This is a big week for earnings in oil and gas land. And sure, if you follow companies outside of E&P, earnings don’t seem to matter, free cash flow isn’t really a thing and stocks go up and to the right everyday (partly because the USD was depreciated 4% in July alone and there is literally no safe place to put your money as inflation eats the value).

But, in the world of E&P, where the top line is solely based on commodity price (and for the majors, refining margins), Q2 is a true test of how bad things were from April 1- June 30 and just how much value destruction occurred and how much debt was required to function. For Exxon, Chevron, Valero and others, its one thing to be the other side of the long tech – short energy trade, but it’s quite another to actually roll out the state of the business.

One thing we know is that the SEC YE20 price is looking like it will be close to $43 and at that price point, virtually all PUDs (regardless of capital input) will be 0s. At current rig rates, much of the 5 year profile will be pushed out past the runway and have to be written off. And with no PUDs, transparency into the PDP value will be at high, most similar to YE15.

All that said, the emperors better find some clothes, because the tide is going out quickly.

#hottakeoftheday