Decline rates

[Pepperman]

Steep according to this graph:

https://twitter.com/leslietron/status/7 ... 1911738369

[fuzzy]

That slide is a world projection [~90something million per day], and doesn't show saudi declines which they will keep private.

[johnhemming2]

Prices will come back up and then people will invest.

[adam2]

Yes, and more investment in exploration and in exploiting the oil thus discovered will tend to increase production and thereby somewhat moderate prices.
However there is a definite limit to this, no amount of investment can produce oil that does not exist, and the amount of oil existing is clearly finite, despite arguments about the exact volume remaining.

I consider it possible that oil production has already peaked, and that investment will slow the rate of decline rather lead to an actual increase.

[johnhemming2]

I consider it possible that oil production has already peaked, and that investment will slow the rate of decline rather lead to an actual increase.

Conventional oil clearly has. Investors will be spooked by what has been happening more recently, but will simply factor in a higher rate of return for the higher risk.

Whether there is anything in methane hydrates is a question for the future.

Taking all of that into account you may be right, you probably are not, however. We may see 100bpd OTOH we may not.

[raspberry-blower]

Prices will come back up and then people will invest.

It will be the banks that will be doing the supply of capital, John.
What doesn't help the oil companies ability to raise capital are credit ratings cuts

There will also be time lags that will distort the picture

[raspberry-blower]

Another thing that will have a significant impact:
US banks to cut credit lines for energy companies

[johnhemming2]

It will be the banks that will be doing the supply of capital, John.

They may organise things but behind this will be investors. Schemes normally have a portfolio of finance where the lower risk lower interest elements are funded by the banks then you have bonds and following that equity.

[raspberry-blower]

The banks and investors are currently losing their shirts following the collapse in commodity prices

What remains to be seen in the aftermath of all this are the following:
1) Will the banks be willing or able to provide additional funding to energy companies and will it be enough to cover future Capex?
2) What type of bonds will be issued by the energy companies? Secured or Unsecured? That, in itself, would send a telling signal to investors which leads on to
3) What will the investor appetite be for more "junk bonds?" Will the investors be keen to go back into the market having had their "fingers burnt" already?

Time will tell on this...

[johnhemming2]

The banks and investors are currently losing their shirts following the collapse in commodity prices

BP is down a lot, but no shirts have been lost by equity holders. Any bond holders are OK and the banks are OK.

For some of the smaller companies it is a different issue and obviously as far as Shale goes there is an issue.

>2) What type of bonds will be issued by the energy companies? Secured or >Unsecured? That, in itself, would send a telling signal to investors which >leads on to
All of this affects the interest rate paid.

Time will tell on this...

I would expect people to see energy investments as more risky and therefore look for a greater return.

[raspberry-blower]

The banks and investors are currently losing their shirts following the collapse in commodity prices

BP is down a lot, but no shirts have been lost by equity holders

BP is at the top end of the pyramid. It recently had a credit downgrade which I linked earlier in the thread. The significance of this has totally passed you by, John.
As I have previously stated on another thread I regard BP as highly vulnerable to a takeover.

Any bond holders are OK and the banks are OK

Bond holders of whom? If you referring to BP alone, then a far more relevant question is: Are they happy in the way the company is being managed?
However, if you are applying this to the oil and gas sector generally, then your assertion becomes questionable:

Wolf Richter: "Junk Bonds face biggest "Refinancing Cliff" ever

This is an increasingly steep cliff, with the largest portions due in the later years of the period, including $400 billion to mature in 2020, the highest amount of rated debt ever to mature in one year.

And near term? Moody’s Senior Analyst Tiina Siilaberg warned that there would be “a significant wave of new issuance in late 2016 and 2017.” At the worst possible time – because “a range of macroeconomic factors will make it more difficult for lower-rated companies to tap the debt capital markets in order to refinance their debt obligations.”

Bloomberg: Biggest wave yet of US Oil Defaults loom as bust intensifies

Bond investors aren’t likely to recover much money from oil and gas companies that default. Standard & Poor’s estimates, for example, that Energy XXI’s and SandRidge’s unsecured noteholders will receive, at most, 10 cents on the dollar.

Banks are setting aside more money to cover potential losses on souring energy loans. S&P estimates that credit lines to these companies could be cut by 30 percent by April, when banks conduct one of their twice-yearly evaluations of their loans.

"We are at the very beginning of the next wave of energy defaults," said Paul Halpern, chief investment officer at Versa Capital Management, which manages about $1.5 billion of distressed debt.

Are you sure all bond holders are ok, John?
How much exposure do UK and European banks have to CLOs and other derivatives?
Will they be forced to pony up the money?
The whole thing is systemic

would expect people to see energy investments as more risky and therefore look for a greater return

Bond holders are last in line - the whole basis of investment , well money itself, is based on trust. Once bitten investors may be wary to re-enter the fray

[biffvernon]

My local authority pension fund has significant investments in the hydrocarbons industry, has ignored requests to disinvest and now we have the government trying to stop disinvestment on ethical grounds. They should have disinvested on fiduciary grounds.

[johnhemming2]

Bond holders are last in line -

Equity holders are last in line.