Busi­ness Insider Submits:

Bloomberg TV got famed short seller, Jim Chanos, to talk Big Oil today. He said that he’s not short B.P., but that there is another well known oil com­pany who he thinks is play­ing fast and loose with their cash flow and div­i­dend funding.

Of course not want­ing to piss of reg­u­la­tors who are still con­fused over the mer­its of how short sell­ers help the mar­ket he didn’t name names.

So we checked in with a large investor with knowl­edge of the fund's hold­ings who told us that it's Amer­i­can inte­grated oil giant Exxon that Chanos has a big short posi­tion on.

Chanos, founder of Kynikos Asso­ciates told Bloomberg TV today, “"Our deci­sion [to short oil major] pre­dates [the Hori­zon Deep­wa­ter rig], and it has to do with financ­ing. If you look at some of the biggest oil com­pa­nies in the world — and I’ll let you use your own imag­i­na­tion as to which ones those are, there’s a small hand­ful. If you look at their cash flow state­ments rel­a­tive to the income state­ments, you will see com­pa­nies that haven’t replaced reserves in years and haven’t seen any increase in rev­enues in years and yet their cap­i­tal spend­ing eats up all of their cash flow, mean­ing they are bor­row­ing their dividend.”

Chanos, who built his career on data min­ing com­pany bal­ance sheets to find who’s not as healthy as they lead the mar­ket to think, is believed to have got­ten into his Exxon short over a year and half ago. As Busi­ness Week and a few sharp blogs noticed in Feb­ru­ary 09 Exxon is a ‘reli­gion stock’. Mean­ing investors own it because it’s done well before and some on the street assume its man­age­ment knows what it’s doing – so why deep dive into their cash flow state­ments and worry about if they can replace all the bar­rels of oil they sell to keep the cash flow model going?

But Chanos points out in his Bloomberg inter­view, “They [We now know its Exxon] are in effect liq­ui­dat­ing. And investors don’t real­ize that. It’s one of the rea­sons why — and the mar­ket does [real­ize it] to some extent — that’s why the yields are so high. But they’re not earn­ing, in eco­nomic terms, in many cases, those yields. And if peo­ple did a care­ful analy­sis of the cash flows of some of the biggest, most well regarded, inte­grated oil majors, I think they would be sur­prised at what they’d find.”

Bloomberg Television's Erik Schatzker has all kinds of Chanos insights, such as why he’s short China and his frus­tra­tion with U.S. tax pol­icy, that will air on "For the Record" next Fri­day, 6/25

Mike 'Mish' Shed­lock, of Global Eco­nom­ics Trends Mon­i­tor sub­mits the fol­low­ing notes, though he does not specif­i­cally iden­tify Exxon:

Peak oil be damned, hedge fund man­ager Jim Chanos is bet­ting against oil com­pa­nies because they are not replen­ish­ing reserves.

Please con­sider Jim Chanos Shorts Oil Majors, Ford Shares, Hasn’t ‘Played’ BP

Jim Chanos, the hedge-fund man­ager who made money bet­ting against Enron Corp., said he is short– sell­ing shares of large oil com­pa­nies because invest­ment in drilling and explo­ration is eat­ing up their cash flows.

The founder of Kynikos Asso­ciates Ltd. said in a Bloomberg Tele­vi­sion inter­view from his office in New York that his bear­ish calls on “some” energy com­pa­nies, which he declined to iden­tify, pre-date the April 20 explo­sion of the Deep­wa­ter Hori­zon in the Gulf of Mex­ico. That inci­dent led to the largest oil spill in U.S. his­tory and sent BP Plc shares down 49 per­cent through yesterday.

“If you look at their cash-flow state­ments rel­a­tive to their income state­ments, you will see com­pa­nies that haven’t replaced reserves in years, and haven’t seen any increase in rev­enues in years,” he said. “They’re bor­row­ing their div­i­dend. They’re in effect liquidating.”

Chanos said he’s adding to short-sales of Ford Motor Co. as the second-biggest U.S. car­maker will strug­gle to com­pete against Gen­eral Motors Co. United Auto Work­ers, the union that owns hold­ings in GM and Chrysler Group LLC, may favor those com­pa­nies over Ford when nego­ti­at­ing upcom­ing labor con­tracts, he said.

“It’s going to be very inter­est­ing to see how it is that the union, which con­trols the employ­ees — and I con­tend these enti­ties are still run for their employ­ees and retirees more than the share­hold­ers — are going to look in an envi­ron­ment going for­ward, where the UAW is a major equity holder in some of the other enti­ties,” the investor said. “It adds a new dynamic to the twist.”

Inquir­ing minds might be inter­est in a short Bloomberg video with Chanos.

GDP, Stan­dard of Liv­ing, Geopo­lit­i­cal Tensions

My friend "BC" offers the fol­low­ing opinions...

Energy com­pa­nies will be hit by both demand destruc­tion of the prod­uct they sell but also the falling Energy Return on Invest­ment (EROI) at peak pro­duc­tion, reduc­ing their abil­ity to rein­vest in capac­ity and explo­ration to sus­tain or increase reserves.

Because of Peak Oil, there is no math­e­mat­i­cal pos­si­bil­ity that China-Asia can achieve any­thing close to a West­ern per capita energy den­sity, GDP, and stan­dard of liv­ing with­out caus­ing a dra­matic decline or col­lapse of the West­ern economies.

The more Asians and oth­ers decide to com­pete with the West­ern economies for energy resources, the more likely West­ern­ers will resort to des­per­ate means to man­age or try to pre­vent decline or collapse.

The post-Oil Age decline will not be a sin­gle col­lapse event. Rather, we are more likely to see a kind of stair step decline, like a ball bounc­ing down­stairs, with increas­ing volatil­ity of sup­ply and price shocks from a pos­i­tive feed­back effect, reduc­ing the very long-term trend of real GDP, per capita GDP, and pop­u­la­tion growth to 0% and negative.

Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com

Read more from the author/contributor here.

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