The Great American Shale Oil & Gas Massacre: Bankruptcies, Defaulted Debts, Worthless Shares, Collapsed Prices of Oil & Gas

The bankruptcy epicenter is in Texas.

By Wolf Richter for WOLF STREET.

The Great American Oil Bust started in mid-2014, when the price of crude-oil benchmark WTI began its long decline from over $100 a barrel to, briefly, minus -$37 a barrel in April 2020. Bankruptcies of US companies in the oil and gas sector started piling up in 2015. In 2016, the total amount of debt listed in these filings hit $82 billion. Bankruptcy filings continued, with smaller dollar amounts of debt involved. In 2019, the shakeout got rougher.

And this year promises to be a banner year, as larger oil-and-gas companies with billions of dollars in debt collapsed, after having wobbled through the prior years of the oil bust.

The 44 bankruptcy filings in the first half of 2020 among US exploration and production companies (E&P), oilfield services companies (OFS), and “midstream” companies (gather, transport, process, and store oil and natural gas) involved $55 billion in debts, according to data compiled by law firm Haynes and Boone. This first-half total beat all prior full-year totals of the Great American Oil Bust except the full-year total of 2016:

The cumulative amount of secured and unsecured debts that the 446 US oil and gas companies disclosed in their bankruptcy filings from January 2015 through June 2020 jumped to $262 billion:

The three biggies: In the first half of 2020, nine of the 44 US oil and gas companies that filed for bankruptcy listed over $1 billion in debts, including the three biggies with debts ranging from $9 billion to nearly $12 billion, according to data by Haynes and Boone.

These three companies – oil-field services companies Diamond Offshore and McDermott and natural-gas fracking pioneer Chesapeake – are the biggest in terms of debts that have toppled in the Great American Oil Bust so far. Those three companies combined listed $31 billion in debts, accounting for 56% of the $55 billion in total debts listed by all 44 companies to file so far this year:

Bankruptcy epicenter is in Texas.

Since 2015, there have been 239 bankruptcy filings by oil-and-gas companies in Texas – the largest oil producing state in the US – of the 446 total US filings. So far this year, Texas accounts for 39 filings of the 44 total filings in the US.

Of note, Chesapeake is headquartered in Oklahoma, but it filed in U.S. Bankruptcy Court for the Southern District of Texas and counts as a Texas bankruptcy.

Delaware’s major industry is not oil and gas, but coddling corporations, and many oil-and-gas companies are incorporated in Delaware and they’re filing for bankruptcy in Delaware – hence the state’s second place among states with the most oil-and-gas bankruptcy filings since 2015:

The price-collapse of crude oil and natural gas.

The Great American Fracking Bust took on absurd proportions when the price of WTI in the futures market plunged to minus -$36.98 on April 20, 2020, in an epic WTF moment for the entire oil industry. Since then, the price has bounced off and currently trades just over $40 a barrel, where the US fracking industry is still burning large amounts of cash:

Fracking has turned the US into the world’s largest producer of natural gas. The flow of cash into this sector has been epic. Chesapeake was on the forefront here, both in terms of boosting natural gas production and in terms of bamboozling investors into handing over billions of dollars that it then efficiently burned year after year.

The ensuing natural-gas glut has crushed the price of natural gas – despite enormous efforts and investments to export natural gas via pipelines to Mexico and via LNG export terminals to the rest of the world. But whenever there was new demand, it was out-powered by higher production as the cash kept pouring in, and the price continued to fall, currently at $1.83 per million Btu:

There have been side effects too. The crushed price of natural gas – plus the arrival in the 1990s of a technical innovation, the highly efficient combined-cycle gas turbine for power plants (GE’s explanation) – began a process whereby coal could no longer compete on price with natural gas for power generation.

New natural-gas-fired power plants were built, coal-fired power plants were retired. Demand for thermal coal collapsed, as did the price. Eventually all major coal mining companies filed for bankruptcy, a bunch of them twice. That was collateral damage of these billions of dollars of investor cash that kept flowing into fracking.

Surviving in this pricing environment for overleveraged permanently cash-flow negative companies in the fracking business has proven to be tough – and for investors, who kept buying their hype over the years, it has turned into a massacre.

Investors have not only poured billions of dollars into supplying these companies with debt capital – including the $262 billion listed in bankruptcy filings since 2015 – but also into supplying them with equity capital as these companies sold new shares to raise money, and these billions in equity capital have now disappeared without trace. Those billions from those share sales don’t even get mentioned in bankruptcy filings.

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  128 comments for “The Great American Shale Oil & Gas Massacre: Bankruptcies, Defaulted Debts, Worthless Shares, Collapsed Prices of Oil & Gas

  1. Seneca's cliff says:

    Should be bullish for RE prices in Houston and Dallas.

    • Pie-O-My says:

      also Texas North, i.e. Alberta, Canada;

      understand, the only way Canadian oil sands are viable is through USA fracked gas from the Marcellus shale;

      US gas goes up to canada oil sands, which need a lot of energy and water per unit recovered, then they send that OIL back down to the usa so that the FRACKERS can USE IT, to frack and then send it back up; SEE?

      nice racket aint it?

      • Paulo says:

        Most of Alberta’s NG consumption comes from BC, next door. The NG liquids, (think naptha) dilutes the bitumen so it can be pumped in pipelines. The dilutent is then removed at the refinery and shipped back to be used again for heavy oil transportation. In SITU oil sands production also produces NG as part of the process.

        Any NG liquids from the US used in synthetic crude transportation is pretty much the only market for these SHALE products. It usually comes from SHALE oil production, and not from NG producers.

        • Pie-O-My says:

          yeah my understanding is obviously coarse and dated; but my question then would be: are canadian oil sands less dependent on us ng than ten years ago? to what extent? how? when did bc discover ng fields and set up the pipes to send it to athabasca in the past 10 years?

          i seriously doubt bc “next door’ has the volume, quality and/or has set up the infrastructure and money flow during the past 10 years to supplant us ng from marcellus region to canadian oil sands. the entire point of the XL pipeline is us fracked gas, otherwise energy transfer partners would be setting up XL BC pipeline.

          sorry man what you say dont make sense.

        • MarMar says:

          Natural gas is not just used as a diluent. It is also used to generate heat for steam injection into the tar sands. It may also be used to generate heat for the initial rounds of cracking (pre-refining the tar sands before transport to full refiners).

          In a very real sense, cheap natural gas is laundered into gasoline via tar sands.

        • Pie-O-My says:

          @marmar yup you nailed it thank you

        • RDE says:

          Don’t forget that NG doesn’t simply run through a pipeline like water running downhill. It must be pressurized and re-pressurized to overcome friction with the pipe casing. In practice that means 5-7 large aircraft style gas turbines running 24/7 at intervals of 150km or so along a major line. About 10% of the energy potential that enters the source end of the pipeline is lost in transit.

          I worked with a fluid dynamics engineer— veteran of the Icelandic Deep Drilling project to develop proposals to capture that waste energy.

        • Pie-O-My says:

          @RDE thanks for that exp[explanation i had no idea, that’s an insane engineering feat, the whole gas pressurization and pipeline transfer etc; humans are fucking amazing, too bad we’re such dumb ass holes; Iceland has some nice geothermal work.

        • pie-o-my says:

          actually… really.. FUCK WHAT I just SAID :D
          no…

          seriously tho

          who lives in …not ice and ocean but got money on this thing?

        • Wolf Richter says:

          pie-o-my,

          Next F-word will auto-trigger the delete button. I tried to pass on the message to you earlier, when you had a bunch of F-words in just one comment, but it didn’t seem to register.

          Also, here are my commenting guidelines. Please read them (thank you!):
          https://wolfstreet.com/2017/10/07/finally-my-guidelines-for-commenting/

      • Malcolm Torpe says:

        Which pipeline sends natural gas from US to Ft McMurray oil sands development?

    • M says:

      Given what I just learned about the infection spikes in Texas, I do not see RE prices going up anytime soon, in Texas or in any of the states with increasing clusters. Warnings by scientists were ignored and now we will pay the price, unlike in the EU.

      I understand why many people were worried about losing their jobs or wealth or businesses. However, the consequences of the increasing clusters are not avoidable.

      We have never reformed our health care system, so testing was slow, many did not seek to be tested or treated in time, and we lost track of the infected persons because our healthcare system is the worst and most expensive among developed nations according to many, independent studies. I believe that is because, as Simon Johnson pointed out in “The Quiet Coup,” the banksters rule the US: they are too greedy to give up the $100 billion annual profits that they get from their dishonest, health insurers.

    • Meremortal says:

      Agreed, smashing supply and future production and delaying pipeline construction will lead to much higher prices. I’m positioned, will add to the positions.

      Remember what happened when Obama tried to kill the energy industry?

      He forgot a couple of things. Around 30% of all oil use worldwide is now non-fuel in nature and increasing.

    • M.A.F. says:

      Expect a large number of individual chapter 7 bankruptcies across the oil patch as well. Too many landholders have come to rely on royalty payments and have banked on it to keep flowing. When those checks stop coming and they realize they get nothing from the company’s bankruptcy, they will not be happy and broke.

  2. Joe says:

    Add to this Canada’s oil sands companies too.

  3. Gandalf says:

    Yes, but if you strip away all the nasty Dem Lib guvmint regoolashuns on coal mining and coal fired power plants, and let them once again pollute the air, land, and water at will, those COAL MINING JOBS WILL RETURN!! Coal will be king again!

    • Cas127 says:

      G,

      What does a coal rant have to do with *oil* bankruptcies…the end use is almost 100% different (electricity generation v. transportation)?

      • Wolf Richter says:

        Cas127,

        The link between coal and shale is natural gas, both of which compete directly in the power generation market – the article being about “shale oil & gas” companies and the prices of oil and natural gas.

        This is from the article above, right under the natural gas chart:

        There have been side effects too. The crushed price of natural gas – plus the arrival in the 1990s of a technical innovation, the highly efficient combined-cycle gas turbine for power plants (GE’s explanation) – began a process whereby coal could no longer compete on price with natural gas for power generation.

        New natural-gas-fired power plants were built, coal-fired power plants were retired. Demand for thermal coal collapsed, as did the price. Eventually all major coal mining companies filed for bankruptcy, a bunch of them twice. That was collateral damage of these billions of dollars of investor cash that kept flowing into fracking.

        • Pie-O-My says:

          Depending on different greenhouse emission scenarios (IPCC 2019; van Vuren et. al. (2011), including the CO₂ forcing-equivalents of methane (CH4) and nitrous oxide (N2O), the total CO₂–equivalent rise has reached 496 ppm (NOAA, 2019).

          500 parts carbon or equivalent heating per million vs 280 ppm per-industrial;

          Siberian arctic hit 104F, thats hotter than dt las vegas in mid-july 2020;

          permafrost in alaska is emitting more co2 than the enitre us car fleet;

          get ready for gigaton methane releases from east siberian sea shelf;

          methane is 80 times hotter than co2…gigaton releases of methane will lead to at least an additional 2-4 degrees increase in Fahrenheit in global average temperature within 10-15 years.

          at plus 3-4 degrees Fahrenheit from today, food cannot be grown on land an any mass scale, and most life on earth dies.

          at plus 2 F from now nuclear power reactors will fail to cool their holding pools leading to massive and wide spread failures of nuclear containment around the planet which will lead to massive planetary electrical power failures.

          we are close to death.

        • Thor's Hammer says:

          Wolf,
          Energy policy decisions don’t take place in a political vacuum nor do they have much to do with free market competition. And they certainly don’t take place in a decision matrix that has any relationship to the sustainability of the resource base or the environmental costs of the technology employed. Describing the actual historical/ideological/political process by which energy policy decisions are made is the subject of a 1,000 page book, not a single paragraph post!

          If energy policy were based upon technological, long term sustainability or rational decision criteria we would now be producing all our electric power from unpressurized liquid salt Thorium reactors as first designed and tested by Alvin Weinberg at Oak Ridge shortly after the Manhattan Project.

      • Gandalf says:

        … and just to pile on…

        The point is that the political pitch to coal country voters such as in West Virginia that the loss of their jobs was all due to excessive Dem Lib environmental, safety, and health regulations is utterly bogus

        Large swaths of such regulations have been done away with by the current administration. Coal mines are now free to pollute the local streams and fields at will again. Coal fired power plants no longer have to have strict air pollution filters and scrubbers to remove dust, sulfur, metal toxins, etc that they release into the air.

        Natural gas is primarily methane CH4, with only one carbon atom and four hydrogen atoms compared to coal, which gets ALL its energy from carbon. Burning natural gas releases 50-60% less CO2 per energy unit compared to coal

        Coal has not made a comeback with power plants. You would have to be remarkably dense not to see the higher cost of coal compared to natural gas even with all the coal mines now liberated to pollute at will

        Coal mining jobs have not made a comeback either. The REALITY is that the #1 cause of the loss of coal mining jobs over the decades was….. surprise!!…… MECHANIZATION of coal mining, which has allowed machines to do the work of hundreds of miners. This decrease in coal miner jobs actually started in the 1980s in the REAGAN administration.

        But pollution from coal is making a comeback, thanks to the Super Spreader Denier In Chief

        • tom says:

          Wow…this is the new zero hedge.

        • Wolf Richter says:

          Gandalf,

          Coal (and thereby pollution from coal) is not making a comeback – it’s not cost-competivie even with regulations loosened. March coal consumption in the US dropped to a new multi-decade low.

        • Thomas Roberts says:

          Gandalf,

          Fracking has lead to a lot of methane emissions, which outweigh the reduction in CO2; As methane is a much more potent greenhouse gas. The disgusting way coal is mined now and the reduction in pollution standards for coal is very troubling though. Both fracking and mountain top removal, hugely damage the environment.

          I’m not sure if this exact number is accurate, but, I’ve heard that if even 1% of natural gas leaks out from the moment it’s fracked, then through all those leaky pipelines (and they are leaky), finally to and at the power plant, it’s worse than coal (this is not counting the local damage fracking does).

          In America, coal done right is cleaner, cheaper, and generally better than using natural gas for power. It’s still not exactly great, but, for the time being, it’s the only realistic option for majority of electricity generation.

          Fracking for natural gas is only possible, because, of loans that cannot be repaid. There is only so much natural gas that can be extracted in the better ways.

          Another issue that usually doesn’t get brought up, is that frackers have chosen the best available fracking spots first, and even if nothing else changes the output per input will probably drop over time.

          For those who don’t know, the amount of power people use, varies throughout the day, but, most power plants cannot adjust on demand to meet this. Natural gas is the only major kind of power plant that can be adjusted.

          The best solution is to maximize renewables to the point that makes sense. Use coal for the rest of baseline demand and use natural gas only for peak demand and when it makes sense. The natural gas used wouldn’t come from fracking.

          The only way to stop using fossil fuels for electricity is either fusion power or a combination of dramatically reducing power used throughout country combined with many advancements in wave power and other renewables that have yet to be made.

        • Gandalf says:

          Wolf,
          I did say that coal is not coming back because of natural gas

          But the regulations for stream and land pollution from coal mining were rolled back, meaning the coal mines that still exists can now dump their tailings and polluted water runoff to go where ever

          Same with the regulations for controlling air pollution from coal burning power plants – their exhaust is very dirty – sulfur in the coal was a major cause of acid rain in Europe discovered in the 1970s and 80s

          Lots of other environmental regulations have gotten rolled back by the current administration. Hardly any of this makes the national news which has mostly been obsessed with the daily noise and soap opera that is the White House, and now, of course, with the pandemic

          Besides the climate change denial, and the complete repudiation of fact based science, we are seeing a reversion to the pre 1970s era of anything goes environmental pollution

          Four more years of this and the US will be in a much worse place than it is now

        • Pie-O-My says:

          it wont make ANY difference visavis our imminent death as a species;

          understand, there is no technology coming in time, there is nothing we can do, no tech schemes, no mass stoppages, nothing will stop what has already been set in motion in the atmosphere;

          no amount of energy on earth can slow, stop or reverse the feedback loops that have been put into motion during the past years,

          it would take the equivalent of a Type2 or more advanced civilization to be able to do anything about where we are headed now and for the foreseeable future, which could be less than 15-20 years long..

          there are feedback loops and cascades unaccounted for in “The Bezzle”

          “The gross national bezzle has never been larger than in the past decade” – John Kay Financial Times, 22 October 2003

        • Gandalf says:

          TR,

          Yes, some very recent studies have better documented the extent of inadvertent methane release from fracking

          https://www.newscientist.com/article/2241347-fracking-wells-in-the-us-are-leaking-loads-of-planet-warming-methane/

          I agree that fusion is the ultimate future of mass energy production on this planet, although lots of people think that’s a long running joke.

          If only fusion research were better funded – there are so many alternative proposals for sustained controlled fusion that have never been fully researched due to lack of funding. I personally think the tokamak design of ITER is going to be a dead end. The giant lasers of the National Ignition Facility have pretty much hit a dead end in fusion advancements, but still get funded, thanks to its origins as one of Reagan’s Star Wars weapons programs

        • timbers says:

          “Dem Lib environmental, safety, and health regulations….”

          Which ones do you refer too? Dems are pro environment, safety, health? You can’t be serious.

          The most Liberal President since FDR was Nixon. But don’t tell anyone it’s not what high school history books teach.

        • Wolf Richter says:

          timbers,

          He’s not serious — he just didn’t add /sarc

        • Chase metz says:

          I would agree that the political commentary could be redirected. I am “upndowninanout” at various r/‘s and it would be super there

        • Thomas Roberts says:

          Pie-O-My,

          It’s impossible for global warming to wipe out humanity. The biggest concern with global warming, is it’s ability to contribute to famine. Because, of over pumping of underground water supplies famine will probably occur in parts of Asia (includes middle east) and possibly parts of Africa in the future; This isn’t guaranteed to happen though, but, is a major concern. Everyone else in the World might in the worst possible scenarios if true, have to deal with worse storms and many cities that are on the coast becoming unhabitable and other problems, actual deaths would be low (outside of Asia and Africa).

          The most dangerous thing, that could result from worst case global warming is an increased risk of water wars. Control over Tibet, which controls access to a lot of major rivers in Asia is the big risk zone. This could happen without global warming too.

          The type 0 to 3 civilization model thing is useless. The real goal is true AI, which, develops all other technologies afterwards. Unlike the movies, the goal is to create a computer terminal, that you give commands like cure cancer and it does. True AI to the extent we need it, is absolutely possible. Very little progress has been made on the software side, but, on the hardware side, is doing well.

        • Pie-O-My says:

          @TomRoberts,

          the kardiev scale of civilizations is a useful heuristic;

          it points out the amount of energy needed to slow, stop and/or reverse global warming, which is an impossibility because you cant create a technology to clean up the mess you made making that technology; laws of the universe and such; and you should consider wet bulb temperature; anything above a wet bulb of 27C will cause mass death at 35C human body can no longer cool itself. a few years ago paris hit a wet bulb temperature of no more than 28C and thousands of people died.

          I dont put my ‘faith’ in non-existent non-scalable and non-scaled on the drawing board or in someone’s head technology, I look at numbers:

          500ppm CO2, 104F in siberia, gigatons of methane, permafrost emitting more than us car fleet; numbers.

          if you got numbers that point to some technology that can suck up all those numbers and reduce the planet’s heat and stop the feedback loops now running amok, in the next 20 years max, I’m all ears.

        • char says:

          @TR

          Hydro, which is also big can and is used as peaker. And wind is with very short periods. And then there are batteries, though it will take a few years before any will be build for storage, they are now build out as smoothners.

          Also modeling the electricity supply as baseload and peakers is simply wrong when you have a high percentage of new renewables. In a baseload model the lowest demand and the lowest price are correlated but if you are for example in a market that uses battery stored solar electricity to power the night than the low nighttime demand pays a higher price than daytime demand.

        • Gandalf says:

          Tardigraves, the five time mass extinction champions of planet Earth, will still be here.

        • Gandalf says:

          [sp] Tardigrades.

          Long term investors should also think about buying future beachfront property in northern Canada or Alaska. Future beachfront being land located several miles inland because of rising sea levels

  4. Nels Nelson says:

    Art Berman, a geologist and oil and gas E & P analyst, has been saying for years that fracking is not a revolution it is a retirement party.

    • Buddha says:

      Absolutely. It is simply the final wringing of the wet rag.

    • Anthony A. says:

      OIl companies were fraccing hard rock formations since the 1920’s, but they were vertical wells, not long horizontal ones in shale (and other formations) like today.

      So fraccing is not a “new thing”.

      I’ve been in the oil & gas business since 1980.

      If you like to drive your vehicles, heat your home and care to use plastics and certain medicines, you need hydrocarbons.

  5. leanfire_Queen says:

    Wolf, this is from the most recent Challenger, Gray & Christmas release covering June. I was shocked by the small number of layoffs they are reporting due to low oil prices, 16.8k and due to bankruptcies 9.6k only. When do you think these two will speed up?

    “While COVID-19 was cited as the reason for 1,011,387 of the 1,585,047 cuts this year, market conditions were to blame for 228,592. Another 71,814 cuts were due to closings and 62,564 were due to a demand downturn. So far this year, Challenger has tracked 16,805 cuts due to
    the downturn in oil prices.

    “We are beginning to see the impact of the recession spreading to companies that were not directly impacted by the virus. At the same time, companies that attempted to reopen but were
    only able to attract a fraction of their pre-COVID customers are closing down again. Meanwhile, a number of high-profile companies are filing for bankruptcy,” said Challenger.

    Bankruptcy has caused 9,581 job cuts so far this year.”

    • Cas127 says:

      You might be surprised by the low number of employees it takes to generate 13 million barrels of oil per day…it has been a while, but one of the bigger BLS oil job categories only to totalled 200k to 300k people *pre C19*…

      Once those wells are drilled, the flow from oil basin 1 mile under ground to refinery gate is very automated/natural.

      (Also, contra, pipeline job losses might be excluded from that Challenger count…)

  6. MiTurn says:

    Bummers. I hate to see all those jobs lost. Back before the Great Recession (c.2009) North Dakota was the only place for young people (men) to get decent jobs — at least from the perspective of many of the rural counties in the intermountain west. I saw so many of my former high school students come home to visit with new pickups. Some bought their parents new homes, having been lifelong renters. Some returned to college, paying cash. No need for student loans.

    Bummers! All gone now.

    • Bobby Dents says:

      Getting rid of them as states and returning them as nature preserves is a option. Let em grow wild. Give more room to hunt without destroying the local populations.

    • KGC says:

      Well, not entirely. Those mortgages and truck loans still exist.

      I saw the same happen in rural Ohio; they got some money, took on even more debt because it was always going to keep coming in, and are back on welfare with less than they started and a piss poor attitude of entitlement.

      • rhodium says:

        A large swath of the working class is somewhat divided in attitude along political lines, but it isn’t so different fundamentally. I guess I could say the one type frequently feels entitled just for existing, the results of their work are irrelevant. The other type, which you have just described, feels entitled even if all they have is willingness, their actual abilities are irrelevant. The rest have a sense of nuance perhaps.

        It makes sense to me to moralize people’s existence to whatever extent the economy allows without destroying incentive systems. Any other system, to some degree, treats human beings as utilitarian meat sacks.

        The existence of plentiful simple jobs moralized effort much more before the modern era. Now to be *actually productive* in a developed economy, one increasingly has to be capable too in order to be economically viable (trying to watch my phrasing or someone will rant about bureaucrats). Industrialization is headed in a new direction where people increasingly do bs jobs and a-holes sit at home demanding a simple good paying job that makes them feel productive while believing lies about their abilities. They don’t want welfare because they don’t want to believe they need it.

        • Mark_2 says:

          @rhodium
          Excellent summary.
          Someone please invent a magic elixir that allows us to be content with what we have? Ironically, they would become rich.

        • 91B20 1stCav (AUS) says:

          Rhodium-five stars. Ever read Eric Hoffer’s ‘The True Believer’?

          May we all find a better day.

        • 91B20 1stCav (AUS) says:

          Ack-typo, Eric Hofer. Apologies.

          A better day to all.

    • Seneca's cliff says:

      Not to denigrate the hard working folks who went to the oil fields looking for a better life, because it is not really their fault. But in a way they are like the working class version of Elon Musk or Adam Neumann. They did jobs in an industry that never really made a profit and lived large on fedbux provided by investors. When oil prices got too low even the dumbest investors couldn’t pretend the shale patch was going to be profitable ever. Unfortunately all the oil field workers are on the bottom tranche of the fedbux, easy money pyramid. How I wish that the first to be fed in to the economic fires would be Elon, and the rest of the silicon valley unicorn crew instead of hardworking folks in Texas.

    • Mike G says:

      If they bought a house with their temporary good fortune, that at least may have some potential to hold value.
      From past experience, many of them blow it on $80k monster pickups, watercraft toys and GUNZ that are money down the drain.

  7. Stephen says:

    Hmm…for you older guys and gals, you probably remember the ‘energy crisis’ of the 70’s. The ‘narrative’ was that the world was running out of oil and prices would continue to massively increase and we would ‘run out’ unless we reduced consumption by driving 55 mph and ‘dialing down’ our home thermostats to 68F (like Jimmy Carter in the White House).

    Today, we have a glut of oil and the prices are massively decreased. Oh well, maybe there is just something to that ‘abiotic’ oil theory – or maybe someone lied about the ‘oil shortage.’ I for one do not like to drive 55 mph.

    • Wisdom Seeker says:

      I don’t think there was a global oil shortage in the 1970s. US domestic production had hit a near-term peak, and then overseas suppliers (OPEC) got together and tightened up supply (including embargo on US).

      OPEC nations have manipulated oil production and prices ever since, with vary degrees of success, and most recently epic failure.

      The consumers have the upper hand since 2016 because too many producers are financially desperate. Over-producing, local subsidies, under-investing, over-spending of a variable revenue stream, local corruption … the list is long of ways to squander a natural resource endowment. The articles published here about Mexico’s troubles with PEMEX are a great example but not the only one.

      • LifeSupportSystem4aVote says:

        “OPEC nations have manipulated oil production and prices ever since, with vary degrees of success, and most recently epic failure. ”

        Yeah, the OPEC nations found out that the US wasn’t the only greedy/lying/cheating entity in the world. All of their “partners” were just as bad…

      • Paulo says:

        Conventional (Jed Clampett) oil production peaked in 2005. Almost all new oil production since then are from unconventional sources, including SHALE. This has allowed industrial society to continue. Of course, it has also contributed to increased GHG emissons and our changing climate.

        We have substituted cheap conventional oil since that time with debt; DEBT, a subject discussed frequently on this site. Both issues/subjects are unsustainable, a subject also discussed frequently on WS.

        A very informative website that exists solely to discuss this topic is PEAK OIL BARREL, now mostly moderated by Dennis Coyne. There are numerous expert posts by industry insiders. It is worth a look.

    • Prof. Emeritus says:

      The narrative wasn’t wrong, just biased. One’s oil shortage is someone else’s unfulfilled demand. Your current car consumes only half as much gasoline as your ’70s automobile which came with a V8 by default. Heck, your next car will only consume 1/3 of that amount. The rise in oil consumption was not as steep as predicted – in some country now it’s even a decreasing trend. And we went beyond that – the economy revolution reached heavy machinery, airplanes, cargo ships and today even the tiniest industrial site can’t dodge improving energy efficiency. That is no wonder considering ~10 years ago the oil price was massively in the 100$+/bl range and looked like it will never stop increasing. Maybe the engineers behind the phenomenon deserve a pat in the back and a “thanks guys” for saving consumers some bucks?
      Of course, we can never “overdo” that reduction as with the advent of cheap oil people are once again treating it as a given – the truck is the new muscle car and the SUV is the personal luxury vehicle. I’m sure they will make fine trash metal for producing cutlery when oil analysts discover that the demand was underestimated. We could blame it on OPEC, but they are only partially responsible for manipulating prices, on a sober market that wouldn’t work.

      • MarMar says:

        The big price drop in 2014 from $100+ a barrel to about $40 was definitely due to Saudi Arabia turning on the pipes full blast.

        A much larger issue is it’s actually a bad thing that the oil is not running out … because when it’s burned it destroys our future.

    • Apple says:

      The US has fought wars in the Middle East for the last 30 years to keep access to cheap oil.

      • char says:

        Not access. Control. Those wars were about controlling the oil

      • roddy6667 says:

        If you add in the cost of the wars, the oil is not cheap.

        • timbers says:

          If you add in millions killed and hundreds of millions displaced from their homes and country, oil is astronomical unaffordable and causing climate change too.

      • MC01 says:

        Why drag themselves the other side of the world when they could have just invaded Canada and Mexico? They have plenty of oil, they are next door and Mexico is a great country. ;-)

        All oilfields in Iraq belong to the State, which awards “service contract licenses” to exploit them, usually to a foreign oil company. This oil company pays a “service fee” to the State for every barrel of oil pumped from the ground, ranging from $5.50 paid by KOGAS (Korea) to $1.40 paid by CNPC (China).
        The only US energy companies with licenses in Iraq are Exxon and Occidental Petroleum, and they have one each. By contrast Angola’s Sonangol and China’s CNPC have two each. Malaysia’s Petronas has four.
        So basically the US invaded and occupied Iraq so that foreign energy companies could benefit and US oil majors could pick up the scraps?

        • char says:

          The US wants to control the world and you can do that if you control the oil supply. It is not about ownership or relative minor sums of money.

    • Anthony A. says:

      Horizontal drilling changed the landscape here in the U.S. It took a while, but we figured out how to get a good bit of the 80% of formation oil that vertical drilling left behind.

      And we also figured out how to extract oil & gas from shale formations.

    • Gandalf says:

      Stephen,
      Just for the record, it’s important to get the facts of history straight.

      Both of the Oil Crises of the 1970s were political in origin. The Crisis part was because the US, at one time the dominant supplier of oil to the world, was no longer producing enough oil for its own domestic use, which had grown enormously, and so had become dependent on oil imports from the Middle East

      The Oil Crisis of 1973 was entirely associated with the Yom Kippur War. Eleven days after the war began on Oct 6, 1973, and after Nixon had started a massive emergency airlift of military aid to save Israel, OPEC decided to embargo oil to the countries supporting Israel. The Arab oil embargo was ended in March 1974 with the end of the war

      The Oil Crisis of 1979 occurred after the Iran Revolution had deposed the Shah. Iranian oil production was disrupted, and then in November 1979, when the US embassy was attacked and held hostage, Carter imposed an embargo on Iranian oil. Throughout this crisis, the actual drop in oil supply to the US was not that high, however, Carter took a number of actions which had the effect of making the crisis more severe or appear more severe than it really was.

      One was the phased deregulation of oil prices that was started in April 1979 by Carter. This had the effect of encouraging oil storage depots to hold onto their oil until the next month’s higher prices came around. I’m pretty sure this was the origin of all those conspiracy theories that the oil companies were holding back oil supplies and making it appear that there was an oil shortage in order to get back at Carter. This holding back did actually happen on a monthly basis, but it was because of this regulated phased rise in prices

      Carter also imposed a windfall profits tax on the oil companies for the higher prices they were getting. I remember my Dad the Mobil geophysicist saying at the time that this was stupid because this punitive tax would only dis-incentivize oil companies from spending money to find and drill for more oil

      Then there was Carter’s “malaise speech”. Ugh

      Finally, I remember reading during that time in the 1970s oil crises that the US had massive shale deposits which could be made to produce oil, but production costs would be around $100 a barrel

      Technology marched on, horizontal well drilling and then fracking were developed. And then in the mid 2000s oil prices shot up to that $100/ barrel number and the fracking boom was on

      • Stephen says:

        Not true. There was plenty of oil – but it depended on where you lived. In Maryland, it was a 5 – 6 hour wait at the gas station. Where my buddy lived in Houston, drive in and pump all you want! So, you see, it was a manipulated ‘crisis.’ Not a true ‘have no oil’ situation.

        • 91B20 1stCav (AUS) says:

          Stephen-your buddy was in Texas, a big oil/refinery state, MD not so much. Even at the time i was stationed at Ft.Hood in ’73, gas was about $0.49/gal vs. $.79/gal back home in CA. Distance hampered distribution at a time when national consumption was more than outstripping national production as OPEC shut off the taps…

          May we all find a better day.

    • flashlight joe says:

      @Stephen,

      “I for one do not like to drive 55 mph.”

      Unfortunately, this is just one of the many reasons we are polluting the air and the environment.

  8. Just Some Random Guy says:

    Tesla broke through $1500.
    Oil is in deep doo doo.
    Coincidence?

    • Cas127 says:

      Yes.

      Tesla sold about 370k cars in 2019…while 17 million were bought in the US.

      And Tesla bulls-on-crack seem to ignore the whole concept of EV *competitors*…after they ignore the 95% share of the mkt owned by gasoline powered vehicles.

      Something tells me the Robinhoodie Twitch crowd of nubes make up a big chunk of recent Tesla shareholders…

      • roddy6667 says:

        Here in Qingdao, I see at most, one or two Teslas a day when I travel all over the city. However, on any busy city street, anybody can see two or three Chinese EV’s every MINUTE. BYD, BAIC, Geely, and Kia seem to be the most common. Tesla has huge competition here.
        And forget about Nio. I spot more Maserati SUV’s. Nio’s are seen in car shows and on display in malls, not on the street.

    • Wolf Richter says:

      Shale oil drillers and Tesla have something in common: they both burn huge amounts of cash.

      • Wisoot says:

        Never a time your statememt wasn’t true. Both were started (investors) and continued as covers for activity intentionally kept out of public eye, discourse and scrutiny. Underground drilling for hyperloop transport sys needed an earthquake cover. Skunkworks type activity at Tesla to enact national security banned patents into commercial investor space to advance space agenda outside of public approvals.

    • EJ says:

      As an equally useful point of reference, Tesla’s market cap is ~6x the estimated value of the world’s remaining lithium deposits, if my approxi-math is right.

      • BuyHighSellLow says:

        Lithium is the gold standard for battery technology, this is true. Remember when NiCad and NiMh were the gold standard? I read quite a bit of scientific literature/journals, and there is a relentless and ongoing research effort to find an aluminum based battery technology to replace or at least compete with lithium. Of course, the abundance of aluminum means that at global scales, the cost benefit would make up for any technical deficiencies as compared to lithium.

        • GotCollateral says:

          On top of the fact the electrochemical potential is not the only way to store energy… the molten salt (latent heat storage) will be the future.

    • Anthony A. says:

      You mean I won’t be able to buy gasoline tomorrow?

  9. 2banana says:

    So, basically, all that cheap and easy money that flowed into now bankrupted shale industries really had the effect of bankrupting coal.

    • Wolf Richter says:

      Coal was collateral damage.

      • 2banana says:

        Well, it doesn’t help when you have a sitting president and the “leading in all polls” successor saying they will bankrupt the industry.

        And, the VP at the time, telling the mine workers to learn to code (yes, he really said that).

        • Wolf Richter says:

          It’s costs, costs, costs. Coal has been too expensive in the current pricing environment. No one is forcing the utilities to retire their coal power plants and build natgas power plants. That has been going on for two decades. You guys need to get this into your head and quit blaming politicians you hate. You need to blame the Combined Cycle Gas Turbine and the collapsed price of natural gas. That’s what killed coal.

          And more recently, you also need to blame wind, which is free, and the turbines aren’t that expensive any more. Texas is the number 1 wind power producer in the US. These ranchers in West Texas figured something out: they get paid for wind!

        • 2banana says:

          So then why threaten an industry with the full and crushing force of the EPA, DOJ, IRS, etc when it was dying a natural death anyways?

          “You can open a coal power plant…but you will be bankrupted”

        • Wolf Richter says:

          2banana,

          Why don’t you start regurgitating the millions of idiotic things Trump said/tweeted? All politicians say idiotic things that don’t have any impact on the economy. Economic reality is a little more complex that a phrase.

        • baldski says:

          2banana: As a person who has fired large marine boilers on both oil and natural gas, I will take nat gas over oil. Oil compared to gas is much dirtier and maintenance wise is a headache – strainers to clean, vanadium deposits on boiler tubes, etc. We fired on gas for over 2 years without a fireside cleaning. It burns that clean. Now, I have not personally fired coal, but by all reports, it is dirtier than oil. Nat Gas is #1.

        • Just Some Random Guy says:

          The Democrat party has been anti-coal for years. It’s not just an out of context quote. Why pretend otherwise? And as 2B said, if it is a dying industry, why not let it die in peace? Why bring the full force of the federal govt down on it? Hint: it wouldn’t die on its own that’s why

        • Wolf Richter says:

          Just Some Random Guy,

          Coal is dying just fine on its own despite Trump trying with all his might for three years to use the federal government to prop up coal in order to buy some votes.

          Dollar costs when they impact corporate profits will get slashed no matter what, and an expensive relatively inefficient fuel for power generation, like coal, goes out the window.

          Now, if the price of NG rockets to $5/mmmBtu and stays there, then coal has a chance against NG, but not against wind, which is free.

      • Mark_2 says:

        @Mr. Richter, Re: next post down (must have run out of “reply” buttons)

        “You guys need to get this into your head and quit blaming politicians you hate.”

        Can we get a series of charts on the statistical likelihood of this happening? Or maybe a just a single digit percentage… :–)

      • Mission Bay guy says:

        what happens if Oil goes to $10-20 range again like pre-2000 ?

        does coal comeback over time ?

  10. sierra7 says:

    Stay tuned…..more to follow……..

  11. Wisdom Seeker says:

    Oil busts are even more common than stock-market crashes.

    US Crude prices dropped 50% or more in 1986, 1988, 1990, 1997-1999 (before the stock market crash), 2001-2002, 2008-2009, 2014-2015, 2016 (second bust), almost in 2018, and now in 2020.

    The fact that these companies’ finances were so fragile, even after the 2014-2015, 2016 and 2018 oil crashes, says that the investors were being really, really foolish about risks.

  12. Jay says:

    Am I crazy? I am crazy but I bought some whiting and chk bonds. I know it will be a while to play out but pennies on the dollar for their bond seams like a good deal. Their assets may not be worth the bond face value but they are certainly worth more than 10%.

    • Cas127 says:

      Jay,

      Possibly…historically/across all industries unsecured bonds might pay out 20 to 25 cents on the lent dollar.

      So a 10 cent basis might be a winner.

      But we’ve never seen a worldwide downturn of this intensity before…

      • GotCollateral says:

        If you consider the underlying of HYG of about ~1175 issuance, the overall market right now in HY is at about 90% unsecured.

      • char says:

        A recession and an industry in its twilight days. Strong headwind.

  13. Cas127 says:

    Wolf,

    Thanks for the post…in general there is a lot of screaming and yelling on the boards about all the crony bailouts (some complaints justified, some less so)…it is helpful to point out that it doesn’t always work out that way…over 200 public oil companies went BK post 2014…and there were no political bailouts.

    And the world didn’t come to an end, either.

    • Beardawg says:

      Cas127 / Wolf

      The end of the article:

      “…these billions in equity capital have now disappeared without trace…”

      Are we to believe investors somewhere actually took a bath ??

  14. Bruce says:

    There seems to be a great gnashing of teeth on this blog. I read it from time to time, but when you announce you are short the market and everything you post is negative, some of us see an ulterior motive. Lest we not forget, lower gas oil, and natural gas prices benefit the overhead price most of us pay in business.

    I have not been short the market. I’ve bought only one ETF since March and that has been QQQ. And yes, I’ve read that this is mindless investing. Well, so what? Isn’t one the the tested laws of Newtonian physics and the markets that “the trend is your friend”? Just because you see reasons the market is behaving irrationally, doesn’t make you money…

    • Icanwalk says:

      Bruce,
      We all suffer from normalcy bias.

      Everyone on the Titanic, crew and passengers, knew the ship was unsinkable. Until their socks got wet.

      My socks are gonna get wet. Your socks are gonna get wet. Wolf’s socks are going to get wet.

      Everybody living in the US is going to have wet socks.

      • BuySome says:

        Shipping peanuts, garbage bags, and zip ties for sale here. Line up at get your floating socks. Immersion heaters extra.

    • GotCollateral says:

      Never sell, dont take any profits like wolf did from his short before march an cover at march lows… :P

  15. MonkeyBusiness says:

    Don’t worry people in Texas. Socaljim and a number of people here will make sure that housing prices in Texas will remain elevated through rhetorics.

  16. michael earussi says:

    My heart bleeds. Investors that have more (of other people’s) money than sense investing in companies that would never make a profit are finally getting their comeuppance.

  17. Jdog says:

    The energy sector, is just one more casualty on the list along with entertainment, transportation, food service, and hospitality. These industries are facing long term very negative prospects. I really do not think people really understand the momentum this downturn now has and it’s implications.
    I read about the surge in retirement applications in the public sector now, and it makes sense that people nervous about the solvency of their pension funds and municipalities would attempt to get their hands on their retirements before something bad happens.
    I was thinking however this has got to have negative implications going forward for markets as I am sure as many retirees as possible are going to opt for lump sum distributions to ensure they get their full benefits. That has to mean a lot of redemption’s coming down the road…..
    Can you imagine what would happen if a panic sets in in CA and people start hitting up CALPERS for lump sum distributions to roll into their individual IRA’s? I expect to see pension funds nixing lump sum distributions in the not too distant future…

    • MiTurn says:

      “I expect to see pension funds nixing lump sum distributions in the not too distant future…”

      Prescient!

      Cali is trying to catch up with Illinois, et. al.

    • char says:

      If you don´t work you can much easier isolate. My guess is it is more a reaction on covid

  18. Christoph Weise says:

    “overleveraged permanently cash-flow negative companies in the fracking business”. I have followed for years reports on this for instance on the webpage of SRSrocco and I found them tough to believe. Why would investors pour money into permanently cash-flow negative companies and this for many years? Another conundrum: Why are irreplaceable hydrocarbon-based reserves sold out at such low prices. This behavior appears to be completely irrational.

    • Wolf Richter says:

      Christoph Weise,

      Yes, with hindsight it’s “tough to believe.” But there was HUGE HYPE around this all along, and investors were promised the sky, and stock market jockeys and bond gurus ate it up. I remember well when I was writing about this already back in 2012, when the problems were already obvious to me (this was about fracking for natural gas, whose price had already collapsed by then), and people just pooh-poohed me. They didn’t want to hear it. They wanted to hear the hype.

    • Bobby Dents says:

      Excess liquidity. This is why nominal income taxes came in during the post 1907 panic era. Higher taxes on the wealthy caused more investment internally on their businesses to reduce the effective rate, lowered financial liquidity and lifted inflation as national rationing.

      It’s frankly a fascinating paradox. After the shortages of excessive growth by 1968 made people angry, the shortage of liquidity may have some benefits. More hard assets and less paper. Higher interest rates are needed for self sufficient nations.

      • Jdog says:

        Actually, the income tax was needed so the Federal Government would have the liquidity to pay the interest for the money they now had to pay interest to borrow from the Federal Reserve, which it formally printed itself for free…..

        • Bobby Dents says:

          Nope, the income tax came before the federal reserve, which I would say wasn’t until 1951 it came in current form. It was brought in for regulation of capital markets and replacing tariffs second.

          Your answer is a council of foreign relations myth.

        • Jdog says:

          The Federal Reserve act and the16th amendment were both passed in 1913. If you want to know why, study the bankruptcy of the US government in 1907 and it’s rescue by JP Morgan.

  19. Pie-O-My says:

    texas is the literal epicenter of mordor and houston is the chocolate starfish in sauron’s ass

  20. Bobby Dents says:

    I also suspect wall street and the real economy becoming detached next year. Rising growth, falling markets, rising rates.

  21. hidflect says:

    I’ve used an article from oilprice.com that Wolf printed on here about the shale oil ponzi for YEARS as a glove slap in the face of anyone who was bullish shale oil. Sometime around 2016 IIRC. Way ahead of the curve, Wolf.

  22. GotCollateral says:

    Callon Petroleum Company and Enlink Midstream Partners LP toiler paper looking like they’ll be joining the list soon

  23. Mr tibs says:

    Businesses open and close all the time.

    Where is the data on all the startups?

    That would be a reasonable comparison…

    • Wolf Richter says:

      Mr tibs,

      “Businesses open and close all the time.”

      That’s a crazy line to insert here, given the magnitude of the fiasco, and the magnitude of the US oil and gas industry, the largest in the world.

      • Mr tibs says:

        So in response to a request, instead of data to support your claim all you got is…

        Ad Hominem ?

        How revealing.

  24. Chris says:

    What new name will they give to the petrodollar, the hollowdollar?

  25. roddy6667 says:

    Oil is about $40 a bbl now, and shale oil companies are dropping like flies. After the financing house of cards collapses, I wouldn’t be surprised if it takes a price of $100 to make a profit.

    • VintageVNvet says:

      Very informative comments on this thread, following another solid presentation of actual data from Wolf, and I, for one appreciate all of it.
      However, similar to the ”generals always fighting the last war” concept that has certainly appeared valid over the last couple hundred years of warfare around the world, the focus on fossil fuels and their replacement or augmentation by other massive scale energy producing technologies that still require destructive generation, transmission and storage as does oil, etc., is really missing the point of where we must, should, and can go and ASAP.
      IMHO, the best thing each and every ”investor” could do would be to invest in and push as hard as possible toward the development of a ”gravity mirror” device that would produce enough energy in every movable device such as ”flitters” that would fly point to point and generate energy while doing so, then be able to power each home when returning.
      Until we focus ALL our investment in that direction, guv mint and private, we are just going to continue the wanton destruction, wanton even if at a much lower level than is currently the case, until we do meet face to face with some of my o pie’s worst predictions.
      Einstein was pretty close to the fundamental concepts underlying gravity mirror, and there appear to be a couple of contemporary physicists getting closer these days who should be receiving all the support they need, otherwise, just more of the same until we all are living in tiny concrete boxes at the bottom of the sea.
      May the Great Spirits by any name bless us all!

      • Lisa_Hooker says:

        More urgently we need to press forward with development of the Transporter and Replicator thereby replacing expensive and damaging transportation, manufacturing and agriculture.

        I am continually blessed by the Great Spirit calvados, preferably Age Inconnu or older.

      • 91B20 1stCav (AUS) says:

        VVNV-where, oh where, is Diet Smith when we need him???

        May we all find a better day.

  26. WilliamJevons says:

    “No energy store holds enough energy to extract, collect and utilise an amount of energy equal to the total energy it stores.

    Energy, like time, flows from past to future”.

    Since early mass coal extraction in Britain, fossil fuels production has always been an energy-negative process, to the contrary to mainstream flying-carpet EROEI of our Western Civilisation.

    Once coal peaked in 1913 Britain, Winston Churchill needed to listen to William Stanley Jevons – the stuff is really finite;

  27. NoFreeLunch says:

    While its easy to blame the businesses when people over invest in them, and they disappoint, its much harder to blame the investor. Remember the famous “what were you thinking” speech by Scott McNeealy? Switch a few words around and it would also apply well to the oil and gas industry. I saw one small oil company CEO give a talk a few months ago about why they did what they did during the boom. He said stockholders were essentially shoveling money at him to drill wells, so he had two choices: 1) drill wells he knew may never be profitable like stockholders were expecting, or 2) be prudent and drill less, driving down debt, making your company more financially profitable. He said if he chose 2, then he would no doubt lose investors and get bought out by companies that chose 1, because those companies were under stockholders orders to grow at any cost.

  28. JC says:

    Cabot needs to stop butchering Northeast PA wilderness, polluting the people’s wells … not to mention the coming cancer clusters.

  29. JC says:

    Does anyone know someone at SI Group in Schenectady NY? They need to test the resins they sell for fracking for human exposure.

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