Panic in the Oil Patch
I’m not sure if the recent drop in the price of oil is due to the Saudis screwing with the US because our shale oil production pushed us to become the #1 oil producer in the world. Or it could be because of the US and Saudis trying to force Putin into World War III. It could be something as mundane as demand in China falling off a cliff as Economics 101 takes effect there.
Who knows? Better yet, who cares?
Since topping last year at just over $100 in late June, NYMEX oil has dropped 52% since June and an incredible 10% in the past three trading days. We have panic in the oil patch and this may be the straw that pops the $691 trillion dollar derivatives bubble. For those who understand contrarian investing, it spells opportunity.
All is not lost, there are some incredible companies selling for peanuts in the oil spectrum. I follow one, Pan Orient Energy (POE-V) where you can buy $100 bills for about $70. On December 1st they announced their last quarter financials. As of September 30, 2014, the company had $44.6 million in working capital. They have a deal pending where they are selling half of a major property in production in Thailand. They are selling 50% of the project for $46.5 million.
So as of the closing on January 12th, 2015, the company will have $91 million in cash and still own 50% of the Thai project that is worth $46.5 million to them. That’s $137 million in assets selling for $96.6 million as of January 6th. Dollar bills are going for $.70 as oil prices tumble. That’s a really good time to be in the oil business and be cashed up.
In the December 1st press release referred to above, Pan Orient talked about drilling what they term the L53-A North Central exploration well soon after closing the sale of the 50% of the concession with drilling to start in February of 2015. That well has an unusually high potential for impact on the company. L53-A is 4.5 km south of the Thai Nation Oil Company PTTEP oil field called the U-Thong Oil field and on trend. This PTTEP field is 1.5 square km in extent and has produced 4.5 million barrels of oil. The L53-A North Central project is 9 square km in area extent. It has the potential to increase the reserves of the L53 project by 600%. The well will cost $1.8 million gross or $900,000 to POE and could be brought on stream at once.
I don’t know what the “Right” price for oil is. No one knows, all we can do is see what it trades for on a daily basis. The market is always right, opinions often wrong. But a lot of countries have spending plans based on a lot higher price for oil. Sub $40 oil could mean a shooting war; we already have a currency war going on. The rising dollar isn’t a sign of health; it’s a sign of increasing instability in the financial system. One day the $697 trillion in derivatives will blow sky high. That day soon approaches.
The world is awash in debt that will never be repaid. The banks sold shit for our shoes and called it Shinola. The whole shale oil revolution was based on a scam. If you borrowed what appeared to be cheap money from the banks, you could produce an endless supply of oil. But oil companies were spending $110 a barrel on oil that they were only getting $100 for.
The banks didn’t care. The Fed was dumping money on them. They believed they have transferred all the risk to taxpayers. Well, the music stopped. There were no chairs and now we get to pay the price. The Piper will be paid, either by the borrower or by the lender.
When any market bottoms and oil will one day, anyone sitting on a lot of cash is in the catbird’s seat. POE has assets in Indonesia and Canada; they aren’t a one trick pony. Buying cash and hard assets for $.70 on the dollar makes a lot of sense to me.
Pan Orient is an advertiser and I am biased. Do your own due diligence.
Pan Orient Energy