When a Bank Operates an Asset

“In my interview with David Ignatius, I explained that price stability & climate change are closely related. Consequently, we must take climate-related risks into account in our central banking activities”- Christine Lagarde … ???

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**We’re also running a poll - if you haven’t voted, vote here (LinkedIn) or here (Twitter)**

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THREATS OF FORECLOSURE.

We thought about writing more on the topic of banks & their RBL exposures (the subject of the above poll), but we’re not - at least today - for a couple reasons:

1. We understand that bank regulators are not pushing banks to strictly adhere to the normal methodology, given COVID / the circumstances; &

2. Someone else did a great job of describing a nuance that we were interested in (there are 7 total Tweets there, worth the quick read):

Cautiously Pessimistic @CP2Close

@ReserveReport 1/2 - Could be worth a lot, in my experience - A bank’s threat of foreclosure is only as real as its ability to operate, particularly if you have a syndicate where the voting majority can’t (or is unwilling to) foreclose. I’ve seen a company go through Ch 11 once in ~2016 and

If / when we come back to this topic, it’ll probably require going through the RBL CAs of public E&Ps & ID’ing the banks involved in each…

And that does not sound like an August activity -

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CONOCO.

Conoco announced that they are buying assets from Kelt Exploration (Canada).

Once again, the commentary from social media (@yyc_sem, in this case) does it better justice (than we could):

Sem @yyc_sem

The ConocoPhillips transaction has some read-throughs to CDN E&P’s. Remember that when COP sold almost all of its CDN E&P assets to CVE in 2017 they only kept an early stage Montney property in NE BC called Blueberry and Surmont (oil sands). At that point they had drilled cont.

Among the points (we recommend reading the ~7ish Tweets), one point made stands out as a global valuation consideration:

“There has been limited REAL price discovery in Canada because so few transactions lately but this does serve to support underlying value for the Montney…” - Sem

With the M&A / A&D markets so quiet, the potential acquisition value of an asset - often the highest valuation metric - will, broadly, not be useful for some time.

A probabilistic NAV approach is the only way we see valuing public E&Ps…

…at least until 2021.

**Unless politics are involved**

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OTHER NEWS.

We respect the effort, but this feels like forming a horse & buggy task force in the 1920s…

• Mike’s blog has couple new posts - always an enjoyable read

• Oxy hits one out of the park

• This one made us laugh

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We were assuming Rosehill would file for Ch.11 last night.

As of writing, they have not…

Should they file, we’ll publish on the topic -

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Last night was baseball’s opening night - there’s 14 MLB games on tonight, we’ll be binge-watching - catch y’all Tuesday -