“If you can’t explain it simply, you don’t understand it.” Having a character limit helps focus the mind and today, we have a big topic. SMOG.

The YE19 SEC WTI price is $55.85. Remember it is calculated on the 1st day of each mo and Jan 1 2019 it was $42.25.

The PV10(0) threshold for most inventory in the US requires a higher price. This means that there will be writedowns on a large portion of undeveloped oil reserves. Notably, CVX didn’t mention writedowns in their oil assets which suggests that for competitors with like acreage, they could be spared depending on booking practice. Many (aggressive) bookers will not be so lucky.

The media will report on these non cash losses and declare the end of shale. The growth is over, but not the business, and that is an important distinction. More importantly, the writedowns will remove all BAD inventory and spacing assumptions and provide a fresh start for companies.

The banks will continue to tighten lending standards (because they were too lax) and that will accelerate bankruptcies. But because YOU follow the hottake, you know that the leading indicator of bankruptcies in 2019 was when debt>SMOG value. So, you will be able to better predict the companies that will go bankrupt and not own their shares.

Simple enough?