America’s Oil Boom Is Unsustainable

[Tom Kirkman + 8,860]

So I changed the article's clickbait title to something a bit more even-keeled.  Bear in mind this article is from an investment site, so it can have its own peculiar and hyperventilating biases.  But I found this bit about U.S. Shale Oil pretty much dead on accurate, in my opinion.

America’s Oil Boom Is a Fraud

... this week, a report in The New York Times described the big mistake in the shale oil boom.

You’ll recall that it turned America from a big importer of oil to a major exporter… and revived much of the heartland with big fracking projects in woebegone regions of Texas and North Dakota.

The shale oil boom was even credited with having scuttled the oil market, which dropped from a high of around $130 a barrel in mid-2008 to under $30 in late 2016, thanks to so much new supply.

But guess what? The whole boom was fake. It didn’t add to wealth; it subtracted from it. Accumulated losses over the last five years tote to more than $200 billion, with $36 billion lost in the Bakken shale fields in North Dakota alone.

Had credit been priced properly, it never would have happened. From The New York Times:

The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.

These companies have survived because, despite the skeptics, plenty of people on Wall Street are willing to keep feeding them capital and taking their fees. From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That’s what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.

But Chesapeake bled cash. From 2002 to the end of 2012, Chesapeake never managed to report positive free cash flow, before asset sales.

 

[Jan van Eck + 7,558]

So what?   The point is not that the oil is coming out financially upside-down; the point is that the oil is down that and is fully extractable, in vast quantities.