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An oil thesis from my main man. Of course it just adds a certain piquancy to the situation in that I am diametrically opposed to this position [I am an oil bull] and have a fundamental position in COP based on the “inflationary” thesis.

Oil Companies Now Digging Their Own Graves
December 25, 2008 – 11:07 pm
Oil projects are at a standstill. Oil/Gas producers are now capping their wells, in order to cut costs, as demand dries up. And, despite your asshattish desire to have things the way they were yesterday, oil companies are in very dire straights.

The underlying commodity price has fallen off a cliff, down about 75% in 5 short months. Yet here you are, like a fucking imbecile, trying to pick a bottom in oil stocks.

Hello, asshole, many of them will go all the way to zero.

This cycle is especially brutal for oil companies for several reasons. Most important is the condition of the sectors balance sheet, which happens to be dreadful in many cases. Most companies levered up into the faux inflation run. They borrowed a shit load of money, thinking $100 oil was here to stay.

Guess again.

Much to the chagrin of our asshat bankers, oil companies will be defaulting on their loans, as soon as cash runs dry. Based upon recent price action in crude, that shit (see ya later fuckfaces) will begin to happen soon.

Aside from the obvious plays (short oil stocks), one might want to inquire about the dumb lenders in the oil/gas space. Just when you thought there were no more shoes, BAM, another one drops.

Realistically, oil/gas companies will have a very difficult time raising capital in the future, with the underlying commodities in the dumpster and widespread insolvency amongst our coolest banks.

The following companies have a negative net cash per share ratio, which basically means they have more debt than cash on their balance sheets aka “fucked.”

(stocks above $10 per share)

Screen #1

FST, DVN, CHK, LINE, SFY, EAC, PVA, CRZO, EPD, CWEI, NFX, CNQ, XTO, APC, HK, SNP, ATLS, EVEP, NBR, RIG, WLL, CXO, BBG, HP, EXH, BAS, GLF, CGV, SII, SPN, OIS, CLB, OII, EPE, PETD, TSO, MRO, VLO, SUN, PBR, ETE, EPE, E, REP and IOC.

Just in case you were wondering, the amount of debt taken on in this industry is in the 100’s of billions, fucking absurd. It is a ticking time bomb, ready to rip off the remaining leg of your local banker. CHK alone has more than $14 billion in long term debt. SNP, an example of pure Chinese fuckery, has close to $25 billion in long term and short term debt. In an effort to narrow down the list to a few names, the following stocks kept flashing warning signs in my numerous, and quite thorough, screens:

Screen #2

CHK, SNP, APC, CNQ, DVN, PBR, RIG, SII, NBR, ETE, VLO, EXH, WLL, E, REP, HK

And, finally, here are the PPT Hybrid Scores for the stocks in screen #2:

CHK: 2.57 Sell
SNP: 1.91 Strong Sell
APC: 2.61 Sell
CNQ:1.94 Strong Sell
DVN: 2.69 Sell
PBR: 2.7 Sell
RIG: 2.59 Sell
SII: 2.58 Sell
NBR: 2.03 Sell
ETE: 2.1 Sell
VLO: 2.53 Sell
EXH: 1.93 Strong Sell
WLL: 2.66 Sell
E: N/A
REP: 2.66 Sell
HK: 2.42 Sell

Now, before you go out and short all of the above names, remember that oil/gas stocks are the go to sector for asshole dip buyers, running around in florescent orange leotards. If you have a long term objective, without a doubt, many, if not most, of the above names will be significantly lower, due to sector deterioration.

NOTE: At the moment of this post, “The Fly” was short an egregious amount of RIG.

I will have an analysis of RIG. You can read my analysis of COP under the fundamental analysis section.