Newfield Energy will merge with Encana. As usual everyone is touting this as a win-win. In fact, it is another sign of how sick these companies really are. Don’t be fooled. They are not making a return on the huge chunks of money they are spending. It is the oil equivalent of kiting checks. You drill more wells to get an income stream going to cover the bills from those last money losers. This is a SCOOP company and the “scoop” is that they are not making a profit. Encana, for their part, hopes to merge and use the assets of both to entice new money to invest in even more money losing projects. $70 oil won’t save them, nor will $80 oil so long as 80% of the production from these so-called “oil wells” is natural gas selling for $2 or so per MCF, when the pipeline isn’t so full it cannot take any more gas.
Beware any company that touts their “oil-equivalent” reserves because that simply means they are converting their “gas” to “oil” via the BTU content NOT the price. By BTU, the energy in an MCF of gas is equal to about one-tenth or one-twelfths that of a barrel of oil. But the ratio of PRICE between oil and gas is 20 to 25 to 1.
These wells then produce huge quantities of salt water, which costs more and more to dispose of as the well ages and prices increase with each new earthquake reducing the capacity of the disposal industry.
Newfield-Encana merger is a symptom of a sick industry, not a healthy one. The “trades” like Oil & Gas Investor continue to tout this as great news but the truth is Wall Street gets to make fees from these companies when they are created, when they finance, when they sell, and when the go bankrupt. The managers of these companies get huge golden parachutes. The investors? They get screwed. The mineral owners? They get cheated…