How long can BC and Alberta ignore the financial and geological realities facing them?
The dramatic decision by the British government to ban the disruptive technology of hydraulic fracturing (or fracking) is just one of two volatile storms now shaking the industry.
And both have ramifications for the governments of British Columbia and Alberta, which actively subsidize the uneconomic industry with tax breaks, royalty credits, free water and taxpayer-funded seismic research and monitoring.
The first typhoon is the industry’s failing business model.
The fracking of shale formations in Canada and the United States has largely generated more negative cash flows than revenue, due to high capital, water and energy costs combined with rapid depletion rates and low commodity prices.
Canadian firms such as Ranch Energy Corp. and Trident Exploration, which based their business models on fracking, recently went bankrupt, leaving massive liabilities for the public to clean up. The Tyee is supported by readers like you Join us and grow independent media in Canada
The highly indebted Encana Corp., a champion of the so-called “shale gale,” banked its future on fracking and lost.
In recent years it was forced to sell off many of its holdings, lost 90 per cent of its share value and let go of thousands of employees. Just this month it changed its name and left Alberta for the oil-rich Permian Basin in Texas where companies are also losing money and going bankrupt.
Investors have become so skeptical about the industry’s ability to generate profits that they’re either openly shunning the sector or refusing to loan it money.
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