The Big Bust In The Oil Fields
TILDEN, Tex. Hed borrowed from banks and investors and retirement funds, all in a frenzied mission to drill for oil and gas, and by the time Terry Swift realized hed gone too far, this was his debt: $1.349 billion.
His company, founded by his father almost 40 years earlier, had plunged into bankruptcy and laid off 25 percent of its staff. Its shares had been pulled from the New York Stock Exchange. And now Swift was in a company Chevrolet Tahoe, driving back to the flat and dusty place where his bets had gone bust.
Swift was coming to this energy-rich strip of South Texas trying to grapple with how much blame he shouldered for the failure of his company. A low-key and historically cautious oil chief executive who eschews private jets and orders low-fat salads for lunch, he had made what he thought was the best financial move of the past decade a gamble on rising oil prices and yet was ensnared in an industry-wide craze of dangerous debt.
Maybe we were wrong to believe there wouldnt be a bust this bad, Swift, 60, said, as the Tahoe rumbled south of San Antonio. It didnt even feel risky.
Swifts miscalculation has made his company, Swift Energy, a casualty of the greatest wave of financial defaults since Americas subprime mortgage crisis ravaged the U.S. economy. For him, its a painful low point in his familys 111-year journey in American oil, one that started when his great-grandfather set up a series of storage tanks in the plains outside of Tulsa. And its a jarring reversal from just a few years ago, when Swift felt as if hed taken his company to a pinnacle by capitalizing on a massive surge in U.S. energy production one that promised an era of American energy independence thanks to revolutionary new technologies.
This new wave of bad loans isnt the same magnitude of the housing bust, but it reflects similar behaviors. Borrowers feasted on what Bloomberg estimates was $237 billion of easy money without scrutinizing whether the loans could endure a drastic downturn. The consequences are far-reaching: The U.S. oil industry, having grown into a giant on par with Saudi Arabias, is shrinking, with the biggest collapse in investment in energy in 25 years. More than 140,000 have lost energy jobs. Banks are bracing for tens of billions of dollars of defaults, and economists and lawyers predict the financial wreckage will accelerate this year.
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