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Bankers and Investors Finding Fracking Industry’s Underlying Models Prove Overly Optimistic
Bankers and Investors Finding Fracking Industry’s Underlying Models Prove Overly Optimistic
Warren Buffet has a famous quote about investing: “Only when the tide goes out do you discover who’s been swimming naked.”
When it comes to his $10 billion investment in Occidental Petroleum, Buffett will need to take that one to heart now that other investors have sued Occidental for the merger financed in part by Buffet’s stake, alleging that the amount of debt required for Occidental to merge with Anadarko left the company “precariously exposed” if oil prices went lower. They cited the billions that Buffett invested in the deal as compounding this risk.
The fracking industry doesn’t care that you’re a world-famous investment sage: It destroys all capital.
Even in 2019, when Buffett was investing in Occidental, we knew that the fracking industry had been losing hundreds of billions of dollars the past decade. However, with the industry’s staggering debt load, lack of ability to continue borrowing, and drops in oil demand due to the pandemic, the tide is now truly going out to reveal the fracking industry’s failing financial performance. That receding cover has also revealed that the industry has broken one of the most basic tenets of financing for oil and gas production: reserve based lending.
Reserve based lending involves a firm estimating how much oil it has in the ground, and then assigning those reserves a value based on the most recent price of oil. A bank then lends the company money based on a percentage of this value. For lenders this has historically been a low-risk arrangement, because if a firm defaults on the loan, the bank can simply take possession of its oil field. So it has long been among the most reliable methods for smaller oil and gas companies to get financing.
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DC Is the Latest to Sue Exxon and Big Oil for Climate Disinformation Campaigns
DC Is the Latest to Sue Exxon and Big Oil for Climate Disinformation Campaigns
Washington, D.C. is suing the four largest investor-owned oil and gas companies — BP, Chevron, ExxonMobil, and Shell — for allegedly misleading consumers about climate change, including historically undermining climate science and even now using deceptive advertising about the companies’ role in leading solutions to the climate crisis.
District of Columbia Attorney General Karl A. Racine announced the consumer fraud lawsuit on Thursday, June 25. The lawsuit claims that the four oil majors violated the District’s Consumer Protection Procedures Act by engaging in misleading acts and practices around the marketing, promotion, and sale of fossil fuel products, which produce globe-warming pollution. The D.C. lawsuit alleges that these companies knew since at least the 1950s about the harmful consequences of burning fossil fuels and that they engaged in a campaign to deceive the public about those risks.
“For decades, these oil and gas companies spent millions to mislead consumers and discredit climate science in pursuit of profits,” said Attorney General Racine. “The defendants violated the District’s consumer protection law by concealing the fact that using fossil fuels threatens the health of District residents and the environment. [The Office of Attorney General] filed this suit to end these disinformation campaigns and to hold these companies accountable for their deceptive practices.”
In particular, the D.C. Attorney General’s Office called out the oil industry’s use of fake grassroots groups, such as the Advancement of Sound Science Coalition, which started out as a front group for tobacco giant Philip Morris in 1993. This group had transitioned to become the Advancement of Sound Science Center in 1997 and was run out of the home of climate science denier Steve Milloy, who most recently worked in public relations for coal company Murray Energy. The group has now been phased out of existence.
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From Hurricane Maria to COVID, Gas Lobbyist-turned-Trump Energy Lawyer Uses Crises as ‘Opportunity’
From Hurricane Maria to COVID, Gas Lobbyist-turned-Trump Energy Lawyer Uses Crises as ‘Opportunity’
Among a string of recent environmental rollbacks, President Donald Trump’s U.S. Department of Energy (DOE) aims to vastly narrow the scope of environmental reviews for those applying for liquefied natural gas (LNG) export permits. The proposal has been guided by Bill Cooper, a former oil and gas industry lobbyist who’s now a top lawyer for the DOE.
On May 1, the DOE issued a proposal to limit environmental reviews for LNG export permit proposals so that the review applies to only the export process itself — literally “occurring at or after the point of export.” The rule would take off the table for consideration lifecycle greenhouse gas analyses, broader looks at both build-outs of pipelines and power plants attached to the export proposals, and other potential environmental impacts.
It comes as many larger forces up the pressure on LNG projects: The oil and gas industry is facing financial crisis, exports of fracked gas to the global market are steeply waning, and the COVID-19 pandemic and accompanying economic nosedive are marching on in the United States.
The DOE’s Bill Cooper, an oil and gas attorney by background with a long history of navigating the industry through crises both inside and outside of the federal government, signed off on the regulatory proposal.
Now DOE General Counsel, Cooper has proven instrumental in creating today’s U.S. regulatory regime both for fracking for natural gas and exporting it. This attempted rule change is just the latest chapter in that story. For Cooper, crisis has consistently served as an opportunity to implement regulatory change to favor the oil and gas industry.
As DeSmog has reported, Cooper played a critical role in getting regulatory exemption language now known as the “Halliburton Loophole” inserted into the 2005 energy bill.
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Big Oil Fears Keystone XL Ruling Means End of Easy Pipeline Permits
Big Oil Fears Keystone XL Ruling Means End of Easy Pipeline Permits
On April 15, Judge Brian Morris nullified water-crossing permits in Montana that were granted for the Keystone XL, a major setback for the long-embattled tar sands oil pipeline. The ruling came just days after Keystone XL owner TC Energy, formerly known as TransCanada, obtained billions of dollars in subsidies from the Alberta government as global oil prices plummeted.
The oil and gas industry has taken notice. Seemingly just a ruling on Keystone XL — the subject of opposition by the climate movement for the past decade — the ruling could have far broader implications for the future of building water-crossing pipelines and utility lines.
In his decision, Judge Morris cited a potential violation of the Endangered Species Act when he ordered the U.S. Army Corps of Engineers to do a deeper analysis of potential impacts to protected species. Morris required the Corps to demonstrate whether or not it could construct the pipeline without harming endangered species, such as the Pallid Sturgeon or the American burying beetle. Instead, the Army Corps “failed to consider relevant expert analysis and failed to articulate a rational connection between the facts it found and the choice it made,” Morris ruled, when the Corps gave Keystone XL the initial green light.
The original July 2019 complaint in that case — filed by Northern Plains Resource Council, Bold Alliance, Sierra Club, Natural Resources Defense Council, and Center for Biological Diversity — also argued that the Army Corps had violated the National Environmental Policy Act (NEPA) in using an obscure regulatory lever to fast-track the review process.
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The Syrian Job: Uncovering the Oil Industry’s Radioactive Secret
The Syrian Job: Uncovering the Oil Industry’s Radioactive Secret
Cancerous lesions have developed across Keith MacDonald’s body and his son is dead from leukemia. His life has disintegrated, and in his eyes fault lies with the third richest company on earth. It is headquartered in the Netherlands, incorporated in the United Kingdom, and is an entity (thanks to the Parliamentary Pension Fund) that every single British MP has a stake in — Royal Dutch Shell.
The story of how MacDonald got here is a tale of adventure and tragedy fit for a Hollywood thriller, only it is real. Even with many unknowns, MacDonald’s case unearths a shocking part of the world’s most powerful industry that somehow has remained hidden for generations.
MacDonald was born on a military base in Scotland in 1951. When he was three years-old, his older brother was killed in a tragic cliff accident—the boy chased a stray football over the edge and fell 100-feet to his death. “My mother couldn’t deal with the stress and became obsessed with my wellbeing,” says MacDonald. “Safety, safety, safety, all of my life. It was almost claustrophobic. I became the family rebel and left home.”
Image: Photos of Keith MacDonald and his brother and mother (left), and their graves (right)
His oilfield story begins in the early 1970s. MacDonald was a rock and roll roadie, setting up equipment for Santana, Elton John, and Rod Stewart — “I was making good money, having a ball.” One autumn day in 1975, he hitched a ride to Birmingham with a friend who had an interview for a job inspecting oil and gas pipelines. The recruitment manager for British Industrial X-Ray wore a shirt and tie, looked MacDonald over and with a string of words that would change the course of his life, offered him a job.
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New Satellite Data Reveals Dangerous Methane Emissions in Permian Region
New Satellite Data Reveals Dangerous Methane Emissions in Permian Region
New research based on satellite data confirms that the oil and gas industry in the Permian region of Texas and New Mexico is leaking record amounts of methane. The new research published in the journal Science Advances found that methane emissions in the Permian Basin were equivalent to 3.7 percent of the total methane produced by the oil and gas industry there.
In December DeSmog reported on the work of Robert Howarth, a biogeochemist at Cornell University, who has been studying the methane emissions of the oil and gas industry. Howarth’s latest research estimated that 3.4 percent of all natural gas produced from shale in the U.S. is leaked throughout the production cycle, which appears to be confirmed by this new research.
Methane is a powerful greenhouse gas and makes up approximately 90 percent of what is known as natural gas. It’s a major contributor to global warming.
The oil and gas industry has long tried to sell the idea of natural gas, which is, again, primarily methane, as a clean energyclimate solution. However, with a leakage rate of 3.7 percent, natural gas is actually worse for the climate than coal.
Advertisements for natural gas from the industry trade group the American Petroleum Institute have claimed, “Thanks to natural gas, the U.S. is leading the way in reducing emissions.”
This new satellite data confirms that simply isn’t the case. When the methane leaks from oil and gas production are taken into account, natural gas is unquestionably a dirty fossil fuel.
This new research also helps explain why methane emissions rose at such a high rate in 2019.
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‘We Need Water Before Oil’: Kenyan Communities Scarred by Chinese Oil Exploration
‘We Need Water Before Oil’: Kenyan Communities Scarred by Chinese Oil Exploration
The repeated honking of a speeding Tawakul shuttle announces the return of travellers to Merti from distant towns at dusk. It also marks the close of another searing and slow day in this part of northern Kenya.
Idling villagers’ faces are suddenly lit by the prospect of seeing their families as they rush to meet the late arrivals, stirring this sleepy shopping centre into activity.
Wako Ade, a local motorbike taxi rider nods towards a reunited couple as the dusty vehicle empties its passengers at the bus terminal and says with frustration: “We are tired of this life. The bus is our only connection with Kenya through Isiolo town. I think the rest of the country forgot us.”
It wasn’t always like this.
About a decade ago, all eyes were on this weather-beaten and marginalized part of the country. Ade remembers seeing visitors from as far as the capital city, Nairobi, flocking to the town, positioning themselves for prospective business. For good reason: Merti was about to strike oil.
But it never materialised.
Destruction
In 2008, the China Offshore Oil Corporation (CNOOC) announced it had identified 15 wells which showed strong signs of holding oil and gas deposits. But by January 2011, CNOOC had left, leaving the community with damaged land and $2 million worth of shattered hopes.
“There was excitement everywhere. We began preparing for an economic turnaround that has eluded us since Kenya gained independence,” recalled 75-year-old Dika Bidu from Dadach Basa village, which sits 12km away from CNOOC’s Bhogal rig.
As a village decision maker, the government told Bidu of the new health facilities, schools, piped water and tarmac roads that would be built to improve the lives of the people there.
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Oil, Gas, Petrochemical Financial Woes Predate Pandemic — And Will Continue After, Despite Bailouts, Report Finds
Oil, Gas, Petrochemical Financial Woes Predate Pandemic — And Will Continue After, Despite Bailouts, Report Finds
The oil, gas, and petrochemical industries have taken a massive financial blow from the COVID-19 pandemic, a new report from the Center for International Environmental Law (CIEL) concludes, but its financial troubles preexisted the emergence of the novel coronavirus and are likely to extend far into the future, past the end to measures aimed at curbing the spread of the disease.
“Oil and gas are among the industries hardest hit by the current economic crisis, with leading companies losing an average of 45 percent of their value since the start of 2020,” the report finds. “These declines touch on nearly every facet of the oil and gas sector’s business, including the petrochemical sector that has been touted in recent years as the primary driver of the industry’s future growth.”
That’s to some degree because of the abrupt plunge in demand for oil resulting from shelter-in-place and quarantine measures that, as of early April, applied to over 3 billion of the world’s 7.8 billion people — including 90 percent of the United States. And the United States uses an outsize amount of gasoline — in 2017, the U.S. consumed one fifth of the gasoline used globally, the report notes. Nearly 70 percent of petroleum products are consumed for transportation, the report adds — meaning that the impact on demand resulting from quarantines is enormous.
But, before the pandemic, oil, gas, and petrochemical firms “showed clear signs of systemic weakness,” CIEL’s report says, listing factors like the industries’ poor stock market performance, high levels of debt, competition from cheaper renewable energy, slowing growth in demand for plastics, and growing awareness among investors of the impacts that action to slow climate change will have on the sector.
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Is the U.S. Fracking Boom Based on Fraud?
Is the U.S. Fracking Boom Based on Fraud?
In a 2016 interview with Fraud Magazine, former Enron CFO Andrew Fastow explained what he thought made him so successful while at the former energy corporation that’s now infamous for financial scandal.
“I think my ability to do structured financing, to finance things off-balance sheet and to find ways to manipulate financial statements — there’s no nice way to say it. Like I said at the conference, I was good at finding loopholes.”
As Fastow explained, in finance, the difference between a loophole and fraud isn’t always easy to identify. And that may be something the U.S. fracking industry is working to its advantage.
Fastow, the convicted fraudster, does admit that what they did at Enron misled investors. “We created something that was monstrously misleading, but any one of those deals alone wasn’t necessarily considered fraudulent,” he said.
Fast-forward to today and a different part of the energy industry: The U.S. shale oil and gas industry has lost more than a quarter trillion dollars since 2007, while being sold to investors as an economic boom, even at oil prices much lower than those of recent years. Does that financial mismatch seem misleading? Or perhaps, familiar?
In an unexpected twist, Fastow now gives talks to the energy industry on ethical leadership.
Sounding the Alarm
Bethany McLean was the first reporter to question whether Enron was a financially sound company in a 2001 article for Fortune magazine. McLean went on to co-author the book The Smartest Guys in the Room, which documented the fall of Enron due to its fraudulent practices, including the ones Fastow engineered.
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Peak Permian Oil Production May Arrive Much Sooner Than Expected
Peak Permian Oil Production May Arrive Much Sooner Than Expected
In mid-January, Adam Waterous, who operates the private equity firm Waterous Energy Fund, made a prediction about the crown jewel of the U.S. shale oil industry, the Permian shale play that straddles Texas and New Mexico.
“We think we are at or near peak Permian,” Waterous told Bloomberg. “The North American oil market has been grossly overcapitalized, which is not sustainable.”
Bloomberg reporter Simon Casey goes on to qualify that “[p]redicting peak Permian output for 2020 isn’t a mainstream view.” However, evidence is piling up that the U.S. shale industry may indeed be close to peaking as it runs out of the two things required to continue increasing oil production: money and what’s known as “tier one acreage.”
Tier one acreage is the term for the areas that produce the most oil per well. It’s also known as “sweet spots,” “core acreage,” or “good rock.”
The idea of the U.S. shale revolution peaking long before either the broader oil and gas industry or the Energy Information Administration expects isn’t a popular one. And the idea was even less popular when DeSmog started detailing why it was likely all the way back in October 2018, and even when the Wall Street Journal made the case a year later.
Today, as more and more Permian oil companies go bankrupt and wells in the nation’s most prolific oil patch turn out less and less, one early warning nows seems especially prescient. In 2018, Paal Kibsgaard, the CEO of Schlumberger — one of the largest oil services providers — cautioned about declining well productivity in the Permian Basin, pointing to increasing “child wells” and to the boom-gone-bust Texas oilfield, the Eagle Ford Shale.
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To Many’s Dismay, Permian Produces More Gas and Condensate Instead of Oil and Profits
To Many’s Dismay, Permian Produces More Gas and Condensate Instead of Oil and Profits
As oil prices plummet, oil bankruptcies mount, and investors shun the shale industry, America’s top oil field — the Permian shale that straddles Texas and New Mexico — faces many new challenges that make profits appear more elusive than ever for the financially failing shale oil industry.
Many of those problems can be traced to two issues for the Permian Basin: The quality of its oil and the sheer volume of natural gas coming from its oil wells.
The latter issue comes as natural gas fetches record low prices in both U.S. and global markets. Prices for natural gas in Texas are often negative — meaning oil producers have to pay someone to take their natural gas, or, without any infrastructure to capture and process it, they burn (flare) or vent (directly release) the gas.
As DeSmog has detailed, much of the best oil-producing shale in the Permian already has been drilled and fracked over the past decade. And so operators have moved on to drill in less productive areas, one of which is the Delaware sub-basin of the Permian. Taking a close look at the Delaware Basin highlights many of the current challenges facing Permian oil producers.
Delaware Basin Producing More Gas Along With the Oil
The Delaware Basin is where most of the new oil production is coming out of the Permian. As a Bloomberg Wire story reported in December, “in recent years investments have shifted to the Delaware, where output is much gassier than in the historic Midland portion of the Permian.”
The last thing a Permian oil producer wants is to have natural gas coming out of the ground with the oil because, as Bloomberg notes, this persistent “nuisance” is “undercutting profits for explorers.” That’s a generous assessment because many explorers have no profits to undercut, only losses to grow.
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Argentina Wants a Fracking Boom. The US Offers a Cautionary Tale
Argentina Wants a Fracking Boom. The US Offers a Cautionary Tale
Argentina’s President Alberto Fernandez takes office in the midst of an economic crisis. Like his predecessor, he has made fracking a centerpiece of the country’s economic revival.
Argentina has some of the largest natural gas and oil reserves in the world and “possibly the most prospective outside of North America,” according to the U.S. Energy Information Administration. If some other country is going to successfully replicate the U.S. shale revolution, most experts put Argentina pretty high on that list. While the U.S. shale industry is showing its age, Argentina’s Vaca Muerta shale is in its early stages, with only 4 percent of the acreage developed thus far.
The country feels a sense of urgency. Declining conventional production from older oil and gas fields has meant that Argentina has become a net importer of fuels over the past decade. Meanwhile, Argentina’s economy has deteriorated badly due to a toxic cocktail of debt, austerity, inflation, and an unstable currency.
For these reasons — a growing energy deficit, a worsening economic situation, and large oil and gas reserves trapped underground — there is enormous political support for kick-starting an American-style fracking boom in Argentina.
It has taken on a level of political significance that outstrips its immediate economic potential. In Argentina, Vaca Muerta is treated as the country’s chance at salvation, with fracking seen as doing everything at once — creating jobs, reducing the debt burden, plugging the energy deficit and turning Argentina into a major player on the global oil and gas stage.
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Massachusetts Sues ExxonMobil For Climate Disinformation, Greenwashing
Massachusetts Sues ExxonMobil For Climate Disinformation, Greenwashing
Massachusetts filed a lawsuit against ExxonMobil today over the company’s misinformation campaign to delay action to address climate change.
Attorney General Maura Healey told reporters in a press conference today that “Exxon has fought us every step of the way,” and was “completely uncooperative,” noting that the company failed to comply with requests for documents and depositions.
“Exxon has yet to produce to our office a single document. They have yet to provide to our office a single witness. So they have been completely uncooperative with our investigation,” Healey told reporters.
ExxonMobil misstated facts and failed to disclose important information to both consumers and investors, according to the complaint, filed today in Suffolk Superior Court by the attorney general’s office.
“Exxon has known for decades about the catastrophic climate impacts of burning fossil fuels—its chief product,” said AGHealey. “Yet, to this day, Exxon continues to deceive Massachusetts consumers and investors about the dangerous climate harms caused by its oil and gasoline products and the significant risks of climate change—and efforts to address it—to Exxon’s business.”
“Contrary to its shareholder representations and deceptive advertising and marketing, Exxon’s products are a leading cause of climate change, not a solution. That deception, we allege, violates Massachusetts law, and that’s why we are suing. Our goal here is simple – to stop Exxon from engaging in this deception and penalize the company for this misconduct,” Healey said.
“In order to increase its short-term profits, stock price, and access to capital, ExxonMobil has been dishonest with investors about the material climate-driven risks to its business and with consumers about how its fossil fuel products cause climate change―all in violation of Massachusetts law,” the complaint asserts.
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Will the Fracking Revolution Peak Before Ever Making Money?
Will the Fracking Revolution Peak Before Ever Making Money?
This week, the Wall Street Journal highlighted that the U.S. oil and gas shale industry, already struggling financially, is now facing “core operational issues.” That should be a truly frightening prospect for investors in American fracking operations, but one which DeSmog has long been warning of.
This one line from the Journal sums up the problems: “Unlike several years ago, when shale production fell due to a global price collapse, the slowdown this year is driven partly by core operational issues, including wells producing less than expected after being drilled too close to one another, and sweet spots running out sooner than anticipated.”
As we have reported at DeSmog over the last year and a half, the shale oil and gas industry, which has driven the recent boom in American oil and gas production, has been on a more than decade-long money-losing streak, with estimated losses of approximately a quarter trillion dollars. Those losses have continued in 2019.
This failure to generate profits led to the Financial Times recently reporting that shale investors are having a “crisis of faith” and turning away from U.S. oil and gas investments. That’s been bad news for frackers because the entire so-called “shale revolution” was fueled by massive borrowing, and these companies are increasingly declaring bankruptcy, unable to pay back what they borrowed because they haven’t been turning a profit.
Scott Forbes, a vice president with leading energy industry research firm Wood Mackenzie, also has noted the structural problems in the finances of the fracking industry, referring to the current business model as “unsustainable.”
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Oil Industry Set Agenda During Climate Summit Meeting with Big Greens
Oil Industry Set Agenda During Climate Summit Meeting with Big Greens
Last week, as climate activist Greta Thunberg addressed the United Nations Climate Action Summit, invited leaders from major environmental groups spent their day listening to the leaders of fossil fuel companies discuss how they want to respond to the climate crisis.
Depending on which room you were in, you would have heard two very different messages.
Thunberg’s widely watched speech evoked the urgency of acting on climate change.
“People are dying. Entire ecosystems are collapsing,” Thunberg told the UN summit. “We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth.”
Just blocks away, the Oil and Gas Climate Initiative (OGCI), whose members include oil giants like ExxonMobil, Shell, Chevron, Saudi Aramco, and BP, was meeting with representatives from large environmental organizations, talking about ways to moderately reduce greenhouse gas pollution while continuing business as usual.
The OGCI had planned a busy schedule for organizations like the Environmental Defense Fund and the National Wildlife Federation, according to a draft planning document from the event obtained by DeSmog.
The draft, dated August 21, shows that a “breakfast and portfolio review” would start the day, hosted by the CEO of oil giant BP, Bob Dudley, and Pratima Rangarajan, CEO of the OGCI Climate Investments.
The full day of sessions, preceded by an invitation-only forum the night before, would include CEOs of global oil majors speaking alongside Mark Brownstein, senior vice president of the Environmental Defense Fund (EDF); Jason Bordoff, director of Columbia University’s Center on Global Energy Policy; and Collin O’Mara, head of the National Wildlife “Foundation,” the draft agenda said (O’Mara heads the National Wildlife Federation).
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