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Douglas Grandt answerthecall@me.com

Follow-up to my October 13 email (Kay Rand)
October 27, 2015 at 5:17 PM
Kay Rand (Sen. King) Kay_Rand@king.senate.gov

Dear Kay Rand,

There have been more reports that suggest the depressed oil drilling and production industry is becoming increasingly conflicted between
fiduciary duty and public interest, between fiduciary responsibility and national interest.
A mythical premise that the distressed industry will behave in the national interest underlies S. 2011 and S. 2012
These bills presume a vibrant and healthy petroleum industry, but cashflows, earnings, layoffs and bankruptcies demonstrate the opposite.
I believe it is incumbent upon you to insist that the Chairman retract these two bills, invite CEOs to ENR hearings, assess their viability to
survive the current crisis, and determine whether they will act in the best interest of the public and the nation.
I will call you next week, and hope you will be conversant in this issue,
Doug Grandt

The number of active oil rigs in the US has collapsed amid low prices.

HALLIBURTON CEO: The oil industry's 'day of reckoning' is near

By Bob Bryan | October 20, 2015 | Business Insider | Bit.ly/BizInsider20Oct15

The clock is ticking for oil companies.

The precipitous decline in the price of oil has crushed profits across the industry, and many drilling
projects are expected to hemorrhage money until prices and costs can reach some equilibrium.
Dave Lesar, CEO of the oil-services giant Halliburton, believes that a "day of reckoning" for these
companies is quickly approaching.
Fluctuations in production activity continue to create volatility in the oil markets. Lesar, however,
thinks it's only delaying a period of big changes for the business.
"I think we just got to wait," he said in Halliburton's quarterly earnings call Monday. "These
redeterminations are going on. And it looks, generally to me, like it's a sort of kick-the-can-down-a-road
approach that's being taken at this point. But that really just pushes the day of reckoning into sort of the
first quarter of next year."
Lesar sees three types of firms revealing themselves when that time comes: those that are getting ready
to get back to drilling; those that need to wait for prices to go up a little more; and those whose luck has
run out and who could be acquisition targets for stronger firms.
Here's Lesar's breakdown. Keep in mind the customers for Halliburton's products and services are the
drillers themselves:
Some of them are talking about getting back to work as early as January, coming off a fourth
quarter lull, and some, I think, are going to take a bit of a wait and see. But, I think very, very few of
them, and certainly I don't think I've had a single discussion where the customers are going to let
themselves get into a position of a meaningful decline in production before they figure out a way to
start drilling again.
And then there is another group of customers out there that really view that there is a subset of the
customer base that will not get access to money, that will see a decline, that have good acreage, and
they are going to be absolutely juicy takeover candidates at that point.
The idea is predicated on the notion that most drillers are pausing or slowing down production as
shown in the multiweek decline in the Baker Hughes rig count and waiting for this to cause a supply
shortage and improve the price.
Some firms, especially those called "unconventional" drillers such as independent frackers, have loans
out from banks that are reconsideringtheir lines of credit to oil companies. Lesar says many of these
firms will be forced to drill before the prices rebound, losing out on possible profits.
"So if you go a year without drilling a well, and your production starts to turnover, you are going to have
to start drilling or you are going to have to take your infrastructure apart that you've built up as a
company," Lesar said. "So I think that as we get to the end of the year, if these guys have money, they
are going to drill it up, and that's just the fact that it is."
In the end, more drilling regardless of price is good for Halliburton, which makes money from a variety
of oil-related products such as drill bits and oil consulting.

As oil industry bleeds jobs, Asia's green energy drive offers bright spot

As oil industry bleeds jobs, Asia's green energy drive offers bright spot
By Jacob Gronholt-Pedersen | October 25, 2015 | Reuters | Bit.ly/Reuters25Oct15

Renewables are powering a rare bright spot in the energy industry, with record job hiring in solar, wind
and hydro partly offsetting the biggest round of job losses in the oil and gas sector in almost two
The boom in new green jobs is being led by Asia where governments in countries such as China and
India are embarking on massive programs to use more renewable energy.
The fresh opportunities come as the oil sector is suffering its worst downturn since the late 1990s,
encouraging engineering students to rethink their options and even mid-career switches for some who
have spent more than a decade in the oil sector.
"It's a matter of time for me personally before I make the move," said a Singapore-based project
manager for offshore construction at an oil and gas firm, who is considering shifting into solar after 15
years in the oil sector.
"For me, it's not a question about running out of oil, but that the industry is losing popularity on the
consumer end," said the manager, declining to be named due to his current employment status.
Direct and indirect employment in renewable energy jumped 18 percent, or by about 1.2 million, last
year to 7.7 million globally, with most of the new jobs being created in Asia, according to the
International Renewable Energy Agency (IRENA).
Some of the biggest gains have come in countries such as China, India, Indonesia, Japan and
Bangladesh and the overall figure could top 16 million globally by 2030, IRENA said.
That stands in contrast to oil and gas, where more than 200,000 jobs have been cut worldwide since oil
prices collapsed last year, according to recruiter Swift Worldwide Resources.
The petroleum sector employs nearly 6 million, with more than ten times that number indirectly
employed, according to International Labor Organization estimates. The latest job losses mark the
biggest drop since the last big oil price slump of 1997-98.
"The employment situation is a complete disaster," said Didier Le Hech, who until recently headed
operations in Gabon, West Africa, for Weatherford International (WFT.N).
Le Hech, who was one of 11,000 staff laid off at the oil field service provider this year, said he was
looking for work in Southeast Asia, but given the tough market was prepared tocast his net widely.
The layoffs are being nervously watched on campuses around the world by trainees in the oil and gas
"We're keeping our options open," said Faizzin Khafidz, a mechanical engineering student at the
National University of Singapore, who is doing an internship at Keppel Corp (KPLM.SI), one of the
world's largest offshore rig builders.
"Personally I am open to opportunities to join the renewables sector especially if it is going to grow as it
should," he added.

should," he added.
Singapore is a major oil trading hub and servicing port, but the pain of the downturn is being felt with
many oil servicing ships and drilling platforms idled off the island city-state.
Interest in green energy jobs is playing out at colleges.
New Delhi's Teri University has 139 students enrolled in its renewable energy programs this year, up
from 97 in 2014 and 69 in 2013.
"There are huge amounts of western money flowing into renewable energy in Asia," says David Russell,
chief executive of Equis Funds Group, which has invested $2.4 billion in Asian projects over the last two
In order to keep up with demand for green jobs, recruiters have been forced to develop placement
expertise in renewables.
"Because the oil and gas sector has been so hard hit, we've seen lots of people attempting to transfer
their skills across to renewable energy," said Adam Carabetta, a recruiter at Drake in Singapore.
The shift comes as many governments have vowed to curb carbon emissions by using more renewables.
China, the world's largest greenhouse gas emitter, already employs 3.4 million people in renewable
energy and this raised its solar installation target for 2015 by 30 percent.
In India, IRENA expects 1 million new jobs to be created after the government pledged to triple
installed wind capacity and raise solar power capacity 33 fold by 2022.
This leaves some embarking on oil sector careers worried.
"Most of my classmates picked petroleum engineering because of the pay. But now we can't even get a
job," said Michelle Robinson, a third-year petroleum engineering undergraduate at Australia's
University of Adelaide. "I sure hope prices recover before I graduate."

5 Reasons Why Exxon's AAA Credit Rating Is In Jeopardy

By Anchorite | October 26, 2015 | Seeking Alpha | Bit.ly/Alpha26Oct15

Exxon's revenue is going down significantly.
Debt is going up.
There is no sign that oil prices are going to surge anytime soon.
Compared to Microsoft and Johnson & Johnson, the only other AAA rated stocks, Exxon looks

Exxon (NYSE:XOM) is one of only three AAA rated stocks, along with Microsoft (NASDAQ:MSFT) and
Johnson & Johnson (NYSE:JNJ). Unfortunately, it is the only one of these almost totally dependent on
the price of a commodity that is down by more than 50%, and short of a Middle East conflagration,
shows no sign of rising to previous levels anytime soon. This means that even though Exxon is still one
of the most solid credits in the world, ratings agencies may question whether it belongs in the same
group as MSFT and JNJ.
In this article, I outline the reasons for the potential downgrade, which would be a sign that all oilrelated stocks, even the seemingly strongest ones, are subject to downgrades too.
1. Exxon's financials are deteriorating.
To no one's surprise, Exxon's key financial data has deteriorated by very large percentages since oil
prices have fallen. What if this continues for another year or two?

2. Big oil reserve write-downs are coming.

Proven reserves are certainly going to come down, since the SEC requires reserves to be calculated "to
be economically producible" based upon the previous 12 months' average price
"Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience
and engineering data, can be estimated with reasonable certainty to be economically
producible - from a given date forward, from known reservoirs, and under existing economic
conditions, operating methods and government regulations - prior to the time at which contracts
providing the right to operate expire,
(Source: Exxon 2014 10-K)
Obviously, if you look at oil prices over the last few years, the 2015 average prices are about half what
they have been for the last 4 years.

Note for investors: The stock price, currently at $82, does not seem to reflect the new reality.
3. Discounted future net cash flows will be coming down too.
I cannot say it any better than the Exxon 2014 10-K:
"As required by the Financial Accounting Standards Board, the standardized measure of
discounted future net cash flows is computed by applying first-day-of-the-month average
prices, year-end costs and legislated tax rates and a discount factor of 10 percent to net
proved reserves."
I have highlighted the two important points: "average price", which we know will be about of 2014's
price, and "net proven reserves", which are certainly going to be coming down for the same reason. That

price, and "net proven reserves", which are certainly going to be coming down for the same reason. That
sounds like a double whammy to me.
4. Oil prices will not be rising much, if at all, because shale is everywhere.
Everyone is aware of the effect shale oil discoveries have had on oil production and prices. So far, shale
production is mostly happening in the US, but other places around the world are producing shale
oil/gas and studying the feasibility of expanding production from shale. This could keep a lid on oil
prices for the foreseeable future:
"Argentina and China are at the head of a worldwide hunt for shale gas, drilling nearly 500 wells
in the past two years, seeking the fuel that kicked off the U.S. energy boom.
Oil companies have also bored holes in into deep-seated shale rock in Poland, Algeria, Australia,
Columbia and Russia, but so far none of those countries have been able to reach commercial
production levels."
(Source: FuelFix)
Even if countries with shale potential do not become 100% self-sufficient in oil, it will certainly limit
import needs from companies like Exxon.

5. Saudi Arabia and other oil sheikdoms can survive low prices longer than Exxon can.
The Sovereign wealth funds of the Middle East have over $2.2T available. They can certainly survive the
low prices for at least another two years, which would be devastating to Exxon's financial health. Exxon,
of course, has downstream assets (refining and chemical) that generate a profit with low oil prices, but
that comes nowhere near what's needed to restore the company's financial wherewithal.
Here is an article I wrote on why I think the Sheikdom's of the Middle East will keep pumping oil for at
least two more years: "4 Reasons Why Saudi Arabia Will Keep The Spigots Open Until 2018".

Exxon continues to be one of the most creditworthy companies in the world, but with oil prices about
half of what they were a year ago, its long-term creditworthiness is a serious issue. And if Goldman
Sachs is anywhere near correct that we will see $20 oil, what does that mean for Exxon's credit rating? I
think if low prices continue for another year, then at the very least, there will be a warning of a rating
downgrade directed at Exxon. Even now if we look at the key numbers for the 3 AAA rated companies,
we can see serious deterioration of Exxon's numbers vis a vis those of its credit rating peers MSFT and

Notice that for the first 6 months of 2015, Exxon's FCF has almost disappeared along with its cash. And
cash-to-long term debt is almost a joke, with MSFT and JNJ able to write a check right now to pay off
the debt. Looking at this chart, you have to wonder how long the three companies will carry the same
AAA rating.
Unless there is a major conflagration in the Middle East, which certainly a possibility, I don't see how oil
prices rise above $60 or so in the next two years, if ever. If I am right, then Exxon's AAA credit rating is
doomed, and the stock price along with it.