PapaWhisky

Peak Oil as a Function of Earth's Volume

Is there no filter at all on who can write an article for Seeking Alpha?

Banker CEOs Lied to Congress

JackRuby,

You've got 6 comments and you use the word 'moron' in each one.

BlackScholes on Mr. Prandts (C) $24 options awarded on 22-Jan-08, expiring in 2018, is (assuming V=50 and Int=5%) $0.70.

His grant of 1,000,000 options, then, according to Black-Scholes, is worth $700,000.


On Apr 06 09:07 AM JackRuby wrote:

> What a moron!!!! Obviously this idiot has never received a stock
> option. The value of all of those options are ZERO !!! Absolutely
> worthless! When options are granted they are valued by what is called
> a "Black-Scholes" model. It is a mathematical calculation based
> on past history. On the day the options are granted....they have
> absolutely no value. If the company performs well, and the company's
> stock rises in price, only then due the the options have value.
> In this market....those options have NO VALUE. This article has
> been written by a totally ignorant MORON!!!! This is the problem
> with articles written in financial journals and publications....misinf...
> This idiot is trying to make a headline out of nothing. We need
> business majors writing articles....and not uninformed stupid journalists!!!
> Most people learn to write by the second grade....and then go on
> to productive lives....unlike journalists

Banker CEOs Lied to Congress

User,

It's very easy* to put a value on options ... even if they are under water. It's called Black-Scholes. It's the exact formula the banks used when they awarded the options so they could account for the expense in the year it was incurred.

*By easy I mean mathematically easy. Some of the inputs to B-S are little more than educated guesswork


On Apr 05 10:39 PM User 388979 wrote:

> VVVVViking: Feel free to call me ignorant if you like. You do me
> no harm. The point of my comment was that at the point in time when
> the CEOs were asked about their compensation for 2007 most of their
> stock options were, as you say, under water. There is no way the
> CEOs could place a value on the stock options unless you think they
> are able to see into the future. Asking them to place a value
> on those stock options was another case of our elected officials
> putting on a show for the public at large. Anyone with a ounce
> of brains would have been able to pick up on the nonsensical questions
> that the bankers were being asked to answer.

Banker CEOs Lied to Congress

Also note that not all the option grants are ESO (Employee Stock Option). There are several RSU (Restricted Stock Units) in there.

RSU's are outright grants of stock. So while the ESO's maybe under water, the RSU still carry the intrinsic value of the stock. Mr Pandit of C, for example, received 1,090,000 RSU's. Even at today's depressed stock price that is still worth $3.1million.

And finally ... an under water option is not worthless. He has until 2018 to cash these options. They may be under water now but nine years is a long time in this game.

Oil: Despite Decline, A 'Must-Have' Profit Play

Spare capacity now is closer to 5-6 million bbl/day

On Oil Prices and Barron's Bullishness

Let's not forget the one key thing about the price of oil. Like any commodity the price is made at the margins. So the (perfect) market price of oil is the cost of the last and most expensive barrel - the pricing of geopolitical risks aside.

But, of course, the market is not perfect. There's a common analogy: "The oil market is like the carburetor in a car ... it knows how much gas is in the line but has no idea how much is in the tank." (If you're under 30 and don't know what a carburetor is ... google it)

So the market prices oil very effectively based on how much oil is sloshing around in tankers and storage. It can also account for the current production from existing fields. BUT ... it cannot account for the costs of developing new fields to maintain production levels.

Case in point ... existing deepwater production where the wells have been drilled and the pipelines laid and the topsides installed probably have operating/lifting costs of $10-20 per bbl. To develop a NEW deepwater field from scratch (i.e. Brazil Tupi, GoM Jack and etc) will probably need $70 oil to make it economic.

So it's only a matter of (short) time. Decline in existing production (7% per year?) will eventually catch up to the reduced demand as a result of the current crisis. Then we watch as oil prices rocket back to cover the costs of bringing all the expensive production on line.

But I also offer one caveat ... the widely quoted costs of developing new production are based on 2008 input costs. That means $1 million /day rigs, and 2008 steel prices. Input commodity prices have already tanked. When the realities of the current situation ripple through to Transocean and Halliburton and FMC prices, these costs will come down. So maybe Tupi won't cost $70 to develop ... but it won't get down to $30.