Home » Posts tagged 'Wall Street Journal' (Page 2)
Tag Archives: Wall Street Journal
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.”
…click on the above link to read the rest of the article…
Weekly Commentary: No Coincidences
Weekly Commentary: No Coincidences
September 20 – Wall Street Journal (Daniel Kruger): “The Federal Reserve Bank of New York will offer to add at least $75 billion daily to the financial system through Oct. 10, prolonging its efforts to relieve funding pressure in money markets. In addition to at least $75 billion in overnight loans, the New York Fed… will also offer three separate 14-day repo contracts of at least $30 billion each next week… On Friday banks asked for $75.55 billion in reserves, $550 million more than the amount offered by the Fed, offering collateral in the form of Treasury and mortgage securities. The Fed’s operation was the fourth time this week it has intervened to calm roiled money markets. Rates on short-term repos briefly spiked to nearly 10% earlier this week as financial firms looked for overnight funding. The actions marked the first time since the financial crisis that the Fed had taken such measures.”
With the Lehman collapse setting off the “worst financial crisis since the Great Depression”, instability in the multi-trillion repurchase agreement marketplace generates intense interest. This market for funding levered securities holdings is critical to the financial system’s “plumbing.” It’s a market in perceived “money” – highly liquid and virtually risk free-instruments. If risk suddenly becomes an issue for this shadowy network, the cost and availability of Credit for highly leveraged players is suddenly in question. And any de-risking/deleveraging at the nucleus of the global financial system would pose a clear and present danger for sparking “risk off” throughout Credit markets and financial markets more generally.
I’ll usually begin contemplating the CBB on Thursdays. This week’s alarming dislocation in the “repo” market was clearly a major development worthy of focus. But I was planning on highlighting the lack of initial contagion effects in corporate Credit, a not surprising development considering the New York Fed’s aggressive liquidity injections.
…click on the above link to read the rest of the article…
“A Murderer’s Row”: Oil And Gas Bankruptcies To Accelerate As $137 Billion Debt Matures Over Next Two Years
“A Murderer’s Row”: Oil And Gas Bankruptcies To Accelerate As $137 Billion Debt Matures Over Next Two Years
Oil and gas companies are facing an onslaught of bankruptcies as the “shale revolution” appears to be coming to an unceremonious end, at least on Wall Street, according to the Wall Street Journal.
Companies like Sanchez Energy Corp., Halcon Resources Corp. and 26 other oil and gas producers have all filed for bankruptcy this year, already matching the 28 industry bankruptcies from all of 2018. The number is expected to rise as debt maturities for those looking to cash in on the shale revolution and make bets on higher oil prices years ago are now looming.
5.7% of all energy companies with junk rated bonds are defaulting as of August, the highest level since 2017. The metric is “considered a key indicator of the industry’s financial stress.”
The defaults are on the rise as companies struggle to service debt, bring in new money and refinance existing debt. The once-darling shale business model has been under significant scrutiny from Wall Street over the last 18 months, adding to the headwinds for many companies.
Investor interest has faded after years of meager returns while, at the same time, companies struggle to meet their cost of capital with oil prices below $60/barrel.
Private companies and smaller drillers have felt the most pain thus far. These companies “collectively generate a large portion of U.S. oil,” and their distress is indicative of wider distress throughout U.S. shale.
Patrick Hughes, a partner at Haynes & Boone said: “They were able to hang in there for a while, but now their debt levels are just too high and they’re going to have to take their medicine.”
…click on the above link to read the rest of the article…
Ceasefire On The Rocks? Trump Sanctions Chinese Firm For Importing Iranian Crude
Ceasefire On The Rocks? Trump Sanctions Chinese Firm For Importing Iranian Crude
A huge escalatory step in the US-led economic war on Tehran and its global oil exports, and amid continued trade tensions with Beijing: the US State Department said Monday the US will impose new sanctions against a Chinese company for transporting Iranian crude in contravention of US sanctions. As the WSJ reports:
Secretary of State Mike Pompeo told The Wall Street Journal on Monday that Chinese company Zhuhai Zhenrong and one of its executives knowingly violated U.S. law barring the import of Iranian crude oil.
China had previously been part of the so-called waiver program, which had granted eight countries exceptions which allowed temporary imports of Iranian oil, but which expired May 2 of this year.
The US did not renew the waiver program, known as ‘Significant Reduction Exceptions,’ in what was seen globally as a serious escalation by Washington attempting to bring Europe and other economic partners to heel over continued dealings with Tehran.
The Chinese company has been identified as Zhuhai Zhengrong Co Ltd, which Pompeo accused of violating US law over its continued Iran crude imports. Notably, its CEO will also be under sanction.
The WSJ continued:
The company and the executive will be barred from engaging in any foreign exchange, banking or property transactions under U.S. jurisdiction. The company couldn’t be immediately located for comment. Chinese officials did not respond to a request for comment.
Pompeo said while addressing reporters in Florida, “We’ve said that we will sanction any sanctionable behavior and we mean it.”
…click on the above link to read the rest of the article…
Hundreds Of US Troops Begin Deployment To Saudi Arabia To Counter Iran
Hundreds Of US Troops Begin Deployment To Saudi Arabia To Counter Iran
The deployment of hundreds of US troops to Saudi Arabia as part of a build-up to counter Iran in the region amid soaring tensions and a dangerously ratcheting “tanker war” has begun, TheWall Street Journal reported Friday night.
The Pentagon first revealed on Wednesday that 500 of the 1000 total troops announced by the White House last month to bolster US presence in the Middle East would be heading to the Prince Sultan Air Base, situated in the desert east of Riyadh.
Crucially, Prince Sultan Air Base has been closed to American troops since the rapid fall of Baghdad and overthrow of Saddam at the start of the 2003 US invasion of Iraq.
The WSJ report confirms the new deployment is en route within 24 hours after Iran’s elite IRGC seized two British tankers in the Strait of Hormuz. One tanker has already released, but the other – British-flagged Stena Impero and its crew – is still being detained.
According to the report:
The military already has begun to deploy more than 500 U.S. service members to Prince Sultan Air Base, about 150 kilometers southwest of Riyadh, officials said. Saudi officials didn’t respond to requests for comment. Officials from U.S. Central Command, which overseas the Middle East, declined to comment.
It’s the latest sign that the Trump Administration is continuing its military buildup in the region, which has so far included fighter jets, B-52 bombers, an aircraft carrier strike force, Navy destroyers and – of course – more troops.
Citing two senior defense officials, CNN had previously reported that a small number of troops were already in the area, and initial preparations were being made for a Patriot missile defense battery as well as improvements to a runway and airfield. US security assessments have determined that the area would be ideal for US troop deployment because it would be difficult for Iran to target with missiles.
…click on the above link to read the rest of the article…
China’s Losing Control Of Its Crushing Debt Load As Defaults And Missed Payments Skyrocket
China’s Losing Control Of Its Crushing Debt Load As Defaults And Missed Payments Skyrocket
China’s economic slowdown and heavy debt load is affecting everybody in the country – even it’s “jewelry queen”, Zhou Xiaoguang, according to the Wall Street Journal.
Zhou, who went from selling trinkets on city streets to taking a seat in China’s parliament and becoming Ernst & Young‘s “Entrepreneur of the Year” was faced with the reality of being unable to pay her company’s billions of dollars in debt while in a bankruptcy court in April.
She is just one example of a massive debt burden taking its toll on China.
China has relied on borrowing to fuel its expansion for at least a generation. In 2018, the country was known for creating four billionaires a week and is number one globally in self-made fortunes. But this quick pace of growth, with many borrowing heavily in the process, also masked companies’ strategic mistakes.
Fueled by debt, many over-expanded into crowded sectors and now those mal-investments and mis-allocations of resources are coming back to bite them.
Over the past decade, the overall debt of the country has quadrupled to about three times the value of last year’s national output. Corporate debt makes up 2/3 of the total, amounting to more than $26 trillion last year. Most of the money is owed by government-run companies, but the stress is starting to surface also at private companies, who have less wiggle room with creditors and less support from the government.
For instance, Chenxi Group was decimated by lenders last year when they suddenly decide to call in loans. Earlier that year, the founder of machine maker Zhejiang Jindun Group committed suicide, leaping to his death, leaving the company to later reveal that it owed about $1.4 billion to loan sharks.
…click on the above link to read the rest of the article…
Iran Expected To “Go Nuclear” By Breaching Parts Of JCPOA, Europe Warns
Iran Expected To “Go Nuclear” By Breaching Parts Of JCPOA, Europe Warns
Iran is expected to go nuclear, by backing out of some of the terms of the 2015 nuclear deal (JCPOA), at a sensitive time when Washington appears to be ramping up military readiness in response to what the White House says are credible threats against US assets in the Middle East by the Iranian regime.
Simply put, the European Union is not capable of facing US sanctions, and despite some meager past efforts, such as the attempt to establish a ‘SWIFT alternative,’ EU initiatives to salvage the deal have been too little too late, as Iran has already hinted to some European officials. Image via CNN
According to a new report in The Wall Street Journal Monday:
European diplomats warned Monday that Iran is preparing to abandon parts of a landmark nuclear deal in response to new U.S. sanctions, a step that risks inflaming tensions after the Trump administration dispatched warships to the Persian Gulf to deter potential Iranian attacks.
The WSJ likens it to a “partial withdrawal” after other international signatories such as France and China tried to keep the deal alive following Trump’s ordered US withdrawal last May.
Middle East based war reporter Elijah Magnier reports that Iran’s leaders “seem convinced that the only way to stand against the US sanctions is to go nuclear, gradually, pulling out from the Nuclear deal as the US unilaterally did.” He said “President Hassan Rouhani is expected to announce an important step this week.”
It appears the thinking in Tehran is that any future negotiation with the Trump administration are useless and pointless so long as White House rhetoric remains so aggressive, including the weeks ago formal terror designation of Iran’s Islamic Revolutionary Guard Corps (IRGC), widely seen as a potential precursor to war.
…click on the above link to read the rest of the article…
The Lesson Of Argentina: You Can’t Stabilize A Bankrupt Economy
The Lesson Of Argentina: You Can’t Stabilize A Bankrupt Economy
So the U.S. puts Republicans (the party of small government) in charge, and gets… trillion dollar deficits as far as the eye can see AND a revival of socialism among Democrats.
Scary as this may seem, the real (and even scarier) lesson is that it’s all inevitable: Beyond a certain level of indebtedness, even pro-business, sound money, small government leaders are powerless to stop the march to insolvency and currency crisis.
The latest example is Argentina, which a few years ago elected a free-market president, only to see its debt explode and its currency crash. From Friday’s Wall Street Journal:
Argentine President’s Prospects Dim With Those of His Country’s Economy
Argentina’s assets took a beating Thursday amid President Mauricio Macri’s continuing struggle to tame rising prices and revive a shrinking economy, raising prospects that his left-wing predecessor could make a comeback in this year’s presidential election.
The peso lost more than 5% of its value against the dollar in early trading Thursday, before regaining some ground in the afternoon. Argentina is now the world’s second-riskiest borrower after crisis-hit Venezuela as indicated by credit default swaps, which are derivatives that pay holders when a borrower defaults on a debt payment.
Mr. Macri, who was elected in 2015 on promises to undo the interventionist policies of President Cristina Kirchner, announced new price controls last week to try to get Argentina’s inflation under control. Mr. Macri has failed during his administration to contain inflation, which has risen to a 12-month pace of almost 55% in March from 25% at the start of 2018.
The move sparked criticism that the president was abandoning market-friendly policies for short-term electoral considerations as Argentines grow increasingly impatient with rising prices. It also underscored the possibility that Mr. Macri could lose October’s election, even if he faces the polarizing Mrs.
…click on the above link to read the rest of the article…
Why All the Uproar Over the Green New Deal?
Why All the Uproar Over the Green New Deal?
Pulp mill, Longview, Washington. Photo: Jeffrey St. Clair.
Same ol’ same ol’ battle: The more things change, the more they stay the same
On August 21, 2009, The Wall Street Journal reported that “…many scientists say deep emissions cuts are necessary … to prevent … dangerous consequences of global warming,” and also reported that, “Getting from here to there would require a massive economic shift.”
There’s likely been no better summary of the Green New Deal’s basic rationale.
In just a few words, the Journal succinctly stated a dangerous trend of rising emissions from the combustion of fossil fuels, identified the scale of action necessary to putting a lid on the danger, and did that 10 years before the Sunrise Movement caught the attention of newly elected Representative Alexandria Ocasio-Cortez.
The details on either the science or economic side of the responses to the Green New Deal can be dazzling, and we’ve seen a virtual explosion of debate across topics that will be discussed in the following pages.
But, then as now, the heart of the massive economic shift deemed necessary by the evidence from science is a shift away from financing fossil fuels, with an accompanying shift to financing of renewables. Any such shift of “massive” scale was always going to rock some politically influential boats, so an offensive aimed at defeating it was revved up full bore. At bottom, it has long been and still is a competitive scramble for money.
Before the Green New Deal: The Old Battle Informs the New
In fact, an attack against renewables was kicked into gear years ago, and the current anti-Green New Deal brouhaha is just a rehash of an old campaign to defend the capital and capitalists aligned around combustion of coal, oil, and natural gas.
…click on the above link to read the rest of the article…
Bayer Loses Second Roundup Glyphosate Trial; Ordered To Pay $80 Million
Bayer Loses Second Roundup Glyphosate Trial; Ordered To Pay $80 Million
Bayer AG has lost a second trial over claims that its Roundup weed killer causes cancer – and has been ordered by a San Fancisco jury to pay compensatory damages of $5.3 million and punitive damages of $75 million to a 70-year-old California man, Edwin Hardeman, who was diagnosed with cancer after spraying the herbicide on his property for decades.
The plaintiff’s attorneys said he developed non-Hodgkin’s lymphoma after 26 years of regularly using Roundup to tackle weeds and poison oak, according to the Wall Street Journal. The active ingredient in Roundup and Ranger Pro is glyphosate, a herbicide.
Wednesday’s verdict follows a similar decision last August in which a former school groundskeeper was awarded $289 million after claiming that Roundup gave him non-Hodgkin’s lymphoma.
German Bayer AG acquired the Roundup brand of glyphosate weed killers in its $66 billion purchase of Monsanto in June of last year.
Responding to the verdict, Bayer said in a statement “We are disappointed with the jury’s decision, but this verdict does not change the weight of over four decades of extensive science and the conclusions of regulators worldwide that support the safety of our glyphosate-based herbicides and that they are not carcinogenic.”
Bayer’s full statement on the jury’s verdict today in California glyphosate multi-district litigation trial to be posted shortly. Link to follow.
“You can’t keep trying case after case after case and keep losing and say, ‘We’re not going to settle,” said Thomas G. Rohback, a trial lawyer at Axinn in New York quoted by Bloomberg, who adds that if Bayer continues to lose at trial, it “has to put the possibility of a settlement of these cases into the mix.“
…click on the above link to read the rest of the article…
Fracking 2.0 Was a Financial Disaster, Will Fracking 3.0 Be Different?
Fracking 2.0 Was a Financial Disaster, Will Fracking 3.0 Be Different?
Two years ago, the U.S. fracking industry was trying to recover from the crash in the price of oil. Shale companies were promoting the idea that fracking was viable even at low oil prices (despite losing money when oil prices were high). At the time, no one was making money fracking with the business-as-usual approach, but then the Wall Street Journal published a story claiming all of this was about to change because the industry had a trump card — and that was technology.
Today, frackers are again relying on technology as a financial savior, but this time, they are looking to Microsoft.
As ExxonMobil embarks on an ambitious move into fracking in the Permian oil fields of West Texas, it has announced a partnership with Microsoft to use cloud technology to analyze oil field data and optimize operations. Exxon claims the move could generate “billions in net cash flow.”
Time will tell if the Microsoft cloud will make Exxon rain profits in the Permian.
Fracking 2.0
In March 2017, the Wall Street Journal ran an article with the headline, “Fracking 2.0: Shale Drillers Pioneer New Ways to Profit in Era of Cheap Oil,” which detailed the ways the shale industry expected technology could help it finally deliver profits. The article mentioned “longer, supersize wells” and said, “The promise of this new phase is potentially as significant as the original revolution.”
The article highlighted EOG Resources (as in, Enron Oil and Gas), a company often touted as the “Apple of oil,” and quoted the company’s chief information officer saying that technology advances allowed its employees to work at the “speed of thought.”
It also reported that Chesapeake Energy was betting on these new supersize wells as part of its “turnaround strategy.” Chesapeake needed to “turnaround” from losing money and move in the direction of profits.
…click on the above link to read the rest of the article…
Trade War Deepens: China Bans Canadian Canola Shipments Amid Soaring Diplomatic Tensions
Trade War Deepens: China Bans Canadian Canola Shipments Amid Soaring Diplomatic Tensions
Canada’s largest grain processor said Tuesday that Beijing has canceled its registration to ship canola seed to China, fueled by the arrest of a top executive for the Chinese tech giant Huawei, The Wall Street Journal reported.
The move suggests that rising diplomatic tensions between China and Canada are damaging commerce between the two countries. Tensions have already crushed hopes that senior officials in Ottawa and Beijing would develop further trade ties.
The import ban against Richardson International Ltd. is due to a series of Chinese non-compliance notices declaring some shipments of canola seed from Canada were contaminated with “hazardous pests.” Canadian officials disputed that claim.
“I am very concerned by what we’ve heard has happened to Richardson. We do not believe there’s any scientific basis for this,” Canadian Foreign Affairs Minister Chrystia Freeland said in Montreal.
“We are working very, very hard with the Chinese government on this issue.”
Revoking the import license comes as Canada is advancing an extradition hearing for Huawei CFO Meng Wanzhou. She was arrested in early December by the Canadain government at the request of the Trump administration, where she was wanted on fraud charges.
The Canola Council of Canada, located in Winnipeg, told the Journal that Richardson is a major player in the country’s canola seed to China.
Derek Brewin, a professor of agriculture economics at the University of Manitoba, said the Canadian agricultural and food manufacturing company easily controls 20% of total Canadian export capacity for grains and oilseeds.
The canola council said 40% of the industry’s exports end up in China.
Canada’s agriculture department said the country’s top agricultural export to China is canola seed, with sales valued at $2.05 billion per annum.
…click on the above link to read the rest of the article…
Wall Street Loses Faith In Shale
Wall Street Loses Faith In Shale
To Wall Street, the shale industry has lost a lot of its allure. A decade’s worth of promises have failed to materialize, and Big Finance is cutting some of its ties with smaller shale drillers who have not delivered.
The Wall Street Journal reports that the shale industry only saw $22 billion in new bond and equity deals, down by more than half from 2016 levels, which was a much worse time for the market.
The steep decline in new debt and equity issuance is a sign that major investors are no longer rushing to finance unprofitable shale drilling. It’s worth noting that this is a new development. For years Wall Street financed unprofitable drilling, holding out on the promise that rapid production growth would eventually pay off.
Shale wells suffer from precipitous decline rates, with as much as three quarters of a well’s total lifetime production coming out in the first year or two. After an initial burst of output, shale wells enter a steep decline.
Of course, this has been known since the beginning and Wall Street has long been fully aware. But major investors hoped that shale companies would scale up, achieve efficiencies and lower breakeven prices to the point that they could turn a profit.
However, that has not been the case. While there are some drillers that are profitable, taken as a whole the industry has been cash flow negative essentially since its beginning in the mid-2000s. For instance, the IEA estimates that the shale industry posted cumulative negative free cash flow of over $200 billion between 2010 and 2014.
…click on the above link to read the rest of the article…
Get Ready To Pay More For Toilet Paper, Cat Litter And Garbage Bags
Get Ready To Pay More For Toilet Paper, Cat Litter And Garbage Bags
After finding they could largely get away with raising prices last year, makers of household staples are planning another round of inflationary price hikes in order to offset higher commodity costs and boost profits, according to the Wall Street Journal.
Unsurprisingly, the price increases have been working out swimmingly for makers of consumer-goods, particularly for companies whose competitors have responded with their own price hikes, according to Wells Fargo Securities analyst Bonnie Herzog.
According to an analysis of Nielsen data by Sanford C. Bernstein, US sales volumes of personal and household products declined 1.4% in January, while dollar sales of those products rose 0.7% in the same period – suggesting that the price increases are more than offsetting the decline. Meanwhile, a robust job market providing Americans with the largest annual wage increases since the end of the recession has boosted average hourly earnings for private-sector workers by 2.9% y/y; the most since January 2009.
Maker of Arm & Hammer products Church & Dwight recently increased its prices on 30% of its products – including baking soda, cat litter and OxiClean cleaning products, while Clorox raised prices on about half of its product portfolio last year – including their Glad trash bags and plastic wraps. Clorox attributed price hikes to a boost in profit margins in its most recent quarterly filing, yet because Glad’s competitors did not follow suit with higher prices of their own, the company experienced an overall sales decline in the period. The company most famous for bleach plans to boost spending on promotions in the near term to make up for the sagging sales, executives announced on Monday.
…click on the above link to read the rest of the article…
OPEC Proposes Formal Oil-Production Alliance With Russia
OPEC Proposes Formal Oil-Production Alliance With Russia
Even as the US brought sanctions against Venezuela’s state-run oil company, oil prices have slumped over the past week, erasing some of a January rebound that saw crude prices rebound alongside equities. But oil bulls who worried that Saudi Arabia and Russia’s tandem production cuts wouldn’t be enough to finally wedge a floor under crude prices can relax: Because if a plan reported Tuesday by the Wall Street Journal pans out, OPEC might recover the price-setting power it is in fear of ceding to the US as the shale boom continues to…well…boom.
With the US having cemented its new position as the biggest oil producer in the world thanks to shale, and President Trump exerting pressure on Saudi Arabia to drive oil prices lower, WSJ reports that Saudi Arabia and its Gulf allies in OPEC have proposed a formal alliance with a 10-nation group of petroleum producers led by Russia – and alliance that would “transform the cartel” (which has recently suffered speculation that it has lost its relevance after Qatar announced its plans to leave the bloc).
However, Iran and some of its allies within the cartel have opposed the tighter partnership, fearing it could lead to Saudi Arabia and Russia dominating the organization.
The proposal would formalize the loose union between members of the Organization of the Petroleum Exporting Countries and the group led by Moscow, which includes some former Soviet republics and other countries. The two groups have increasingly worked together in recent years, including in December when they agreed on a deal to curb production.
Iran and other producers have opposed a tighter partnership, fearing it could be dominated by Saudi Arabia and Russia, according to officials in the cartel. Riyadh and Moscow are the world’s top two oil exporters. A Russian energy ministry spokeswoman didn’t respond to a request for comment.
…click on the above link to read the rest of the article…
