blog

deluge of asset impairments begin

as crude flirts with $40

Hondo Lane | July 12, 2020

(Petrolytics) - As crude continues to flirt with the $40/bbl WTI level, majors and independents alike continue to dance around write-downs. Dominating headlines are significant impairments:

Many of these appear to be related to gas assets, however, any upstream business is at risk. Similarly, as an anecdote, we've spoken with our colleagues who operate out of boutique energy PE funds who can only describe the situation as "grim" (it's been described this way for the better part of 18 months).

In other news, many of the operators around Houston haven't exhibited any interest in returning to the office. While there're plans to eventually phase groups back, the attitude is staff will continue working from home (since there doesn't appear to be any attributable productivity loss). Even the companies that returned to the office have since closed back down. We've even noticed issues of crews suffering outbreaks and incurring downtime as a result.

The feel is we're doing this for the long haul. Even more, any work from home barrier in the past has undoubtedly been broken. It'll more than likely become an acceptable practice to work from home the majority of the time during normal operations.

In any case, if you're looking for additional material to skim this morning, we'd suggest a few links:

  1. SEC guidelines regarding write-downs in case you're interested; SOX compliance also relevant
  2. EIA reports nonfossil sources accounted for 20% of US energy consumption in 2019
  3. Jobs report beats "expectations"

Regarding #3, we're either being intentionally deceived by "professional forecasters" or no one has any idea how to model anything. We lean more to the latter. These traditional models are grotesquely inadequate, especially when it comes to left-tail risk. Had our contributing reservoir engineers forecasted reserves this poorly, they'd have been canned immediately (and the reserves coordinator potentially facing jail-time).

That wraps-up the headlines this morning. Hope everyone enjoys the long weekend and has a happy 4th of July.