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Tom Kirkman

Big Banks Pull Financing, Prepare To Seize Assets From Collapsing Oil and Gas Industry

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Just saw this 3 week old article.  It covers several notable points.  The U.S. oil & gas industry is still in for a world of hurt.


Big Banks Pull Financing, Prepare To Seize Assets From Collapsing Oil and Gas Industry

The finances of the oil and gas industry are so dismal that the major banks that have funded the money-losing fracking boom are now exploring taking the unusual step of taking over the oil companies that cannot afford to pay back the banks' loans.

Reuters reported that banks are exploring the option of seizing oil company assets because the more traditional route of bankruptcy will result in huge losses for the banks — while seizing assets and holding them until oil prices increase would likely minimize those losses.

Buddy Clark of law firm Haynes and Boone explained to Reuters that, “Banks can now believably wield the threat that they will foreclose on the company and its properties if they don’t pay their loan back.”

While banks seizing assets from borrowers who can’t repay loans is common for industries like real estate — especially residential real estate — it is an unusual move for the oil and gas industry. Reuters reported that the last time it happened was during the oil price crash of the late 1980s. In the most recent oil price crash, when oil dropped from prices over $100 a barrel to $40 a barrel, there was a rash of bankruptcies, but the banks did not seize assets.

One difference now is that shale oil companies have continued to increase debt — thanks to loans from the banks — to the point where most of these companies are not viable with low oil prices. As one industry observer recently noted in The New York Times, “This is late ’80s bad.”

More recently, in a remarkable opinion piece for Seeking Alpha, Kirk Spano advised investors to get out of the industry now with a unique twist on why this was urgent:

We are about to see a massive wave of shale oil bankruptcies by thieving executives who have borrowed against assets and paid themselves bonuses for years without regard to shareholder value.”

While DeSmog has commented on issues of potential industry fraud and executives paying themselves while the companies they ran lost money, it is a decided shift in sentiment when sites like SeekingAlpha are calling for investors to get out and then “sue the dirt out of the executives who have almost all broken fiduciary duties.”

Which is why banks are now considering seizing the assets of the failed oil  companies — it is a bad option for the banks but it is the best one left.  ...


... Fracking Existed Because of Debt, Without New Loans It Can’t Exist

As we have documented on DeSmog, for the past two years the U.S fracking industry has borrowed approximately $250 billion more dollars than it has made selling fracked oil and gas. This has made a lot of fracking CEOs very wealthy and much of that money has also gone to Wall Street bankers — and they won’t be giving it back.

Without the option to borrow more money, the industry will be decimated. In a New York Times op-ed last week journalist Bethany McLean highlighted this reality.

McLean’s book Saudi America highlighted the fatal flaws in the finances of the fracking industry and her current piece sums up the reality of the delusional finances of the fracking industry.

“In reality, the dream was always an illusion, and its collapse was already underway. That’s because oil fracking has never been financially viable,” writes McLean.

Things that are unsustainable usually do come to an end. One day.

— Bethany McLean (@bethanymac12) April 11, 2020

The banks know this, which is why they are no longer making loans to shale companies and are taking the last desperate step of seizing oil company assets.  ...


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