I’m often asked how the legal market in the region handles these downturns. The answer that nobody wants to hear is: quite well actually. You see, when the economy stagnates, people seem to figure out at the same time that their company needs a lawyer. Those unpaid invoices from a year ago, which used to be a minor inconvenience, now become an existential threat… and business people start to see the legal community as a bulwark against another failed venture.
Speaking of failed ventures, I’ve been out and about in the community in the last few days. It isn’t good. Just yesterday afternoon, back in that heady time when oil was all the way up at $31.50 per barrel, I was talking with a workout consultant about equipment in the region. He mentioned that one of the departing oil companies just sold a rig that was built in 2013 (for $8 million) at auction for something in the neighborhood of $200,000… A haircut of 97.5%. Additionally, he mentioned to me (in case I knew anyone who might be looking) that he had a line on 600 (SIX HUNDRED) frack tanks for 10% of the original asking price.
Unfortunately, it seems that the wider world has yet to discover the investment opportunity available in the ashes of the last boom. Instead there are billions (with a “B”) of dollars worth of equipment that are gathering rust in abandoned yards – which will not be salvageable by the time we see a rebound in West Texas. I joked with a banker friend of mine that I lack only three things to invest into this downturn: 1. Land (to store the equipment I cannot buy); 2. Money (which I don’t have); and 3. Time (to wait before I had to pay back the money I don’t have).
For all you investors out there looking for distressed assets, you’re missing out on a golden opportunity in the Flatlands. I spoke with another banker friend of mine last week, who said that some of his clients have already started to break up their equipment to sell for scrap since they cannot find buyers in time to sell their equipment for pennies on the dollar…. Just yesterday I saw two diesel motors (that would have fetched $65-75,000 a piece at auction two years ago) sitting in a yard with no buyer for any sum of money. It’s a shame… By the time someone willing to pay comes along, it is likely the elements will have rendered these pieces beneficial for no more than scrap too.
Picking up equipment now and sitting on it is a sure-fired way to make a return on an investment in this market. The only thing I can’t tell you is how long you might have to wait.
Perhaps the most frustrating part of the ordeal is that we all know from past experience that just a few years hence there will be a hue and cry from the industry lamenting the lack of available equipment to capture the rents available from increased commodities prices. This was the refrain we heard ad nauseum from 2009 until just last year! As the old saying goes, “there is nothing new under the sun”.