Well, that was fun.  Oil broke below $46, gas below $1.75, and what little equity value remains got crushed in the worst week I can remember. But it’s a good thing and I’m going to tell you why.

We are reliving 2014. U.S producers who didn’t use the last 5.5 years to learn how to run a business, to get debt under control, to raise equity when you trade at a premium and merge when you see the writing on the wall, will be forced to.  Rigs should now go to <400 and stay there.  Frac fleets should be idled for 6 months until your production falls to the level of your hedges because every incremental dollar you spend is at strip (think about that… it’s true) and is not making economic returns (especially since you can monetize hedges to pay down debt- and should). 

And now, the strongest management teams with the best balance sheets- EOG. PXD. PDCE. CVX. COP as ones that come to mind- need to go “take no prisoners” shopping.  I’m talking hostile takeovers.  F U bids to management teams with good assets and survivable debt. Crush your competitors.  Own all the rock and live for the time when coronavirus is a new flavor beer and prices are much higher. And if you are one of the weak, and you don’t like that fate, best merge now.

As an industry, we should target 1 mmbo/d of oil decline and 15 bcd/d of gas this year.  Not discussed, but just 10-20% across the board.  Forget about your covenants, they are blown anyway.  Get waivers.  Convert debt to equity. And creditors, that means letting companies go through 363 sales and selling them for pdp… for equity.  Sorry.  Facts.

Too much capital and too much stupidity has gotten us into this mess.  Now, only bankruptcy and declines can get us out of it.

I hated yesterday.   But it was needed.  Because Comstock is still drilling with 5 rigs in the Haynesville, Antero is growing gas in Appalachia, Matador and Continental were unnecessarily growing oil production and XEC (amongst many others) still needs to fall 50% before they trade close to NAV.

And, for the first time in 480 days, I’m going to take the weekend off writing to let that sink in.  If you miss me, read it again.