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It's because when the oil price collapsed all that happened was the oil companies kept producing and left equity holders to lose hundreds of billions in value (and to lose tens of billions in cash).

What should have happened if the BODs were working for equity holders was that when they oil price fell bellow $50 they ought to have cancelled projects immediately and cut loads of staff because in 2014 about 60% of the oil industry was not profitable at below $50 per barrel.

But somehow the BODs across the industry found it easier to screw over the equity holders rather than manning up and admitting the only financially viable option with oil less than $50 was to cancel projects and to reduce employment levels. Instead they ploughed on with projects, reduced wages, increased their use of technology such as drones rather than helicopters, and basically said well "Who cares about the equity holders - we will just continue developing/growing even though it is uneconomic for us to do so - and we'll just tell equity holders that other companies will cut back and they should back us even though we are going to be selling our product at a loss if the oil price doesn't increase."

In my opinion if Enquest were a strong company they would simply have closed down all production when oil fell below $50 per barrel and just said - "We will produce the oil again once the price reaches our breakeven price."

As soon as a company keeps producing/selling at a loss you know the management have sold out and are working for bankers/politicians and no longer working for the shareholders.

However, the 13-year-reserve life is just a bet/view/opinion on the future price of oil.

When oil was priced at $40 during 2016 and 2017 the majority of oil companies were losing money and increasing their debt levels/increasing leverage (rather than paying down debt).

Hence if oil goes back down to $40, or lower, and stays at that level for the next five years then Enquest will be losing money and doesn't stand a chance of paying down its debts - rather it may need to increase them and seek to take on additional debts to finance new projects with a lower break-even cost per barrel (if it could find some projects with a breakeven cost of $5 per barrel that would be great and very welcome to equity holders/other stakeholders).

Hence I see this myself as being highly leveraged to the price of oil - it wouldn't matter if a company had a hundred years of reserves if the price of oil was going to remain below the total cost (capital, operating and financial) for the next hundred years.

Also if Enquest really had shareholders' interests at heart they would be increasing their financing to UK universities to train up the next generation of graduates to work in the North Sea - but there seems to be no integrated workforce planning here which is perhaps why operating costs got so out of control from 2007-2014.

Just my view - but it pains me to hear a simplistic view like 13 years of reserves here - well that's all very well and good - but not if the oil price falls to $25 per barrel for the next 13 years.

Pokerchips,

An excellent post - I mostly agree with everything you wrote. The key thing driving change is the desire for more choice. However, there is an issue still - people may be cutting off their noses to spite their face. For example to enjoy the benefits of more lesiure time/holidays one needs more money (well in a capitalist/financial economy one does at least). However people earning the minimum wage probably have a couple of grand disposable income to be spent on holidays etc per year. This is nowhere near enough to occupy oneself fully at weekends and during one's time off work - a simple week's holiday to Turkey may cost £600pp - throw in some specialist activities like kite-surfing and driving 4x4s through the semi-desert, and a hot-air balloon flight - then £1,000 for a week becomes more realistic. So if you just wanted three holidays a year - for example one to Turkey, one to California, and one to Greenland, one would need to budget £3,000 as an absolute minimum. And then one still needs additional money to entertain oneself for 49 weekends during the year.

Hence I think the point has come where people do want things cheaper, and this is driving costs down (such as the prices of taxis and junk food) - yet the price to pay is that people are no longer being provided with company-paid healthcare, and pensions are being reneged upon/cut, and pension contributions/tax are increasing (in effect younger workers/people are paying more for less). And personally I think it's reached a point where many people have more free-time (judging by the number of part-time workers, zero hours employees) than they have money to spend. Hence they have reached a sub-optimum position in that they have too much time on their hands compared to what their money can buy in terms of leisure activities/holidays/travel/special experiences.

Don't ask me what the answer is to this fundamental problem with the economy. Yet I do feel, personally, that being time rich and money poor is just as bad as being time poor and money piling up pointlessly in the bank.

Probably the economy needs some new companies which help people to balance their time/money so that they don't have to put up with having enough money but not enough time for a trip of a lifetime, yet neither are they faced with two weeks off work and only £350 to spend which would barely pay for a budget 3-day break in Europe.

Because they're greedy and not sharing with the Indians/Indonesians/Chinese/Europe - we are all short of oil/petrol/diesel and the Americans have a huge surplus which they are using to outbuild their storage whilst the Indian/European economies contract due to a lack of petrol/diesel. Even the UK economy would benefit from lower fuel prices - but that could be achieved by lowering taxation as the fuel duty is 67p per litre, and then VAT on top, in the UK. By comparison, In the USA the tax on fuel is only about 28p per litre on average (including their equivalents of both fuel duty and VAT).

Why have oil companies been gearing up (taking on more debt to further expand production) during a time of low oil prices (the oil price has remained low since 2014) - this goes against the capitalist economic system in a fundamental way - so why is it happening?

http://ir.eia.gov/wpsr/wpsrsummary.pdf

Why have oil companies have been gearing up even as the oil price falls (it's remained low since 2014) - this goes against the capitalist economic system in a fundamental way - so why is it happening?

http://ir.eia.gov/wpsr/wpsrsummary.pdf

Yes they do deserve an answer because oil companies have been gearing up even as the oil price falls - this goes against the capitalist economic system in a fundamental way - and I think that deserves answer personally.

The trouble with higher gearing and increased production is that it seems the USA has too much oil this week (and it's part of a trend that's developing of oil inventories increasing in the USA)

http://ir.eia.gov/wpsr/wpsrsummary.pdf

The trouble with higher gearing and increased production is that it seems the USA has too much oil this week (and it's part of a trend that's developing of oil inventories increasing in the USA)

http://ir.eia.gov/wpsr/wpsrsummary.pdf

They never have paid back a significant proportion of the debt - be wary of all the past broken forecasts/promises.

What net debt did Enquest have in 2011 Pelle?

And what was the net debt at the end of 2018?

The real debate in my opinion needs to be that the economy has been slowing down since the 1980s - in the end most people won't have the money to do anything and so will spend hours a day sitting at computers online, complaining. Hence if AI is learning from humans they will start learning how to complain, more than learning anything useful. Can you imagine what the world will be like if this state is ever reached? That's why I think I would still prefer to invest in oil, cars, real people, food, and services - and I personally don't want Amazon/Google spending any money they make from me/my data on further development of A.I. - it has gone too far already - being back the "real economy" based on oil-and-gas/coal/real jobs, genuine human interactions, and travel/leisure.

A.I. just seems a big con and I hope the wise people will realise you can never-ever create a life where you are in control - A.I. is just a futile attempt - I have learned to live with uncertainty and it's actually quite nice for things not to be perfect and just to expect that humans will mess-up and do unexpected things. Mostly situations can be sorted out by common sense and remaining open-hearted, a good person, and a bit more give-and-take (cooperation) rather than viewing each other as competitors - we are not destined as a species to be competitors - however A.I. seems to do more and more be producing films/media/headlines based on battles/war-mongering - this is another reason to stop financing A.I. - it would be great to see some stories/films about economic cooperation and sorting things out socially by common sense and a gradual series of tasks/good-humoured testing - not one-upmanship or dictatorship. Long live Democracy!

Snige - or you could look at it this way. The Americans are never going to leave easy-to-access, shallow water, oil in the ground (nor the Chinese/Indians/Indonesians).

Hence we may as well provide the finance to companies like Rockhopper and Providence Resources - at least we'll take our share of the profits. Otherwise if we keep delaying these developments the American companies (Exxon, Chevron, Anadarko, Noble, Conoco, Philips, and at least a hundred others - yes their oil industry is enormous) will turn up in 2022 and grab these licenses with open arms (having told you now they may be prepared to leave the oil in the ground - but when push comes to shove you know that they won't - look at how they have developed the Permian, Bakken and Canadian Oil Sands - all since 2006!) - and they will develop these oil projects, and the American banks will take the profits.

So with the view you're taking you're going to be seen as a goat-headed lemon by shareholders in RBS/Lloyds/Barclays - the economy currently runs mostly on oil-and-gas - we have UK listed companies with good shallow-water projects which are only waiting for the financing - so it would be derelict of Lloyds/RBS/Barclays not to provide the finance because there is not ethical argument that stacks up - for it the oil is not developed by British companies it seems very likely that American/Chinese/Indian companies will develop these projects in the early 2020s - if Trump thinks oil price is bad at $65 - just wait until oil hits $90 - he will just greenlight any oil project that will generate a decent rate of return - and there are still many of such shallow-water projects just waiting to get the financing - so I don't see why Lloyds equity holders don't pressure our bank to finance some projects which are almost certain to generate healthy returns - after all America/China/India/Indonesia are still going to be demanding lots of oil in 2030 - the only choice is whether we finance it or let someone else finance it and the profits go to them (and our equity holders miss out for another decade).

Snige, but there is plenty of oil available still - we just need to lock horns with the americans in places like offshore Angola, Libya, Columbia, Nigeria, Kenya, Uganda, Kurdistan, Falkland Islands, Ireland, Russia - and by financing oil-and-gas development projects in these countries the UK will not only become self-sufficient in oil once again but we will also end up with a surplus to sell to the USA and it will stop the pound from depreciating against the dollar as much as the Euro will (because Europe is more squeezed for oil than the UK as long as we continue to finance Norway through companies like Lundin and Aker BP).

Well the UK government is doing a pretty good job of aiding-and-abetting the stealing of equity holders' wealth from shares such as RBS/Lloyds/Barclays/Debenhams/Carillion/Capita/Afren/Xcite Energy/Patisserie Valerie/Centrica and a long list of others - a far longer list on the AIM market.

So not that many years before the UK ends up like Venezuela unless the City actually starts to look after its investors - it's shafted them for ten years - I think the end of the road has been reached ….who would finance anything the City of London comes up with when it all turns to shit in a good proportion of cases … it used to take 5-10 years to turn to shit which was maybe enough time for the initial investors/financiers to sell out. But nowadays it all turns to shirt within 1-3 years … which is not a bad thing as the short-term greedy egoists raising the money are left having to directly deal with the people they raised the money from to tell them they can have 15p back in the pound - and to count themselves lucky at that or else they will get virtually nothing (Flybe, Interserve, and Aston martin's IPO was quite a disaster really wasn't it?)

In my opinion the most powerful socio-economio-political system that can be constructed is one based on de-centralised technologic/scientific progress. However such a system is difficult to feed/grow because it may be that some very socially unpopular people actually come up with the best scientific/technologic ideas. So you can't therefore base your economic policy on feeding/supplying the most popular people with the most/best - as that would not achieve the desired rate of technologic/scientific (or even social) progress. Good luck with squaring this circle debaters!

Yes, but this sort of thinking won't work if Sainsbury's shareholders/bondholders/bank lenders are self-interested and rational. Being a rational person it seems reasonable to believe that there are many people in the UK who could do your job just as well as yourself, and that many other people can easily come up with a business strategy based on cutting costs/sacking employees - hence there is little value in such ideas because they are the easiest sorts of ideas to have. Also, there's particularly little value in such ideas, because being the easiest ideas to have they will be implemented by most other businesses also - hence everyone will look to cut costs if that becomes acceptable to the people who are meant to be protecting employee rights (but those people failed a while ago by allowing zero-hour contracts). Anyway, if most businesses focuses on cutting costs by reducing employees and reducing their benefits/remuneration then what will happen to the demand for these same businesses' products - demand (or at least the prices one can sell at) will fall - hence revenues and profits will fall. Hence as was stated many times in the past there is no way to generate improved living standards through cost cutting - it just can't work - everyone else will do the same and Sainsbury's revenues will fall - ergo everyone will have a lower standard of living except for the senior management and they should read about the French revolution and what happens when ordinary people can barely afford to live whilst some executive is taking forty times as much food/housing/petrol/diesel for themselves - well I guess most of you will have learned about the French revolution in school - you know what happens ...

One solution could be to charge a levy on those business earning very large (in absolute magnitude) profits from online commerce - this levy would then be used to pay to resurface all of the UK's roads (A, B and C roads), and to electrify the railways.

Probably there is a lot more infrastructure which needs maintaining/upgrading - but a start would be to resurface all of the roads and to upgrade/renew (and electrify) all of the railways.

Completely agree - internet businesses are getting away with a huge financial scam - the only way to describe it is a scam because of the way they are using other people's resources with which to generate their profits.

Internet businesses need roads/railways/airports and staff (and their staff need education, healthcare and pensions).

Yet the internet business can operate from a small private property (hence not paying rent/business rates) and can also legally employ people on temporary contracts without making any contribution to their healthcare/education/pensions.

The result is that there will not be enough money to cover education/pensions/the NHS in the future. However the fault is not with the banks necessarily - but could be with very mis-aligned incentives which are being created by the existing taxation rules/rates (which are government controlled - and in my opinion need altering urgently).

Completely agree - internet businesses are getting away with a huge financial scam - the only way to describe it is a scam because of the way they are using other people's resources with which to generate their profits.

Internet businesses need roads, air transport, fuel, and workers (who need education, healthcare and pensions).

Yet the internet business can avoid tax by registering itself in a tax haven whilst selling products in other jurisdictions.

And even if the internet business does pay VAT then it still avoids business rates, property taxes, and often employees people on zero hour contracts so they miss out on pensions and it save the internet business on National Insurance contributions also.

Also because the internet business is thus avoiding so many taxes which are used to pay for the things it requires to run its business (roads, educated employees (at least GCSE level), the NHS for employees to use, and the state pension seeing the internet business doesn't pay enough pension contributions/N.I.) then the profits these internet businesses are making are huge. But they are doing it at the expense of the financial well-being of so many more-deserving people in society. A lot of their profits are simply coming from robbing equity holders because the lack of taxation revenues is causing the government to squeeze spending in areas which banks would normally take a share of their profits from - hence RBS/Lloyds/Barclays shareholders are all losing money whilst the profits that they have invested to help generate are being taken by businesses not paying business rates, high-street rents, nor contributing to the general education/healthcare/infrastructure within the UK.

This explains why the roads are in dire condition - there was no money to electrify/upgrade the northern railways, and yet equity values go down year-after-year in sectors such as banking/utilities/oil-and-gas production - whilst people running tiny internet businesses which can't support 65 million people in terms of their general economic needs, are making more profits in five-years than a teacher/nurse/mechanic would earn in a lifetime

The problem with the market is that when the share price was increasing in 2009-2011 it wasn't anything to do with Enquest performing well - it was just due to central-bank interest rates having been reduced and a massive increase in the oil price.

Hence I'm not sure it matters how Enquest performs in terms of projects/production in the future - the share price seems to be set by systems which don't reward actual progress by companies but which instead determine the share price by references to changes in interest rates and changes in the oil price (these systems may even only consider relative changes, and not the absolute levels (or long-term averages) of interest rates and the oil price). In essence this is an Alice-in-Wonderland system now the City of London is using - and it needs reforming so that it actually supports the real economy in the future.