Fracking has been an “unmitigated disaster” for shale companies themselves, according to a prominent former shale executive.
“The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions,” Steve Schlotterbeck, former chief executive of EQT, a shale gas giant, said at a petrochemicals conference in Pittsburgh. “In fact, I'm not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.”
He did not pull any punches. “While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars,” he said. “The industry is self-destructive.”
The message is not a new one. The shale industry has been burning through capital for years, posting mountains of red ink. One estimate from the Wall Street Journal found that over the past decade, the top 40 independent U.S. shale companies burned through $200 billion more than they earned. A 2017 estimate from the WSJ found $280 billion in negative cash flow between 2010 and 2017. It’s incredible when you think about it – despite the record levels of oil and gas production, the industry is in the hole by roughly a quarter of a trillion dollars.
The red ink has continued right up to the present, and the most recent downturn in oil prices could lead to more losses in the second quarter.
So, questionable economics is not exactly breaking news when it comes to shale. But the fact that a prominent former shale executive – who presided over one of the largest shale gas companies in the country – called out the industry face-to-face, raised some eyebrows, to say the least. “In a little more than a decade, most of these companies just destroyed a very large percentage of their companies' value that they had at the beginning of the shale revolution,” Schlotterbeck said. “It's frankly hard to imagine the scope of the value destruction that has occurred. And it continues.”
“Nearly every American has benefited from shale gas, with one big exception,” he said, “the shale gas investors.”’ Related: China Launches World’s First Smart Oil Tanker
The industry is at a bit of a crossroads with Wall Street losing faith and interest, finally recognizing the failed dreams of fracking. The Wall Street Journal reports that Pioneer Natural Resources, often cited as one of the strongest shale drillers in Texas, is largely giving up on growth and instead aiming to be a modest-sized driller that can hand money back to shareholders. “We lost the growth investors,” Pioneer’s CEO Scott Sheffield said in a WSJ interview. “Now we’ve got to attract a whole other set of investors.”
Sheffield has decided to slash Pioneer’s workforce and slow down on the pace of drilling. Pioneer has been bedeviled by disappointing production from some of its wells and higher-than-expected costs.
But, as Schlotterbeck told the industry conference in Pittsburgh, the problem with fracking runs deep. While shale E&Ps have succeeded in boosting oil and gas production to levels that were unthinkable only a few years ago, prices have crashed precisely because of the surge of supply. And, because wells decline at a precipitous rate, capital-intensive drilling ultimately leaves companies on a spending treadmill.
Meanwhile, as the financial scrutiny increases on the industry, so does the public health impact. A new report that studied over 1,700 articles from peer-reviewed journals found harmful impacts on health and the environment. Specifically, 69 percent of the studies found potential or actual evidence of water contamination associated with fracking; 87 percent found air quality problems; and 84 percent found harm or potential harm on human health.
The health impacts have been a point of controversy for years, pitting the industry against local communities. The industry largely won the tug-of-war over fracking, beating back federal and state efforts to regulate it. However, the story is not over. Related: Philadelphia Refinery Explosion To Boost Gasoline Prices
In many cases, there is an abundance of anecdotal evidence pointing to serious health impacts, but peer-reviewed research takes time and has lagged behind the incredible rate of drilling. Now, the public health research is starting to catch up. Of the more than 1,700 peer-reviewed studies looking at these issues, more than half have been published since 2016.
One need not be an opponent of fracking to recognize that this presents a threat to the industry. For instance, a spike of a rare form of cancer has cropped up in southwestern Pennsylvania recently. The causes are unclear, but some public health advocates and environmental groups are pointing the finger at shale gas drilling, and have called on the governor to stop issuing new drilling permits. The Marcellus Shale Coalition, an industry group, said the request was “ridiculous.” The region is right at the heart of high levels of shale drilling, so any regulatory action coming in response the public health outcry could impact drilling operations. Time will tell.
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In the meantime, poor financials are the largest drag on the shale sector. “And at $2 even the mighty Marcellus does not make economic sense,” Steve Schlotterbeck, the former EQT executive said at the conference. “There will be a reckoning and the only questions is whether it happens in a controlled manner or whether it comes as an unexpected shock to the system.”
By Nick Cunningham, Oilprice.com
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Demand for oil and gas has flat-lined but no one wants to talk about it as they line up the 'last fools' to invest in this dying sector.
Don't believe me: the world doesn't need oil from Venezuela, Libya, Syria, Iran, Iraq, or Canada.
The price of crude would be much higher if the world did need any one of these producers, but it continues to hover around break-even prices, or lower.
This is the reason DumbTrump is picking a fight with Iran and destroying so much of the Middle East: he needs to prop up Saudi and US oil by removing as much competitive crude from the market as he can.
Granted, it was one of the only ways actual people could get their hands on Wall Street money since taxes are only for the poor to pay in the US, but the price still to pay really is not worth it.
Today, and really since the ‘14 price reset, the market pays for value. Companies that are cash flow positive and generating free cash flow are rewarded by the market for demonstrating they can live within their means. Acquisitions today must be more strategic, and are heavily scrutinized, rather than immediately rewarded.
In some companies, boards are still grappling with this new paradigm, as they all came up in a growth era. But the economics of shale are unquestionably there - its the strategic management of the assets that is changing today to deliver value. The industry is adapting.
It’s a good thing too, because out of all the signers of the Kyoto Protocol, the US (which didn’t sign) is the only country that met those targets. It could only be accomplished by natural gas, and the shale revolution is solely to thank for that.
Despite marketing efforts, it is generally understood in the utilities sector that renewables are still decades away from the holy trinity: scalable to metro areas, truly economic and technologically feasible. Nat gas is the only thing today and in the foreseeable future that gets us there.
The only thing they left out was the children. You get much more hysteria by claiming children are dying. What a missed opportunity. Better put it in the next anti-carbon, anti-human article.
The rest of the story outlines how to make profits from losses, and shows how the markets are completely gamed.
Let's use the example of Pioneer Natural Resources.
PNR is owned by Propetro Holding Corp.
The largest shareholders of Propetro include money management/investment giants such as Vanguard, BlackRock, State Street (the "Big Three"), Wellington Management, and others.
These largest shareholders are similarly the largest shareholders of the largest corps that are benefitting from Pioneer's spendind/losses...such as on heavy equipment, transportation, software, tech, pipelines, and so on.
It's money kept in the same cartel family of investment firms, transferred from one owned corporate asset to another.
The only shareholders that truly lose out are those not similarly invested in the corps on the receiving end of that spending.
The entire stock market is gamed this way.
Those largest shareholders have the holdings, thus power, to determine operational control of their held corporate assets.
This is all publicly available info using fintel, or by viewing SEC 13f filings.
These largest institutional shareholders even exist as the largest shareholders/investors of each other.
One huge cartel controlling the markets, and economy.