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Dozens of drilling rigs are stacked at the Patterson-UTI yard in Midland, Texas after the oil price went negative on April 20, 2020. Midland, Texas. May 27, 2020.

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.

…click on the above link to read the rest of the article…

Transition Towns, Re-localisation, COVID-19 and the Fracking Industry.

April 14, 2020

Transition Towns, Re-localisation, COVID-19 and the Fracking Industry.

The vulnerabilities of the global village and its economy have been laid bare by the assault of the coronavirus (Sars-CoV-2), which has led to a pandemic of the infectious disease, COVID-19. The mobility chains that enable the flow of civilization are now substantially truncated, with collapsing demand for transportation fuels – and crude oil, from which they are refined – leading Russia, Saudi and other OPEC countries to agree on combined production cuts of 10 million barrels a day, even though demand might have fallen by 30 million barrels a day. It remains an open question how soon, or if at all, everything will get back to normal, when arguably, it is “normal” that has brought this current situation upon us, as yet another element of a changing climate. The broad reach of the expanding global mechanism both invades previously uncharted terrains and ecosystems, and provides vectors for the transmission of contagion. Thus, the relentless rise of a resource-intensive civilization and its highly mobile population carries many potential dangers.

The need for re-localisation, in the anticipation of Peak Oil, leading to waning supplies of cheap transportation fuel, was a founding tenet of the Transition Towns (TT) movement. However, this motivation appeared to lose some of its urgency, once a flood of oil entered the market, largely as exhumed from shale by the procedure of hydraulic fracturing (“fracking”). Indeed, a few years ago, TT-HQ asked itself the question, “Does so much cheap oil mean peak oil as an argument is now over?” In fact, the production of conventional crude oil has remained on a plateau since 2005, while 71% of subsequent growth in the production of “oil” has been provided by shale hydrocarbons; hence, we may anticipate that any stalling of the fracking industry will begin to restrict the overall global oil supply.

…click on the above link to read the rest of the article…

Is the U.S. Fracking Boom Based on Fraud?

April 11, 2020

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.

…click on the above link to read the rest of the article…

Will the Fracking Revolution Peak Before Ever Making Money?

October 4, 2019

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…

No Fracking Way: Debt-Laden Shale Producers May Unleash The Next Financial Crisis

September 4, 2018

No Fracking Way: Debt-Laden Shale Producers May Unleash The Next Financial Crisis

After nearly two decades of horizontal drilling, fracking – as it is commonly known, has “turned the energy world upside down,” according to Journalist Bethany McLean, a former Goldman Sachs analyst-turned-journalist.

And according to a new op-ed in the New York Times, McLean has a warning for anyone betting the farm on the shale industry; beware.

In a nutshell, the fracking industry – which “could not have taken off so dramatically were it not for record low interest rates after the 2008 financial crisis,” is setting up for a spectacular fall without rising oil prices and global demand. Fracking companies have largely survived, according to McLean, because “plenty of people on Wall Street are willing to keep feeding them capital and taking their fees.”

From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That’s what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.

But Chesapeake bled cash. From 2002 to the end of 2012, Chesapeake never managed to report positive free cash flow, before asset sales. –NYT

Columbia University Center on Global Energy Policy fellow, Amir Azar, calculates that the fracking industry’s net debt in 2015 was $200 billion, a 300% increase from a decade earlier, however interest expense increased at half the rate debt did due to falling interest rates.

Dr. Azar recently called the post-2008 era of super-low interest rates the “real catalyst of the shale revolution.” –NYT

…click on the above link to read the rest of the article…

Flip This Well: How Fracking Company CEOs Get Rich While Losing Billions

May 30, 2018

Flip This Well: How Fracking Company CEOs Get Rich While Losing Billions

Last year the fracking company Halcón Resources announced a new strategy that was sold as the path to profits for the previously troubled shale oil and gas firm. The company had sold its stake in the Bakken oil fields in order to double down on the Permian shale in Texas. At the time, Reuters touted the deal as a “stunning turnaround” for CEO Floyd Wilson, and the good news immediately drove up the Halcón stock price by 35 percent.

“The sale of our Williston Basin operated assets transforms Halcón into a single-basin company focused on the Delaware Basin where we have more than 41,000 net acres,” Wilson said in a statement. He was making his pitch and investors responded.

However, the move was part of a familiar formula for those in the shale industry, which uses horizontal drilling and hydraulic fracturing (fracking) to release oil and gas from shale formations: Borrow lots of money, drill lots of fossil fuels at a loss, flip the company for a profit.

As the Reuters article points out, Wilson’s ultimate goal is to create excitement about the potential of its Permian basin wells and then flip Halcón, just as he’s flipped other shale firms: “Focusing on the Permian could help Wilson achieve his long-held dream of selling Halcón to the highest bidder.”

…click on the above link to read the rest of the article…

Here’s the New Study the Fracking Industry Doesn’t Want You to See

February 17, 2016

Here’s the New Study the Fracking Industry Doesn’t Want You to See

(ANTIMEDIA) Though fracking industry proponents scoff at any intimation their so-called vital industry poses even scant risks to the public, a new study published in Toxicology and Applied Pharmacologyjust proved those critics right — fracking wastewater causes cancer.

Using human bronchial epithelial cells, which are commonly used to measure the carcinogenesis of toxicants, researchers confirmed fracking flowback water from the Marcellus Shale caused the formation of malignancies.

After conducting further tests on live mammalian subjects, researchers found five of six mice “injected with cells transformed from well water treatments developed tumors as early as 3 months after injection,” including a tumor in one mouse that grew to over 1 cm in size in just five months. A control group did not develop any tumors for the six months of the study period.

According to the study, performed by scientists from the Department of Environmental Medicine, as well as Biochemistry and Molecular Pharmaceutical at New York University, the Robert Wood Johnson Medical School at Rutgers, and esteemed partners from universities in China — results indicate fracking flowback water causes cancer.

Implications of the report’s findingswould be difficult to overstate considering how fracking wastewater is generated, stored, and treated, and how often spills, leaks — and even the wastewater injection process, itself — can lead to contamination of the potable supply. A concise but thorough explanation of the fracking process can be found in the introduction to the report, “Malignant human cell transformation of Marcellus Shale gas drilling flow back water,” which states:

“Natural gas is believed to possibly be a bridge to transitioning from coal dependence. Currently natural gas fuels nearly 40% of the U.S. electricity generation, and the Marcellus Shale formation in the Appalachian Basin is on the forefront of gas-shale drilling for natural gas production in the United States.

…click on the above link to read the rest of the article…

Fracking Firm Encourages Industry to Imitate Taco Bell’s Twitter Strategy

June 11, 2015

Fracking Firm Encourages Industry to Imitate Taco Bell’s Twitter Strategy

Can fracking firms win public support through social media by replicating the whimsical style of Taco Bell’s Twitter account?

That was one of the goals discussed at an Energy Digital Summit event with Brittany Thomas, an external affairs coordinator for Cabot Oil and Gas, a leading hydraulic fracturing company.

Big corporations, major retail chains and fast food brands have attempted to improve their image and score points with millenials by embracing social media slang. “We thought we were bae,” tweeted AT&T, in a typical message of the style repeated ad nauseam by other corporate accounts attempting to interact with customers. (Definition of bae.)

Thomas explained to a conference room full of industry executives last summer why it matters that Taco Bell once needled White Castle on Twitter over the correct usage of “you’re.”

“It’s a person tweeting this,” Brittany exclaimed. “I geek out about this stuff and I tell my family,” she continued, “and all of the sudden your message has left the social realm and it’s at people’s dining room tables and they’re telling their coworkers. It’s the reason why Twitter tends to drive the news now. It’s funny when things go viral!”

“That’s a dream of mine, that we all talk amongst ourselves and interact like other brands do,” Thomas said.

Oil and gas companies are steadily increasing their footprint on social media, hiring specialized public relations firms and developing “visual shorthand” infographics that can be shared easily on Facebook and Twitter.

For Thomas, social media presents a cost-effective way to win hearts and minds.

…click on the above link to read the rest of the article…

Californians Outraged As Oil Producers & Frackers Excluded From Emergency Water Restrictions

April 4, 2015

Californians Outraged As Oil Producers & Frackers Excluded From Emergency Water Restrictions

California’s oil and gas industry is estimated (with official data due to be released in coming days) to use more than 2 million gallons of fresh water per day; so it is hardly surprising that, as Reuters reports, Californians are outraged after discovering that these firms are excluded from Governor Jerry Brown’s mandatory water restrictions, “forcing ordinary Californians to shoulder the burden of the drought.”

From Reuters,

California should require oil producers to cut their water usage as part of the administration’s efforts to conserve water in the drought-ravaged state, environmentalists said on Wednesday.

Governor Jerry Brown ordered the first statewide mandatory water restrictions on Wednesday, directing cities and communities to cut their consumption by 25 percent. But the order does not require oil producers to cut their usage nor does it place a temporary halt on the water intensive practice of hydraulic fracturing.

California’s oil and gas industry uses more than 2 million gallons of fresh water a day to produce oil through well stimulation practices including fracking, acidizing and steam injection, according to estimates by environmentalists. The state is expected to release official numbers on the industry’s water consumption in the coming days.

…click on the above link to read the rest of the article…

Planet of the Space Bats

March 26, 2015

Planet of the Space Bats

As my regular readers know, I’ve been talking for quite a while now here about the speculative bubble that’s built up around the fracking phenomenon, and the catastrophic bust that’s guaranteed to follow so vast and delusional a boom. Over the six months or so, I’ve noted the arrival of one warning sign after another of the impending crash. As the saying has it, though, it’s not over ‘til the fat lady sings, so I’ve been listening for the first notes of the metaphorical aria that, in the best Wagnerian style, will rise above the orchestral score as the fracking industry’s surrogate Valhalla finally bursts into flames and goes crashing down into the Rhine.
I think I just heard those first high notes, though, in an improbable place: the email inbox of the Ancient Order of Druids in America (AODA), the Druid order I head.

I have no idea how many of my readers know the first thing about my unpaid day job as chief executive—the official title is Grand Archdruid—of one of the two dozen or so Druid orders in the western world. Most of what goes into that job, and the admittedly eccentric minority religious tradition behind it, has no relevance to the present subject. Still, I think most people know that Druids revere the natural world, and take ecology seriously even when that requires scrapping some of the absurd extravagances that pass for a normal lifestyle these days. Thus a Druid order is arguably the last place that would come to mind if you wanted to sell stock in a fracking company.

Nonetheless, that’s what happened. The bemused AODA office staff the other day fielded a solicitation from a stock firm trying to get Druids to invest their assets in the fracking industry.

…click on the above link to read the rest of the article…

Fracking set to be banned from 40% of England’s shale areas

February 8, 2015

Fracking set to be banned from 40% of England’s shale areas

Guardian analysis reveals new rules agreed by government will make huge swath of protected areas off limits for shale gas exploration

Fracking is set to be banned on two-fifths of the land in England being offered for shale gas exploration by the government, according to a Guardian analysis.

Such a wide-ranging ban would be a significant blow to the UK’s embryonic fracking industry, which David Cameron and George Osborne have enthusiastically backed.

There were setbacks last week after the Scottish government declared a moratorium and UK ministers were forced to accept a swath of new environmental protections proposed by Labour, leading some analysts to say the outlook for fracking was bleak

One of those new protections was to rule out fracking in national parks, areas of outstanding natural beauty (AONBs), sites of special scientific interest (SSSIs) andgroundwater source protection zones (SPZs).

Neither the government nor Labour have stated how much of the land available for future shale gas drilling – 60% of England – would be affected by the new bans. But a Guardian data analysis has revealed it is 39.7%, with large swaths of the south and south east off-limits, as well as the Yorkshire Dales and Peak district.

…click on the above link to read the rest of the article…

Another Shale-Bubble Bursts: Oil’s Plunge Is Not ‘Unequivocally Good” For This Group | Zero Hedge

January 2, 2015

Another Shale-Bubble Bursts: Oil’s Plunge Is Not ‘Unequivocally Good” For This Group | Zero Hedge.

While Jim Cramer went “all-in on oil stocks” in May 2014 (right before the collapse), it was the fracking sand-providers that were the most-loved stocks on many individual investors buying lists last year… until their worlds caved in. As WSJ reports, for many sand producers, this is their first time on the bucking bronco that is the cyclical energy business—and not all of them are ready for the wild ride. As one CEO exclaimed, “there are a lot of wide-eyed people out there right now in the industry.”

Sand is an important ingredient in hydraulic fracturing, or fracking, which has pushed American oil output above 9 million barrels a day, rivaling the production of Saudi Arabia or Russia. Sand companies’ biggest customers used to be golf courses and glass manufacturers, but the oil boom brought energy clients to their door and now roughly 60% of business is tied to fracking, according to PacWest Consulting Partners, which forecasts sand demand.

But as The Wall Street Journal reports, now that oil prices have fallen, many fracking companies are retrenching—and that is bad news for sand producers.

…click on the above link to read the rest of the article…

Hard Times in a Boom Town: Pennsylvanians Describe Costs of Fracking | DeSmogBlog

December 11, 2014

Hard Times in a Boom Town: Pennsylvanians Describe Costs of Fracking | DeSmogBlog.

If you’re looking for the shale gas boom, northeastern Pennsylvania is the place to start.

The Marcellus is the largest and fastest growing shale gas play in the U.S. and more than half of its 50 most productive wells were drilled in Susquehanna County in the northeast. Susquehanna and neighboring Bradford County produced 41 percent of all Marcellus gas this June.

While drilling is down in other shale gas plays across the US, with major oil companies selling off their stakes and CEO‘s expressing regret for buying in, the Marcellus has bucked some of the downward trends so far.

A recent report from the Post Carbon Institute, “Drilling Deeper: A Reality Check onU.S. Government Forecasts for a Lasting Tight Oil and Shale Gas Boom,” has grave warnings about the Energy Information Administration’s figures nationwide, concluding that two-fifths of the shale gas the agency expects to be produced between now and 2040 will likely never materialize. While many high-profile shale gas plays have already peaked in terms of gas production per well, the Marcellus appears to be an outlier in terms of productivity, researcher David Hughes concludes.

Enormous amounts of shale gas are being produced in Pennsylvania. In the first six months of this year, drillers here pumped 2 trillion cubic feet of gas. And much of this gas came from the Marcellus shale’s twin sweet spots, in the Northeast and Southwest corners of the state.

…click on the above link to read the rest of the article…

Citizens Take Monitoring Into Own Hands as Eagle Ford Shale Boom Continues Undaunted | DeSmogBlog

December 11, 2014

Citizens Take Monitoring Into Own Hands as Eagle Ford Shale Boom Continues Undaunted | DeSmogBlog.

Hugh Fitzsimons lll, a buffalo rancher on the outskirts of Carrizo Springs, Texas, cautiously watches the fracking industry’s accelerating expansion. His 13,000-acre ranch is atop the southwestern part of the oil-rich Eagle Ford Shale, which stretches from Leon County in northeast Texas to Laredo, along the Mexican border.

During the last two years Fitzsimons has watched the fracking boom transform a rural locale into an industry hub. Desolate dirt roads are now packed with truck traffic, and commercial development to service the growing industry has sprung up along state highways, creating air and noise pollution.

Though Fitzsimons stands to profit from oil extraction, he has not turned a blind eye to the industry’s damaging effects on the environment. He wants to make sure the expanding industry acts responsibly and is doing his part to ensure that happens, a tall order since a state-sponsored report estimates the number of wells could grow from 8,000 to 32,000 by 2018 and industry polices itself for the most part.

…click on the above link to read the rest of the article…

OPEC Decision Likely to Crash U.S. Fracking Industry » EcoWatch

November 27, 2014

OPEC Decision Likely to Crash U.S. Fracking Industry » EcoWatch.

At its meeting today in Vienna, Austria, the 12 member countries of the Organization of Petroleum Exporting Countries (OPEC) voted to keep their output target unchanged despite a 30 percent slump in the oil price since June, due primarily to the explosive growth in fracking in the U.S. as well as decreasing global demand. While Venezuela made a case for an output reduction, Saudi Arabia, the world’s leading oil producer and exporter, pressured to keep it the same.

The price immediately declined in response, dropping below $72 a barrel, a price last seen in August 2010.

“There’s a price decline. That does not mean that we should really rush and do something,” OPEC secretary general Abdallah Salem el-Badri told the BBC. “We don’t want to panic. We want to see the market, how the market behaves, because the decline of the price does not reflect a fundamental change.”

…click on the above link to read the rest of the article…

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