Fracking Promised An Energy Revolution. Will It Be A Financial Crisis Instead? | Think | NBC News Fracking Promised An Energy Revolution. Will It Be A Financial Crisis Instead? | Think | NBC NewsOil from the fuel in our cars to the plastic, protecting our Goods to fertilizers growing our food oil-powered, Modern Life Wars have been fought over it. Economic and political fortunes are tied to it. We need a strong US Energy industry that energy Independence in the 1990s or fracking is commonly known. The US was more able to take his energy future. Hence the amount of energy that the US has been able to produce, as a result of it has been the most oil and gas in front of new energy that any nation has brought in the whole history of energy has favored.
It made a lot of money and kept gas prices down, but is it actually a house of cards ready to topple, is made out to be, or is it a bubble win in the pot and perhaps most importantly, how might that bubble bursting impact? Your bottom line, This is think again with me and Drew Stern, where I take you every step of the way. As I dig into compelling bikes for controversial topics and make us wonder, do we need to think again so my interest in the story begin with an op-ed? I read the New York Times in September of 2018 titled.
The next financial crisis lurks Underground. Is author, Bethany McClain wrote the book on the Enron collapse the smartest guys in the room it went on to become an Oscar nominated documentary film. So when she says there’s a financial, I listen because energy touches everything lights. Our food supply, our retirements gas prices. You don’t have to work for an oil or gas company to be invested in their future up until reading Maclean’s article, it seems to me the sector was bumi. People are getting rich, so the economics must be Rosie right.
So I put the story my back pocket, but in November 2019, Chesapeake Energy, once one of the biggest fracking companies issued a dire warning, gets massive debt load combined with low oil prices, raise a substantial doubt about ability to continue as a going concern. Essentially, they can go bankrupt and soon around the same time, two pioneers of fracking Mark paper of EOG Resources. Scott Sheffield Pioneer Natural Resources publicly expressed grave doubts about the health of the. It seemed like the right time to talk about any myself.
I have to fly to the windy city to interview her and it turns out hang out with her dogs at her home when they think of fracking is the environment right and that’s true as a real worried. I don’t think that’s wrong, but I don’t think that people understand that fracking is economically very insecure to that it said it’s not this phenomenally business. It actually is quite dependent on continued infusions of of cash from from from Wall Street. There two reasons that they need. A ton of Capital, One is obvious, and one is a little more complicated, so the obvious one: it’s just that cost a lot of money to drill a well obvious reason is that the decline rates on these Wells are really really steep to a conventional vertical.
Well will keep producing oil and gas after you after you found it. These frac12 decline really really really steeply, like 70 80 %, the climber it. So if you want to keep showing ever-increasing levels of production used to keep putting more and more money into the ground, because you keep drilling more and more well, You by surprise – and I think it caught investors by surprise that the decline rates were as bad as They were in the industry. Has I’m going to use the word misled investors repeatedly by making promises are predictions about production crafts that have repeatedly fallen short? Did they know for sure that these realized? I doubt it was there some wishful thinking, yeah the world, but rather independent operators like these companies, raise money and Fracture Shale for oil and natural gas on the promise of future returns and like any startup, they overwhelmingly prioritize growth over current earnings.
Mcclain contends there were other Financial incentives for this, Peter, though Executives were paid not based on returns to shareholders, not based on whether this made money, but they sent growing production. So essentially, as long as you could raise money from Wall Street and produce more oil and gas, you could get paid as an executive, so much production coming online oil prices have remained relatively low because so many Wells are less productive than anticipated. Many of the Pioneers are fracking or struggling to remain afloat since 2015, 199 exploration and production companies are gone bankrupt representing more than a hundred billion dollars in debt defaults and if those losses accelerate our retirement to be majorly, impacted pension, giving money to private Equity firms Who increasingly have given money to fracking, firm and Tamia? The scary thing is a fracking can’t deliver and these returns end up not being there the the possible impact Mia’s actually to the pension system.
I left Chicago even more concerned about this potential bubble, but I wasn’t for venturing there McClain. It said that private-equity made up as much as one-third of all investment in fracking. Then I kept seeing more articles in the business press that came to the same conclusion. Mcclain hat, but was it truly all doom and gloom? I wanted to hear from companies like Chesapeake Pioneer, an emoji that a downgraded their Outlook so dramatically, but all the client interviews I reach out to a lot of other independent operators to, but no one agreed to talk did refer me to the oil and gas industry.
Trade Association, the American petroleum Institute, so I travel to Washington DC to speak with the chief Economist about the state of fracking in America, exporter of natural gas and close to it very little Imports of oil. Now it’s remarkable that for the first time in 60 years as of September by apis estimates, that the US is a net exporter of toe energy, one of the I would say kind of drawbacks that has been brought to my attention through some of the research is That the the decline Raider, the half life of bees Wells is significantly shorter than a conventional.
Well right, it is true the first three years you can get 80 % the client right, but what isn’t commonly known is that, what’s left after that is quite flat and extended in life, he’s not wrong there. In the total production of the sector, has gas prices stable and made the u. s. less reliant on Imports, which is a net-positive and much of the drilling and extraction growth happened in economically depressed Regions, Bank through the. com bubble or anything else, capital in the business model? For a lot of these was proved, it works, sell it to somebody else or sell parts of it to somebody else and continue to move on to the next thing and a decade into this.
It’S a normal maturation of the market, UC bigger companies, finding a way to learn this and potentially internationalize it. That’S that’s one Dynamic! That’S important here he’s saying major players like Exxon and Chevron learn the lessons Chesapeake and others had to teach and have since made major, but disappointing moves into the space with more positive results. But in the weeks following this interview, Chevron said he would write down the value of a tracking business by as much as five billion dollars and said that division might not be profitable soon.
Royal Dutch Shell to probably 2 billion dollar loss to slowing off of these phenomenally high levels, is actually not a bad thing. It’S a normal part of the cycle. Will there be some bad debt along the way there? Maybe, but it’s not the form of the housing bubble by any means Industries Acro again at record levels for production that production process continued. So that is the first order thing that investors look for as a sign of success. So at this point it’s not a bad news story is just an evolution story.
There’S no question. Shale fracking has remade the American Energy industry, but, as I was surprised to learn the laundromat most of it aren’t the slam dunk I assumed and if they don’t actually work, the Fallout. Massive tracking is actually one of the most pivotal and important questions facing us, and I wish people were talking about it more because we’re counting on it to do all sorts of things, whether it’s the Trump Administration talking about Freedom, molecules, whether it’s this ID that America Doesn’T have to worry about charges of oil and natural gas anymore that that’s a problem from the past and and not for the future weather.
It’S our pension plans cutting on the returns from investing in fracking. That turns out to be true. These. These are really big. Important play NBC News viewers thanks for checking out our YouTube Channel, subscribe by clicking on that button down here and click on any of the videos over here to watch.Fracking for oil and natural gas has remade the global energy industry in America’s favor. But, much of the industry’s growth has been fueled by mountains of cheap debt and unrealistic forecasts. Might the entire enterprise be a financial crisis in the making?
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Fracking Promised An Energy Revolution. Will It Be A Financial Crisis Instead? | Think | NBC News