immensely – the trade off as I head to winter NAPE in Houston is the pregame massage at Massage Envy. One needs to be in tip top shape as one prepares for the roughly 300 conversations that will occur in the next 36 hours.
But I wasn’t always a NAPE pro – my first year in 2012 featured a recently unemployed younger version of myself rolling around the conference floors with a piece of paper that said “Looking for assets, Looking for $500 mm”. Needless to say it was a fruitless effort but the experience served as the launching pad for the best lesson for the next 7 years: complete and utter failure of my first start up. (As many of you know- that became the topic of the as of yet to be published book and blog “WTF is Wrong with Everybody Else…. What they Didn’t Teach you in Business School”)
As I head back with 7 years under my belt, I reflect on the phrase: “You are either learning, or you are making money. You aren’t doing both at the same time.” I agree. And a nugget for the newbies – I’ve learned all the business happens after 9 pm in the Four Seasons lounge. See you there!
February 12, 2019
In the past 50 years, the population of the world has doubled, water use has tripled and oil use has quadrupled. I’m glad we are debating the difference between a wall and a physical barrier ….
February 11, 2019
There was a scene in the movie “Men in Black” where Tommy Lee Jones picked up the National Enquirer and proclaimed “This is the only newspaper doing real investigative journalism”. Alien landings, Elvis sightings and the occasional affair.
So it is perhaps no surprise that the tabloid got the scoop on the world’s richest couple last month. The odd part to me is Bezos isn’t really a celebrity CEO in the ways others are so his targeting seems bizarre. Also – are naked selfies really news any more?? Is there anyone left in America that cares about this story?
But – it took a twist last week when it appears that the stealing of the photos and the outing of Bezos was politically motivated – with possible involvement from the Saudi’s and as a gesture of forgiveness to the White House. I don’t know much about blackmail – but I don’t know that taking on the bank account of Jeff Bezos AFTER the story already broke up their marriage AND he owns the Washington Post ends well for the National Enquirer.
Maybe they should go back to Elvis sightings and other more newsworthy events, because this seems to be a battle they can’t win.
February 10, 2019
I was appropriately called out yesterday for a true first world problem: my frustration at Netflix streaming speed during Batman (though I still maintain it’s an investment decision, the point was well made!)
In sharing the story, my wife was reminded of a time a meat salesman came to the door and she couldn’t buy any because the freezer was full (and we subsequently bought another freezer). My son dropped his Beats headphones on his iPhone and cracked the screen. And my mother in law can’t use her timeshare points in Hawaii because she has too much other travel planned this year.
1st world problems.
Check. …So I made a donation to the Gates Foundation. We are so so lucky to live where we live and have the opportunities we have. Thank you. Thank you. Thank you. I am grateful.
February 9, 2019
I like to rewatch movies I love- so when I saw that the “the Dark Knight” was on Netflix streaming last night- I was so excited (yes, I’m a child in a man’s body).
Of all the superhero movies – the Batman trilogy is my favorite. Of course, that Christian Bale is an exceptional actor that dominates every role he has ever had… helps.
I couldn’t put my finger on it but something was off. About 40 minutes in, I realized Netflix was accelerating the playback by about 15%. Subtle, but really annoying. I don’t know what deal Netflix made with studios but that couldn’t have been accidental.
If you want to be content (and it’s awesome original content) – be that. But if you wreck my favorite movies because you got a discount to stream them fast… I’m selling your stock.
February 8, 2019
Trust is a powerful thing. You trust people you’ve never met more than someone that broke your trust in the past. And teams that truly trust each other and don’t need to fact check can do amazing things at incredible rates. “Trust but verify” is the dumbest thing I’ve ever heard.
So it occurred to me as I was watching the State of the Union that a team building event might be a good idea. Divide up into groups and do a rope course! Play 2 truths, 1 lie. And, of course, finish the day with a trust fall from a high wall. In the meantime, the American public can vote on who goes first……
February 7, 2019
My youngest son asked me “are you excited about my birthday?” His birthday is at the end of March. Being the father that I am (and that can go both ways…) I thought it was time for a parenting moment.
I said “To be honest, I’m not thinking about your birthday. I was thinking about myself. And the moment this conversation is done, I’m going to go back to doing what everyone else is doing right now – and that’s thinking about themselves. So no. I’m not thinking about your birthday.”
Tough love. But true. So the next time you are stressing about your boss or co workers thinking about you or something you did – trust me, they aren’t.
February 6, 2019
I went to dinner last night with 2 of my co-workers. They said “You’re blowing up my phone with my LinkedIn posts.”
I said “You are just saying that metaphorically.” They said “no” and both pulled out their phones in unison (which was an experience to be hold). Sure enough- I was the post that appeared when the opened LI and when they “swiped up” (as opposed to the infamous swipe right)- lo and behold, I was there again! On both phones!
For those of you who’s phone I’m blowing up, I’m sorry. I’m not in charge of the algorithm. I’ll do my best to make it worth your while.
Work with people you like and more importantly- trust. It’s a lot more fun. Even when you blow up their phone.
February 5, 2019
Why does every tax plan that comes forward have to be so extreme and filled with rhetoric? 70% tax rate? 77% estate tax rate? Come on.
There IS wide income disparity and a country isn’t great unless it’s great for everyone. But my question is: does anyone have faith that elected officials won’t build more bridges to nowhere and fund pet projects instead of actually addressing the problem?
So Mr. Sanders- I’m not sure if you thought this through but if the government is going to take 77% as a death tax – you may discover that everyone impacted retires early, takes their families on the greatest vacations ever and spends it all before the government gets a second crack at it (didn’t they pay income tax the first time??).
Instead… here are some logical proposals.
1. Make T-bills federally tax free for those earning less than $100,000/year to encourage saving.
2. Add back a 39.6% rate for those earning more than $1 mm (the 2017 tax rate).
3. Make the first $20,000 of dividend income from US owned corporations tax free for those making <$100,000/year.
4. Make 529 contributions tax deductible for families making <$100,000/year as education is the great long term equalizer.
Not sexy. Not newsworthy. But maybe that should be the point.
February 4, 2019
199 overall draft pick.
9 Super Bowl appearances (out of 53 total games). 6 wins. All with Belichick.
February 3, 2019
It’s Super Bowl Sunday! Here are some fun facts!
The ticket allocation is done by the NFL: 35% of the tickets go to the teams playing in the game; 6.2% goes to the host city team and 33% are split between the other teams. The NFL keeps 25% for media, staff, etc. T
he average ticket price paid this year was $4,380 (sold by whoever got them at face value in the ticket allocation).
30 second commercials are $5.25 million, but the game is seen by over 100 million people every year and the only time at my house there is no talking is when the ads are on.
$6 billion will be bet on the game, though only 5% will be through legal means. Fun side bets range from length of the national anthem (over/under 1:47), heads or tails, number of songs Maroon 5 will play at halftime (over/under 7.5) and number of tweets DJT will send during the game (over/under 6).
And then, when all is said and done everyone I know, except Ken and Drew, will have their day ruined when the Patriots win again.
February 2, 2019
Relationships are interesting. Did you know that higher rates of education in women lowers the total fertility rate?
One stat showed that 61% of women in Ethiopia with no schooling have a child before 20 whereas 16% with 8 years or more of schooling do. Staying in school longer delays marriage, raises the opportunity cost of having children and affords the opportunity to learn about things about nutrition and health care which increases survival rates (and decreases the desire to have more).
Similarly, early childhood education (pre Kindergarten) is strongly linked with long term success. Study after study shows a higher probability of graduating high school and earning higher lifetime income by participating in high quality pre-k activities.
As the world population grows and income gaps become more pronounced, the relationship with and impact of education is staggering.
February 1, 2019
I’m having FOMO with so many people announcing a run for President in 2020. The qualifications appear to be to have been born in the US and have a pulse. Oh. And have a whole bunch of impractical ideas that make the news. Check.
For the record, the federal estate tax (the tax paid on gross money AFTER income tax has been paid someone’s whole life) is effectively 37% above $11.2 million. So the “billionaires not paying their share” are actually paying $370 mm to the government when they die. As we’ve learned the average life expectancy of an American is 80. So the billionaire pays $4.6 million in “excess tax” above income taxes during their life for every year they are alive.
Want more good news! When you are dead you can’t donate to a PAC or vote about how your money is spent. Talk about a win-win for the government.
So basically a 77 year old man and a 70 year old women are wanting old, rich people to die to pay for their campaign promises. Nice.