Scott J. Landstrom

As a CEO/COO, Scott is known by his peers for being driven, motivated, competitive, a “quick study”, possessing excellent strategic analytical skills, team-oriented, loyal friend and family member, focused and aggressive once he sets goals. Read More...

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A "Business Lens" view of the result the most acrimonious Presidential election in US history

Whether you are a Republican, Conservative, Democrat, Liberal, Progressive, or Libertarian - one thing that all can agree on regarding this recent election: it was a ghastly, "roll-in-the-mud", coyote-ugly affair on all sides. Presidential debates degraded in quality and statesmanship until they were simple name-calling contests. Rather than espouse policies and proposed programs, the candidates laser-focused on the shortcomings of their counterpart. Never in the history of Presidential debates had so much of the program ended up focused on "mud-slinging" at their political adversary, rather than focusing on the hope and promise of what their own candidacy proposed to bring to the Presidency.

Moreover, each of the major two candidates suggested there might be very solid reasons why their opponent should be placed in jail, rather than elevated to the Oval Office, an unprecedented level of aggression and hubris.

Historians have chronicled the world outrage that occurred in 1960 when Nikita Kruschev angrily pounded his shoe on the podium in anger at the United Nations General Assembly, decrying "stooges of American Imperialism", but this election came close to that level of accusatory bile and acrimony, stopping just short of using footwear as a virtual gavel in the process. It resembled what one might expect from a third-world country, still struggling to understand what democracy entailed, more than the contest for the most powerful position on earth in a storied democratic confederation like the United States of America.

"Fake news" reports sprang up in support of extremist views on all sides of the political spectrum, and with Reuter reporting that 44% of all US adults get at least some of their daily news input from Facebook, a source that requires no fact-checking, no validation of stories or sources, no journalistic credentials, so what was factually "true" had never had so much competition from what was "trending" - so electors believed what they chose aligned best with their political leanings, regardless of how falacious the stories were on all sides. I read reports that claimed with utter certainty that Obama's children were not his own, that Hillary was the functional head of ISIS, and that Trump was a "stooge" of the Russian mafia, beholden to them for hundreds of millions in debt.

And in the end, after an election that deeply divided this country like none before it, Donald Trump was elected to be the 45th President of the United States of America.

Without taking any position on whether that was a positive or negative outcome, let us instead focus on the likely impact on US businesses that this Administration is forecasted to have: 

 Sectors Benefiting: 

1) Oil and Gas Industry: Trump has gone on record as being in favor of "energy independence" and against over-regulation of hyrdrocarbon exploration, and that should be a windfall for Natural Gas and Oil firms.

2) Defense Industry: Trump has repeatedly vowed to re-invigorate some of the aging assets in the military, both nuclear and non-nuclear, and with a Republican controlled Congress, this looks like a sure bet.

3) General Construction Industry: Again, with vows to "rebuild our crumbling infrastructure", heavy construction equipment and materials suppliers should see a windfall

4) Big Pharma: There had been an enormous push, led by a democratic White House, to go after critical drug providers guilty of obscenely escalating life-saving drugs, in some cases over 500% in six years. Trump generally opposes regulation of free enterprise, allowing these practices to likely continue

5) Private Prison Operators: Clinton had vowed to shut down such operations after a few "bad actors" among the dozens were caught in rights violations against prisoners. Trump has no such plan, so some of these public companies that run the private detention facilities saw their stocks climb over 30%.


Sectors Suffering: 

1) The Automotive Industry: Trump has threatened to place a universal 30% tarriff on goods coming from Mexico and China, to name two frequent US trade partners. Many of the sub-systems and components used in Detroit are manufactured in one of those two countries, potentially vastly damaging their worldwide competitive cost profile.

2) The Guns and Munitions Industry: With Clinton promising significant tightening of the current rules on certain types of guns and munitions if she were elected, analysts had projected a "run" on such products that would have nearly emptied shelves of specific semi-automatic weapons, ammunition, and related home defense peripheral products. Now such a "run" is not necessary, with Trump promising to veto any such legislation.

3) The Medical Services Industry: With "Obamacare" almost certain to fall into the "repealed legislation" category with the composition of the House and Senate combined with Trump's distaste for it, it seems clear that in its place will come a system promoting more competition on price/cost, lowering margins for doctors and hospitals in general.

4) The "Import-Export" Industry: In fact, not only this sector, but any industry that relies heavily on foreign sourcing of products, parts, and components. Trump has, at various times, claimed to be in opposition of NAFTA (North American Free Trade), TAFTA (European Union Free Trade), and the Trans-Pacific Partnership (Australia, Japan, Vietnam, others). One popular "short" on Wall Street right now is Walmart, due to their extensive use of outsourcing beyond American borders.

5) The "Green Movement" on Energy: With Trump advocating lesser regulation, both in terms of pollution and in terms of prohibiting certain regions from drilling and exploration, this will definitely HELP the Oil and Gas sector, and hurt Solar, Wind, and Geothermal energy products and services providers. 

 So there you have it. A brually divisive election, but as there always are, there are "winners" and "losers" on the economic scoreboard to think about when you think about investing equity in 2017 and beyond.




The High Tech M/A Growth Vehicle: Metrics of Success (or Failure)

In my extensive readings on analytical metrics of high tech mergers and acquisitions, depending on the author and the study involved, the conclusions reveal something between 62-68% of all executed transactions being dillutive to the acquiring shareholder in the long term, when all is said and done.

But is accretion/dillution a proxy metric for whether a deal was beneficial in overall long term enterpise value to the acquiring firm ? Is short term enhancement of earnings per share an appropriate "bell-weather metric" for whether a given transaction was good for the acquiring company and their shareholders? Perhaps - surprisingly - decidedly not, the research suggests.

A recent survey of corporate executives by Consulting firm A.T. Kearney found that the four most utilized metrics for evaluating possible acquisitions were:


1) EPS impact: accretive or dillutive, short term

2) Enterprise Value vs Purchase Price of target

3) P/E ratio of target company

4) Discounted Cash Flow (DCF) of target company

Yet the post-deal research done by Kearney finds that only one of these four actually correlates best to those same executives feeling a given transaction resulted in value-creation, when compared to what they paid out to close the deal (Enterprise Value vs Purchase Price). 

Let's just contemplate the other three key metrics for a moment: accretion/dilution and P/E ratio, and DCF analysis. Even a cursory financial analysis of acquiring another public company involves some sort of "premium" to market price. So if the P/E ratio is more attractive than the acquiring company's "currency" (their stock) is trading at, then it must be so by a fair margin in order to absorb the premium to market pricing that will be required in the great majority of public stock acquisitions.

So let's just say that the P/E of a given deal, including the premium, is still less than the acquiring company maintains, so this would generally indicate an accretive transaction, with all else being equal. 

But a careful analysis would reveal that the market is relentless in its long-term sophistication at valuing equities, so while earnings per share has risen, the "multiple" of the acquirer has been "dumbed down" to a degree by adding a lower P/E asset to their portfolio. So while the "E" has been enhanced, in an efficient market, the multiple declines. 

Of course, if we switch to looking at "private" companies as targets, then a whole different set of factors play into the analysis, and much more discordant valuations emerge from different suitors based on their appraisal of, and value for, the private company's assets, technology, team, verfiable backlog and account presence, and competitive position.

Discounted cash flow is the undisputed "king" of true shareholder value, but the degree to which assumptions must be made can make the deal swing wildly in value based on issues like the beievability of a 4 year sales forecast. So cash flows which are demonstrably in the present get weighted heavily, while prospective "hockey stick" forecasts should not. Thus, the problem with using DCF in M/A analysis - it is only as good as the forward-looking assumptions it is based upon. 

So what SHOULD have been the other 3 metrics that are at the top of the list for executives contemplating M/A action ? According to Kearney, they are:


1) "Core Capabilities Assessment"

2) "Realizable Synergies"

3) "Cultural 'Fit' Assessment'

The first has to do with a detailed, "bottom-up" appraisal of the skills and capability of the technical, operational, and management teams being acquired. Bringing in highly talented teams and putting them to good use on projects and programs they are well suited for is a "value creator" every time. 

BUT, that assumes that such talent stays around to create that value, and that is where "Cultural Fit" comes into play, and related to that, "Integration Strategy" as well. Depending on how insistent the acquirer is that the new portfolio company "clone" the parent's systems and culture can often dictate how severe the talent-retention problem can be. If the "fit" is close to begin with, then the chances of keeping key talent on board is much higher, regardless of integration strategy, obviously. But try to (as once almost happened) merge a free-spirit culture like Apple Computer into a "blue-blood" conservative firm and culture that is IBM's ? Good luck!

The third metric, "Realizable Synergies" is intuitive. Whether those synergies are market-related, cost-related, or technology-related, any time you can create more efficiency in either creating value, or the costs of taking value to market, then there is an obvious and compelling "win" that can result in the proverbial 1+1=3 M/A transaction. 

So, while accretion/dilution and market multiples clearly need to be looked at, and well understood, perhaps some of the more "soft", people-related metrics, along with a sober analysis of true synergies available, should be at least equally weighted in attempting to judge whether a given transaction is "green-lighted" for action. 







The Orlando Massacre highlights an old management blunder: The US role in creating ISIS

The recent tragedy in Orlando, which is now the deadliest mass-murder in US history, was claimed by the terrorist organization ISIS as one of their supported missions. While it is galling beyond belief that we have criminal, terrorist groups executing missions of mass assasination of US citizens on American soil, it is equally galling, to me, to consider the role the United States played in the formation of ISIS in the first place. I am not talking about peripheral influences of the US' victory in the second Gulf War, I am talking about "blocking and tackling", obvious errors that showed such a deeply flawed and haphazard decision process as to be downright tragic and contemptible in retrospect. And it is quite possible that multiple terrorist attacks across the globe are direct ramification of the US bungling this set of decisions so badly....

In the same fashion that the onerous "Treaty of Versailles" at the end of World War I put such draconian terms on Germany that it actually set the stage for WWII, rather than put an end to wars of that scale and carnage, the US mismanaged the "winning of the peace" after conquering the renegade state of Iraq, and we are paying for those mistakes in lives, even today. 

But I digress. Let's lay out the facts and let the reader decide.....

The US government came upon a "nation buidling" decision following the second "Gulf War" in 2003 of what to do about the defeated Iraqi military. Clearly, the very top leaders of that junta needed to be jailed or sanctioned for their role in some of the more inhumane actions taken by the Iraqi military over the previous decade (like gassing civilian townships, and mass executions).

But the rank and file of that army were clearly part of the "fabric" of the social infrastructure of the country, and had not done anything (in general) to merit being incarcerated, or sanctioned.  With insufficient police on the street, and rioting and mayhem occurring after dark almost every night, mid-level Iraqi military officers approached US commanders after the war, ready to go to work, put up to 20,000 trained soldiers on the streets of Baghdad, and take their orders from the US provisional government in place there. In one of the most laughably, horribly misguided decisions ever made by an occupying nation at any time in history, the decision was made to "disband" the Iraqi Army altogether.

A quick examination of the "process" that the US government used to make this decision is even more revealing. They appointed a lifelong politician, Walter Slocumbe, to lead a "Blue Ribbon Panel" to make a recommendation to Paul Bremer, Presidential Envoy to Iraq, and subsequently, to President Bush for approval. Slocumbe never left Washington to go to Iraq, he never read the joint letter sent by the British Joint Chiefs recommending preserving the Iraqi military, he never talked to a single US Military commander, all of whom seemed to feel similarly to their British peers, and neither he, nor his boss Bremer, ever consulted Secretary of State Colin Powell, who was traveling during this whirlwind decision. A "white paper" was written, delivered to the President, and despite (Bush) admitting in his memoirs that "The policy was always to keep the Iraqi army didn't happen." 

So without even getting the dust of Iraq on one pair of shoes, without talking to ANY of the experts that had just finished waging war against this same army - Slocumbe jumped to a conclusion, Bremer backed him, and the often-vacuous George W. gave it no thought and approved it, before Colin Powell could get back to Washington and intervene with common sense. 

Thus, the US cut loose 720,000 suddenly unemployed trained warriors onto the streets, with no ways of earning a living for their families. So they did the predictable. They went to "the other side of town" where people WERE hiring experienced military commanders and soliders...the insurgency. And they began to train what would become ISIS in tactics, strategy, and maneuver. A recent estimate was given that of the 40 ISIS senior military commanders, 25 of them came from the former Iraq military. Yep, those same guys that were willing to come back to work and take their orders from the US Provisional Govenment. 

As a result, when I see a tragedy like Orlando occur (or Instanbul, or Bangladesh, or the recent Baghdad attack), I can't help but wonder if Bremer and (particularly) Slocumbe ever have trouble sleeping at night knowing they bungled an obvious "winning the peace" decision that could have prevented much of this killing and carnage. 

Epliogue: Months later, lifelong military historian Andrew Bacevich was in Baghdad, trying to analyze why so many people were dying in attacks against both US military and Iraq civilians. He went to Bremer's command center, and was stunned to see about a dozen US college grads all sitting at minicubes outside Bremer's office. He was puzzled what these "wet behind the ears" kids, fresh out of school, could be contributing to the cause, so he approached one, a vivacious looking young woman. "What are you doing here ?" he asked pointedly. She proceeded to tell him she had been handed the comprehensive responsibility for Traffic Planning in the entire country.

This issue, Bacevich knew, was something that people were so frustrated with malfunctioning traffic lights, frequent losses of power, and unclear rights of way, that Iraqis were getting out of their cars insane with frustration and shooting people dead - all over traffic flow problems. Almost daily. He asked her if she had any formal training in Traffic Planning, and she replied "Oh no....not at all. I am a Political Science major. This is all very new and exciting for me to manage !" At that, Bacevich went out to the front step of the Consulate, sat down on the concrete steps, and wept at the utter insanity of it all. 

So, a set of seeds planted many years ago through ineptitude, laziness, and complete lack of vision continues to this day to haunt us, and make others weep, just like Bacevich. An ongoing "tragedy manufactured" instead of avoided, and the bill keeps coming due..... 



A Business Lesson from a Sports Scandal: The Laremy Tunsil Affair

In Greek Mythology, "The Phoenix" (or Latin form, "The Fenix") was a powerful bird that lived for many centuries and whose destiny was to fly higher than any creature on Earth, into the stratosphere and beyond. Eventually, it would fly too close to the sun, spontaneously combusting and coming crashing down to its end - only to rise from its own ashes many years later, and be born yet again.

Modern references to "The Phoenix" have tended to focus on the first part of the parable, the thought that those who soar too high can sometimes be most succeptible to spectacular, and catostrophic, failure - in some ways caused by the very talents that caused them to be outstanding in their field in the first place. Tiger Woods journey from superstardom to mediocrity is an easy metaphor that comes to mind in the golf world, by way of illustration, but I am not here to talk about Tiger.

Hugh Freeze is the Head Coach of the University of Mississippi Rebels, who were poised to set all kinds of history, with projections showing THREE of their players going in the first round, something this fine university had not had two of in their past, let alone three. Freeze was interviewed prior to the draft ad nauseum about how he did it, saying "This is my first graduating class, and we want to show the kind of program we are assembing to win at the college level, and prepare players to be highly coveted at the next level". Obviously Freeze was implying that if his first official recruiting class could place 3 players in the top 31, then his program was a great place to select if you had NFL aspirations as a star high school player. "Five star recruits, take notice, because Hugh Freeze can get you into the first round !" seemed to be the implication he was selling.

So Freeze was somewhat of a "media darling" during the days leading up to the draft, with knowing experts remarking on how unusual it was to see a program like Ole Miss with so many top flight NFL prospects, outranking such blueblood SEC powers as Alabama, Auburn, Florida, and Clemson. 

And then the "Phoenix" flew too close to the sun - and it all began to come crashing down to Earth.

Their best player, Laremy Tunsil, rated by many the best player in the entire draft, had his social media accounts hacked, and first a video of him smoking marijuana was released, then some text exchanges between himself and one of Freeze's top assistants openly discussing paying Tunsil money were disclosed. The combination of these two disclosures knocked Tunsil all the way from the #3 pick to the #13 pick, costing the young man about $12 million in what he would make in his first contract.  Both of these actions (smoking pot, taking money from coaches) are clear violations, but the latter is an unforgivable "pay for play" violation of NCAA rules that clearly implicated Freeze's coaching staff, and possibly, Freeze himself. Kid is smoking dope, shame on him. Kid is getting paid to play NCAA football, then shame on the University. Which means "the coaches". Which, in turn,  brings us back to Freeze.

In fact, it is almost inconceivable that Freeze attracted this level of talent to a "second tier" SEC program, and DIDN'T know about payments being made to players by top assistant coaches. So, just seemingly brief moments after his penultimate soaring victory parade on national TV, aired to millions, about his triumph having three players so highly valued by the NFL, there is a very real chance that Hugh Freeze will end up either heavily sanctioned by any one of: his university, the SEC, or the NCAA - or he will be outright fired.

So close to "the sun", just days ago - and now headed for impacts unforeseeable just a few dozen hours ago.

What does this have to do with the business world ? Well, it is yet again an illustration in this day of Sarbanes-Oxley, social media, and heightened gender and racial awareness, that even the most successful CEO or senior executive had better be following a "values-based" operating model that does not "cut corners" in any way, shape, or form. The days of "look the other way while we break rules" as senior executives has come and gone, and with camera's in every phone, and lawyers in every phone booth, the price will be paid for violations. Not to mention loss of faith by the workforce, who usually figures out such malfeasances long before the courts or regulators do....

Want a corporate metaphor for Hugh Freeze ? How about Mark Hurd, rock-star savior of Hewlett-Packard at the time, who took advantage of corporate expense accounts to entertain his mistress to the tune of a few million dollars, and was subsequently fired, despite being named Board Magazine's "High Tech CEO of the Year" just 7 weeks earlier....Hired her as a highly paid consultant, took her on corporate trips, paid for all kinds of inappropriate goods and services for her, and ended up "taking a bullet" for getting caught....

In sports management, and in business, it just seems that following a code of honor and integrity is not only the way to stay out of trouble. it is the way to sleep soundly at night, and the way to inspire both workmates and team members that they are being led by a "visionary with values", not a corner-cutting "Phoenix"......



The Next Epic Industry Pandemic, circa 2008: "Upstream" Oil and Gas 

I recently attended a series of presentations and a panel discussion on the next five years in the field of the Energy Industry, specifically the Oil and Gas Industry. What I gleaned from these presentations, and the question-and-answer session that followed, both energized me regarding the path, and likely impact, of innovation in this field, while simultaneously striking a feeling of "dread" in my mind for what is going on with existing market leaders. Enough to see parallels, in my mind, with the Financial Crisis of 2008 that crashed the stock market (briefly, but fairly resolutely) based largely on fictional asset valuation of mortgage-backed securities that the sellers knew were worth a fraction of their transactional valuation with naive after-market investors.

Bold words. I get it. But hear me out. Oh, and for the record, "upstream" is the industry moniker to separate those who get the oil and natural gas out of the ground, vs those that transport, refine, and work point of sale distribution aspects of the industry.

In 2004, Citibank posted a white paper calling for $200 per barrel oil (for WTI, for "West Texas Intermediate" oil, a specific high grade oil) within 10 years. With the price currently then sitting at $37 and change, and with the price just six years previously being $9.10 per WTI barrel in 1998, they were thought by many to be madmen. Yet, stunningly, by mid-2008, they appeared to be prescient, as the price of WTI barrels of crude briefly went as high as $ 144.00. As often happens in such cases, there was a flood of capital investment from new participants that entered this industry due to completely new paradigms in force regarding "break even" time frames for wells, and the associated ROI shifts associated with such extreme price inflation. Moreover, there was a "stepping up to the table" by existing oil drilling and refining companies to "make hay while the sun shines" in this era of a barrel of oil costing the same as a pair of Armani dress shoes. 

In fact, the Oil and Gas industry, in the past five years, has issued the stunning total of $ 1.5 TRILLION dollars in new equity and debt - almost 50% of ALL funds raised by non-financial industries during that time frame. Another way to put this is if we put aside institutional investment firms and banks raising money for redeployment through investment funds and financing programs, the O+G sector has nearly raised and invested as much capital as all other sectors combined. When we think of a poker paradigm, I judge it safe to say they "pushed their chips to the middle of the table" in a manner and magnitude not seen in the history of human commerce. "All in", I believe, is the poker expression....

And for awhile, it looked like a reasonable bet. Oil was as high as $107 per barrel of WTI as late as the summer of 2014, merely 20 months ago. But telltale signs of instability were rampant by that point. OPEC had fractured from a tightly aligned cartel of producing countries into open anarchy, with no major producers agreeing to production limits once Saudi Arabia made it clear that they were pursuing market share as their prime directive. If you enjoy political intrigue, more than one source has suggested that the Saudi's abandoned production limits at the behest of their partners in the United States as a way to force Iran to the "negotiation table" to institute meaningful limits on their nuclear weapons development efforts. Which - whether this is true, or not - ended up coming to pass, as the reduction in oil revenue made the ongoing economic sanctions on Iran that much more excruciating, given oil exportation is 82% of their foreign currency inflow. 

But the market doesn't largely care about politics. Whether it is because of nuclear arm-twisting, poor discipline by the former states of OPEC, the sudden rise of the US as a production (and export) giant in this space, or whether it is because Peter Pan wants it to be so, the macroeconomics of this industry have gone through an almost complete reversal of the 1998-2014 "run up".

Moreover, technological advances in "hydraulic fracturing" in mining opened up immense new fields wherein the oil had been largely inaccessible in the past. This added - at a fairly incredible speed - new production capability, with each field with its own cost-to-mine, creating a Rubik's cube of various drill sites that could be turned on based on when the price of WTI crude went above their variable cost to produce. Depending on geologic structure, hydrocarbon history, and a number of other factors (not the least of which is "skill of the extraction operator"), there are "frac" wells in the US that have break-evens anywhere from $12 per WTI barrel all the way up to the low-100's. And some calculations showed the amount of "frac oil" to be accessible just in the United States to approach the reserves under all of Kuwait ! 

Now, the tale gets more complex. Remember the $1.5 TRILLION this worldwide industry raised in the last five years ? Yeah - well someone put that capital into play. And those people expect standard financial reporting on asset and reserve levels, not to mention basic profitability. And what did the O+G industry adopt, almost IDENTICAL to what the mortgage-backed-securities industry adopted before the crash of 2008 ? "Survey based asset valuation." That old chestnut. So rather than do the precise work to get the exact data from wellhead pressure levels and flow rates, they made hand-waving arguments why they didn't have time, and based on a few well chosen wellhead readings, generalized across their entire field asset basis.

So as suspicians began to grow about the way these fields were being accounted for, the investment bank Bernstein engaged with one particular oil exploration and drilling firm involved in hydraulic fragmenting sites, and did a detailed "bottoms up" analysis rig-by-rig, using drill head pressure levels, flow rates, and other sensor data. Their findings - this (unnamed for legal reasons) firm had less than half the actual reserves they had claimed, and ONE THIRD of the production capability. Does this ring a bell ? (Massive revaluing of primary asset bases due to witch doctor accounting ? Ask Lehman Brothers....)

So, we have a "Perfect Storm" brewing here, don't you think ? Industry goes from less than $10 per barrel in 1998 to $144 in 2014, both existing and new players enter the frey, raising almost as much capital as all other non-financial industries combined, new hydraulic fracturing technology comes to bear that completely changes the world reserves and supply calculations, and the methods of reporting back to those investors becomes specious and "hand waving" as to the reserves actually present in each field, and the costs and flow rates possible to activate and run that extraction field.

Then the price crashes, over the past 18 months. Goes in 14 months from over $140 to almost $30 per WTI barrel, and all those rigs with break-evens in the high or mid double digits are basically "hosed" for the immediate future. "Thanks for playing - and oh, by the way, how are you going to meet your debt obligations on all that money you raised at the peak ?" Great question. And the announced 2016 investment in capital expansion in the industry, set at $366 Billion, gets cut almost precisely in HALF over the past year or so, as producers "cut and run" based on the new end-market pricing paradigms. 

So let's add up the factors. Hyper market valuation growth followed by a draconian crash. New technologies spurring supply by dramatic amounts. Unprecedented capital raising and investment the likes of which mankind has never seen from 2010-2015. And witch-doctor accounting practices that are spitting image of the type of thing that went on with mortgage backed securities. To say a similar market crash would happen in this industry probably doesn't fairly represent how diversified they are in "downstream" transport and sale activities, which could offset these massive reserve adjustments (if I am right and they are forced to at some point) to some level. But don't be surprised if we see some of these firms market capitalization dropping by half - or more - and we are talking about some of the most valuable companies in the world here. In fact, don't be surprised if we see actual insolvencies of some pretty major public companies as the combination of debt load, the current revenue model based on current oil pricing, and the pressure to restate assets hammers the final channel of capital acquisition - equity financing - for these "upstream" O+G companies. 

Oh, and for the record, while this is going on, Solar energy has closed 96% of the cost gap that existed just 8 years ago in terms of the use of petrochemicals to produce electricity, and will pass oil in 2017 and natural gas in 2020 at current cost trajectories. Meanwhile. electric cars are forecasted to have a lower total cost-of-ownership than conventional gas-powered cars as soon as 2019, and the trajectory  of both of these has rumored to produce an "end of life-cycle" mentality in some oil producing nations.  

What is an "end of life-cycle" mentality ?? Basically, "Let's pump this out and sell it while we can." Sounds extreme, I know, but put yourself in the position of being a Middle Eastern country with over 80% of all GDP coming from oil exportation. "Saving for a rainy day" is probably not going to be very popular, since the other option is "starving populace", an outcome never good (and sometimes literally fatal) for ruling aristocracy families.

So, while the slashing of the $366 B originally targeted for 2016 will have a positive effect on crude pricing, as much fewer new capital projects come on line, there is a plethora of "hydraulic fracturing" sites just sitting there waiting for the price to get above their "magic bullet" price point - and then they can be online within a matter of a few weeks. Thus, the price of oil will rise, but not dramatically, in the near term, I contend. 

Moreover, if the Fed's (or other regulators) catch up to the reserve and production rate estimation witchcraft going on in this industry, they are going to have a hell of a time raising capital compared to the heyday of the 2010-2015 time frame. Which gives solar electrical energy more time to cross the equilibrium cost-curve with petroleum, and gives electric car manufacturers like Tesla more time to ramp. 

Am I a doomsayer ? No....there is too much overall demand, too many emerging market countries, too much "full value chain" diversification in downstream refining, transport, and distribution, and, too much political clout to see oil and gas fade away. I mean, other than Eisenhower's "military-industrial complex", the oil industry is second to none in the United States when it comes to having clout in Washington. But I think some real problems exist in this sector, with eerie parallels to the financial crisis brought on by mortgage-backed securities in 2008, with the subsequent valuations crash, and large scale insolvencies.

In a nutshell, there are simply too many parallels to ignore....