I feel your pain. Crude is falling like there is no end in sight. I am experiencing some "stinging" losses also. However, one thing worth noting, there is a total absence of any motivated buyers at this point, but eventually they will emerge. It may take $35 oil to attract buyers, I don't know??
Crude was not in a "bubble". The Saudis dropped prices in response to competition, to regain market share. You were WRONG! There were no (and still aren't any) material changes in the supply.
If you think Obama is going to agree to a bailout of U.S. E&P companies.......YOU ARE DREAMING!
The financing (bonds) of the domestic oil producers, is without doubt, under immense pressure and it could breakdown, hurting investors. However, on the relief side, the marginal cost of producing oil should fall (hopefully correspondingly). This could setup well for drillers if (and when) oil prices start to rise again. How long will it take for the global economy to get out of its current funk???...who knows???, but lower energy prices should go a long way towards helping. Personally, I am pretty depressed given the large allocation of my portfolio is in "energy". Not a "cheery" time for energy investors, but crude prices could rebound quickly.
Client, this is all tied to falling crude prices, something you never pretended to "know" anything about. There are surely going to be some changes in the crude production asset landscape and SD will not be one of the first to get "restructured" (bankruptcy put politely). Strengthening global economies, due to lower prices, will drive higher consumption levels, changing the narrow supply/demand function. This is all about the "direction" of asset valuations involved with supplying the ever increasing demand for oil/gas products. Timing is everything and predicting the global crude supply/demand function is anyone's guess. Crude's recovery in the market can happen very quickly as entire producing "countries" head for insolvency. The Saudi objective must be to make this market downturn in crude prices as short as possible, evidenced by the aggressive pricing tactics they have pursued in the short-term supply "deals" they are making.
Three way collars have defined limits and COSTS that correspond. Anyone looking at oil prices statistically, over a period of time, could easily conclude that the variations were w/in one standard-deviation of the mean, making a 3-way collar a reasonable bet. However, in this case, they lost the bet because oil prices fell well below the LCL (lower control limits). Even if you get into the supply/demand fundamentals, there was no indication that would lead one to think that the Saudis would drop prices like they did, it was virtually an unprecedented response by the Saudis to a competitive situation to drop prices as much as they did. Yes, SD did not expect the Saudis to get into an aggressive game of chicken.
Buying back more of your stock would be foolish. SD may well need that capital to keep themselves out of bankruptcy.
What makes you think this is an "easy takeout"? There are a LOT of large shareholders who are not going to just roll-over and accept a low bid. The large SD investor can stay solvent a lot longer than oil prices can stay low.
With the current drop in crude prices, investors and lenders aren't going to have much of an appetite to invest in new production projects. The economics (discounted cash flow models) of capital-projects have already "plugged" a much lower crude price into their spreadsheets. Bottom-line, we'll see fewer projects being approved for development and production will start falling almost immediately. The lower price can only mean one thing on the consumption-side, it can only go up from here unless the world dives into a more severe recession, an unlikely event with the cash being printed by central banks around the world.
"Friendly", does this mean they will kiss us before they shove it in deeeeeeeeeep?