The Next Financial Crisis Lurks Underground (NYT)

[dalton99a]

https://www.nytimes.com/2018/09/01/opinion/the-next-financial-crisis-lurks-underground.html

The Next Financial Crisis Lurks Underground
Fueled by debt and years of easy credit, America’s energy boom is on shaky footing.
By Bethany McLean
Ms. McLean, whose book about Enron was turned into an Oscar-nominated documentary, is the author of a new book about the fracking industry.
Sept. 1, 2018

About 20 years ago, an entrepreneur named George Mitchell proved that it was possible to get lots of oil and gas out of parts of the earth long thought to be sucked dry, by injecting liquid at high pressure into a horizontal well below the surface. About 10 years ago, fracking — the common term for this process — began in earnest.

In that short amount of time, fracking in America has turned the energy world upside down. A decade and a half ago, Congress was hand-wringing about impending shortages of oil and natural gas. By the end of 2015, President Barack Obama lifted the ban against oil exports. Today, America is the world’s largest producer of natural gas and is an oil powerhouse, ready to eclipse both Saudi Arabia and Russia.

This has led to muscular claims about American energy wealth. Erik Norland, executive director of CME Group, a derivatives marketplace, calls fracking “one of the top five things reshaping geopolitics.”

This radical change has resulted in widespread concern about the impact of fracking on the environment, about earthquakes and water contamination. But another, less well-known controversy may prove to be more important.

Some of fracking’s biggest skeptics are on Wall Street. They argue that the industry’s financial foundation is unstable: Frackers haven’t proven that they can make money. “The industry has a very bad history of money going into it and never coming out,” says the hedge fund manager Jim Chanos, who founded one of the world’s largest short-selling hedge funds. 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.

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[SWBTATTReg]

1. What's pathetic about this whole mess is that when everything is done and gone w/, guess...

who's going to have to pick up the pieces and / or pay for new water sources (because existing water supplies are contaminated), as well as pay for clean up of fracking sites? US.

Happened before in history many times (that's why we have the EPA Superfund, so many businesses closed up shop and left us hanging w/ the bills).

Serious efforts must be made to go after these unscrupulous firms who knowing engaged in questionable fracking technologies w/ no evidence proving that these were safe technologies to use. In short, what you can't see underground won't hurt you, when in fact, this is not the case...look at the earthquakes in OK...I'm sure that this is impacting the quality of water coming up out of water wells down there.

Fracking, we seeing just the beginning of a very big mess...too much money put into these efforts too quickly allowing little oversight and regulation...and of course the firms that did this will be long gone...

[dalton99a]

2. Earthquakes in parts of West Texas and New Mexico that include the Permian have more than tripled

to 62 with at least a 2.5 magnitude in the past year, from just six two years earlier, according to the U.S. Geological Survey. That’s data environmentalists are quick to blame on the injections, pointing to studies on similar activity in Oklahoma.

https://www.rigzone.com/news/wire/drowning_in_dirty_water_permian_needs_22b_to_stay_afloat-29-aug-2018-156784-article/?all=hg2

[SWBTATTReg]

3. I did not know this but I'm not surprised. Thanks for the heads up! NT

[progree]

4. Is my math rusty? That looks like a ten-fold increase: from 6 to 62 (10.33 X actually)

Earthquakes in parts of West Texas and New Mexico that include the Permian have more than tripled
to 62 with at least a 2.5 magnitude in the past year, from just six two years earlier,

Granted, a 10.33 X increase is "more than tripled", but "more than tripled" still makes it sound like a lot less of an increase than it is. Either way, monstrous increase for just a 2 year period.

(I know that's a quote from the article, and not something you wrote).

[dixiegrrrrl]

5. "Frackers haven't proven that they can make money. ..."

Not true.

They have billions from loans. Loans that do not have to repaid when the companies go bankrupt, leaving all those "future sales of natural gas" unrealized.

In short, the Trump model of doing businesses.

[FakeNoose]

6. That's why the frackers wanted to see gasoline prices go up to $5.00 per gallon

They believed all along that they wouldn't make any money on the fracking (because of sunk investment costs) until the price of oil was was almost doubled. They've known for at least 30 years that they could get all the oil they wanted fracked out of the ground as long as the price jumped up near $5.00 per gallon.

Well it never got that high in most states, so they had to cut production costs instead. Like why worry about protecting the ground water? That costs money. Why worry about protecting surface vegetation or indigenous plants and animals? That costs money. Let's cook the books anyway we can to show a profit.

[NickB79]

7. Sounds like the Peak Oil theory is rising from the dead

When oil was $140/barrel, it was a trendy topic.

Then fracking took off, oil dropped to $40/barrel, and suddenly the idea of Peak Oil became a joke, because we were awash in it.

Looks like it was never wrong after all, because fracking was never a long-term solution.