Thread regarding Schlumberger Ltd. layoffs

Hey Dipshit and shit for brains here...

I don't think I said that loan defaults wouldn't be an issue ... they will..

For, as the article says.. JUNK bond companies... and companies that OVERLEVERAGED themselves.. that's par for the course. Downturns are designed in a capitalist society to rid itself of the gamblers and risk takers..

All I am saying is that for OPERATING companies, that have oil production income, they can run on VERY LOW headcounts, and all of their expenses came up front..

First they lay off non-essentials..

Then they sell off "assets"... leases, buildings, extra equipment etc.

Then they consolidate, and sell off the excess.

Then they lay off the middle mgt, and slide lower management into field positions.

They the consolidate again..

Keep laying off, and selling off "assets"... trucks, buildings, leases etc..

They negotiate w the banks..

THEN they default..

Much different business model, than a service company that relies on employee labor for it's income.

Sad but true: oil companies can't even give their equipment away:

http://www.zerohedge.com/news/2016-01-20/glimpse-things-come-bankrupt-shale-producers-cant-give-their-assets-away

Hey shit for brains who is "Schooling", those companies have let go of employees, are not paying their leases and royalties, and now they ain't paying their bond holders. Keep telling yourself everything is OK.

Canadian sour crude is selling at a low of $8.83 as of today. How long do you think they can keep pumping? Frosted flakes in Canada are $15.99 a box. Keep drinking the kool aid.

To the fugnut above saying their is no chance of a 50% default. I was at the meeting. It was conference from an annalist in SC and a annalist in Austin, Texas.

It even made the news.

By Matt Egan at CNN

Brace for a wave of defaults in the oil patch.

Energy companies that loaded up on debt during the oil boom are likely to have trouble paying back those loans. Oil prices have collapsed over 65% since the middle of last year to below $37 a barrel this week and there’s no recovery in sight.

It’s fueling financial turmoil on Wall Street with Standard & Poor’s Ratings Service recently warning that a stunning 50% of energy junk bonds are “distressed,” meaning they are at risk of default.

Overall, about $180 billion of debt is distressed. It’s the highest level since the end of the Great Recession and much of it is in energy companies.

“The wave of energy defaults looming in the wings could make for some very bumpy roads ahead in 2016,” Bespoke Investment Group wrote in a recent report. The firm described the junk bond market environment as “pretty terrible” lately.

That’s a dramatic change from recent go-go years, when the shale oil boom along with cheap borrowing costs allowed energy companies to take on loads of debt to fund expensive drilling operations.

U.S. oil production skyrocketed, creating a gigantic supply glut that is currently pushing prices lower and hurting the ability of many energy companies to repay their debt.

“The tide may be turning. Excess leverage during the good years has dented credit profiles,” analysts at research firm Markit wrote in a report published on Wednesday.

72% of metals, mining companies are distressed. Of course, it’s not just oil companies under financial duress. S&P said a whopping 72% of the bonds in the metals, mining and steel industry are now distressed.

That makes sense given the fact that prices for raw materials like copper, iron ore, aluminum and platinum have recently plummeted to crisis levels. It’s so bad that a key Bloomberg index of commodity prices is now sitting at its lowest level since 1999.

No matter the sector, these financially stressed companies will be forced to cut costs by selling off assets and laying off workers.

Corporate defaults are already on the rise. S&P said defaults recently topped 100 on the year, the first time that’s happened since 2009. Almost one-third of 2015’s defaults have come from oil, gas or energy companies.

S&P warns the high level of distressed bonds is an indicator that more defaults are coming. The firm said being classified as “distressed” reflects an “increased need for capital and is typically a precursor to more defaults.”

At a time when oil and natural gas prices are super low, there’s more bad financial news for these companies — a change in the interest rate environment. The U.S. Federal Reserve is expected to raise interest rates next week for the first time in nearly a decade, a move that will likely hurt demand for risky assets.

Which companies could be next?

The list of distressed oil and gas companies features mostly small and midsized companies, though it does include some big names like Chesapeake Energy (CHK).

Carl Icahn owns a big chunk of Chesapeake, a natural gas and oil company whose stock price has plummeted 76% so far this year. Chesapeake is trying to ease its massive $11 billion debt load by getting investors to sell their bonds back to the company at a lower value.

Other energy companies on the distressed list include Denbury Resources (DNR), Linn Energy (LINE)and Transocean (RIG) — all of which have been slammed by cheap oil prices.

Not a repeat of 2008

The good news is that few believe the commodity-fueled default wave will cause an all-out financial crisis like the mortgage bond storm did in 2008. That’s at least partially because banks are stronger and better able to withstand financial storms.

“This is a cautionary tale — but for the moment should not really impinge on the rest of the financial system,” said Nicholas Colas, chief market strategist at ConvergEx.

You can also go to the gov source and pull up who is way behind on their ease and royalty payment. It's a blood bath.

Source: Warning: Half of Oil Junk Bonds Could Default – CNN

If I was in that meeting, I would have stood up, and told whomever told you that bunk information, that they need to learn the business much better before they open their mouths. If they don't know what they're talking about, then THEY should be fired.

Your info doesn't make any sense..

Here's why..

Lemme give you guys a little "schoolin" on how an "oil company" drilling in the US/CAD really works.

So, the hierarchy of "who gets paid" is Bondholders FIRST. The it gets into preferred share holders and then common stock holders etc.

So, here's how it works.. Let's say Bank of Oil loans Oil Company USA $10M to develop some field somewhere.

Now, depending on the structure of the deal, more than likely BoO has secured their loan with "something".. maybe company assets, maybe stock, maybe a percentage of cash flow, who knows.. Most likely company assets.

So, depending on the company, most oil OPERATING companies, have trucks, buildings, oil wells, pumpjacks, separators, pumps, tubing, etc. An OPERATING company receives income from oil production.

Most OPERATING companies CONTRACT with DRILLING companies to drill the wells. The drilling company assets are rigs, drill pipe, bits, dog houses, as well as trucks, office buildings etc.

So, it's really 2 different companies, the OPERATING company, and the DRILLING company. Most of you know this.

So now, the OPERATING company can very easily decide to not drill, and just do simple workovers if the cost justifies the expense. Most OPERATING companies largest "have to" expense is the cost of regulatory compliance. The water flow, corrosion, water production, water level, etc. stuff that the regulators demand annually. Then even if a well workover DOESN'T make financial sense, the operating company still has to do it to keep their license.

So, then the operating company's expenses after the well are drilled are of course the costs of keeping the wells producing, keeping the wells in compliance, and overhead etc.

So there are many lease types and structures as well. MOST leases are expensive initially, but cost virtually nothing after they are acquired. The landowners want the money up front, and they they want royalties. Leases are sometimes (not always but often) held by "production." That means that the lease stays in affect until production stops. Most have drilling clauses in them as well.

So the landowner will say, in essence, you have to drill X wells within X years and you need to pay me Y% in royalties. The OPERATING company negotiates for as few of wells for as many years and the lowest royalty. The landowner of course takes the opposite position, and they usually meet in the middle.

Most leases also have an "out" clause, and most wells are held by what's called "production spacing."

So even if the operating company doesn't meet the drilling terms of the original lease, the wells already drilled are still "held by production." What will happen, is that the landowner (actually mineral owner) will then have the option to re-lease the drilling rights to another operating company. But that new operating company cannot "intermingle" within the production spacing of the existing wells. So, most of the time, the original operating company will then re-buy the lease, but this time at better terms because of the drop in prices. Or they may let the landowner/mineral owner try and market the excess drilling acreage etc.

So, the operating company can cut headcount down to next to nothing because once the wells are drilled and producing the costs are VERY LOW to keep the well producing. All the cost is getting the well into production. Once it's producing the costs are quite low. Compliance is the big one.

So, most operating companies, that were over leveraged, meaning that they borrowed to the hilt to drill, will lose some of their assets for sure. BUT, bondholders are really just banks and finance companies. They are not in the oil business. They only will loan against something they can repossess and cash out.

In most "bad" cases, the company will file a CH11BK and basically restructure the debt under the guidance of a receiver. So in that case, everyone takes a scalp. The operating company and the bank. BUT, the oil still keeps pumping and the operating company still has revenue, so the restructure is basically the bank adjusting their payments to match the income.

So anyway, that's the readers digest version of why that guy talking in the meeting was blowing smoke.

Good, maybe we will have less earthquakes in Oklahoma now!

OMG.....