AuthorTopic: Fracker Debt Bubble  (Read 113415 times)

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39123
    • View Profile
Fracker Debt Bubble
« on: August 11, 2014, 02:20:15 PM »
Fat paychecks fo managers all built on irredeemable debt sold to granny's pension fund.  Grifters and Con Artists in the Energy Biz.  Criminals who prey on widows and orphans while destroying the environment.

RE


Oil and gas company debt soars to danger levels to cover shortfall in cash

Energy businesses are selling assets and took on $106bn in net debt in the year to March


A labourer pours oil that he scooped up from the oil spill with a helmet into an oil drum, near Dalian port, Liaoning province
The net debt of 127 oil companies from around the world rose by $106bn in the year to March Photo: Reuters

By Ambrose Evans-Pritchard

6:10AM BST 11 Aug 2014


The world’s leading oil and gas companies are taking on debt and selling assets on an unprecedented scale to cover a shortfall in cash, calling into question the long-term viability of large parts of the industry.

The US Energy Information Administration (EIA) said a review of 127 companies across the globe found that they had increased net debt by $106bn in the year to March, in order to cover the surging costs of machinery and exploration, while still paying generous dividends at the same time. They also sold off a net $73bn of assets.

This is a major departure from historical trends. Such a shortfall typically happens only in or just after recessions. For it to occur five years into an economic expansion points to a deep structural malaise.

The EIA said revenues from oil and gas sales have reached a plateau since 2011, stagnating at $568bn over the last year as oil hovers near $100 a barrel. Yet costs have continued to rise relentlessly. Companies have exhausted the low-hanging fruit and are being forced to explore fields in ever more difficult regions.

The EIA said the shortfall between cash earnings from operations and expenditure -- mostly CAPEX and dividends -- has widened from $18bn in 2010 to $110bn during the past three years. Companies appear to have been borrowing heavily both to keep dividends steady and to buy back their own shares, spending an average of $39bn on repurchases since 2011.

The agency, a branch of the US Energy Department, said the increase in debt is “not necessarily a negative indicator” and may make sense for some if interest rates are low. Cheap capital has been a key reason why US companies have been able to boost output of shale gas and oil at an explosive rate, helping to lift the US economy out of the Great Recession.

The latest data shows that “tight oil” production has jumped to 3.7m barrels a day (b/d) from half a million in 2009. The Bakken field in North Dakota alone pumped 1m b/d in May, equivalent to Libya’s historic levels of supply. Shale gas output has risen from three billion cubic feet to 35 billion in just seven years. The EIA said America will increase its lead as the world’s largest producer of oil and gas combined this year, far ahead of Russia or Saudi Arabia.

However, the administration warned in May that “continued declines in cash flow, particularly in the face of rising debt levels, could challenge future exploration and development”. It said that upstream costs of exploring and drilling have been surging, causing companies to raise long-term debt by 9pc in 2012, and 11pc last year.

Upstream costs rose by 12pc a year from 2000 to 2012 due to rising rig rates, deeper water depths, and the costs of seismic technology. This was disguised as China burst onto the world scene and powered crude prices to record highs. Major disruptions in Libya, Iraq, and parts of Africa have since prevented oil from falling much below $100, even though other commodities have been in the doldrums. But even flat prices for three years have exposed how vulnerable the whole oil and gas edifice is becoming.

The major companies are struggling to find viable reserves, forcing them take on ever more leverage to explore in marginal basins, often gambling that much higher prices in the future will come to the rescue. Global output of conventional oil peaked in 2005 despite huge investment.

Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said.

Analysts are split over the giant Petrobras project off the coast of Brazil, described by Citigroup as the “single-most important source of new low-cost world oil supply.” The ultra-deepwater fields lie below layers of salt, making seismic imaging very hard. They will operate at extreme pressure at up to three thousand meters, 50pc deeper than BP’s disaster in the Gulf of Mexico.

Petrobras is committed to spending $102bn on development by 2018. It already has $112bn of debt. The company said its break-even cost on pre-salt drilling so far is $41 to $57 a barrel. Critics say some of the fields may in reality prove to be nearer $130. Petrobras’s share price has fallen by two-thirds since 2010.

The global oil and gas nexus is clearly over-extended and could face a severe crunch if oil prices slip towards $80. A growing number of experts say it would be wiser to shrink the industry to a profitable core, returning revenues from existing ventures to shareholders and putting some companies into partial “run-off” rather than risking fresh money on projects that may prove to be ruinous white elephants.

The International Energy Agency in Paris says global investment in fossil fuel supply rose from $400bn to $900bn during the boom from 2000 and 2008, doubling in real terms. It has since levelled off, reaching $950bn last year. The returns have been meagre. Not a single large oil project has come on stream at a break-even cost below $80 a barrel for almost three years.

A study by Carbon Tracker said companies are committing $1.1 trillion over the next decade to projects requiring prices above $95 to make money. Some of the Arctic and deepwater projects have a break-even cost near $120. “The oil majors like Shell are having to replace cheap legacy reserves with new barrels from much more difficult places,” said Mark Lewis from Kepler Cheuvreux.

The new worry is that many companies will be left with “stranded assets” as climate accords kick in. The IEA says companies have booked assets that can never be burned if there is a deal limit to C02 levels to 450 (PPM), a serious political risk for the industry. Estimates vary but Mr Lewis said this could reach $19 trillion for the oil nexus, and $28 trillion for all forms of fossil fuel.

For now the major oil companies are mostly pressing ahead with their plans. ExxonMobil began drilling in Russia’s Arctic ‘High North’ last week with its partner Rosneft, even though Rosneft is on the US sanctions list.

“Exxon must be doing a lot of soul-searching as they get drawn deeper into this,” said one oil veteran with intimate experience of Russia. “We don’t think they ever make any money in the Arctic. It is just too expensive and too difficult.”
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39123
    • View Profile
Re: Fracker Debt Bubble
« Reply #1 on: August 11, 2014, 02:29:32 PM »
Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39123
    • View Profile
Wall Street Fracker Fraud EXPOSED! Geochemists Facing Perp Walks!
« Reply #2 on: August 13, 2014, 06:45:23 PM »



Jimbo just got this one up on Zero Hedge.  :icon_mrgreen:

RE

Wall Street's Shale 'Fraud' Exposed

Submitted by Tyler Durden on 08/13/2014 18:50 -0400
 
Via Jim Quinn's Burning Platform blog,

U.S. energy independence, we're told, is at our fingertips thanks to the so-called “shale revolution”. Offsetting declines in conventional oil and gas production, shale gas and tight oil (shale oil) are being heralded as the means by which the U.S. will become energy independent – a net exporter of natural gas and once again the world’s largest oil producing nation.

But two new reports by Post Carbon Institute and Energy Policy Forum show that the hype simply doesn’t stand up to scrutiny.


KEY FINDINGS, SHALE GAS

    High productivity shale gas plays are not ubiquitous: Just six plays account for 88% of total production.
    Individual well decline rates range from 80-95% after 36 months in the top five U.S. plays.
    Overall field declines require from 30-50% of production to be replaced annually with more drilling – roughly 7,200 new wells a year simply to maintain production.
    Dry shale gas plays require $42 billion/year in capital investment to offset declines. This investment is not covered by sales: in 2012, U.S. shale gas generated just $33 billion, although some of the wells also produced liquids, which improved economics.

KEY FINDINGS, TIGHT OIL (SHALE OIL)

    More than 80 percent of tight oil production is from two unique plays: the Bakken and the Eagle Ford.
    Well decline rates are steep – between 81 and 90 percent in the first 24 months.
    Overall field decline rates are such that 40 percent of production must be replaced annually to maintain production.
    Together the Bakken and Eagle Ford plays may yield a little over 5 billion barrels – less than 10 months of U.S. consumption.

KEY FINDINGS, THE FINANCIAL PICTURE

    Wall Street promoted the shale gas drilling frenzy which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees.
    Industry is demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and joint venture projects.
    Shale gas has become one of the largest profit centers in some investment banks, in direct parallel with the decline of natural gas prices.
    Due to extreme levels of debt, stated proved undeveloped reserves (PUDs) may have been out of compliance with SEC rules at some shale companies because of the threat of collateral default for some operators.
    With natural gas prices far higher outside the U.S., exports are being pursued in an effort to shore up ailing balance sheets invested in shale assets.

<a href="http://www.youtube.com/v/4uKgU7krWzE?feature=player_embedded" target="_blank" class="new_win">http://www.youtube.com/v/4uKgU7krWzE?feature=player_embedded</a>

 
Save As Many As You Can

Offline g

  • Golden Oxen
  • Contrarian
  • Master Chef
  • *
  • Posts: 12280
    • View Profile
Fracker Debt Bubble - Trader Who Scored $100 Million Payday Bets Shale Is Dud
« Reply #3 on: September 04, 2014, 07:07:54 AM »
Due to intense Diner interest in this topic, I have taken the liberty to post the entire article rather than an excerpt. Comments from our energy students most welcome.


 
Trader Who Scored $100 Million Payday Bets Shale Is Dud
By Bradley Olson - Sep 3, 2014
Bloomberg Markets Magazine

Andrew John Hall -- known as the God of Crude Oil Trading to some of his peers -- has built his success on a simple creed: Everyone who disagrees with him is wrong.

For most of the past 30 years, that has been a killer strategy. Like a poker player on an endless hot streak, Hall has made billions for the companies for which he’s traded by placing one aggressive bet after another. He was one of the few traders who anticipated both the run-up in and the eventual crash of oil prices in 2008.

Hall was so good that he bagged a $98 million payday in 2008, when he ran Citigroup Inc.’s Phibro LLC trading unit, and was up for about $100 million more in 2009.

In the end, Bloomberg Markets will report in its October 2014 issue, he couldn’t collect the 2009 payout from Citi because an anti–Wall Street backlash against the bank -- which had just received a $45 billion U.S. government bailout -- led regulators to block it. No such bonuses have awaited Hall of late. He’s racked up losses in two of the past three years.

His wager that oil prices would rise and rise has run headlong into an unanticipated energy revolution -- the frenetic push in the U.S. and elsewhere to wring crude out of shale. Shale drilling has boosted U.S. oil output to the highest level in 27 years; it helped the U.S. supply 84 percent of its energy demand last year. Oil prices, far from taking the upward trajectory Hall predicted, have been essentially unchanged since 2011.

Lost Touch?

For the 63-year-old Hall, who has used his wealth to build an extensive modern art collection, this has meant a sobering comedown. Assets under management at his Astenbeck Capital Management LLC hedge-fund firm fell to $3.4 billion in May, down from as much as $4.8 billion in January 2013. Astenbeck, based in Westport, Connecticut, fell 3.8 percent in 2011, posted a 3.4 percent gain in 2012 and slid another 8.3 percent in 2013, according to Astenbeck letters obtained by Bloomberg. This makes some wonder whether Hall has lost his touch.

“At one point, Phibro traders were the rulers of the world,” says Carl Larry, a former trader who publishes a newsletter on oil markets. “The best always learn how to adapt. Maybe it’s taking him longer to do that now. Or maybe his time has come.”

Hall, based on comments in his letters to investors, is unfazed by the losses and secure in his view that the price of oil is destined to rise. In those letters, he regularly mocks those who are convinced that a shale boom will mean long-term cheap, abundant energy.
‘Inconvenient Obstacles’

“When you believe something, facts become inconvenient obstacles,” Hall wrote in April, taking issue with an analyst who predicted a shale renaissance could result in $75-a-barrel oil over the next five years.

Hall is going all in on a bet that the shale-oil boom will play out far sooner than many analysts expect, resulting in a steady increase in prices to as much as $150 a barrel in five years or less.

Investing ever-larger sums of his own money, he’s buying contracts for so-called long-dated oil, to be delivered as far out as 2019, according to interviews with two dozen current and former employees and advisers who are familiar with Hall’s trading but aren’t authorized to speak on the record. To attract buyers, the sellers of these long-dated contracts -- typically shale companies that have financed the boom with mounds of debt -- need to offer them at a discount to existing prices.

Hall’s strategy -- which in a May letter he described as more akin to “loan-sharking” than market speculation -- has already shown some signs of success.
Futures Rise

In February, a futures contract for a barrel of December 2019 West Texas Intermediate benchmark crude was selling for $76. In July, those contracts were selling for $88. That means Hall could have made $12 a barrel by cashing out -- a 16 percent gain, according to those who understand his positions.

The thing is, Hall may not cash out. He may stand pat, waiting for those price spikes he’s certain are coming. If he’s right, he could pocket way more than $12 a barrel, perhaps doubling the money he’s invested for himself and his clients.

If he’s wrong, Hall could sully his reputation and deal another blow to Phibro, a storied commodities firm with century-old roots that once had 2,000 employees and helped create modern oil-trading markets.

Hall, in addition to running his hedge fund, has remained chairman and chief executive officer of Phibro, positions he’s held since 1993 -- even as the firm has changed hands. Already, Phibro’s current corporate parent, Occidental Petroleum Corp., which acquired it from Citi in late 2009, has said the company is for sale. If it’s sold, the new owner would be Phibro’s third in five years.
Wall Bump

Occidental, which declined to comment for this story, owns 20 percent of Astenbeck’s management company; Hall owns the rest of it. Tom O’Malley, the chairman of refiner PBF Energy Inc. who recruited Hall to Phibro in 1982 after winning a bidding war for the trader’s services against self-proclaimed King of Oil Marc Rich, says the market may yet turn Hall’s way.

“You can’t play the game without bumping into the wall every now and then,” O’Malley says. “Anybody who bets against Andy Hall might be making a poor bet.”

An introvert with eyes shading to pale blue, Hall has long been known for his intense study and grasp of historical oil markets. When he’s not watching the markets on his computer terminal, he’s parsing reports or calling analysts and economists to pepper them with questions on drilling projects from North Dakota to Saudi Arabia.
Rowing Passion

The son of a former British Airways Plc pilot instructor, Hall was born in Bristol, England, and earned a chemistry degree from the University of Oxford, where he began a lifelong passion for rowing. He started working for British Petroleum Co., now BP Plc, in 1969 and soon enough would be thrown into the tumult of the early 1970s Arab oil embargo when the oil majors lost pricing power to OPEC.

After earning an MBA from France’s INSEAD business school, he arrived in New York in 1981 to run BP’s trading operation.

Hall, with a streak of clever trades, caught the eye of O’Malley at Phibro, which had recently been re-branded from its roots as Philipp Brothers. At Phibro, he and O’Malley bought large, long positions, betting on rising prices.

Hall was convinced as far back as 2004 that the world was entering an age of scarcity, according to “Oil,” a 2010 book by Tom Bower. That conviction, based on his belief in massive demand coming from China and other emerging markets, led Hall to bet more than $1 billion, according to the book.
‘Really Long’

“As one of my clients once told me, he has three gears: long, longer and really long,” says Philip Verleger, president of Carbondale, Colorado–based PK Verleger LLC and a consultant and economist whom Hall has tapped for advice.

Phibro has a complex pedigree. In 1981, Phibro Corp. acquired Salomon Brothers and eventually the firm became Salomon Inc. In 1997, Travelers Group Inc. acquired Salomon, which became part of Citigroup the next year after Travelers and Citicorp combined. In 2008, the unit, once again known as Phibro, with Hall at the helm, was one of the only profitable divisions at Citi in a year when the company lost $28 billion.

Hall, after netting about $100 million in 2007 and $98 million in 2008, was on track to receive the same or more in 2009. In the tumult of the financial crisis, with Citi now a ward of the state, the bonus was “untenable,” says Kenneth Feinberg, President Barack Obama’s special master for executive compensation.
Occidental Sale

The controversy forced the sale to Occidental, which agreed to defer payment of that $100 million or so by allowing Hall to reinvest those funds into Astenbeck, according to those familiar with the transactions.

Phibro had been profitable every fiscal year since 1997 and in 80 percent of the quarters during that period, according to data compiled by Bloomberg. The trading house’s gains during those years, driven by Hall, amounted to $4.4 billion. Hall remained silent throughout the pay controversy and turned to building Astenbeck’s assets.

Oil prices fell in the 2008-to-2009 recession, hitting $110 a barrel in February 2011 and remaining close to that level since then. Brent crude, the global benchmark, traded at $104.28 on Aug. 13. The pressure on prices, even as economic growth has recovered, has come from a surfeit of supply.

The unprecedented rise in U.S. oil production has been spurred by fracking, a process that breaks up brittle shale layers to release previously unreachable oil and gas. Hall has no charity for those touting the message that shale drilling will take over the globe and usher in a new era of lower energy prices.
Lower Forecasts

Predictions of $75 oil, espoused by Citigroup oil analyst Edward Morse in a Barron’s story in March, really bug him, according to those who know his thinking.

“We are not sure what supports his conviction,” Hall wrote of the analyst’s theories in his June newsletter, although he didn’t identify Morse by name. “It is apparently not facts or analysis.”

The shale revolution faces political, environmental and technical hurdles in other parts of the world that will stall its rollout, Hall wrote. Morse, who also correctly predicted the sharp rise in crude prices in the past decade, says Hall has let his admiration of peak oil theorists cloud his judgment.

“It took a long time for believers in the Cold War to admit it was dead. So, too, is it taking a long time for peak oil believers to admit that it is dead,” Morse says.

The numbers currently don’t seem to augur in Hall’s favor. Oil prices have slumped to the $92 to $96 a barrel range in recent days. Reflecting those prices, regular gasoline in some parts of the nation, including New Jersey, Virginia and Louisiana, is selling for under $3 a gallon, the lowest in four years.
Falling Prices

Hall’s main problem with the falling-price scenario is that it contains the seeds of its own demise. Shale drilling depends on high prices to survive. If oil falls toward $75 a barrel, much of the wave of new U.S. production would become unprofitable, prompting output to be cut, Hall wrote in April.

Scarcity would then start to drive up prices. Hall’s position is that the world may be awash in new oil but that new oil isn’t cheap to produce. The fact that the U.S. shale revolution has been able to replace most of the crude lost to strife in recent years in places such as Iraq and Libya is a fluke, in his opinion.

And while energy powers such as Russia and Saudi Arabia still have plenty of oil, they’ll have to significantly increase investments to maintain production levels. In a June letter, Hall made note of a statement from an OAO Lukoil executive, who acknowledged the “threat” that Russia’s “traditional reserves are being exhausted.”
IOC Toast

Hall’s confidence in rising prices is expressed in an April letter to Astenbeck investors in which he poses the seemingly audacious question of whether the world’s biggest oil companies are doomed.

“Are the IOCs (international oil companies) toast?” he asked. While Exxon Mobil Corp. and its four biggest peers have posted more than $1 trillion in combined profits in the past decade, Hall points out that they’ve subsequently been spending almost every dime they’ve earned.

Since 2004, Exxon, Chevron Corp., Royal Dutch Shell Plc, Total SA and BP have tripled capital spending, reaching $166 billion last year, only to see their combined output decline by more than 1.4 million barrels a day. That’s like running as fast as you can only to stand still, according to Hall’s investor letters. Prices, in his view, have to take the long road up.
Technological Innovations

A Chevron spokesman said the company expects its production to start increasing in the next two years. BP said the Gulf oil spill has hurt its oil output. Exxon declined to comment. Shell and Total didn’t respond to queries seeking comment.

Hall doubters respond that technological innovations in the recent past have rendered wrong many predictions that either the world would run out of oil or prices were destined for a permanent arc upward.

M. King Hubbert, a geophysicist who first propounded the theory of peak oil, accurately predicted in 1956 a crest in U.S. oil production by 1970, a forecast that intrigued Hall. Yet fracking has undermined the second part of Hubbert’s theory -- that American oil output would then begin an unstoppable decline.
Production Record

The U.S. Energy Information Administration is now predicting domestic production will reach an all-time high by 2016. Such projections don’t move Hall, a man who owns most of a town in Vermont and a castle in Germany and is featured nude with his wife, Christine, in a painting by American artist Eric Fischl, whose work the Halls collect.

In his counterarguments, he digs deep, delving into the minutiae of how Texas discloses oil production, the tendency of some shale wells to play out quickly and the degree to which the boom has relied on debt. The simplest of his reasons, though, is that producers have already drilled in many of the best areas, or sweet spots. Hall predicts that growth in shale output will begin to moderate this year and U.S. production will peak as soon as 2016.

“Once those areas have been drilled out, operators will have to move to more-marginal locations and well productivity will fall,” Hall wrote in March. “Far from continuing to grow, production will start to decline.”


Slowing Growth?

So far this year, there are signs that he may be on the right track. In North Dakota’s Bakken and Texas’ Eagle Ford formations, which have accounted for almost all of the jump in U.S. output, the combined year-over-year growth in production in July fell below 30 percent for the first time since February 2010.

Two central questions about technology and shale will likely determine the outcome for Hall: how many wells producers will be able to drill in a finite amount of land that sits atop oil-bearing layers of rock and whether the U.S. renaissance will be repeatable abroad. Hall is betting no on both counts. Morse, and many in the energy world, are betting yes.
Surface Scratch

“We haven’t scratched the surface,” Hall’s former mentor O’Malley says. “There are massive additional shale fields in the United States. Technology does tend to move forward.”

Hall supporters point out that Astenbeck -- benefiting from a rise in global demand and volatility caused by turmoil in places such as Iraq -- is up 19 percent this year after the losses of last year.

“He’s a phenomenal trader,” says David Neuhauser, a money manager at Livermore Partners who has followed Hall’s progress as an Occidental shareholder. “I believe he’s right about long-term prices; we’re in the same camp. What I don’t know is how long it will take for the market to catch up.”

To contact the reporter on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net

To contact the editors responsible for this story: Ken Wells at kwells8@bloomberg.net Joel Weber, Tina Davi

                                                                 


                                                                 



      http://www.bloomberg.com/news/2014-09-03/trader-who-scored-100-million-payday-bets-shale-is-dud.html  :icon_study:

« Last Edit: September 04, 2014, 07:10:59 AM by Golden Oxen »

Offline Surly1

  • Administrator
  • Master Chef
  • *****
  • Posts: 16480
    • View Profile
    • Doomstead Diner
Re: Fracker Debt Bubble
« Reply #4 on: September 04, 2014, 08:16:33 AM »
Interesting article, GO. Just skimmed it-- will come back to it later-- busy at work.

Yet I must tell you--
Quote
The numbers currently don’t seem to augur in Hall’s favor. Oil prices have slumped to the $92 to $96 a barrel range in recent days. Reflecting those prices, regular gasoline in some parts of the nation, including New Jersey, Virginia and Louisiana, is selling for under $3 a gallon, the lowest in four years.

I must tell you that since Christmas, $3.11/gal. is the cheapest I've seen regular in Virginia. And typically the further north and west you go from this little armpit of the world, the higher it gets. Can't speak to Joisey...

FWIW. :icon_mrgreen:
"It is difficult to write a paradiso when all the superficial indications are that you ought to write an apocalypse." -Ezra Pound

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39123
    • View Profile
Frackonomics Ponzi
« Reply #5 on: September 19, 2014, 04:19:21 PM »
Basically Criminal Fraud, Enron on a bigger scale.



RE

Shale Fracking Is a “Ponzi Scheme” … “This Decade’s Version of The Dotcom Bubble” … “A Lot In Common With the Subprime Mortgage"

George Washington's picture



 

In 2011, the New York Times wrote:

“Money is pouring in” from investors even though shale gas is “inherently unprofitable,” an analyst from PNC Wealth Management, an investment company,  wrote to a contractor in a February e-mail. “Reminds you of dot-coms.”

 

“The word in the world of independents is that the shale plays are just giant Ponzi schemes and the economics just do not work,” an analyst from IHS Drilling Data, an energy research company,  wrote in an e-mail on Aug. 28, 2009.

 

***

 

“And now these corporate giants are having an Enron moment,” a retired geologist from a major oil and gas company  wrote in a February e-mail about other companies invested in shale gas.

 

***

 

Deborah Rogers, a member of the advisory committee of the Federal Reserve Bank of Dallas, [and a]  former stockbroker with Merrill Lynch ... showed that wells were petering out faster than expected.

 

“These wells are depleting so quickly that the operators are in an expensive game of ‘catch-up,’ ” Ms. Rogers wrote in an e-mail on Nov. 17, 2009, to a petroleum geologist in Houston, who wrote back that he agreed.

 

***

 

A review of more than 9,000 wells, using data from 2003 to 2009, shows that — based on widely used industry assumptions about the market price of gas and the cost of drilling and operating a well — less than 10 percent of the wells had recouped their estimated costs by the time they were seven years old.

 

***

 

“Looks like crap,” the Schlumberger official wrote about the well’s performance, according to the regulator, “but operator will flip it based on ‘potential’ and make some money on it.”

In 2012, the New York Times pointed out:

The gas rush has ... been a money loser so far for many of the gas exploration companies and their tens of thousands of investors.

 

***

 

Although the bankers made a lot of money from the deal making and a handful of energy companies made fortunes by exiting at the market’s peak, most of the industry has been bloodied — forced to sell assets, take huge write-offs and shift as many drill rigs as possible from gas exploration to oil, whose price has held up much better.

 

***

 

Now the gas companies are committed to spending far more to produce gas than they can earn selling it. Their stock prices and debt ratings have been hammered.

Rolling Stone reported the same year:

Fracking, it turns out, is about producing cheap energy the same way the mortgage crisis was about helping realize the dreams of middle-class homeowners. For Chesapeake, the primary profit in fracking comes not from selling the gas itself, but from buying and flipping the land that contains the gas. The company is now the largest leaseholder in the United States, owning the drilling rights to some 15 million acres – an area more than twice the size of Maryland. McClendon [the CEO of fracking giant Chesapeake] has financed this land grab with junk bonds and complex partnerships and future production deals, creating a highly leveraged, deeply indebted company that has more in common with Enron than ExxonMobil. As McClendon put it in a conference call with Wall Street analysts a few years ago, "I can assure you that buying leases for x and selling them for 5x or 10x is a lot more profitable than trying to produce gas at $5 or $6 per million cubic feet."

 

According to Arthur Berman, a respected energy consultant in Texas who has spent years studying the industry, Chesapeake and its lesser competitors resemble a Ponzi scheme, overhyping the promise of shale gas in an effort to recoup their huge investments in leases and drilling. When the wells don't pay off, the firms wind up scrambling to mask their financial troubles with convoluted off-book accounting methods. "This is an industry that is caught in the grip of magical thinking," Berman says. "In fact, when you look at the level of debt some of these companies are carrying, and the questionable value of their gas reserves, there is a lot in common with the subprime mortgage market just before it melted down."

 

***

 

In February, Chesapeake announced that, because of low gas prices, its revenues will fall $3.5 billion short of its expenses this year.

Jim Quinn noted last year:

Royal Dutch Shell is one of the biggest corporations in the world, with financial resources greater than 99% of all the organizations on earth. Their CEO [Peter  Voser] probably knows a little bit more about oil exploration than the Wall Street systers and CNBC bimbos. His company has poured $24 billion into shale exploration in the U.S. It has been a huge failure. They have already written off $2.1 billion. They are trying to sell huge swaths of land in the Eagle Ford area. They are losing money in the shale oil and gas business. If Shell can’t make it profitable, who can?

Bloomberg noted in February:

Independent producers will spend $1.50 drilling this year for every dollar they get back.

Oil Price reported in March:

Shell’s new boss, Ben van Beurden, said bets on U.S. shale plays haven’t worked out for his company.

 

***

 

“Some of our exploration bets have simply not worked out,” Shell’s Chief Executive Officer Ben van Beurden said. It was bad management policy to commit close to $80 billion in capital on its North American portfolio and still lose money. Now, he said, it’s time to cut the loss and slash exploration and production investments by 20 percent for 2014.

 

***

 

Shell’s problems say more about the difficulties of shale exploration than they do about the company itself.

The Wall Street Journal pointed out this April:

These newly public companies are spending more than they make ....

Bloomberg wrote in May:

Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent.

 

“The list of companies that are financially stressed is considerable,” said Benjamin Dell, managing partner of Kimmeridge Energy, a New York-based alternative asset manager focused on energy. “Not everyone is going to survive. We’ve seen it before.”

 

***

 

In a measure of the shale industry’s financial burden, debt hit $163.6 billion in the first quarter, according to company records compiled by Bloomberg on 61 exploration and production companies that target oil and natural gas trapped in deep underground layers of rock.

 

***

 

Drillers are caught in a bind. They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin.

 

***

 

“Interest expenses are rising,” said Virendra Chauhan, an oil analyst with Energy Aspects in London. “The risk for shale producers is that because of the production decline rates, you constantly have elevated capital expenditures.”

And Tim Morgan - former global head of research at Tullett Prebon - explained last month at the Telegraph:

We now have more than enough data to know what has really happened in America.

 

***

 

If a huge number of wells come on stream in a short time, you get a lot of initial production. This is exactly what has happened in the US.

 

The key word here, though, is "initial". The big snag with shale wells is that output falls away very quickly indeed after production begins. Compared with “normal” oil and gas wells, where output typically decreases by 7pc-10pc annually, rates of decline for shale wells are dramatically worse. It is by no means unusual for production from each well to fall by 60pc or more in the first 12 months of operations alone.

 

Faced with such rates of decline, the only way to keep production rates up (and to keep investors on side) is to drill yet more wells. This puts operators on a "drilling treadmill", which should worry local residents just as much as investors. Net cash flow from US shale has been negative year after year, and some of the industry’s biggest names have already walked away.

 

The seemingly inevitable outcome for the US shale industry is that, once investors wise up, and once the drilling sweet spots have been used, production will slump, probably peaking in 2017-18 and falling precipitously after that. The US is already littered with wells that have been abandoned, often without the site being cleaned up.

 

Meanwhile, recoverable reserves estimates for the Monterey shale – supposedly the biggest shale liquids play in the US – have been revised downwards by 96pc. [Background; and see this.]  In Poland, drilling 30-40 wells has so far produced virtually no worthwhile production.

 

In the future, shale will be recognised as this decade's version of the dotcom bubble. In the shorter term, it's a counsel of despair as an energy supply squeeze draws ever nearer.

« Last Edit: September 19, 2014, 04:22:02 PM by RE »
Save As Many As You Can

Offline jdwheeler42

  • Global Moderator
  • Sous Chef
  • *****
  • Posts: 3332
    • View Profile
    • Going Upslope
Re: Fracker Debt Bubble
« Reply #6 on: September 20, 2014, 07:48:02 AM »
You want to know a secret?  Fracking natural gas isn't as unprofitable as they make it out to be.

One of the major ongoing expenses for the drilling/pumping companies are pipeline fees.  These, of course, are shared with the landowner and taken out of their royalties.

Guess who owns the pipeline companies?  The same people who own the drilling companies.  Guess who gets to keep ALL of the profits?

Corporate malfeasance, indeed.
Making pigs fly is easy... that is, of course, after you have built the catapult....

Offline g

  • Golden Oxen
  • Contrarian
  • Master Chef
  • *
  • Posts: 12280
    • View Profile
Re: Fracker Debt Bubble - Question About Current Status?
« Reply #7 on: September 27, 2014, 07:45:57 AM »
Hopefully this is the correct thread to pose this financial query.

The drop in oil of the past few months has been substantial and relentless, especially when one considers the goings on in the middle east.

Might I pose the question that if we peak oilers are correct about fracking being a ponzi scheme; that major cracks should start appearing soon in this house of leverage and constantly required drilling or fracking of costly wells.

My abilities in this area are very limited so I am asking how long should we have to wait to see problems arising if we are correct in assuming fracking is a scam operation?

Shouldn't financing and borrowing problems be arising already?

My suspicion has been all along that this fracking being hailed as our savior is a fiction, should the house of cards begin collapsing now or do we require still lower prices?

My experience with markets is that they usually look ahead and have not yet witnessed the chaos my instincts told me to expect after this recent fall in prices.   :icon_scratch:

                                                         

Offline MKing

  • Contrarian
  • Sous Chef
  • *
  • Posts: 3354
    • View Profile
Re: Fracker Debt Bubble - Question About Current Status?
« Reply #8 on: September 27, 2014, 01:13:07 PM »
Might I pose the question that if we peak oilers are correct about fracking being a ponzi scheme; that major cracks should start appearing soon in this house of leverage and constantly required drilling or fracking of costly wells.

Tight/shale oil and gas wells aren't expensive, the most recent range of numbers provided to the public by the Texas BEG are in the 3-10 million each range, drilling and completing, I confirmed this independently after I last spoke with Tinker and his group a month or two back.

These kinds of numbers are nearly insignificant when compared to conventional oil or gas production in places like the North Slope or GOM, North Sea, anywhere in the Arctic, and are less than half the cost of doing the SAME thing in Argentina, China, or Russia.

As far as hydraulic fracturing itself being a ponzi scheme, it has been going on for 60+ years, I don't think it has much to do with overall financial performance myself, but more with the relationship between price, cost and well performance.

For example, using financial reports on public companies allows interesting analysis of the aggregate, but not the distribution of profitability at the well level of resolution.

For example, lets take two oil companies in the Bakken. One of them is run by a bloviating amateur, he drills and completes a $10M well, pays $1500/month to have someone operate it for him, and requires a nice office building, a staff of sycophants to blow smoke up his ass, all of these things cost money, and the overhead for this company is $100K/month.

This company will probably lose money, and badly, trying to recoup not only the initial CapEx but the $101.5K month nut they have created.

Whereas another company, requiring only one person to achieve the same result, and wanting a modest income of $2k month from this well, will probably make money.

No difference in anything other than the overhead sitting on top of the well's performance.

Fortunately, when the first company goes bankrupt, the second will buy the discounted cash flow of the first companies wells (doesn't give a crap about the building, let the bank foreclose) and make their money off expected increases in price as peak oil takes hold and the price of oil increases as Malthusians expect.

The combination of these three things at the detail level, and aggregate, is important. Amateurs don't tend to know the difference, in part because they don't see how the performance of private companies works, and how they are just salivating right now, waiting for someone to fall, that their assets might be acquired at a discount.


Quote from: Golden Oxen
Shouldn't financing and borrowing problems be arising already?

They certainly might be.

My connections with Wall Street money says that they are still looking to get in, you can barely get them to bite on 1/4B deals, they really want 1B deals right now, and can easily come up with 10B for the right deal.

So the money does not seem to have dried up yet.
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
-Dalai Lama

Offline MKing

  • Contrarian
  • Sous Chef
  • *
  • Posts: 3354
    • View Profile
Re: Fracker Debt Bubble
« Reply #9 on: September 27, 2014, 01:14:24 PM »
You want to know a secret?  Fracking natural gas isn't as unprofitable as they make it out to be.

Some of us can even give you the exact odds, based on your acreage, on how profitable, or not, it is.
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
-Dalai Lama

Offline agelbert

  • Global Moderator
  • Master Chef
  • *****
  • Posts: 11820
    • View Profile
    • Renewable Rervolution
Re: Fracker Debt Bubble - Question About Current Status?
« Reply #10 on: September 27, 2014, 04:39:54 PM »
Might I pose the question that if we peak oilers are correct about fracking being a ponzi scheme; that major cracks should start appearing soon in this house of leverage and constantly required drilling or fracking of costly wells.

Tight/shale oil and gas wells aren't expensive, the most recent range of numbers provided to the public by the Texas BEG are in the 3-10 million each range, drilling and completing, I confirmed this independently after I last spoke with Tinker and his group a month or two back.

These kinds of numbers are nearly insignificant when compared to conventional oil or gas production in places like the North Slope or GOM, North Sea, anywhere in the Arctic, and are less than half the cost of doing the SAME thing in Argentina, China, or Russia.

As far as hydraulic fracturing itself being a ponzi scheme, it has been going on for 60+ years, I don't think it has much to do with overall financial performance myself, but more with the relationship between price, cost and well performance.

For example, using financial reports on public companies allows interesting analysis of the aggregate, but not the distribution of profitability at the well level of resolution.

For example, lets take two oil companies in the Bakken. One of them is run by a bloviating amateur, he drills and completes a $10M well, pays $1500/month to have someone operate it for him, and requires a nice office building, a staff of sycophants to blow smoke up his ass, all of these things cost money, and the overhead for this company is $100K/month.

This company will probably lose money, and badly, trying to recoup not only the initial CapEx but the $101.5K month nut they have created.

Whereas another company, requiring only one person to achieve the same result, and wanting a modest income of $2k month from this well, will probably make money.

No difference in anything other than the overhead sitting on top of the well's performance.

Fortunately, when the first company goes bankrupt, the second will buy the discounted cash flow of the first companies wells (doesn't give a crap about the building, let the bank foreclose) and make their money off expected increases in price as peak oil takes hold and the price of oil increases as Malthusians expect.

The combination of these three things at the detail level, and aggregate, is important. Amateurs don't tend to know the difference, in part because they don't see how the performance of private companies works, and how they are just salivating right now, waiting for someone to fall, that their assets might be acquired at a discount.


Quote from: Golden Oxen
Shouldn't financing and borrowing problems be arising already?

They certainly might be.

My connections with Wall Street money says that they are still looking to get in, you can barely get them to bite on 1/4B deals, they really want 1B deals right now, and can easily come up with 10B for the right deal.

So the money does not seem to have dried up yet.
[/size]
 

To paraphrase Samuel Clemens in regard to some of his experiences with people that make holes in the ground to get stuff out of and sell to us for "profit", a FRACKING site is a hole the ground with a bunch of LIARS on top.

Here's an article MKing will disagree with and ridicule as "garden variety" or "irrelevant" or disdain with some other pejorative bit of puffery.

The only part of the article he will agree with is that the Oil and Gas industry ACTUALLY gave solar power technology development a boost back in the 70s because PV supplied power to very remote locations the fossil fuelers tend be located for new profit over planet piggery.  ;D

The FULL story of how we-the-people have supported these fossil fuel and nuclear welfare queens is there from the start until this day. The appearance of profitability ignores our tax money for research and continuous subsidy.

Fossil fuelers have an amazing ability to ignore, not just externalized costs, but the giveaways from we-the-people! They have the brass balls to compute those subsidies as part of the ROI. That's a blatant accounting falsehood. Without subsides they are not profitable, period. But MKing will continue with his fantasies, come hell or high water. So it goes.  :P


SNIPPPET 1:

Quote
The bias against renewable funding and support is clear. Recent analysis found that over the first fifteen years an industry receives a subsidy, nuclear energy received an average of $3.3 billion, oil and gas averaged $1.8 billion,Fto and renewables averaged less than $0.4 billion.

Renewables received less than one-quarter of the support of oil and gas and less than one-eighth of the support that nuclear received during the early years of development, when strong investment can make a big difference. Yet even with this disparity, more of our energy supply now comes from renewables than from nuclear, which indicates the strength of renewables as a potential energy source.

SNIPPET 2:
Quote

The momentum behind renewable development came to a rapid halt as soon as Ronald Reagan was elected president. Not only did he remove the solar panels atop the White House, he also gutted funding for solar development and poured billions into developing a dirty synthetic fuel that was never brought to market.

Unnatural Gas: How Government Made Fracking Profitable (and Left Renewables Behind)

http://www.dissentmagazine.org/online_articles/unnatural-gas-how-government-made-fracking-profitable-and-left-renewables-behind





 
« Last Edit: September 27, 2014, 04:42:45 PM by agelbert »
Leges         Sine    Moribus      Vanae   
Faith,
if it has not works, is dead, being alone.

Thomas Lewis

  • Guest
Shale Oil Boom Breaking Down
« Reply #11 on: October 08, 2014, 03:44:32 AM »

From the keyboard of Thomas Lewis Follow us on Facebook Follow us on Twitter @Doomstead666

No, this is not a Dallas suburb, it’s a fracking field. If you don’t like it now, imagine it in a few years, when it has been abandoned. (Photo by Simon Fraser University)

No, this is not a Dallas suburb, it’s a fracking field. If you don’t like it now, imagine it in a few years, when it has been abandoned. (Photo by Simon Fraser University)

First published at The Daily Impact  October 1, 2014

Recent research suggests that fracking causes earthquakes; they have no doubt of that at the fourth largest trading and investment company in Japan — Sumitomo Corporation — which has just experienced a Magnitude 10. The profit Sumitomo expected to make this year, a hefty $2.27 billion, has been all but wiped out. News of the disasteratomized 13 per cent of its stock value in one day.  Its credit rating went to “negative.” And almost all of this was caused by hideous losses incurred in fracking for tight oil in Texas.

Sumitomo samurai rolled into Texas just two years ago (seems like only yesterday) with a $2 billion dollar investment in the Permian shale-oil play, in partnership with Devon Energy of Oklahoma. So here we have Japan’s fourth-largest trading company, along with one of the largest US fracking companies, going into the (potentially, according to the oil interests) richest tight-oil basin in the United States in the midst of a tight oil boom. What could possibly go wrong?

 Sumitomo has no idea. They have appointed a committee to try to figure it out. “It is difficult,” said a dazed-sounding statement from the top, “to extract the oil and gas efficiently.” They could not, as it turned out, expect enough production “to recover the investment.” Wow. Not much of a business plan there.

 What Sumitomo missed, as its investigating committee may or may not figure out, is that fracked wells are not at all like normal oil wells: they are twice as expensive to set up, many times more expensive to operate, and run out 10-20 times faster. The simple fact is that the wells are not paying for themselves. They look like they are going to, in their first year, but by the third or fourth year it’s clear that they are not going to. (For a devastating explanation of this point by the former head of research for a London money broker, see “Shale Gas: The Dotcom Bubble of Our Times.”)

Sumitomo is not alone in its mystification. Itochu Corporation, Japan’s third largest trading company, has written off 80 percent of a nearly $80 million investment in a US fracking company. And then there is Shell, which took a $2 billion hit last August as punishment for its shale-oil and -gas enthusiasm, and this year bailed out of a business in which it had been one of the largest players.

 Every Ponzi scheme and bubble is based on the Greater Fool hypothesis of investing, which is that the real value of the assets you’re buying don’t matter as long as you can find a greater fool, someone who knows even less about the assets than you do, who will buy them from you. When you run out of fools, the market crashes.

 With Sumitomo bailing now — that is, selling its leases — the search for the next greater fools is becoming really intense.  They are going to experience peak fools very soon. And then there is going to be an earthquake we will all feel.

***

Thomas Lewis is a nationally recognized and reviewed author of six books, a broadcaster, public speaker and advocate of sustainable living. He also is Editor of The Daily Impact website, and former artist-in-residence at Frostburg State University. He has written several books about collapse issues, including Brace for Impact and Tribulation. Learn more about them here.

« Last Edit: October 08, 2014, 03:45:11 AM by Surly1 »

Offline MKing

  • Contrarian
  • Sous Chef
  • *
  • Posts: 3354
    • View Profile
Re: Shale Oil Boom Breaking Down
« Reply #12 on: October 08, 2014, 08:53:06 AM »
No, this is not a Dallas suburb, it’s a fracking field. If you don’t like it now, imagine it in a few years, when it has been abandoned. (Photo by Simon Fraser University)

What is a "fracking field" Tom? This looks like Pinedale or Jonah to be honest.

Quote from: Thomas Lewis
Recent research suggests that fracking causes earthquakes;......

Actually fracking looks to be okay, the issues appear to be well integrity. Funny how folks knew this before all the hysteria ensued, but then they were probably really smart folks and knew something about wells and whatnot.

http://www.nola.com/politics/index.ssf/2014/09/faulty_well_integrity_not_frac.html

Quote from: ThomasLewis
And almost all of this was caused by hideous losses incurred in fracking for tight oil in Texas.

Amazing! And these Japanese folks, they brought their domestic oil and gas experts to Texas and figured they understood what was going on, based on their domestic experience in the vast oil and gas fields of Japan? Or did they make the mistake the same folks did who thought fracking was polluting groundwater, when in fact the experts always knew that couldn't be the problem?

Quote from: Thomas Lewis
>Every Ponzi scheme and bubble is based on the Greater Fool hypothesis of investing, which is that the real value of the assets you’re buying don’t matter as long as you can find a greater fool, someone who knows even less about the assets than you do, who will buy them from you. When you run out of fools, the market crashes.

Quite true. And the oil and gas business has been going since 1859 and 1825 respectively, so either they "fool accumulation" rate is really low, or they aren't  Ponzi scheme.
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
-Dalai Lama

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39123
    • View Profile
Re: Shale Oil Boom Breaking Down
« Reply #13 on: October 08, 2014, 10:01:51 AM »
Actually fracking looks to be okay, the issues appear to be well integrity.

OMFG.




RE

Save As Many As You Can

Offline RE

  • Administrator
  • Chief Cook & Bottlewasher
  • *****
  • Posts: 39123
    • View Profile
Fracker Fraud Exposed!
« Reply #14 on: October 10, 2014, 01:05:10 AM »
The LIES from the Fracker Shills are starting to see the Light of Day now.  :icon_sunny:

I gotta see if I can get John Lee from the University of Houston on for a Podcast.  :icon_sunny:

RE

Selling The Shale Boom: It's All About Reserves

EconMatters's picture



 

By EconMatters

 

Over a year ago, Netflix CEO Reed Hasting got into trouble with the SEC when Netflix stock price spiked 21% after Hasting boasted on his Facebook page that Netflix monthly viewing exceeded 1 billion hours 3 weeks before the company's scheduled earnings release.  At the time, we opined that

Ever since the collapse of Enron and Lehman Brothers, corporate executive behavior and communication has been under the microscope with increasing regulatory scrutiny. There’s a good reason why almost all Fortune 500 C-Suite executives are very cautious and tight-lipped when speaking to the public about anything with stock price moving potential ..... It is irresponsible for a CEO to announce something without all the facts and figures.    

Well, apparently we were too harsh on Hasting.  Bloomberg reported even more serious discrepancies rife in the U.S. shale industry (see also chart below from Bloomberg):

Sixty-two of 73 U.S. shale drillers reported one estimate [of oil and gas reserves] in mandatory filings with the Securities and Exchange Commission while citing higher potential figures to the public, according to data compiled by Bloomberg.   

Chart Source: Bloomberg.om

For example, Bloomberg cited Pioneer Natural Resources (PXD) Co.’s estimate was 13 times higher, while Goodrich Petroleum Corp. (GDP) was 19 times.  Bloomberg also noted the number PXD told to potential investors has increased by 2 billion barrels a year in each of the last five years -- even as the proved reserves it files with the SEC have declined.   Similarly, the investor presentation by Rice Energy (RICE) shows 2.7 billion barrels. Rice, which went public in January, reported 100 million barrels to the SEC in March, that's almost 27 times higher.

 

 

So in other words, these companies tell SEC one number, then can just turn around inflate that number to whatever 'estimates' companies believe to be 'probable' and/or 'possible'.  If you think executives would be held responsible for this kind of 'mis-communication', you would be wrong. Apparently it is legal and a common operational procedure as Bloomberg explains:

The SEC requires drillers to provide an annual accounting of how much oil and gas their properties will produce, a measurement called proved reserves, and company executives must certify that the reports are accurate.  

No such rules apply to appraisals that drillers pitch to the public, sometimes called resource potential. In public presentations, unregulated estimates included wells that would lose money, prospects that have never been drilled, acreage that won’t be tapped for decades and projects whose likelihood of success is less than 10 percent ........ 

Many of the companies use their own variation of resource potential, often with little explanation of what the number includes, how long it will take to drill or how much it will cost. The average estimate of resource potential was 6.6 times higher than the proved reserves reported to the SEC, the data compiled by Bloomberg News show.

Meanwhile, Bloomberg quoted comments from two of the drillers.  From the Chairman and CEO of Pioneer Natural Resources (PXD):

"Experienced investors know the difference between the two numbers........We’re owned 95 percent by institutions. Now the American public is going into the mutual funds, so they’re trusting what those institutions are doing in their homework.”

Here is the spokesperson of Marathon Oil chiming in:

Figures the company executives cite during presentations “are used in the capital allocation process, and are a standard tool the investment community understands and relies on in assessing a company’s performance and value,”

So this means Wall Street analysts model valuation, growth, and therefore stock recommendation based on 'estimate' that does not meet SEC reporting rules but thrown out by executives to tell a better story of their stocks to the potential investors?

 

 

Honestly, it seems even worse than Enron's off-Balance Sheet Financing scheme.  Ultimately, in the Enron aftermath, CEO Jeff Skilling is serving 14 years of a 24-year original sentence for misleading investors.  Unfortunately, that precedent does not seem to have made as much impact you'd think at least within the onshore E&P industry.  In that regard, we totally agree with John Lee, a Petroleum Engineering professor at University of Houston:

If I were an ambulance-chasing lawyer, I’d get into this.

This 'over-optimism' also opens up a whole new can of worms as to the current projection of U.S. oil reserves and production.  Is the U.S. really on its way to become energy self-sufficient as some may believe based on "resource potential"?  We certainly hope U.S. government checks all supporting data and facts before lifting the crude oil export ban.

 

 

According to Bloomberg, investors poured $16.3 billion in the first seven months of the year into mutual funds and exchange-traded funds focused on energy companies.  Our advise to retail investors -  Do your homework and double fact-checking, if something sounds too good to be true, it usually is.

« Last Edit: October 10, 2014, 01:11:36 AM by RE »
Save As Many As You Can

 

Related Topics

  Subject / Started by Replies Last post
7 Replies
2525 Views
Last post December 08, 2014, 01:57:48 AM
by jackbrouno
1 Replies
908 Views
Last post November 09, 2015, 04:01:03 PM
by MKing
9 Replies
1072 Views
Last post January 13, 2018, 12:19:00 AM
by RE