{"id":54252,"date":"2020-07-18T19:45:05","date_gmt":"2020-07-19T00:45:05","guid":{"rendered":"https:\/\/olduvai.ca\/?p=54252"},"modified":"2020-07-18T19:45:09","modified_gmt":"2020-07-19T00:45:09","slug":"bankers-and-investors-finding-fracking-industrys-underlying-models-prove-overly-optimistic","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=54252","title":{"rendered":"Bankers and Investors Finding Fracking Industry’s Underlying Models Prove Overly Optimistic"},"content":{"rendered":"\n

Bankers and Investors Finding Fracking Industry’s Underlying Models Prove Overly Optimistic<\/a><\/h3>\n\n\n\n
\"Dozens<\/figure>\n\n\n\n

Warren Buffet has a famous quote <\/a>about investing: \u201cOnly when the tide goes out do you discover who’s been swimming naked.\u201d <\/p>\n\n\n\n

When it comes to his $10 billion investment<\/a> in Occidental Petroleum, Buffett will need to take that one to heart now that other investors have sued Occidental<\/a> for the merger financed in part by Buffet\u2019s stake, alleging that the amount of debt required for Occidental to merge with Anadarko left the company \u201cprecariously exposed\u201d if oil prices went lower. They cited the billions that Buffett invested in the deal as compounding this risk. <\/p>\n\n\n\n

The fracking industry doesn\u2019t care that you\u2019re a world-famous investment sage: It destroys all capital. <\/p>\n\n\n\n

Even in 2019, when Buffett was investing in Occidental, we knew that the fracking industry had been losing hundreds of billions<\/a> of dollars the past decade. However, with the industry\u2019s 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\u2019s 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. <\/a><\/p>\n\n\n\n

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<\/a> for smaller oil and gas companies to get financing. <\/p>\n\n\n\n

\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"

Bankers and Investors Finding Fracking Industry’s Underlying Models Prove Overly Optimistic Warren Buffet has a famous quote about investing: \u201cOnly when the tide goes out do you discover who’s been swimming naked.\u201d  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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2,3],"tags":[5317,1466,6065,11782,13043],"class_list":["post-54252","post","type-post","status-publish","format-standard","hentry","category-economics","category-energy-2","tag-desmog-blog","tag-fracking-industry","tag-investors","tag-justin-mikulka","tag-modelling"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/54252","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=54252"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/54252\/revisions"}],"predecessor-version":[{"id":54253,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/54252\/revisions\/54253"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=54252"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=54252"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=54252"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}