The American Oil Boom Was Where Money Went to Die.
By Wolf Richter for WOLF STREET.
The amount of secured and unsecured debts, such as loans and bonds, listed in bankruptcy filings in the third quarter by US oil and gas companies, at $34 billion, pushed the total oil-and-gas bankruptcy debt for 2020 to $89 billion, according to data compiled by law firm Haynes and Boone. And this nine-month total already surpassed the full-year total of oil-bust year 2016.
These are predominately exploration and production companies (E&P) and oilfield services companies (OFS) but also include some “midstream” companies (they gather, transport, process, and store oil and natural gas).
In mid-2014, the price of crude-oil benchmark WTI, which had been over $100 a barrel, started plunging. The companies involved in fracking couldn’t even generate positive cash flows at $100 a barrel. And as prices plunged, all heck broke loose. Creditors and equity investors, after drinking the Kool-Aid for years, suddenly got scared, and new money dried up to service the old money. A slew of bankruptcies ensued among the smaller players, reaching a high in 2016. And people thought that was it, the oil bust was over, and new money started pouring back into the sector.
But then came Phase 2 of the Great American Oil-and-Gas Bust in late-2018, with the price of WTI in the futures market eventually collapsing briefly to minus $37 a barrel in April 2020. In recent weeks, WTI has been hovering around $40 a barrel, at which the US oil industry is still burning millions of barrels of cash per day, so to speak:
The total number of oil-and-gas bankruptcies so far this year, at 88 filings, remains a lot lower than the 141 filings in 2016. Back then, scores of small companies were shaken out. Now the bigger ones with multi-billion-dollar debts are letting go as the crisis is working up the ladder.
In the third quarter, the oil-and-gas companies with the most listed debts to file for bankruptcy were:
- California Resources: $6.3 billion
- Nobel Corporation: $3.9 billion.
- Hi-Crush Inc. $3.8 billion
- Chaparral Energy: $3.5 billion
- Denbury Resources: $2.5 billion
- Oasis Petroleum: $2.3 billion
The 12 largest oil-and-gas bankruptcy filers so far this year, with $2 billion or more each in listed debts, accounted for $67.1 billion, or 75%, of the listed debts. Many of these companies are deeply involved in fracking, such as fracking pioneer Chesapeake. Others are involved in offshore drilling, such as McDermott and Diamond. Denbury specializes in enhanced recovery of oil from older oil fields:
A billion here, a billion there, and pretty soon…. The cumulative amount of secured and unsecured debts that the 490 US oil and gas companies disclosed in their bankruptcy filings from January 2015 through September 2020 has now jumped to nearly $300 billion:
Texas is where it’s at.
The largest oil producing state in the US is also by far the largest oil-and-gas bankruptcy state, with 269 bankruptcy filings by oil-and-gas companies since 2015, 55% of the 490 total US filings. This includes Chesapeake, which is headquartered in Oklahoma but filed in a U.S. Bankruptcy Court in Texas.
Delaware is the second largest state for oil-and-gas bankruptcy filings because it has a favorable legal framework for corporations that incorporate in the state though their actual Headquarters are in other states.
Not over yet.
Struggling oil and gas companies are facing tighter access to bank capital. In addition, a number of companies with bonds outstanding face upcoming maturities, and they need to raise new money to pay off the old money. But capital markets, given the massacre going on right now in the industry, are leery of these oil and gas buying opportunities at the moment.
The financial pressure on these companies is huge. For years, they’ve been cash-burn machines that need a constant flow of new investor cash to keep going. They cannot go on without more investor cash to burn. Once the new money stops fueling operations and debt service of the old money, these cash-burn machines grind to a halt. They burned the cash in their operations, and now are left with too much debt. Even a higher price of oil isn’t going to save them. They should restructure and hose their creditors and wipe out their stockholders and go on.
The irony is that this is occurring even as the Fed has thrown $3 trillion at the markets to create a loosey-goosey credit environment, packed with yield-chasing investors that are taking big risks to get some noticeable yield. But even for them, the bloodletting among oil-and-gas shareholders and bondholders has been a bit unsavory, and they don’t want to be next, like so many before them.
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There is some irony in the fact that Texas is the state producing the most wind power. I wonder if the cash flow for that business is as bad as for fracking?
That is where the wind is…
https://windexchange.energy.gov/maps-data/325
Thank you for the link!
Makes sense.
Right in the middle, where all the high mountain ranges are.
U.S. Average Annual Wind Speed at 80 Meters
is a more relevant map as modern Wind farms height is around 100 m nowadays
https://windexchange.energy.gov/maps-data/319
LOVE this map! I know of a ton of wind activity happening in areas shown as having 7 m/s (brown/orange).
Does that make sense to you? What’s the sweet spot m/s wise for wind?
Utility scale wind and solar with power purchase contracts are a constant stream of cash. Nextera Energy the largest Green producer of energy in the country now has a market cap higher than ExxonMobil.
And Tesla has a market cap way higher than companies that actually produce cars in volume. Market cap proves what?
@Lisa – Market cap proves that people will buy anything if the story is farcical enough.
Old Engineer,
Both require a lot of money upfront and then you hope they will bring in enough money to pay back initial investment. Wind is more long term though. With fracking, I usually hear you get 3 years from a well, peaking at the beginning and then continually less, until drips. With oil and gas the price you receive for your goods varies throughout that 3 years.
Whether or not the cash flow ends up positive, at least with wind you didn’t trash the environment. Over time with wind though, the costs should continue to drop. A windmill has a life of 12 to 25ish years. If you put up new ones on land you own, you should eventually, become positive. Prices for electricity are mostly flat, so with wind the variable is power produced. Whether or not that wind gets produced at useful times is another variable.
All energy producers are suffering from greatly reduced demand. However, I suspect that wind and solar power generation involves systems that were primarily created with fixed, upfront costs, e.g., $1 billion, financed with mortgages which might have fixed interest rates. Assuming these producers were able to get fixed mortgages, the upcoming spikes in inflation will result in their being able to ultimately charge significantly more for the electricity that they generate while their mortgage payments remain the same.
Most of their costs were already sunk, so even if some producers went bankrupt their creditors would want to keep that equipment generating electricity. Of course, there is reduced demand now.
However, I am certain that energy demand will bounce back enough for them at least by 2022, even if it does not bounce back to the prior levels. More energy storage solutions are apparently coming, so if their peak power generation times can thereby be matched with peak demand time, the value of their stock may go up.
Fracking producers face increasing liability to the surrounding land owners, huge debts/mortgages, a dire situation pre-covid due to the Saudis and others driving down of oil prices, pre-existing losses due to these problems, the need to keep their pumps working because reportedly stopping them may require for them to drill again, the upcoming spread of electric cars, etc. They are probably toast economically.
Sadly, it is hard to know which of many American companies will ultimately survive when this eventually ends, except maybe for sure things like Amazon, Walmart, Netflix, etc. (Even those are surely significantly overvalued due to the safe-harbor-seeking desperation of many investors.)
It will be an economic tragedy if the US allows a good portion of the crop of small businesses that it had in 2019 to fail. However, that is the direction in which we are headed now.
Sooner or later, when the delayed mortgage, rent, and other payments can no longer be put off, chains of businesses and related companies will fall like dominos. I predict that we are approaching a huge, economic waterfall from the high side.
Texas is so used to sticking it to the federal government. NAFTA, defense industry, high priced oil, space exploration, wall costs, defense bases are just some of the huge amounts of cash sucked out of the Yankee north.
They know how to game the system. Will not be surprised to see a bill providing oil producers a huge subsidy.
Seems to be a tad more productive than bailing out insane Yankee public union pensions.
Pension holders spend their money. The USofA economy depends on consumers, and little else. So, maybe, maybe not more productive.
That is a different question from are some insanely high. I have read articles that indicate such.
You think the northeast has a monopoly on unfounded public union pensions? Check Houston & Dallas.
Those are liberal cities.
At least Texas taxes the industry:
“Oil production tax: 4.6 percent (.046) of market value of oil+
https://comptroller.texas.gov/taxes/crude-oil/
California, the “environmental state”, does not for some weird reason. Perhaps because Newsom’s main donor is an oilman?
“$66 billion in total value-added”.
https://oilprice.com/Energy/Crude-Oil/How-Big-Is-Californias-Oil-And-Gas-Industry.html
As in Texas, Calfornia sales taxes petroleum and gas to the end user. Gee, 4.6% of $66 billion, or whatever share crude oil and gas are, would sure pay for a lot of road repairs, bridge maintenance etc.
Had not heard that about Newsom”s sugardaddy.Thanks!I do wonder which pensions,investors,people will be hardest hist by this sector implosion and wondering if any of these co.s were smart enough to diversify into other energy sectors and if so,to what degree?
The good thing is that like most politicians Newsome only has one sugar daddy…LMAO
Struggling oil and gas companies are facing tighter access to bank capital.
guess the free money syndrome is over for frackers
never was positive ROI
I thought California was, according to Texans, a “high-tax socialist hellhole”, now supposedly under-taxing oil industry interests. I wish they’d make up their minds.
Mike, you got it backwards, it is a “High Tax, bonds and fees Hellhole” for middle class-flesh and blood taxpayers, but a low or zero tax Paradise for the corporate oligarchs that control the state and it’s politicians.
At our local level, San Francisco diners have to pay a special homeless healthcare tax, employers have to pay 1.5% payroll tax, but Twitter and other decca billion dollar companies and their CEOs get a break from those taxes through special tax free zones.
At the state level, notice how Newsom, in spite of his yammering about underfunded schools, communities of color, poor people, doesn’t support raising property taxes on the oil refineries, and huge corporate enterprises, i.e. Prop 15, which get to pay the Proposition 13 widow’s and orphans’ property tax relief rates?
Shooting down oil taxes in Calif was going on much longer than Newsom has been in office. You should instead look at the big money influence that lobbied heavily against taxation.
Texas is the only Red State that does not receive more money from DC than it pays in. This is not due to any fiscal wisdom. It is because they can pump money out of the ground. Texans like to strut around bragging about how they are a bastion of conservative politics. The big cities are already liberal controlled. In the schools, white children are now a minority. In a few short years all these black and Hispanic voters will be replacing every elected official from governor and senator down to dog catcher.
first off, what is conservative? FYI a lot of people who call themselves conservative agree with many elements of the communist manifesto.
2nd off I live here, and whatever conservatives are, is not here.
I do too, but Texas is a big, non homogenous state.
There are people across the whole left-right spectrum, and off the spectrum entirely. Other states I’ve been to are more polarized.
But there are *a lot* of hardcore conservatives too. IDK what you mean by “whatever conservatives are, is not here.”
> first off, what is conservative?
At this point, judging by how California does things, not wanting a bloated nanny state bothering entrepreneurs’ every single step might qualify you as being “conservative”.
fred flintstone,
When oil and natural gas are cheap, people care less about where they come from, so large subsidies are less likely. As for Texas itself demanding it, because, of the electoral college, if a state always votes for the same party. Politicians don’t have to care about that state as much.
Human nature ( larceny in the heart ) + moral hazard ( central banking and fiat money
Everyone want Easy ways to get rich without working hard.
Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people.
Andrew Mellon
lolol tragic wealthy ‘cognitive dissonance’ to say the least. No wonder congress tried to Impeach him after the great depression…aloha
Andrew Mellon was born into big money and given free ride by inheriting a big bank which basically prints money by issuing debt on fractional reserve requiring other people’s labor and inovation to creat the productivity to match the money he effectively printed.
While he was a notable philanthropist in his life what his most notable “achievments” are is presiding over the economy as it ran a mock and then exploaded in 1929, and advised doing more of nothing (which is what lead to the speculation and collapse in the first place) as a cure. This didn’t work and he had to be removed from office by congress, and eventually road out the depression privately and comfortably on the vast welth he was basically heir to doing ever less work while others suffered and struggled to “purge the corruption from the system” and “work harder and more honestly.”
A more hypocritical and disengenuous statement has never been issued.
Question: if a bank wasn’t fractional reserve, i.e., it had 100 % of deposits on hand, how could it make a loan?
I like Nicole Foss’s analogy to describe fracking. “ Conventional oil is like walking in to a bar to quench your thirst and being poured a tall beer from a tap, Fracking is like getting down on your hands and knees and trying to quench your thirst by sucking the spilled beer out of the carpet.” Sucking the beer out of the carpet and trying to sell it to make a living is even more of a losing proposition.
The real irony is that a pitcher of beer costs more than a barrel of oil.
Or that a gallon of water at the convenient costs more than a gallon of gas and that some big oil companies have for years been accumulating water rights.
Love to know which co.s acquired what exact waterrights and when.We have been in a waterwar for some time.I had read from Very reliable,professional writer that some oil co.s haf acquired water rights.You think there were tense demonstrations against frackers,wait untill people realize how much of the cleaner water is controlled by the polluting bastards!
regarding: The companies involved in fracking couldn’t even generate positive cash flows at $100 a barrel.
Yup.
The tight oil companies can’t survive at $100 oil, and society cannot afford $100 oil. New discoveries are a fraction of what is currently consumed, even in this pandemic. Pretty soon……oh never mind, everything is just ducky. Self driving Teslas will save the World, and then we can explore Mars with the Space Force to protect us all.
Keep dreaming I was here in 1974 oil is alive and you are still spending money only more.
You are right. Wait and see.
The financing that keeps all the spinning plates from falling down in the world of fracking would make Bernie Madoff cringe. Get out your lawn chair and some popcorn and watch the festivities.
For many years the Fed denied it was monetizing the debt. But it is currently monetizing the debt in enormous trillion-dollar chunks. But what almost no one realizes is that these trillions are being provided nearly interest-free to the very banks that own the Fed: they still get to charge their cardholders 20-30%+ on their credit cards, and pay savers next to nothing.
If you want to read one fabulous, well written source of information regarding their predatory activities, read Pam and Russ Martens Wall Street on Parade, free on line. And then fwd. each article to your congressman asking “What are you doing about this?” They will probably not answer, or send you some BS thanking you for your interest, but at least they can’t say they were not informed.
Paulo,
Don’t forget that we will soon have limitless energy based on nuclear fusion powered by Helium 3 mined from the surface of the moon and transported back to earth on rockets.
Let’s just look at one pure frac oil company: PXD. Profit margin 5.2%, Operating Margin 12.8%. Debt/equity: 0.2, dividend 2%, payout 78%. I would say they are generating a positive cashflow, not great, but positive. That is looking back on $45/bbl for those numbers. At $100/bbl, they would be absolutely killing it. So everyone think the worst and help to undervalue these stocks, so that those of us who make it through with the survivors can retire comfortable. Nothing is as good as it seems and nothing is as bad as it seems.
Paulo, society will soon have $100 oil again and they will afford it. Will they be able to afford $100 for a Big Mac and fries?
Lisa, the Fed is ipso facto devaluing the Dollar vis a vis endless printing of same to purchase Endless Federal Debt as Buyer of First Resort since most investors with a brain don’t want a 10-year Note from a shaky political system in a spendthrift country at 0.60% or a real return of Negative 7.4% after adjusting for Person On The Street Inflation!!!
Read the book, “When Money Dies”, about Weimar Germany post WWI and you can imagine a kid wheeling a wheelbarrow of decaying Dollars to McDonalds to get that Big Mac!!! Oil will be a bargain at $100 when the sloppily made burger hits the century level of Greenbacks.
I’ve been in the oil & gas business for 35+ years. Some of you folks need to do some research on “fraccing”. OIl companies have been fraccing wells since 1920 (or earlier). How the heck else do you think you can get oil and gas out of hard rock? (you have to break the rock!)
Fraccers have been fraccing before most of your parents were born. It’s not a new thing, The only real difference is *most* new wells are drilled horizontal and the drilled laterals are able to get more hydrocarbons out of the reservoir since the reservoir is usually a lateral formation.
“The American Oil Boom Was Where Money Went to Die.”
Airlines: Hold my beer…
Big Box Retail: Hold my beer…
Auto manufacturers: Hold my beer…
Real estate in big cities: Hold my beer…
Not to worry. Here comes the Fed with unlimited free beer.
Don’t spill my beer!
Next question: are any banks threatened as these loans go sour ?
Not enough to care
There have been and will be some losses. But for the big banks, oil and gas represents only a small portion of their portfolio. There might be a small local bank that is heavily exposed to some local players. But we don’t worry about those. The FDIC is very good about shutting them down and taking over on a Friday night, and reopening the bank under a different name Monday morning.
If it were only direct exposure this would be the case… but off balance sheet exposure can be high even for the big banks through off balance sheet things like collateral swaps and other IR derivatives that contain O&G loans/bonds in one of the legs of the transaction… this is simply an unknown except for those involved like the custodians and exchanges which are notoriously tight lipped about stuff like this.
The pensioners on Seekingalpha own tons of Canadian bank shares. I am guessing they will be hit.
Wells Fargo dropped over 6 percent a day or two ago. I don’t think a Canadian bank has ever done that.
You mean the Fed, which raises money by issuing debt in the name of taxpayers, being in large corporations who were exempted from contributing revenue, at least until after the election, and then only for half of the tax holiday rollback, to be clawed back in a couple years, maybe? The real post election question, the debt ceiling debate, might suggest higher interest rates, which is usually considered good for the banks, unless they fall into the old S&L trap, no new (business) loans and higher interest payments, (but many of them offloaded high end depositors years ago) while corporate debt can simply ratchet higher. The appetite is there, (yield chasers go crazy) but these are banks and underwriting is just one part of their business, besides front running stocks and reselling to muppets. They need to find a business model that works. Maybe they’ll get into direct investment.
Ambrose, the FRB does not issue debt, it only buys and sells it. Debt is issued by the US Treasury under orders from the collective wisdom of elected US Representatives with the approval of US Senators. But you knew that.
Ice follies are closed. Time to quit Frick-‘n-Fracking and skate on over to that solar bar for a sun-cured brewski. It’s the era of Cheech and Chong, so set the van on fire and party on dude! If you burn down the trailer park, you’re a loser.
Well, I am saving all my food stamps…
Those might be collector’s items today. US Printing and Engraving Office originals, not some electro-plastic junk scalped by Jamie Morgan.
More healthcare companies joining the BK game with oil corps… MNK just defaulted on 1.65B in unsecured garbage (US561233AA57 and US561233AD96)… still trading 30% off par for bulls who like to avg down on garbage to zero lol
Demand from legal drug pushers must be down along with the CxHy elixir of ICE vehicles lol
Ive felt and have wrote that nothing bad happens
until unstable sovereign debt weighs in. These rising debts
are not sustainable .Investors will demand a much higher yield.
Were not there yet but hold a good amount of cash.
Usually from trying to bail out sovereign private debt.
In the standard Econ 101 text Economics, Paul Samuelson writes, “Savings is the engine of investment.” This means that the saver forgoes the instant gratification of spending for the benefit of others, and therefore expects some compensation for doing so. You wrote, “rising debts are not sustainable .Investors will demand a much higher yield.” That makes perfect sense, but the fact is, the banks that own the Fed, to the extent that the national debt can be expanded, are able to obtain money virtually interest-free, and perversely apply this fact to justify paying savers virtually no return. So how is the investor to get his higher yield?
Since the investor has now, thanks to further laxity in oversight and regulation, been made an unsecured creditor of the bank, and getting virtually no return to boot, his one recourse was, as many did with their gold certificates in the old days, hide their money in the mattress- but the latest full-court-press by the banks for an all-digital regime (see Sen. Jarrod’s SB 3571 for openers) is intended to shut off this last defense against not merely ZIRP, but NIRP.
More than usually these bankruptcies unfold in ways that truly hurt their workers and communities. I would much like to see Wolf Street (I read his post always) deal with trends in whether or not this is changing. And if it is not what the possibilities are.
Thanks
I’m happy that oil companies are going bankrupt. Hey, it’s 2020! We’re living in such a technologically-advanced world! Why our civilization is still dependent on fossil fuels? It’s really weird.
Oil industry is blameful for the majority of greenhouse gas emissions; & unless you’re a republican, you understand that greenhouse gas emissions are the cause of Global warming, which is wrecking havoc on the planet earth, and will result in the homelessness of more than 2 BILLION people in the decades ahead.
So, oil industry is the cause of great suffering, harm, and death. The real capitalism is based on non-aggression principle, but the oil industry is aggressive in essence. Personally, I view the oil industry completely morally unacceptable. Investors and operators of oil companies are criminals, who don’t want to see the vast destruction of the environment, caused by the operations of their business, as a result of greed/lack of conscience.
Oil industry won’t go away anytime soon, but the dynamics that caused the 2014-ongoing oil glut, will only gain strength. Nowadays, the greatest part of funding and fresh capital comes from institutions, not personal investors. Institutions are highly bureaucratic and less bound to ethics and moral values. So, the likes of banks and hedge funds will continue to buy oil company bonds, even junk ones, and they will be the lifeline of these unprofitable and immoral businesses in the coming decades. So, with continued access to credit, oil companies will only increase their output.
On the demand side, however, the story is different. Gen Zers are highly critical of fossil fuels, & prefer green and eco-friendly solutions for their life/business. Also, green tech is rapidly advancing, and with the rise of AI, and economies of scale, Solar/Wind prices will continue to crash down. Oil will lose its competitive advantage.
So, oil demand will rise in the coming years and decades, but not as-fast-as the rising supply. Oil glut will prove to be die-hard & chronic, and the oil companies will endure difficult, painful deaths; which is fair, as they’ve been cause of much suffering in the world.
Lots of emotion,little data.
There is no “green” tech. Solar and wind power come with their own problems.
Most importantly they can’t replace fossil fuels effectively because of their low EROEI and intermittency.
Once oil dies, our civilization dies.
You are moving the goalposts.
That was the biggest line of horseshit I have ever come across. Your lack of faith in human ingenuity is disturbing. What are you? A Saudi oil sheikh? Can’t wait till you expire as you are the real problem. You see an industry that has burned investors to the tune of at least 300 billion and massively destroyed the planet while doing so, and you think its great. Fool.
VFatalis,
This is such a bad joke.
Texans don’t believe a word of what you’re saying — especially not the ranchers in West Texas. Their wind power production keeps booming, and has been #1 for years in the US. And they’re making tons of money doing it. Why? Because the WIND IS FREE, unlike fossil fuels, and they get to SELL the electricity.
Sure, it takes some money to build the wind turbines, but it takes some money to build fossil-fuel plants too.
There is fat still available in oil and if oil producers were made to contribute towards countering the bad effects their industry, oil could even be made to be a beneficial concept.
Same goes for great many other extractive industries.
But of course, because there is zero political will or ability to haul in some of that loot for the benefit of your typical consumers (who are by the sole act of consumption also the main stakeholders), then oil remains a purely environment damaging operation. Apart from moving us from here to there which is not too bad.
Now, talking about how to fix that conundrum would certainly lead us into a political realm, and that is luckily verboten on this site. Thankfully!!
The oil and gas industry is a boom and bust industry. Back in the early 1980’s the industry went bust and took down Penn Square Bank in Oklahoma City and about took down some big banks in Chicago. I would recommend getting the book “Funny Money” by Mark Singer which gives a great account of the history of the early ’80’s bust that is a good read and also to give an understanding the psychology of oil and gas investors. History repeats itself but only faster today.
Let’s not forget the Whiting Petroleum board approved $14.6 million in executive bonuses days prior to filing for bankruptcy.
It is a crazy system that has replaced capitalism.
Yes, these pre-bankruptcy bonuses are a pandemic. Creditors could fire management and claw back those bonuses in bankruptcy. I don’t know why this doesn’t happen routinely. My guess is that creditors (bankers!) fear that they’d have to run an oil company, and they don’t feel like doing that, and they don’t want to get their hands dirty, so they make sweetheart deals with the old management.
EXACTLY, Wolf. Been there. Management are the useful idiots.
I seem to recall a few years ago (3?) towards the start of the ongoing fracking cash squeeze, the Fed asking the fracker’s banks to go easy on them.
I gather from WS, they seem to have been able to spin out their decline quite a while. Raising new money via bonds etc. based on hope of higher oil prices next year.
Has this show been playing longer than the mall apparel decline, Sears ,Toy r US etc.
Greed has been and continues to be the demise of this great country. I’m tired of this “get mine” attitude at the expense of everyone else. Agree with Wolf. Too much work and no stomach from creditors to get their hands dirty and recoupe losses from this tragic behavior.
So I wonder what impact it has on oil and gas prices? They seem pretty stable and high recently, after a huge rebound. Will there be more blood on the street soon perhaps?
This removes supply from the markets so it is positive for oil prices. However, national oil companies in Russia, Saudi Arabia etc are eager to increase their production again.
A country like Saudi Arabia has much lower production cost and oil is all they have to fund their expenses. Their budget deficit will be 12% this year so they really need it. They know that oil is dying, so want to monetise their oil to the max as long as they can. They have said repeatedly that they want to be the last oil producer standing.
Guess what?
With all those O & G companies going bust, the next bunch of future billionaires is being made.
Smart money, and I mean really smart money will be able to pick up productive assets for really, really cheap prices.
An O & G company spends billions on wells, permits, infrastructure, drilling, and pipe and then along comes ‘smart buyer A’ who buys the assets for a penny on the dollar or much less.
Unlike commercial real estate (malls, movie places, and theme parks) there is and will be a need for oil and gas well into the future. Oil and gas have values that be ‘banked’ in the ground and brought into productive use as prices change.
And no, the EV industry will not decimate the O & G sector for years and years.
So if you are smart and have the bucks, the next opportunity is waiting for you now!! Even the Wolfstreet mutli-millionaire reader can have a go too.
It’s been years and years since I looked at those nifty web sites that offer various oil and gas properties for sale including royalty interests. might be an interesting read…………………if you qualify………………..
Oh, and here in the magical land of Oz, the small spec O & G companies are defying common ‘cents’ by having hundreds of millions of dollars of market cap despite having zero sales and huge future capital costs needed to bring assets into production. Of course, they are paying the management and directors millions in pay and benefits while the small shareholder waits to be diluted down the drain!
Ah, yes the old blue sky mining company. It’s all in the family.
Survey: Investors want a greener industry. A Boston Consulting Group survey of energy investors finds that investors want oil and gas companies to cut their emissions. Simultaneously, investors are souring on the oil and gas sector. 80 percent of investors want companies to cut their emissions, and only one-quarter see oil and gas stocks playing a larger role in their investment portfolios going forward. [contrarian position possible too] Oil and Energy Insider..
1) EV beats the bipolar US 2Y monthly inflation expectations. There will
be no inflation without higher WTI. Oil BK will frack deflation. But when ??
2) US 2Y monthly RSI was extreme in Dec 1994 @77.11 and in June
2006 @ 79.38.
3) Draw a rising trend line between those two nodes. U get x3 throwover peaks in Apr, July and Oct 2018.
4) On the 2Y : draw a down trend line between the same nodes, Dec 1994 @ 7.69% to June 2006 @ 5.16%. When Nov 2018 high @ 2.98% failed to reach this line, the 2Y tumbled down.
5) The 2Y turned sharply down after june 2016 high, with x4 lower lows and x4 lower highs. The nadir was in Sept 2011 WTC collapse @ 0.15%.
6) The monthly RSI hit it’s low prior to Sept 2011. Mar 2008 RSI @ 19.07 was followed by x3 higher lows, creating a divergence with the 2Y.
7) The 2Y was rising since Sept 2011. // RSI was rising since Mar 2008 low.
8) RSI : when the rising line from Aug 2011 @33.05 to June 2016 @ 47.37
was breached ==> RSI was toasted.
9) 2Y : when the rising line from Sept 2011 low @ 0.15% to June 2016(C)
@0.586% was breached ==> the 2Y was toasted.
10 ) In June 2020 US 2Y was 0.105%. // in June 2020 the monthly RSI
was in an extreme bearish zone @20.05.
11) Hollywood fake horror movie script : a new divergence between the 2Y & the RSI. The new new sequel : NR 2Y with higher monthly RSI.
I thought it was Tesla headed for death. All that oil money going into Tesla now.
CA blue tsunami flood the country.
The price of WTIC dropped down around $11, the negative number is the futures contract price. You mentioned Noble, but not Transocean, the drillers are key in this sector, which is truly depressed. The price of WTIC is currently around $40 which is a complete fantasy. Even with China’s ramped up US imports, some sources saying renewables will be cheaper than NG and Coal.
Transocean may show up in a future bankruptcy article. It still hasn’t filed for bankruptcy (though it has done a bond swap).
Shale has never been about making profits.
The day oil majors were forced into shale play, their market cap was doomed.
The main factor in any recovery is income, which fuels growth and output and that aint in the cards going forward:
Real gross domestic product per capita/Real Disposable Personal Income: Per Capita
https://fred.stlouisfed.org/graph/?g=wKzX
I’m really tired of the lie that “blue states subsidize red states.” No. States don’t subsidize states at all. Income taxes are paid by individuals and corporations, and individuals receive the vast majority of transfer payments.
Money flows from wealthy people to poorer people. What states those wealthy or poor people live in is pretty much irrelevant.
So you would prefer it be stated as “the majority of people in blue states subsidize the majority of people in red states”? Is that really so significantly different as to justify the extra verbage?
That still wouldn’t be true. There’s no “majority” anywhere, and the recipients of government transfer payments are much more likely to be “blue” voters than “red” voters, regardless of where they live.
If what you’re trying to argue is that there are more wealthy people in blue states, and thus pay more in the progressive tax system that the blue people support, then yes, that would be accurate.
1) For CA XOM smell like Marlboro.
2) T, WTI Futures monthly : wave A — from July 2008 peak @147.27 to
Dec 2008 low @32.40. // wave B — from Dec 2008 low to June 2014 (H)
@ 107.73. // wave C to (-)40.32 in Apr 2020.
3) T Selling Climax happened in Mar 2015(L) @ 42.03. This level was visited many times.
It became a resistance line after T plunged to minus 40. T in a 6M trading range @ 40.92.
4) Dr. SLB cure the sick & the old all over the globe. Oil is dying TSLA is flying. Mention oil the elite puke.
5) Somebody put a knee on SLB. SLB monthly log : take a downtrend line
from Nov 1997 high to Aug 2000 close. Houston will solve it’s problems
when SLB breach this line from below.
It’s really a shame that Americans dont understand that politics and economics are inextricably linked. Talking about one while excluding the other is pointless. I think it’s a BB trait to de-link them. It’s typical BBs not wanting to take responsibility for the nightmare they have created. The ultimate proof of guilt in the heart of darkness. No matter what you say or do or how much you stamp your feet REALLY hard, your inaction in the face of impending disaster will forever stain your generation. I know the truth hurts and thus the silence. You have had your day, now STFU, potter about in your garden and leave the job of fixing this disaster to those capable of doing so. When it comes to listening to either you or Mother Nature, I know who I shall listen to. It ain’t you. It is very fitting that the first word of your moniker is Baby. You have truly lived up to it.
Oh, get over it FC,,,
As an older that BB guy who has paid the dues to sing the blues, that gen has just been one more gen being experimented upon as was a couple of gens before them and certainly all the gens since then:
1. First gen to be raised on constant brainwashing via TV
2. 3rd? gen to be used to experiment upon re various and sundry and extensive [[free[[ synthetic pharmaceuticals, including unlimited legal speed by various names
3. First gen used to experiment on with re ”free love” for all, as opposed to the free love and similar by the elite subjects of holly weird, etc.
4. First gen to see their kids subjected to similar and worse brainwashing daily…
5. First gen to see their kids subjected to brainwashing in each and every classroom, or almost in their public schools who did everything but ”educate the masses.”
OTOH, I really and truly wish all the politicos, etc., would go home, STFU, and take care of their gardens,,,
Thank You.
Yeah, I know. Sorry, I was just venting. I’m locked down in Melbourne and this is pretty much my only outlet. I know you get it, VVNV. I was just testing your reaction speed. 44 minutes. Not bad for a drug addled, brainwashed Boomer!
?
FC…VVNV had a minor glitch and was trying to write “older-then-BB guy”. He is not a “Boomer”. Other than that, vent all you want. [The editor knows when to cut us all off. I don’t begrudge him the pleasure nor envy his task.]
Locked down in Melbourne………………
Stay tuned for the ‘new’ lockdown restrictions to be announced tomorrow.
I’ll post when they are released…..
Our wanna be Kim Jong DAN has now has had us locked down in some form for over 200 days of which 3 months has been very restrictive with movements curtailed and even that famous curfew.
Funny how UNION industry and UNION labor are now affected by the lockdown as much as small business…………..
VVN: You forgot first generation where everyone received a trophy to improve their self-esteem.
Fat Chewer,
You want to get into a pissing match over political figures you hate and over partisan politics you despite, go do it somewhere else. There are plenty of forums to do it on. Throwing cuss words at politicians is the easiest thing to do in the world. Talking sensibly about the economy, business, and finance is complex, nuanced, and hard. It’s not everyone’s cup of tea. But that’s what we do here.
Thank you. This is the best place I’ve found with smart and civil people trying to figure out the forces in an almost impossibly complex system.
Reading the comments it seems most believe the oil and gas industry has been bad for the country, for the world. Reality is that the oil and gas industry powered our country’s growth and all Americans benefited from it. I am old enough to know air quality is far better today than it was in the 60’s through improvements in technology. I suspect much of the oil and gas industry will be phased out as alternative power becomes more available and affordable. There are other industries and products/ services far more “deadly” than the oil and gas industry that kill tens of thousands of people annually.
US Oil producers may come and go but oil & natural gas pipeline companies hold reign over vast swathes of the United States and pay handsome dividends. It matters not whether these pipelines are moving oil produced by US frackers or from Saudi Arabia.
If US oil producers and pipelines alike are both being gutted because of cheap prices and temporary low demand then care to explain why this isn’t the deal of the decade for Pipelines? And why those pipelines will be any less essential to supplying oil refineries and powering your local electric utility with natural gas to power your home (including charging that Tesla in the garage)?
As for renewables, name one form of renewable energy that doesn’t require copious amounts of real estate, and how it’s going to magically become more cost effective with the Fed inflating asset values (incuding RE) and how it competes with cheap nat gas? Everyone likes to say natural gas prices must rise but they ignore the fact that land prices must rise too; making renewables more expensive.
Off shore wind…huge in UK and elsewhere.
Good luck with building ‘each’ windmill on a dedicated over-water platform and keeping maintenance costs down for 1000’s of large scale electrical generators exposed to salt air and storms. All while operating under the delusion of undercutting cheap natural gas.
One of the huge benefits that NEW renewables have is the current interest rate environment.
They don’t have to pay the huge interest rates that electricty utilities from old had to pay to get their plants built.
The required rate of return to make a go at 1% is quite different than 15%.
And of course the time frame required to get the ‘generators’ up and running.
I still remember getting between 12 – 15% a year in dividends on old electric utility preferred shares…………….Ohio Edison Preferred Series E was one of my favorites.
‘energy that doesn’t require copious amounts of real estate’
I was answering the real estate part. How often are US wind farms in valuable real estate? How about an example of a commercial or residential project losing to a wind farm. Or were you just exercising a hobby horse?
Ah, real estate values and renewables.
The biggest bunch of unused real estate is the top of the building: the roof.
One of the ‘benefits’ of doing a lot of walking is that you get to see how the local area changes. Lots of new solar panels on houses around here despite the lockdown. People taking up the various government subsidies to put solar up. We still have some of the highest electricity prices in the world which makes it a no-brainer.
Even the closest Aldi has put up panels and covered the entire roof area. Lucky that they had a north facing roof that they were able to use and of course they used some of the huge write-offs handed to them by the government to put them up for ‘free’.
Now take a look at Japan which still has some of the highest real estate prices in the world – at least in the cities.
If you take the bus from Yokohama (YCAT) to Narita Airport you’ll go by some the huge warehouses along the bay. And what you won’t see (unless things have really changed) are any solar panels on those huge buildings………
Now, if you take a trip around the Narita Airport area what you will find are a whole bunch of solar farms on small to medium size plots of land.
And if you take the train from Narita to Tokyo you’ll pass a solar farm built on the land that was supposed to be used for another Shinkansen train to the airport. Rows and rows of panels along the side of the track for about 10 kilometers.
Here are a few photos of the project:
https://www.tripadvisor.com.au/Attraction_Review-g1021264-d13444734-Reviews-Chiba_New_Town_Mega_Solar_Power_Station-Inzai_Chiba_Prefecture_Kanto.html
Hokkaido also has lots and lots of solar farms as a result of ‘cheap’ land. In fact IIRC there are times that these farms actually produce too much electricty and it can not be used.
And if you reallly want to see where all the solar farms are in Japan you can check them out at this link:
http://agora.ex.nii.ac.jp/earthquake/201103-eastjapan/energy/electrical-japan/type/8.html.ja
No doubt you can find all kinds of land use oddities in Japan. The biggest are the miles of rice paddies the salaryman passes on the train to Tokyo. This land use only makes sense at about six times the world price for rice.
But I assume the original post complaining about wind farms crowding out real estate was about the US.
Same story different day. Over-leveraged oil and gas companies hoarded land leases during the boom. They reserved pipeline capacity that required payments, even if they did not ship any oil when prices dropped and drilling stopped. Lenders did not want to extend greater amounts of credit. Management paid themselves bonuses then defaulted.
The Fed has their backs. Remember when these kind of loses impacted the stock market and economy? Not its like we live in a mirage where the impossible happens.
What the hell is going on at Wells Fargo? They just fired 100 bankers for facilitating the theft of money from the PPP fund. Why do I still do business with this crooked bank? I’m moving all my accounts back to my credit union. I like Credit Unions. They are old school. Started in Germany in the early 1800’s
The bonds of these oil companies are primarily being held by pension funds and mutual funds. At some point, they will have to admit the bonds are basically worthless and their principal has been lost. The amount of pretending going on now is unbelievable.
Although Wolf’s post is USA-based, for a look at where the *ahem* smart money may go next, try this on for size. My translation of a line from the linked article:
The president of Colombia’s National Hydrocarbon’s Agency, Armando Zamora Reyes, claims that projected investments to develop four [fracking] pilots could reach US$400 MM which could contribute to an early sustainable reactivation so much needed by this country.”
https://www.elespectador.com/noticias/economia/anh-publico-los-terminos-de-seleccion-de-los-pilotos-de-fracking-en-colombia/
The article does note that locals must be consulted before any launch, however, in a country where recently donkey meat was underhandedly sold for school lunches (look it up if you think I lie), I suspect local input is just a cute way of saying, “Outta my way, we gringo gas powerhouse rule this side of the world.”
Why don’t the Dakotas turn up in the charts? Few people but beaucoup dev.
There have been 2 oil & gas bankruptcy filings in North Dakota, and none in South Dakota, since 2015. It looks like the oil companies that are active there are incorporated in other states, such as Delaware or Texas, and are filing for bankruptcy in other states.
Many E&P companies filing for bankruptcy are heavily into shale production and the main problem with shale production is the reservoir properties and that results is poor financial returns. Shale has high porosity, the void space within the matrix rock, and therefore holds a lot of oil. However, the rock has very low permeability, the ability for fluids to flow through the matrix rock. Shale is the cap rock in many conventional reservoirs that keeps the oil contained.
To compensate for the low permeability horizontal wells are drilled to expose more reservoir surface to the well that also increases flow rate. Incrementally, along the horizontal well bore section in the shale reservoir, several fracture treatments are done to further increase the surface available for flow into the well. Bye the way, a fracture is very thin, on the order of a quarter inch or less, opened by hydraulically splitting the rock with a liquid. The liquid carries with it a proppant to hold the fracture open as it will close when pumping is stopped. With the increase in surface area exposed the the wellbore, initial production numbers are high, but over a short time frame the oil must flow through ever increasing distance of matrix rock, rock with very low permeability or high resistance to flow. The result is very high decline rates, not uncommon to see declines in excess of 75% per year. A 1000 barrel per day well on completion is likely to be in the range of 15 BOPD in the fourth year of production.
For comparison, conventional reservoirs might have a decline rate around10% to 20% per year. incrementally, secondary and tertiary recovery technology can be applied to them, such as waterflooding or some miscible fluid flooding to extend reservoir life via improved recovery and well production rates.
Hydraulic fracturing was patented in about 1946 by Stanolind Oil and Gas, now a part of BP with its Amoco merger. The first treatment was done on a Stanolind well by Haliburton Oil Well Services.
The information above is presented to make two important points, First, the economics for developing shale reservoirs was never honestly evaluated, rather the high initial production figures were exciting and it was probably mistakenly assumed shale reservoirs would perform similar to conventional reservoirs. Second, when there is a little more maturity in shale reservoirs, they will contribute precious little to total US oil production and we will be even more dependent on imports than we were before ‘the shale revolution’.
As a side note, natural gas production from shale might have a chance at being economic.
Wolf, this is my first comment and I really appreciate your blog, you might have the best thought out, well researched, and well presented articles on the entire internet.
I forgot to include the first fracture treatment was done in 1954 and potentially hundreds of thousands have been done,
‘For comparison, conventional reservoirs might have a decline rate around10% to 20% per year.’
They might but if that was typical, Saudi’s fields would have been shut decades ago. Most Russian oil is from Soviet- era legacy wells.
My first read on this site. Great article and intelligent comments. There’s not much prognostication though save for the fact indebted companies will have difficulty refinancing. Do you have any additional predictions Mr. Richter?
Responses:
– Max, great quote
– Nick Kelly and Max: yup, new revenue streams for banks? How about money laundering? https://www.reuters.com/article/us-europe-moneylaundering-factbox/factbox-european-banks-hit-by-russian-money-laundering-scandal-idUSKCN1QP1P2
– GotCollateral: you have NO idea how much corruption there is in the medical field (my field). The best medical advice I’ve ever given anyone is “stay healthy” so you are not at risk for life-ending mistakes and greed.
In Alberta’s Tar Sands the total accumulated debt is more than $120 billion for roughly 140 projects = https://open.alberta.ca/opendata/alberta-oil-sands-royalty-data1
A couple of projects are more than $15 billion in the red. Koch Industries and the Chinese at Long Lake haven’t produced a barrel since 2015.
The Alberta Energy Regulator (AER.ca) published ST98 energy report that states Tar Sands mining operations need a US WTI price of $80/bbl to breakeven. In situ SAGD operations need US WTI breakeven prices of $45/bbl.
https://www.aer.ca/providing-information/data-and-reports/statistical-reports/st98/crude-bitumen/supply-costs
Currently, the Alberta government is defrauding cities and towns of oil company taxes.