Let me say it again: Helix has invested in an asset that brings the benefits of low-cost from a different cost era to a new more uncertain environment. The reasons for price inflation in OSVs are well-known and I have discussed this before here: That sort of structural cost inflation, a hallmark of the great offshore boom ofwas fine when there was no substitute product for offshore oil.
Indeed, they are often able to become better than the original simply by installing the latest technology in their new factory. Debt is provided to such companies both cheaply, and with seeming abandon at certain times in the economic cycle, with often perilous results.
Smithson Investment Trust, Owners Manual High confidence tends to be associated with inspirational stories, stories about new business initiatives, tales of how others are getting rich… Akerlof and Shiller, Animal Spirits …the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic.
Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits — of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.
The State of Long Term Expectations, in The General Theory While quite ready to change my opinion, I have, at present, a strong conviction that these two economic maladies, the debt disease and the price-level disease or dollar diseaseare, in the great booms and depressions, more important causes than all others put together… Some of the other and usually minor factors often derive some importance when combined with one or both of the two dominant factors.
Thus over-investment and over-speculation are often important; but they would have far less serious results were they not conducted with borrowed money.
That is, over-indebtedness may lend importance to over-investment or to over-speculation. The same is true as to over-confidence. I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt.
These individual costs are amplified when they are aggregated up to the macro level. Using words extracted from newspapers, they find the prevailing popular narratives about the economy have played a significant role in accounting for the heights of the peaks and depths of the troughs during macro-economic booms and busts.
Public expectations, embedded in the stories they tell, are a key macro-economic driver. A lot of people think that by putting money in their bank account they are giving the bank the ability to make a loan, but actually in a systemic sense it is the other way around: In the modern economy, most money takes the form of bank deposits.
But how those bank deposits are created is often misunderstood: Banks lend by simultaneously creating a loan asset and a deposit liability on their balance sheet. The loan is not created out of reserves. And the loan is not created out of deposits: Loans create deposits, not the other way around.
This ability of privately owned banks to have the power of money creation is not often discussed.
There is significant evidence that financial and banking crises have indeed become more common since the move to deregulate the financial system and credit creation that became especially strong post the end of the Bretton Woods era post If you are still reading at this point you may be wondering where I am going with this?
Given that the loan books are closed to all but tier 1 borrowers, and contracting overall in offshore sector exposure, this would appear to be some way off. This was a pro-cyclical boom where because everyone believed the offshore assets and reserves were worth more than their book value banks were willing to lend significant amounts of money against them.
It is no different to a housing boom, and the more money the banks pumped in, the more everyone believed their assets were worth more as the deposits grew. Ergo a pro-cyclical credit boom combined with an oil price boom.
The demand for oil, and its price, has recovered, and this will affect the amount of offshore work undertaken, but the negative effects of an asset price boom will take longer to recover.
When banks refuse to lend on ships or rigs no deposits flow through the system. Money from outside the system stops flowing into the offshore sector from the banks.
Values and transactions are supported by the economic earning potential of current assets and the amount of equity and debt raised externally by funds. As an example last week Noble purchased a jack-up from a yard in Indonesia and was granted a loan by the yard selling the unit a Gusto unit pcitured above.Encana Corporation, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids.
Andi Esfandiari - Commissioner Andi is a cross between an investment professional and corporate executive with 18 years experience including six years as a Chief Financial Officer. Sri. Naini Narasimha Reddy Hon'ble Minister for Home, Labour & Employment.
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