Tuesday, December 1, 2015

Highs and lows of O&G, new models

"KKR & Co led a buyout of Samson in 2011 for $7.2 billion. The company estimated its value at less than $1.5 billion for its prearranged bankruptcy plan.

Dune Energy valued its assets, including about 15.52 million barrels of oil equivalent of reserves, at $229 million in September 2014. The company auctioned them during its bankruptcy for $19 million in July.

Houston-based BPZ Resources fetched less than $10 million for its assets in July, which included licenses to explore for oil and gas covering 1.9 million acres (7,690 square kilometers) in Peru. Last year it valued the assets at $291 million."

How long will it continue? A few good things will come out of this prolonged downturn in oil and gas, including cleansing of the sector from the bottom dwellers, injection of technology to do the same tasks in significantly different ways, new techniques of financial engineering both productive and detrimental (MBAs always have a place upturn or downturn), etc.

Yet, I have not seen any of the significant players in the oil and gas sector come up with novel business models.  Here is an opportunity to (1) copy successful methods from other industrial sectors that have worked, (2) leverage advanced information technology, from gaming to analytics (this requires top tier leadership with experiential knowledge), (3) and the most important of them all is to avoid popular definition of insanity: "Doing the same thing over and over again and expecting different results."

With today's West Texas Intermediate around $41, the article's prediction is ominous:

"Becky Roof of AlixPartners, who advises distressed energy companies, said the experience with energy bankruptcies so far partly reflects the type of companies filing: weak, with far too much debt. She said stronger companies will fail next year if energy prices remain low."

I recently wrote about M&A in oil and gas here.  Read the complete article at Reuters here.

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