Recently, the former CEO of the largest shale gas producer in the United States told a roomful of conference goers what any competent financial analysis would have revealed many years ago: the shale oil and gas industry as a whole has been destroying capital since its inception.
“The fact is that every time they put the drill bit to the ground, they erode the value of the billions of dollars of previous investments they have made,” said Steve Schlotterbeck, former head of natural gas behemoth EQT, at a petrochemical industry conference. “It’s frankly no wonder that their equity valuations continue to fall dramatically.”
But, the real news here is not that the shale oil and gas industry has from its beginning been destroying capital one well at a time. It’s that a major industry insider freed from the constraints of his former job has admitted it.
Schlotterbeck calculates that the industry as a whole has destroyed 80 percent of its value since 2008. It turns out that the so-called shale revolution is a revolution as much in investor stupidity as it is in technology, a technology that can’t seem to produce actual industry profits. The former CEO added that there have been 172 bankruptcies among exploration and production companies engaged in the shale oil and gas business just since 2015.
Now the significance of this message is as much where it was said as who said it. Schlotterbeck was addressing attendees of the Northeast Petrochemical Exhibition & Conference in Pittsburgh in mid-June. The predominant buzz at the conference was a plan to turn Pennsylvania and Ohio, which sit above large shale gas resources, into a petrochemical and plastics center similar that which exists on the U.S. Gulf Coast.
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