I say Beware the Ides of September because like in 1986, many newly formed exploration companies...especially concentrated on developing the
Delaware basin.....are highly leveraged, operating on borrowed capital based on reserve estimates still in the ground. In '86 the price of oil
dropped from $75/bbl to $5/bbl overnight on news from OPEC. There
are checks in place now, but if Israel abruptly preemptively attacks Iran's
nuclear and ICBM development programs, the instability it will cause
in the world energy market could cause a replay of the oil price collapse
of 1986. People working for the oil and gas exploration companies are
just as highly leveraged. They OWN nothing outright. It's all mortgaged to the hilt.....so, if the banking industry suddenly had to call in all the capital loans to the startup oil and gas exploration companies....EVERYONE would suddenly lose their jobs....and couldn't
pay their mortgages on anything.
My old acquaintance, Clayton Williams, was caught in the crunch of '86
like everyone else...and nearly went under. I think Clayton sold off his
assets for 7.5 Billion at the end of last year because he sees the same pattern developing...and he isn't going to be operating on borrowed money. If the oil and gas sector of our economy shells out like it did in
1986, Clayton Williams will be in a great position to continue exploration
in Reeves and Culberson counties...and wait for the prices to rebound.
IF Israel precipitates such an oil and gas sector collapse....they'll do it
near the end of September. Hang on to your surface and mineral rights
and watch what develops.
ol' Lawrence in Verhalen