With the latest energy bust threatening his livelihood, Clay Silica sprung to action. Descended from a long line of oil-bearing rocks, his family had been exploited by unconventional oil & gas operators by years and this was the final straw. “Listen, why are we letting these guys piss away their investors’ dollars trying to squeeze out this resource while enriching themselves? Why not go to the source? ROCKS DON’T GO BANKRUPT. Who you going to sue, the Earth?”
And with that, a new investment vehicle was born. Clay hired investment bank Jefferies to promote the product. Jefferies, specializing in over-marketing no-to-low return shale assets for years, put the analysts to work. Still largely overstaffed, they created an innovative system where first-year analysts would perform the geologic analysis, second-years analysts would check title, and VP’s would serve as reservoir engineers. When pressed on the lack of actual technical experience, a spokesperson for Jefferies replied, “That hasn’t stopped us before. Our analysts are experts at modeling 60 wells per section regardless of location. Besides, who cares, ROCKS DON’T GO BANKRUPT!”.
Who’s going to develop the acreage and how will they create cash flow? Clay and Jefferies haven’t figured that part out yet, but the market seems to believe that a solution will be found. Investors are used to funding mineral-rights businesses that offer no real value and who do not control how their acreage is developed, so it is not a stretch to think they will gloss over this â€˜pessimistic’ detail.
Unsecured deferred interest-rate bonds may sound hare-brained at first, but in the light of no default risk, this is being viewed as a steal. Demand is off the charts, as the Federal Reserve has unleashed a flood of liquidity with no viable businesses to invest in. With no default risk, the bonds are treated as investment grade by all ratings agencies and carries a negative yield. The first issuance was 10X oversubscribed.
Clay, newly installed CEO with a Base Salary of $US 4 Million per year and 400% bonus targets, is ecstatic. He plans on 50+ follow-ons this year alone and the rest of the Houston Investment Banks are clamoring for the fee income.