Red Fork Energy has been placed into receivership
Red Fork Energy has been placed into receivership. Four points come to mind. Firstly, this was an accident waiting to happen. I warned in my 14 February wire that its debt fuelled growth meant that if oil prices fall the leverage downward is potentially spectacular. Secondly, there are other companies pursuing the same unsustainable business model that relies on a rapid build up in production from very short life wells to create share price momentum. Thirdly, because the Red Fork approach and experience is not unique, it illustrates how the rapid expansion in US output can come to a halt quickly. The same structure that allowed a rapid rise in output creates the circumstances for its reversal. Fourthly, OPEC will have got it right if it can hold its nerve because there is scope for a near term oil market rebalancing as these forces play out.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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