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It just doesn't add up. If their reserves are actually worth that much to a private equity investor, why are they supposed to be so worthless to BP (and Shell a
by fauigerzigerk 11y ago
It just doesn't add up. If their reserves are actually worth that much to a private equity investor, why are they supposed to be so worthless to BP (and Shell and Exxon ...) that it should liquidate itself?
These assets are either profitable or not. If they are profitable, why sell them? If they are not profitable, why buy them? It can't be both. Not for an entire industry that is.
- khuey 11y agoMoney needs to be spent in order to extract the reserves. They don't have all that oil sitting around in a tank somewhere, it has to be pumped out of the ground.
- lmm 11y agoYahoo has been trading well below its book value for a while. If you believe that the company is about to destroy a lot of money by spending it on unprofitable R&D then it makes sense to value it at less than its current assets. (Obviously current management will spend on R&D because they believe it will ultimately produce more value than it costs, but maybe the market disagrees).
- fauigerzigerk 11y agoI have no problem with the "investing too much in exploration" part of his argument. But avoiding overinvestment is not what unleashes the tsunami of cash he's talking about. It's asset sales that should bring on that tsunami of cash. What is the break even of oil companies' proven reserves after not overspending on investment? That is the all important question. If that break even is below future long term oil prices, as he seems to suggest, then these assets are worth exactly $0.