PtolemicThis is a weird analogue of MAD with Cheasapeake....

Ptolemic

This is a weird analogue of MAD with Cheasapeake.

Cheasapeake is the second largest natural gas producer in the US. Cheasapeake sank capital into gas wells in conventional gas fields when the gas price was $US7-8/MMbtu. With the advent of unconventional shale oil fraccing the excess production of gas drove the price down to sub $US3/MMbtu as the frac operations made their money on the oil flush.

Any company exposed to >50% price reduction on their product has problems and will have a reduced return on capital or go broke.

Of course if the oil price dropped 50% all of the MAD capital projections would be in deep trouble but then again as with Cheasapeake all the frac oil producers would be soon be broke.

This is a current issue with companies in the gold/base metal space as their product prices fall - if prices fall off a cliff all companies in that space hurt so what is the point?

MAD has stressed the point that they are a liquids producer so a gas comparison is meaningless.