Ann: Trading Update, page-10

@austinhealy

I'll make a couple of points here that you should keep in mind

- first - lets refer back to OSV's prediction - along with the calls from BP, Total and Chevron - of a 75% collapse in the oil price from 2013.

that call really cemented the reputation of oil industry to forecast price with accuracy.

if you learn nothing else from this cycle, learn this - industry is incredibly poor at forecasting price, as are economists. Industry is bad because
a) they forecast on supply/demand differentials - and supply/demand doesnt drive the majority of commodity pricing: currencies and particularly the USD do/does.

b) industry is blinkered by a closed loop of positively reinforcing information from people within the same loop, consultants, suppliers, producers and service providers who all create a 'one sigma up/down narrative'

- so they almost never see the big external shocks, of any type, coming.

- Understand that equity pricing is a future's call - and equity pricing aims to forecast future earnings growth or declines combined with impact of debt to assess the implied value of shares.

That is why share prices typically bottom 9- 12 months ahead of commodity price bottoms - because the market prices in the damage of lost earnings ahead of time

So you need to bear in mind that MRM equity at this point prices in good probability that a March default occurs - because those default risks are apparent and immediate.

- so buyign MRM at this point is significantly derisked against the risks you are framing. which is the point at which you should start considering buying equities - ie when the upside risk is greater than the downside risk


And let me give you a taste of why there is potentially hidden upside for stocks like MRM.

So far wti has lowed at 28usd and usdjpy 110 when aud was 72c

Now its climbed back to 52usd and usdjpy118 and aud71c


The readthrough for more competitive pricing of SE Asian oil and so increased demand for MRM services is pretty clear.

And the more that 'positive investment gap' spreads - the more banks will be inclined to refinance lending - as we saw for many gold miners who were able to subsantially improve and defer lending commitment terms once gold bottomed early this year.

I wont say the stock is full de-risked - clearly that isnt the case.

But is it good risk/reward for those looking for potential multiples of return? Thats the question you need to consider