Wait a second, you mean to tell me that almost no one saved money for a rainy day?
Doesn't that seem to be the case for these oil companies? Can you believe how few of these companies thought, even for a moment, that oil could go down huge and how little cash flow they might have if it does happen?
Now, I am not saying that they are going to all go bankrupt. There is way too much money kicking around and way too many banks willing to keep their wards alive...at least for the moment. There are always going to be private equity firms who want in because they don't know what else to do with the money.
There are also going to be firms that just keep staying alive -- just two weeks ago Magnum Hunter (MHR) declared its preferred dividend, which is really something when you think about it, because it could have used that cash for certain.
But for the most part, these firms just seemed to have no idea what could happen. And if we listened, we didn't either. I keep thinking about the excitement when Marathon (MRO) split into refining and marketing and pure E&P. The properties of the latter were supposed to be abundant. The business of the former, static and dormant.
It turned out to be the opposite but, more importantly, it turned out to be a terrible call, because when you see the oil companies that are doing "relatively" well, they are doing well because they didn't break up.
But here's what I find really incredible: the oil companies did the splits themselves, not under the activist guns. The managements never thought, "you know what? someday I might need that very stable, slow-growing business, if things go awry." It didn't occur to them.
Plus, did these companies' managements ever have any relationship with the Saudis? Did they ever talk to them about global politics and the way the Saudis would react if we started becoming the best pals of Iran -- and look around, believe me, we are, even where they have killed our soldiers, even though I accept that Iraq is some sort of bad marriage of convenience, with the emphasis on bad.
I know Charif Souki, the visionary behind Cheniere (LNG) -- whose stock is now being crushed like all of the rest, even though it's a winner in this environment -- has told me on many occasions that oil companies in the end have no marketing people, so they don't ever think about "what the market can bear." They just pump as much as they can. With the exception of Action Alerts PLUS portfolio holding EOG Resources (EOG), that's exactly the case with all the companies I follow. Only EOG and perhaps Occidental (OXY) and Exxon (XOM) really have rainy day balance sheets.
Perhaps that's why they didn't bother to think about what would happen if one of the players, the low-cost producer, Saudi Arabia, decided "what the heck, let's just go to everyday low pricing and wipe out all of the moms and pops," which is exactly what's happening. They didn't see Wal-Mart (WMT) coming, any more than the smaller retailers saw it coming.
Not, of course, that they could ever do anything about it, because these are commodity producers, not specialty produces. But even that's not an excuse for them. These managements, with the exception of EOG, all bought into the Wall Street game. They all bought into growth at any price.
Now we are seeing these stocks be unsafe at any price, and it will go on until the prices are so low, because they don't represent the real capital power structure behind the entities. The bond holders and bankers will.
