US Shale Winners And Losers – Part Three

I think that many people are misreading the purpose of this series on $80 oil winners and losers. Most are looking at the most superficial message; as I mention specific companies who run into spend difficulties in a depressed oil environment, they imagine that I’m bashing the companies and telling investors to stay away. Nothing could be further from the truth.

We’ve seen forward-looking CEO’s report this quarter on how lowered margins will trim projected Capex. We’ve heard from companies as well-financed as Hess (HES), which announced an $800m reduction, Conoco Philips (COP) and Rose Resources (ROSE) and particularly Continental Resources (CLR), the best positioned Bakken participant there is.

But understand my point: Spend reductions will lead to production growth reductions, no matter what fantasy world these CEO’s also try to invoke on these conference calls. And as we come to smaller market cap and more specialized oil companies, the fantasies from their conference calls seem to reach Disney-like proportions. Let’s be clear: Production targets missed will further crater these already under pressure stocks, bring out the last ditch revolver credit lines and bond bogeymen – ultimately forcing serious slenderizing of activity and assets in these names.

We need that kind of “oil Darwinism” right now to start to work – not only to stop the breakneck, irresponsible overproduction of US shale assets,…