It's just common sense that if you add more oil to the market you will decrease the value. Yet, one year ago companies like COP were still hiring like crazy and giving people bonuses to stay. Maybe instead firing your geoscientists you should be firing the guys you have predicting the price of oil. Geez this was very predictable!!!
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Ryan got out CEO'd at the time of the spin off and by the P66 side by keeping the full COP dividend instead of spreading part of it over to P66 and by letting P66 go with a small initial debt on the P66 side. The spin off looked great at first for both companies, but on the COP side we kept spending like we were before the spin off without the ongoing cash flow from the downstream side to help fund things. P66 had so much cash flow they did not know what to do with that the increases their dividend 180% since the spin compared to 12% for the COP side. If we would have spread the dividend out at the time of the spin, both sides could have been increasing this over time at a normal rate and COP could have had almost an additional $2B in cash now. BTW one of the main reasons for the spin off was that the downstream assets were being undervalued as a portion of the overall company's stock valuation.
COP Management tried to make everyone happy and did not think about the future of the company once the oil prices declined. We had to keep a high dividend to keep the older share holders happy even though it was a major drain on cash. We had increase production to make the analysts and other investors happy. We were overspending our cash flow even at $100 crude prices and relying on the proceeds from asset sales and initial spin cash from P66 to fund everything. With oil prices in the $90-100 range there was a shortage of rigs and other resources so all the rates increased making the overall finding and developing costs higher. We also overcommitted on projects that we can't afford now so we are having to pay hundreds of millions in cancellation fees on rigs and resources. This is basically money just being thrown away now because someone did not look at the economics off some of these projects enough to realize they did not make sense in a lower price environment. From a CEO perspective it looks better to the street if we just cancel the commitments and write them off so you can take a big hit at once. Then we call it a special item to exclude it from the EPS we talk about and that the executives compensation is measured on. If you take the hit to earnings over time and bite the bullet and continue the projects you may actually have some gains in the future when/if prices recover.
Also if we knew we were overspending our cash flow and our projects were not economical at lower prices, why were we not hedging some of our production to protect the investments. This is the time that you need the available cash flow and liquidity to actually go and pick up some property and smaller companies for much cheaper than what they have spent on their properties and projects.
Exxon with all it's cash should be in a good position to sweep in and buy up a lot of cheap assets and come out really good in the end once the prices turn back around.
Plus there's stockholder perception. If the other big players are in on this why isn't COP? You're kind of damned if you do and damned if you don't.
Negative cash flow from day one. The operations were financed via debt and asset sales. No business plan existed for WTI below $60 per barrel as the business cannot function without WTI at $60 or higher.
It's all the fault of top management.. many fail projects, many wrong decision making. When the oil price was high (90 / 100), they spent money easily without proper planning. Now , when the oil price is dropping, they run off cash..
The oil and gas industry thrives on feast or famine unfortunately. Commodity industries accentuate the cyclical nature of the industries. And the frat boy mentality does not help...
COP doesn't have enough market power to have that significant of an impact on the price of oil. It wouldn't make sense for them to cut back production when prices are high if other producers don't follow suit
Can't agree more