E&P Environment - time to buy?

(This 3rd of November, the day before elections 2008)

"There's nothing like a rise in oil prices to make boys look like men."

- Bob G.
Investment Banker, NYC
(circa 2006)

And now ... the converse?

It has been a wild and crazy ride these past 2-3 years.
Not to mention the past 60 days!

As you might expect, a lot is happening in the upstream Exploration and Producing (E&P) arena.

The loan window is closed. The boys (companies with a "business model" predicated on easy credit) are urgently struggling to trim budgets to the level of their cash flow. Some ... perhaps many ... may not be able to survive.

In the last week, there have been offerings for properties, ranging, from:

  • hundreds of thousands of non-producing acres in Oklahoma, to
  • tens of thousands of producing acres in Wyoming, to
  • fifty thousand of acres of producing properties spread across 6 Texas counties, to
  • U-34 drilling rigs, etc.

All are for urgent sale, with closing expected before the end of the year. Harry Johnson has owned and operated drilling companies; his pithy comment about the drilling rig offering:

"Best shot for a U-34 might be the Smithsonian."

We all certainly hope that things haven't gotten that far out of hand, but who knows?

Expect to see the biggest chunks (those above) for urgent selling, first.
And perhaps many more smaller bits and pieces, coming on the market more gradually.

Amid all the hoopla of the past 24 months, if you have managed to keep your powder dry -- and good for you if you have (... yeah, both of you! ...) -- there ought to be some attractive opportunities in the months ahead.

Probably no need to be in too much of a rush to do anything right this moment, unless you have tax-related issues for this year 2008.

A few friends and business associates (upstream professionals who have been in this business day-in and day-out for the past 30 or so years), seem to be organizing themselves for a new role: aggressive purchasers of sensible long-life-of-production properties.
Product? Both oil and gas, but with an emphasis on oil.
Timing? Probably before the end of the first quarter of 2009.

In the meantime ... watch how the election goes ... and maybe think about organizing yourself to be ready and able to act ... soon after the first of the year.

John Orban
Oklahoma City, OK
November 3, 2008

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