The fracked gas industry’s long borrowing binge may finally be hitting a hard reality: paying back investors.
Enabled by rising debt, shale companies have been achieving record fracked oil and gas production, while promising investors a big future payoff. But over a decade into the “fracking miracle,” investors are showing signs they’re worried that payoff will never come — and as a result, loans are drying up.
Growth is apparently no longer the answer for the U.S. natural gas industry, as Matthew Portillo, director of exploration and production research at the investment bank Tudor, Pickering, Holt & Co., recently told The Wall Street Journal.
“Growth is a disease that has plagued the space,” Portillo said. “And it needs to be cured before the [natural gas] sector can garner long-term investor interest.”
Hints that gas investors are no longer happy with growth-at-any-cost abound. For starters, several major natural gas producers have announced spending cuts for 2019.
Such pledges of newfound fiscal restraint are most likely the result of natural gas producers’ inability to borrow more money at low rates.
As DeSmog has reported, the historically low interest rates following the 2008 housing crisis were a major enabler of the free-spending and money-losing attitudes in the shale industry. Wall Street has funded a decade of oil and gas production via fracking and incentivized production over profits. Those incentives have worked, with record production and large losses.
However, much like giving mortgages to people without jobs wasn’t a sustainable business model, loaning money to shale companies that spend it all without making a profit is not sustainable.
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