"No one ever loses equity in a bankruptcy case. Equity gets lost long before the bankruptcy gets filed" - bankruptcy Judge David Jones

***We’re doing a bigger piece next week - if you don’t see us Tuesday, expect it Wednesday or Thursday***

EINHORN VS PIONEER: 5 YEARS LATER.

Jeff Krimmel is doing a 3-part review of David Einhorn’s short call (presentation PDF) from the Sohn Conference in 2015 (h/t to Paras for the heads up).

From Jeff’s part 1:

“Looking back five years after the fact, what’s the verdict?”

“Einhorn has been right, possibly for the wrong reasons and definitely with an important caveat” - Jeff Krimmel

To us, what’s relevant today is Einhorn’s criticism of what he called “sell-side well economics”.

That critique - covered on slides 36-38, 49, & 58-59 - stands the test of time (link is a PDF download).

All-in-all, we think his thesis was right, but that Pioneer was probably the wrong target.

Consider one of the presentation’s leading predictions:

“Today I’m going to describe a similar situation with certain energy companies. These companies have negative development economics, meaning that aside from a few choice locations, they don’t earn a positive return on capital, but have a nearly infinite supply of negative return opportunities” - Einhorn (slide 4)

With an article from this week’s WSJ:

“Large public U.S. producers poured a total of $1.18 trillion into drilling & pumping oil over the past decade...But they came up well short of making their money back, collectively bringing in $819 billion in cash from their oil operations, according to Evercore ISI” - WSJ

We think that, at least partially, validates Einhorn’s high-level thesis.

But on the micro-level, the egregious, now realized “negative return opportunities” have ended up looking - not like Pioneer - but like:

h/t @DonutShorts

We’re looking forward to Jeff’s part-2 later today -

GEOPOLITICS: COVID COVER.

• Russian MiGs in Libya

• The National Security Plan in Hong Kong

• The Short-Term Hungarian State of Emergency

Three makes a pattern.

Around the world, Covid has been used as cover for government operations that would have otherwise faced significant international scrutiny.

For oil, the event that’s of greatest importance is Libya.

Noteworthy updates from US Africa Command:

“U.S. Africa Command assesses that Moscow recently deployed military fighter aircraft to Libya in order to support Russian state-sponsored private military contractors (PMCs) operating on the ground there”

&

“The world heard Mr. Haftar declare he was about to unleash a new air campaign. That will be Russian mercenary pilots flying Russian-supplied aircraft to bomb Libyans,” - US Gen. Stephen Townsend

Mercenary fighter jets - right or wrong - is an escalation of the little-green-men policies.

How the West responds may have impacts for oil & oil firms (something like continuing / extending sanctions against Rosneft).

Due to the conflict, ~1MM bopd of Libyan crude have been off the market since ~Jan.

Regardless of who wins - the sooner the battles ends - the sooner that oil hits the market -

OTHER NEWS.

A fun story about how, ~30yrs ago, Chevron commissioned the makers of SimCity to build SimRefinery (h/t @SStapczynski):

• Attempted IP theft in the Oklahoma Oil Patch

• From EOG: “you're going to see several years of YoY declines”

• Oxy is sued by shareholders & bondholders

That’s it for today - we’ll be back next week - KBO, Bundesliga & Bristol, place your bets -