A year ago, when I found a nice little spot on my river to take a break, the world looked a lot different than it does today.  If I’m honest (and I feel that’s where we are in our relationship), each October going back to 2011 has been one where I would make predictions for the coming year and by April, everything had gone to absolute sh*t.  I only recognize this in hindsight.

But last summer, I was on a roll.  I had made a bet with some colleagues and said that oil would $61/bbl on December 31, 2019, and I turned out to be the most correct.   The call was driven by my analysis of U.S. production which I said had peaked in September 2019 (turned out, November 2019 was the actual date from the EIA 914 records).  I published the work on LinkedIn and whether CV-19 had hit or not, the US had declined from November 2019 – March 2020 pre COVID.  Obviously now we will never know how right I was… but consensus is we won’t achieve that production level for a long time, if ever.

On top of the technical challenges I outlined in the “Peak Production Series“, all through 2019 public companies had been experiencing a crisis of balance sheets but in spite of themselves, couldn’t bring themselves to cut rigs, pay down debt, and focus on free cash flow generation.  And even though there were greenshoots of consolidation, as PDC and SRC and PE and JAG  had decided to merge,  the rate of cost cutting and debt repayment wasn’t high enough.  They were in trouble, and only a stable price of $60/bbl could save them.

Over in private equity land, the model had moved from acquire and flip to “drill your returns” and only great rock, great decisions and great capital deployment with dividends were going to be funded and rewarded.  It wasn’t pretty, but 2019 was easy to foresee from beginning to end, if you spent the time to look.  2020 has been nothing like that.

On January 3rd, an Iranian general was assassinated and at the time, I had a message for management teams:  “If you didn’t hedge all your production in 2020 at these prices, you and your boards should be fired.”  And then, from January to March, COVID happened.  March 7th changed the North American industry forever, as the path that we were on for natural consolidation and stable production got hit by a nuclear bomb.

I don’t know what comes next, but until we face facts on COVID, we can’t begin to reconstruct all that we’ve lost.  I know a lot of people didn’t like when I started writing about COVID in March.  Beside the fact nothing else was going on, COVID was oil demand and oil demand was COVID response.  As I have always done, I look at data, analyze it, think about trade offs and speak my mind.  So I will repeat today what I said in March.  Flatten the curve was an admirable and appropriate goal, but the area under the curve won’t change.  Sweden, for all it’s vilification has turned out to be “not that wrong” and there are two essential data points that aren’t talked about enough in the Mainstream Media, who, by now, hopefully it has become apparent to all they are nothing more than propaganda machines pushing their own agenda, not our interests.

Here are the facts (from the CDC):

The infection fatality ratio in their best estimate scenario.

0-19 years: 0.003%

20-49 years: 0.02%

50-69 years: 0.5%

70+ years: 5.4%

A vaccine is expected to be 50% effective.

I’m good with data.  I’m good with forecasting.  And while major events aren’t predictable, the most important part of analysis is to always re-evaluate and make the best decision for what you know today.  It’s why I went short E&P in June even though very clearly prior to that I was long.  I’m not asking you to take my word for it, I’m asking you to look at the data and make your voice heard.  Local and state governments are killing our economy, our lives, and our livers, and on Tuesday, you need to vote like your livelihood depends on it.