Dear Creditors,

Please sir, may I have another? And might I mention how becoming you look in that shirt?

These are just a few of the phrases uttered at meetings with debt holders over the past few months. As the industry grapples with the triple whammy of demand destruction, not meeting debt requirements and prices that don’t justify capital expenditures, it is in the hands of the creditors that the industry can (and will be) reshaped.

The reason we haven’t seen a wave of consolidation is because in many cases the debt exceeds the value of the asset, and, like Whiting, a company must go through C11 to convert the debt to equity and get a fresh start. In so doing, the debt holders will become 97% equity holders, in charge of the board and therefore in charge of the company. To change the industry, they must:

1) Change the focus from capital investment and drilling to long term production optimization
2) Consolidate assets for scale and supply chain for efficiency.
3) Embrace carbon reduction, starting with flaring and emissions.
4) Recognize that the management teams that got the industry here ARE NOT the ones that have the skill set to embrace the above. Wipe out management and start with the employees. The old had their shot, it’s time for new leadership.

#hottakeoftheday