As we enter what many are viewing as the final stages of the current energy credit cycle and as we see money becoming "harder" or "tighter" determining how the story ends is outright paramount to risk managing. If I've said it once before I've said it a thousand times - risk is never more magnified or more potentially damaging than at the far ends of the spectrum. Risk can also yield magnified rewards at the far ends of the spectrum - which magnifies its importance in management even more.
But then, what is to be done with risk currently? How do we make sure that when the story ends we're not left holding the bag?
In an effort to help answer that question we've put together what we believe is a comprehensive investor deck outlining the current situation in the energy space regarding Credit Default Swap prices. Those familiar with our work know that Credit Default Swap pricing is something we follow religiously. We really do believe in the predictive nature of this measure and more importantly in the arbitrage identified by using this measure to identify outliers. Some outliers have been noted in the deck below.
We took a spatial view of oil and natural gas producers in trying to identify overall credit quality and overall risk of failure. In doing this we also tried to take an individualized approach to each oil and natural gas E&P in that the desired outcome of this exercise is identifying value - leveraging the data into arbitrage. We wanted to look for any irregularities in the data, for any irregularities in how the market (equity, bond, and credit markets) is perceiving risk, and for any irregularities in underlying vehicle (equity, bond, or CDS if applicable) pricing.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.