Dumping or accumulating, page-24

Seems to be a day of postings on this thread so I thought I'd write down a few thoughts.

What pcaruso wrote re the US Reserves concerns about the oil sector, mainly the shale producers & possible defaults is very real. What is ironic, is that it was John Kerry urging the Saudis to oversupply to cause harm to the Russians, that helped create this whole downturn - not the first time the US has bitten itself on the arse.

When Yeager took the reigns at MAD, he thought it was just a badly run company - considering the reserves it claimed & the cost of the limited production. Naive you may ask? maybe, but in reality Australia has terrible governance of the small cap stocks, unfortunately we are just use to such managements lying to shareholders in order to keep their lucrative salaries. Yeager would be use to the US system without the small caps & his only Australian association is BHP, a well run company.
He soon learnt the problem was much deeper & changed the company's direction. In doing so, he followed US protocols, A proper reserves report, proper accounting standards (without which WF would never had approved the facility), and a quality managent team (which comes at a cost)

When Yeager changed the company's direction, he would have had no idea the POO was going to crash. Imagine being in his shoes, previously (with hindsight) he paid too much for assets when at BHP. Now he's in a tin pot company with a low market cap, with a good management team that organised a US$500m facility with WF at a good rate. Then the POO starts dropping & keeps dropping to recent record lows. Although the POO dropped, there was a big gap between what the asset holders would sell at, and what buyers were willing to pay.

Now oil sentiment is at all time lows, the outlook is bleak. Highly leveraged companies are defaulting, as pcaruso pointed out, it is at the stage where the POO could affect the US economy through bank defaults.
Yeager is in a position he would never had imagined 16 months ago. You could not have written the script better for what he wanted to do.

Then why has our sp crashed? Partly because MAD, although listed on the asx, is a US company. They don't put out sp ramping releases - just the basics when they are required to report.
Of course the whole energy sector has been hit hard, especially illiquid small caps. This environment of course suits MAD's new direction, yet the market ignores this.
One of my concerns is that in order for them to use the US$500m facility, the balance sheet would need around US$200m equity, yet they don't seem to have any concerns what the sp is making no attempt to prop it up with market releases, despite the POO being highly advantageous to their agenda.
My own theory (totally speculative) is that they have some deal with the private equity partners they'll partner, to invest in MAD at a rate comensurate with the deal as opposed to the current sp. Can't imagine Yeager raising say US$200m at AUD 6 cents when he is a major shareholder.

The stockmarket likes certainty, yet the oil market is in total disaray. OPEC has fallen apart with all the Arab states undercutting each other, Russia (the biggest oil producer) being squeezed by sanctions, now has its revenue massively cut albeit slightly offset by the Roubles 50% decline cf USD.

The world consumes just under a 100m barrels a day, the supply surplus causing the current POO drop is just 1-2m barrels a day - around 2%. When they had a 1m barrel/day deficit the POO was over $100, so it takes very little in the supply or demand side to cause big price changes.

Whilst the richer Arab countries can weather the low oil prices, the poorer ones are having trouble. Saudi supposedly produces oil at a cost of US$3 per barrel, Russia around $15.
I'm presently in Dubai & this Emirate has no oil left, yet the infrastructure expenditure is mind boggling. Massive expenditure on projects financed by other Emirates in the UAE who don't have the cash reserves of Saudi. With most OPEC members hurting & running on reserve funds, Russia also in severe stress, something has to give. The POO can't stay at $36 where 30% of the worlds production is uneconomic. Consider this 30% in relation to what the 2% surplus suply has done to the POO.

If MAD can buy some quality assets at distressed prices they'll do very well long term. $36 prices cannot be sustained, MAD management have done their homework and I have no doubt they are aware of the opportunities the present environment presents. They've been patient, we just need to do the same.