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America’s Oil Boom Is a Fraud
PARIS – We promised to end the week with a bang!
You’ll recall that Fed policy always consists of the same three mistakes… 1) Keeping interest rates too low for too long, resulting in too much debt; 2) Raising interest rates to try to gently deflate the debt bubble; and 3) Cutting rates in a panic when stocks fall and the economy goes into recession.
Well, here comes the Big Bang: Mistake #4 – rarely seen, but always regretted.
Mistake #4 is what the feds do when their backs are to the wall… when they’ve run out of Mistakes 1 through 3.
It’s a typical political trade-off. The future is sacrificed for the present. And the welfare of the public is tossed aside to buy money, power, and influence for the elite.
Apocalypse Now!
Every debt expansion ends in a debt contraction. Stocks crash. Jobs are lost. The economy goes into reverse, correcting the mistakes of the previous boom.
Investors see their money entombed. Householders await foreclosures. The authorities scream: Apocalypse Now!
The more the feds falsify price signals in the boom, the more mistakes there are to correct. For example, this week, a report in The New York Times described the big mistake in the shale oil boom.
You’ll recall that it turned America from a big importer of oil to a major exporter… and revived much of the heartland with big fracking projects in woebegone regions of Texas and North Dakota.
The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply.
But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone.
…click on the above link to read the rest of the article…
“Motherfrackers” and Big Oil Hypesters
“Motherfrackers” and Big Oil Hypesters
Forbe’s contributor Christopher Helman has always been an unapologetic supporter of shales. For instance, only last September he wrote a piece entitled “America’s Energy Outlook is Fracking Great, For Now”. Never mind that oil prices had begun their downward spiral three months prior to this statement. Never mind that every shale gas play in the US with the exception of the Marcellus had already tipped into decline. And never mind that reserve estimates had been repeatedly downgraded culminating with the colossal downgrade of the Monterey shale in California by 96% by EIA. You bet…fracking great!
Christopher Helman, however, is paid to hype Big Oil. And to his credit, he does occasionally mention a few problems as he tries to gloss over their implications. For instance, in this same article dated September 2014 he states:
“At the same time, they have to get their volumes up high enough that they can generate enough free cash flow to pay back their debt. If you can’t drill economically it all unravels.”
Yes, it does.
There’s just one problem. Shale operators have never been able to get their volumes up high enough to generate free cash flow though Mr. Helman leaves one with the impression that they have. But they haven’t…at least not since 2009! That’s right, 2009.
Examining a universe of 21 shale operators including all the usual suspects, free cash flow has been overwhelmingly negative since at least 2009. Only three companies of the 21 have ever had positive free cash flow during that time frame. And even then it was nominal and not consistent.
Mr. Helman, however, glossed over this but went on to state with his usual hyperbole that:
“What is news is that the boom is showing no signs of slowing down.”
Well, not exactly!
…click on the above link to read the rest of the article…
