Private-equity firms fueled the US shale revolution with $125 billion. Now they face a reckoning of epic proportions as the oil market melts down.

[Tom Kirkman + 8,860]

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Private-equity firms fueled the US shale revolution with $125 billion. Now they face a reckoning of epic proportions as the oil market melts down.

• The US shale revolution that propelled the country to energy dominance was backed in large part by private-equity firms. 
• Now, many of those firms may be at risk as the price of oil reaches 20-year lows and fuel demand evaporates.
• Small to midsize firms that specialize in oil and gas will have trouble raising funds in the future, while larger firms with diverse portfolios will be shielded, according to nearly a dozen experts.
• That puts the future expansion of America's oil and gas industry into uncertain territory. 

Extracting oil from a shale formation is not like puncturing a pressurized juice box with a straw. It's much harder. 

After digging down a mile or so, you have to turn the drill horizontal and drill for thousands of feet more, fire something called a perforating gun, and then pump in pressurized liquid that cracks the rock open, allowing oil and gas to seep out. 

This process, which gave rise to America's oil revolution, is expensive — far more expensive than methods used by many OPEC countries, which allows them to keep pumping even when oil prices are low.

And it's been financed, in large part, by private equity.

Over the last decade, private equity has helped propel the US to energy dominance. Firms dedicated to oil and gas have pumped $125 billion into North American ventures since 2008, according to data from Private Equity International (PEI), helping the US become a net exporter of petroleum.

But now PE funding is at risk of drying up, according to nearly a dozen experts Business Insider reached for this story. 

As oil prices plunge to 20-year lows, some oil-and-gas-dedicated PE firms may have no choice but to shutter their doors as their portfolio companies go bankrupt or struggle to yield returns, the experts said. 

The coronavirus pandemic made a bad situation worse

The problems for energy private equity didn't start with the coronavirus pandemic, said Greig Aitken, director of M&A at the consulting firm Wood Mackenzie and Kent Willetts, a managing director at the law firm Alvarez & Marsal. 

"What we saw going into this oil crash was that oil and gas markets were already very capital constrained," Willetts said. "Lenders were pulling back from the sector." 

Investors started losing confidence in the sector after the last price crash, which sent the cost of Brent crude from more than $100 a barrel in 2014 to under $30 a barrel in 2016, sources said. 

Then in 2018, the market wobbled again, Aitken said.

And so for the last two years, portfolio companies have struggled to achieve successful exits, he said, in part because energy giants have been shy to acquire more assets with so much market uncertainty. In fact, 2018 was the slowest year on record for global upstream M&A, he said. 

As a result, private-equity firms have had to hold onto their companies for far longer than the three to five years or so that's typical before a sale.  ...
 

 

[BLA + 1,666]

16 minutes ago, Tom Kirkman said:

 

Private-equity firms fueled the US shale revolution with $125 billion. Now they face a reckoning of epic proportions as the oil market melts down.

And it's been financed, in large part, by private equity

The coronavirus pandemic made a bad situation worse

The problems for energy private equity didn't start with the coronavirus pandemic, said Greig Aitken, director of M&A at the consulting firm Wood Mackenzie and Kent Willetts, a managing director at the law firm Alvarez & Marsal. 

 

Trump's oil bailout program (announced next week) will take care of the bankers. They never lose. 

Mnuchin and Trump will take care of them.  

 

 

Edited April 30, 2020 by BLA

[Jay McKinsey + 1,489]

36 minutes ago, BLA said:

 

Trump's oil bailout program (announced next week) will take care of the bankers. They never lose. 

Mnuchin and Trump will take care of them.  

 

 

But the question is what will they invest their bailout money in? Will they put it back into oil & gas or ?

[BLA + 1,666]

2 hours ago, Jay McKinsey said:

But the question is what will they invest their bailout money in? Will they put it back into oil & gas or ?

 

Probably.  

 

 

Edited April 30, 2020 by BLA

[Jay McKinsey + 1,489]

24 minutes ago, BLA said:

 

Probably.  

 

 

Seems unlikely until oil prices are back to at least $50. In the meantime they will be looking for other more stable investments. Renewables and EV are going to look mighty inviting.

Edited April 30, 2020 by Jay McKinsey

[BLA + 1,666]

8 minutes ago, Jay McKinsey said:

Seems unlikely until oil prices are back to at least $50. In the meantime they will be looking for other more stable investments. Renewables and EV are going to look mighty inviting.

Eh

[Tom Kirkman + 8,860]

4 hours ago, Jay McKinsey said:

But the question is what will they invest their bailout money in? Will they put it back into oil & gas or ?

This is a good question.  Shale oil investors may think twice after this latest crash.

[James Regan + 1,776]

9 hours ago, Jay McKinsey said:

But the question is what will they invest their bailout money in? Will they put it back into oil & gas or ?

LTO unconventional its tried and tested, its a winner....

[James Regan + 1,776]

5 hours ago, Tom Kirkman said:

This is a good question.  Shale oil investors may think twice after this latest crash.

Tom you underestimate the intelligence of these people, $50 they will be back at it.....

[James Regan + 1,776]

https://energypeople.com/news/story/the-death-of-u-s--oil

No big fancy editorial, just well written FACTS.....

[Piotr Berman + 82]

As we discussed, shale oil is but one of the types of oil resources with relatively large break even cost.  Tar oil of Canada seems to be a tragic story of similar scale, and Canadian outside oil region may now enjoy cheap dollar.  Increasing production created surplus on the global scale and a major shale oil company got bankrupt before the virus.  One should also note that the policies that lead to the collapse of oil export from Libya, Iran and Venezuela were protecting high cost producers until the latest supply shock.

A more rational use of shale oil resources would develop them more slowly, while also building the demand for natural gas, e.g. expansion of gas fired power stations, gas fueled vehicles etc., something advocated by Pickens.  The associated investments in pipelines and on the demand-side (modifications of power stations, trucks, buses and personal vehicles and other natural gas applications) would have longer amortization cycle, and with domestic gas prices closer to other continents, and with less pressure on the global prices of oil, the industry would be more robust.  After all, in shale oil and gas are produced together.  But private capital notoriously operates by herd instinct and ideologically, American regulators joined the herd.

One can compare it to the situation with silver in 19th century.  Initially, prices of silver were pegged to the price of gold.  Then there were many discoveries of silver deposits, the over-supply of silver broke the link of silver and gold prices, and we can visit many ghost towns if we vacation in Colorado and other Mountain states.

 

 

 

 

[Tom Kirkman + 8,860]

4 hours ago, James Regan said:

Tom you underestimate the intelligence of these people, $50 they will be back at it.....

underestimate or overestimate ?

[James Regan + 1,776]

1 hour ago, Tom Kirkman said:

underestimate or overestimate ?

Underestimate had to be some real smart people to pull that off for so long

Edited May 1, 2020 by James Regan

[Rasmus Jorgensen + 1,169]

17 hours ago, Tom Kirkman said:

Private-equity firms fueled the US shale revolution with $125 billion. Now they face a reckoning of epic proportions as the oil market melts down.

 

52 minutes ago, James Regan said:

Underestimate had to be some real smart people to pull that off for so long

You know - I am starting to believe that LTO agents in cahoots with China & Russia orchestrated this virus.... this so

1) They could get Trump to bail out LTO

2) Trump not get re-elected 

[BillKidd + 139]

7 hours ago, James Regan said:

https://energypeople.com/news/story/the-death-of-u-s--oil

No big fancy editorial, just well written FACTS.....

I read the article and note that the author refers several times to figure such-and-such and there are no figures on the page. Do you have any idea if that article exists anywhere else with figures intact?

EDIT:  Wow, I found it! And it is by none other than Art Berman. Been wondering when he would surface again. And it's right here on Oilprice.com!

https://oilprice.com/Energy/Crude-Oil/The-Death-Of-US-Oil.html

[RSD + 41]

7 hours ago, Piotr Berman said:

A more rational use of shale oil resources would develop them more slowly,

Oh you mean do something intelligent and develop them as warranted to meet demand?  Feck me they'll be joining OPEC next!

[Jay McKinsey + 1,489]

8 hours ago, James Regan said:

https://energypeople.com/news/story/the-death-of-u-s--oil

No big fancy editorial, just well written FACTS.....

One problem with his analysis is in regard to the correlation between GDP and oil consumption. Oil consumption has increased by 18% since 1970 (EIA uses product supplied to represent U.S. petroleum consumption.) But real GDP has increased by 280% and GDP per capita has grown by 142% over the same period. GDP and oil consumption are not nearly as correlated as he suggests.

[Prometheus1354 + 178]

8 hours ago, James Regan said:

https://energypeople.com/news/story/the-death-of-u-s--oil

No big fancy editorial, just well written FACTS.....

'FACTS'  Uhhhh No. More like 'the sky is falling' "Oil will Never recover"  ahem...  And wait for it 'Climate Change'...  (Lawd give me strength!!!) 

1. This 'article' was nothing more than an opinion piece worthy of nothing more than the underside of a birdcage..

2. Oil Will Recover. This 'downturn' was forced upon the economy as a whole. Not because of failings in economic fundamentals. But rather because of an Failing by leaders across the globe too see the COVID-19 Pandemic for what it has really turned out to be.  An assault on our free will. I'll get back too that in a moment.  Oil will recover for the following reason. As the author correctly states (one of the Few things) Energy IS the economy.  No energy, No Economic activities. Period. Full Stop.

3. Yes, the sector has been flush with investment monies that come with a price. At some point that money has too flow back too it's source lest the spigot is turned off.  But the claims that the sector will dry up an float away in the breeze by many is folly.  Yes, there will be re-trenching. Yes,  there will be casualties. Yes, the sector will look vastly different in 6 months too a year. But to claim, much less assert that Oil is doomed and beyond any realm of recovery is about as likely an outcome as the Falcons hopes of holding on too a 24 pt lead in the 4th quarter of a Superbowl…  (Go Pats!!)

4. Climate Change:  Since the days Billions of years ago, when the lava covered surface of Earth cooled and solidified and the 'bombardment' of & from comets and asteroids ensued bringing forth water. The climate has changed. From very warm too more temperate too periodic ice ages and back again.  For Billions of years this has been so. Science has proven this. Yet then as if too turn on a dime, science then up and says that Man is the cause of this.  Guess Haliburton was the cause of the last ice age...    

5. COVID-19:  The Wuhan virus was the result of extremely poor safety measures in a Bio weapons lab in Wuhan China.  The virus escaped (or was released) and the effects have brought the worlds economies too their knees..  Now I'm Not giving short shrift too the seriousness of the disease. I'm Not. But I do question the choices made by our leaders.  A total (near total) shutdown/shut in of the economy based on 'models/simulations'...  We were told the 'models' show as many as 2 Million Dead here in the US alone!  Guess those 'models' were by the same people who Declared HilLIARy would win in such a landslide as to make McGovern's loss too Nixon look like a close race...

[Dan Warnick + 6,100]

3 hours ago, Prometheus1354 said:

5. COVID-19:  The Wuhan virus was the result of extremely poor safety measures in a Bio weapons lab in Wuhan China.  The virus escaped (or was released) and the effects have brought the worlds economies too their knees..  Now I'm Not giving short shrift too the seriousness of the disease. I'm Not. But I do question the choices made by our leaders.  A total (near total) shutdown/shut in of the economy based on 'models/simulations'...  We were told the 'models' show as many as 2 Million Dead here in the US alone!  Guess those 'models' were by the same people who Declared HilLIARy would win in such a landslide as to make McGovern's loss too Nixon look like a close race...

Just loving/laughing at this part.  Well said.  Well said.

[James Regan + 1,776]

14 hours ago, Prometheus1354 said:

'FACTS'  Uhhhh No. More like 'the sky is falling' "Oil will Never recover"  ahem...  And wait for it 'Climate Change'...  (Lawd give me strength!!!) 

1. This 'article' was nothing more than an opinion piece worthy of nothing more than the underside of a birdcage..

2. Oil Will Recover. This 'downturn' was forced upon the economy as a whole. Not because of failings in economic fundamentals. But rather because of an Failing by leaders across the globe too see the COVID-19 Pandemic for what it has really turned out to be.  An assault on our free will. I'll get back too that in a moment.  Oil will recover for the following reason. As the author correctly states (one of the Few things) Energy IS the economy.  No energy, No Economic activities. Period. Full Stop.

3. Yes, the sector has been flush with investment monies that come with a price. At some point that money has too flow back too it's source lest the spigot is turned off.  But the claims that the sector will dry up an float away in the breeze by many is folly.  Yes, there will be re-trenching. Yes,  there will be casualties. Yes, the sector will look vastly different in 6 months too a year. But to claim, much less assert that Oil is doomed and beyond any realm of recovery is about as likely an outcome as the Falcons hopes of holding on too a 24 pt lead in the 4th quarter of a Superbowl…  (Go Pats!!)

4. Climate Change:  Since the days Billions of years ago, when the lava covered surface of Earth cooled and solidified and the 'bombardment' of & from comets and asteroids ensued bringing forth water. The climate has changed. From very warm too more temperate too periodic ice ages and back again.  For Billions of years this has been so. Science has proven this. Yet then as if too turn on a dime, science then up and says that Man is the cause of this.  Guess Haliburton was the cause of the last ice age...    

5. COVID-19:  The Wuhan virus was the result of extremely poor safety measures in a Bio weapons lab in Wuhan China.  The virus escaped (or was released) and the effects have brought the worlds economies too their knees..  Now I'm Not giving short shrift too the seriousness of the disease. I'm Not. But I do question the choices made by our leaders.  A total (near total) shutdown/shut in of the economy based on 'models/simulations'...  We were told the 'models' show as many as 2 Million Dead here in the US alone!  Guess those 'models' were by the same people who Declared HilLIARy would win in such a landslide as to make McGovern's loss too Nixon look like a close race...

Opinions - Exactly started well. Your points are very strong with a nuance of violence, sit up back straight take some deep breathes and concentrate on your breathing, keep eyes open dont blink and just relax from head to toes 12 to 21 mins you will feel less violent.....

[Douglas Buckland + 6,308]

49 minutes ago, James Regan said:

Opinions - Exactly started well. Your points are very strong with a nuance of violence, sit up back straight take some deep breathes and concentrate on your breathing, keep eyes open dont blink and just relax from head to toes 12 to 21 mins you will feel less violent.....

Coming from you, this is rich.😂

Any news on the rat rod?

[James Regan + 1,776]

3 hours ago, Douglas Buckland said:

Coming from you, this is rich.😂

Any news on the rat rod?

Ive started taking meditation classes with Master Po, I have noticed that OP has attracted a very militant bunch from the sand box recently and its messing with my chi. Im making a conscious effort to post less aggressive replies unless it's against the Shale Industry then even Grasshopper has problems. I don't generally take anyone seriously who feels they need to hide their identities behind warlord type names or greek philosophy, your not talking to a real person so its fair game. This forum would do well to demand a real traceable name it may stop some of this SPAM from both China and the West. FACT 

[James Regan + 1,776]

2 minutes ago, James Regan said:

Any news on the rat rod?

Going today, I know I said that yesterday, but the garage owner mother was sick, so we postponed for today, I will put another entry in the Blog, if he's done anything, today is supposed to be to discuss plan and timeline parts etc.

Edited May 2, 2020 by James Regan

[Tom Kirkman + 8,860]

41 minutes ago, James Regan said:

This forum would do well to demand a real traceable name it may stop some of this SPAM from both China and the West.

Agreed, but too late to implement a "real name" rule here.

[Douglas Buckland + 6,308]

2 hours ago, Tom Kirkman said:

Agreed, but too late to implement a "real name" rule here.

How about if we start an ‘amateur’ category for those who feel the need to use a ‘pen name’...🤔