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GOP Tax Law Bails Out Fracking Companies Buried in Debt
GOP Tax Law Bails Out Fracking Companies Buried in Debt
EOG Resources is one of the top companies in the fracking industry, and thanks to the new tax bill passed by Republicans and President Donald Trump at the end of last year, EOG had an exceptionally strong year compared to 2016.
In 2017, the company reported a net income of $2.6 billion. The previous year? A loss of $1.1 billion. That financial turnaround seems very impressive until you realize that $2.2 billion, or about 85 percent, of its 2017 income was the result of the new tax law. Without that gift from the GOP and Trump, EOG would have lost approximately $700 million between those two years. Instead they are $1.5 billion ahead of the game.
- Low Octane: The Surprising Reason Shale Oil Makes a Poor Fuel for High-Tech Cars and Trucks
- Despite Disappointing Returns, Oil Driller Pushes Ahead with Fracking Near Rare Texas Wildlands
- The Secret of the Great American Fracking Bubble
With numbers like these, it is easy to see how the Tax Cuts and Jobs Act of 2017 was a much-needed lifeline for the money-losing fracking industry. EOG is routinely touted as one of the best shale oil and gas companies. Yet the company still lost $700 million in the past two years. Or at least it would have if not for the tax bill.
This is the same company that an analyst at the investment advice website Seeking Alpha says is “generally considered one of the best unconventional upstream oil and gas players in the business, and its financials back it up.” If those are the best financials in your industry, your industry has a big problem.
An interesting side note is that EOG stands for Enron Oil and Gas, which was spun off as its own company from Enron — the company notorious for one of the great energy Ponzi schemes of the 20th century. Today, an Enron spinoff company is being held up as the most fiscally sound in the shale oil industry.
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Will US Shale Boom Continue Or Have A Hiatus?
Will US Shale Boom Continue Or Have A Hiatus?
The conventional wisdom recently has been that North America will keep producing shale oil for some time despite the higher costs associated with hydraulic fracturing and the 50 percent drop in oil prices over the past eight months.
The thing about conventional wisdom is that it tends to be challenged, sometimes successfully. And shale’s biggest producer in the United States, EOG Resources Inc., is saying the recent rapid growth in its own shale production will end this year. And this idea is supported by people with experience in oil.
Certainly, though, the logic behind the theory of continued shale production is solid: Oil prices will bottom out, then begin to rise to the point where crude from shale becomes profitable again despite the cost of fracking. The only question is whether OPEC would then accept US shale as a competitor and cut its own production to shore up prices.
Related: Is Oil Returning To $100 Or Dropping To $10?
A forecast issued Feb. 17 by BP was more specific. The BP Energy Outlook 2035expects US production will grow rapidly for the immediate future, then “flatten out.” Or, as BP’s chief economist, Spencer Dale, told The Wall Street Journal, “U.S. [shale] oil can’t continue to grow rapidly forever.” And OPEC will be ready to fill that vacuum.
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