Think Shale companies are overloaded with debt? How about the top ten corporate debtors in the US?

[wrs + 893]

Four of the top ten are in the telecommunications sector which has always been fueled by massive debt bubbles.  It's funny how people want to rail against shale but the waste in telecommunication and worthless social media spending overwhelms the money spent on shale by an order of magnitude.  Don't believe me?  Read this article if you dare.

https://wolfstreet.com/2019/07/26/the-most-indebted-companies-in-america/

None of the top 10 produce any energy, they all consume energy.  What would be the fate of their debts without the shale oil from the Permian?  The economy could not sustain them without that oil so for the haters, think about what happens if the oil didn't get produced.  The debts of these other companies along with the US federal govt would most likely be defaulted by now.

[Old-Ruffneck + 1,220]

9 minutes ago, wrs said:

Four of the top ten are in the telecommunications sector which has always been fueled by massive debt bubbles.  It's funny how people want to rail against shale but the waste in telecommunication and worthless social media spending overwhelms the money spent on shale by an order of magnitude.  Don't believe me?  Read this article if you dare.

Interesting!! Look at the whole list of 46 and quite surprising that much debt is out there. Ford shares are about worthless. If I ran my business like these goliaths do, IRS would have shut me down long ago.    Good read anyways...….

[Jan van Eck + 7,558]

1 minute ago, Old-Ruffneck said:

If I ran my business like these goliaths do, IRS would have shut me down long ago.

These giant entities are, as a practical matter, both immune to and impervious to any type of supervision by anyone - both governmental (IRS) and by private shareholders.  They become creatures of management ego, self-dealing, and largesse.  And it is these monsters that become the source for orders for private jet fleets, employ lots of pilots, and the obligatory fleets of limousines and New York City extravagant head offices and apartments.  Don't kid yourself:  the management simply milks the beasts for their own profit.  Jack Welsh is the premier example.  Shareholders be damned. 

[esgeo + 54]

https://ourfiniteworld.com/2016/05/02/debt-the-key-factor-connecting-energy-and-the-economy/

This is an interesting article worth reading on the subject.  I think the most important takeaway from the piece is: 

3. Rising debt allows for a temporary false valuation of the benefit of energy products. The true value of oil and other energy products comes primarily from the Btus of energy they provide, such as how far a truck can be made to travel. Thus we would expect that the true value of energy products would remain relatively constant over time. If anything, the value of energy products will tend to rise by a small amount (say, 1% per year) as technology improvements lead to growing efficiency in their use.

What we think of as the magic hand of the economy determines a price for commodities at all times, based on “supply” and “demand.” This price clearly is not very close to the future energy profit that the energy products will actually provide, because it tends to vary widely over time. We don’t know what the true value of a barrel of oil to society is. If the true value is $100 per barrel (in today’s money), then back when oil prices were $10 or $20 per barrel (in today’s money), there would have been $80 to $90 (equal to $100 minus the actual price) of “energy profit” that could be pumped back into the economy as productivity gains for workers, interest on debt, and dividends on stock, tax revenue, and money for new investment. The economy could (and did) grow quickly. There was less need for added debt, because goods made with oil were cheap. Wages for workers could rise rapidly, as they did in the 1950 to 1968 period (Figure 4).

If prices approach the true value of oil (assumed to be $100 per barrel), the extra energy profit would pretty much disappear. The economy would increasingly become “hollowed out.”  Productivity gains that lead to wage gains would mostly disappear. Businesses would find it hard to earn adequate profits, and would cut back on dividends. Some companies might need to borrow money in order to pay dividends. World economic growth would slow.

Prices can even temporarily overshoot their true value to the economy, then drop sharply back. This happens because prices are set by demand, and demand depends on a combination of wage levels and debt levels. Oil prices can be high for a while, if borrowing is temporarily high, and then fall back as it becomes clear that profitable investments are not really available if oil is at such a high price level.

Basically shale has transformed the feedbacks described above into something that can be dragged out over a much longer duration.  According to this author (and I tend to agree), the telecom industry is something that exists because of the "energy profit" that exists. However, if your "energy profit" is really just an illusion masqueraded by increasingly weakening debt-financed reserve replacement (as opposed to addition/growth), then the whole system is essentially a "house of cards." Sure, there are plenty of people (like yourself and myself) profiting from the system, but on paper from a long view, it is problematic. 

 

[Ward Smith + 6,615]

9 hours ago, wrs said:

Four of the top ten are in the telecommunications sector which has always been fueled by massive debt bubbles.  It's funny how people want to rail against shale but the waste in telecommunication and worthless social media spending overwhelms the money spent on shale by an order of magnitude.  Don't believe me?  Read this article if you dare.

https://wolfstreet.com/2019/07/26/the-most-indebted-companies-in-america/

None of the top 10 produce any energy, they all consume energy.  What would be the fate of their debts without the shale oil from the Permian?  The economy could not sustain them without that oil so for the haters, think about what happens if the oil didn't get produced.  The debts of these other companies along with the US federal govt would most likely be defaulted by now.

Not to mention, we don't see any of the "usual suspects" from the shale patch on that list. There are a few majors, but I'm not seeing any mid major shale players anywhere. What would @Nick Cunningham have to say? Bbbuutt cash flow! Like any of THESE companies are judged by cash flow? 

I said much the same in an argument here months ago when I tried to compare Amazon to the players in shale. Was jumped on quite a bit as I recall, like Amazon had anything to do with corporate America! 

[Douglas Buckland + 6,308]

23 hours ago, wrs said:

Four of the top ten are in the telecommunications sector which has always been fueled by massive debt bubbles.  It's funny how people want to rail against shale but the waste in telecommunication and worthless social media spending overwhelms the money spent on shale by an order of magnitude.  Don't believe me?  Read this article if you dare.

https://wolfstreet.com/2019/07/26/the-most-indebted-companies-in-america/

None of the top 10 produce any energy, they all consume energy.  What would be the fate of their debts without the shale oil from the Permian?  The economy could not sustain them without that oil so for the haters, think about what happens if the oil didn't get produced.  The debts of these other companies along with the US federal govt would most likely be defaulted by now.

Two wrongs don't make a right. This is an 'oil' site, if you go out of your way to compare the shale fiasco with fiascos in other industries you are comparing apples to oranges. Furthermore this in no way justifies the fiscal irresponsibility endemic in the shale oil industry.

[wrs + 893]

38 minutes ago, Douglas Buckland said:

Two wrongs don't make a right. This is an 'oil' site, if you go out of your way to compare the shale fiasco with fiascos in other industries you are comparing apples to oranges. Furthermore this in no way justifies the fiscal irresponsibility endemic in the shale oil industry.

Sorry but this is the way US business is run, it's not just shale and that is my point.  Criticizing shale oil companies for doing the same as the rest of the US business sector does as a matter of practice is fatuous. No one has a hope of figuring out if those companies can ever pay off their debts with the products and services that they produce.  The US itself has no hope of paying it's debt off from the taxes paid to it.  The constant whining about shale debt is just a bunch of noise by people who have a bias against shale.

Edited July 30, 2019 by wrs

[John Foote + 1,135]

9 hours ago, wrs said:

Sorry but this is the way US business is run, it's not just shale and that is my point. 

I've raised this point before. And today we've got the White House putting pressure on the Fed to lower rates, that are already too low. Too low as a stimulus in a hardship situation is one thing, but years of this, essentially since Tarp 1 (late Bush43) has created massive asset inflation as so much is owned with debt. And with modern leveraging, the money supply is almost uncontrollable. It's not the old 90% loaned out, and 10% or something to cover with. The leveraging is worse than the free money.

If you can get someone else to own the risk, and the money is very low cost, it's practically irresponsible on the individual business level not to use debt. 

The real debt ceiling is when overseas entities decide they are deep enough with us, less risk elsewhere. Then rates will rise, no matter what the Fed does, unless it's the pure print more money routine, which usually turns out badly. For now there is too much money out there to without loans. And the bubble expands.

[Old-Ruffneck + 1,220]

2 minutes ago, John Foote said:

And the bubble expands.

And making the almighty dollar yet more worthless. 😕

[John Foote + 1,135]

Just now, Old-Ruffneck said:

And making the almighty dollar yet more worthless. 😕

You know I am not happy about it. The balloon popped in '2008, we've just been pumping air into it faster than it leaks. That won't sustain.

[Old-Ruffneck + 1,220]

4 minutes ago, John Foote said:

You know I am not happy about it. The balloon popped in '2008, we've just been pumping air into it faster than it leaks. That won't sustain.

Expect another "pop" shortly. Free money is not good for anyone. 

[footeab@yahoo.com + 2,187]

49 minutes ago, Old-Ruffneck said:

Expect another "pop" shortly. Free money is not good for anyone. 

Oh it is wonderful for the banksters.  They get to buy up companies because they get first movers rights to "magic money." Creating an oligarchy monopoly and the country goes to Shit as now all the companies have banksters(mutual funds and other finance "institutions") as their board members who do not know ONE SHIT about producing a good or service and take ZERO risk.  Stagnation

All they care is that the dividends keep pouring in and stock price stays high.  So R&D gets Screwed for short term profits, and the manufacturing base gets shipped to lowest cost labor without regulations propping up dictator regimes.  End result: middle class gets shredded as no one can save $$$ as it loses value quickly, so they go into debt or are lured into debt, and trade jobs vanish for the average working class.  Another end result?  Banksters who now own the stock of the big corporations want even bigger corporations in direct violation of the Sherman anti trust act, but buy them off and likewise; they want no tariffs, as this would mean they might have to have a moral backbone tying trade to freedom/rights as was done after WWII. 

[Rasmus Jorgensen + 1,169]

On 7/31/2019 at 1:01 AM, John Foote said:

Too low as a stimulus in a hardship situation is one thing, but years of this, essentially since Tarp 1 (late Bush43) has created massive asset inflation as so much is owned with debt

I often wonder and worry would happen if another real crisis hit. It doesn't seem like there is much dry-powder left outside China.