Big oil vs Big banks, Clash of the Titans.

[Bronzeage]

Thirty years ago, there were a lot of oil fields in the US which had ceased production because the output was too low to be profitable. There was still oil in the ground, but no practical way to extract it, because it wasn't in pockets between the rock layers. It was soaked into the rock and no way to pump it, or force it up the pipe.

New extraction technologies were developed and suddenly the US was once again a major oil producer. There was much rejoicing.

Everything comes with a catch. This time, it was the money. New extraction technologies are expensive, so the oil they produce is expensive too. It's even more expensive when it was produced with borrowed money.


The Shale Industry Could Be Swallowed By Its Own Debt

The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.

This puts our oil companies in the strange position of losing more money when sales increase.

When the sub-prime home mortgage market collapsed, the banks didn't seem to be worried about the prospect of owning thousands of houses that were worth less than the mortgage. I wonder how they'll feel about owning thousands of oil wells.

 

[dismal]

Thirty years ago, there were a lot of oil fields in the US which had ceased production because the output was too low to be profitable. There was still oil in the ground, but no practical way to extract it, because it wasn't in pockets between the rock layers. It was soaked into the rock and no way to pump it, or force it up the pipe.

New extraction technologies were developed and suddenly the US was once again a major oil producer. There was much rejoicing.

Everything comes with a catch. This time, it was the money. New extraction technologies are expensive, so the oil they produce is expensive too. It's even more expensive when it was produced with borrowed money.


The Shale Industry Could Be Swallowed By Its Own Debt

The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.

This puts our oil companies in the strange position of losing more money when sales increase.

When the sub-prime home mortgage market collapsed, the banks didn't seem to be worried about the prospect of owning thousands of houses that were worth less than the mortgage. I wonder how they'll feel about owning thousands of oil wells.

It's always been "soaked into the rock" but I guess that's not important here.

Tis true a lot of capital has been invested with the expectation of higher prices, but those companies that had prudent levels of debt will be OK.

 

[arkirk]

Thirty years ago, there were a lot of oil fields in the US which had ceased production because the output was too low to be profitable. There was still oil in the ground, but no practical way to extract it, because it wasn't in pockets between the rock layers. It was soaked into the rock and no way to pump it, or force it up the pipe.

New extraction technologies were developed and suddenly the US was once again a major oil producer. There was much rejoicing.

Everything comes with a catch. This time, it was the money. New extraction technologies are expensive, so the oil they produce is expensive too. It's even more expensive when it was produced with borrowed money.


The Shale Industry Could Be Swallowed By Its Own Debt

The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.

This puts our oil companies in the strange position of losing more money when sales increase.

When the sub-prime home mortgage market collapsed, the banks didn't seem to be worried about the prospect of owning thousands of houses that were worth less than the mortgage. I wonder how they'll feel about owning thousands of oil wells.

Then there is the real elephant in the bathtub....environmental remediation after they fuck up our environment. These companies will all be on the ash heap of history and we will have all these drilling ponds with nasty fracking waste still hanging around and all sorts of intrusions of these wastes into our rapidly depleting groundwater basins...not even considered in this little bank scenario.

 

[Bronzeage]

Thirty years ago, there were a lot of oil fields in the US which had ceased production because the output was too low to be profitable. There was still oil in the ground, but no practical way to extract it, because it wasn't in pockets between the rock layers. It was soaked into the rock and no way to pump it, or force it up the pipe.

New extraction technologies were developed and suddenly the US was once again a major oil producer. There was much rejoicing.

Everything comes with a catch. This time, it was the money. New extraction technologies are expensive, so the oil they produce is expensive too. It's even more expensive when it was produced with borrowed money.


The Shale Industry Could Be Swallowed By Its Own Debt



This puts our oil companies in the strange position of losing more money when sales increase.

When the sub-prime home mortgage market collapsed, the banks didn't seem to be worried about the prospect of owning thousands of houses that were worth less than the mortgage. I wonder how they'll feel about owning thousands of oil wells.

Then there is the real elephant in the bathtub....environmental remediation after they fuck up our environment. These companies will all be on the ash heap of history and we will have all these drilling ponds with nasty fracking waste still hanging around and all sorts of intrusions of these wastes into our rapidly depleting groundwater basins...not even considered in this little bank scenario.

That will fall upon the American taxpayer and American property owners, just as it always has.

 

[Will Wiley]

When the sub-prime home mortgage market collapsed, the banks didn't seem to be worried about the prospect of owning thousands of houses that were worth less than the mortgage. I wonder how they'll feel about owning thousands of oil wells.

The people who organized the finance for the wells, have collected their fees and their bonus's. So they won't care.
It's not the bank executives (and they are the one who might "feel" as you put it) who will suffer.
SHALE AND WALL STREET

In 2011, shale mergers and acquisitions (M&A) accounted for $46.5B in deals and became one of the largest profit centers for some Wall Street investment banks. This anomaly bears scrutiny since shale wells were considerably underperforming in dollar terms during this time. Analysts and investment bankers, nevertheless, emerged as some of the most vocal proponents of shale exploitation. By ensuring that production continued at a frenzied pace, in spite of poor well performance (in dollar terms), a glut in the market for natural gas resulted and prices were driven to new lows. In 2011, U.S. demand for natural gas was exceeded by supply by a factor of four.

It is highly unlikely that market-savvy bankers did not recognize that by overproducing natural gas a glut would occur with a concomitant severe price decline. This price decline, however, opened the door for significant transactional deals worth billions of dollars and thereby secured further large fees for the investment banks involved. In fact, shales became one of the largest profit centers within these banks in their energy M&A portfolios since 2010. The recent natural gas market glut was largely effected through overproduction of natural gas in order to meet financial analyst’s production targets and to provide cash flow to support operators’ imprudent leverage positions.

 

[dismal]

Then there is the real elephant in the bathtub....environmental remediation after they fuck up our environment. These companies will all be on the ash heap of history and we will have all these drilling ponds with nasty fracking waste still hanging around and all sorts of intrusions of these wastes into our rapidly depleting groundwater basins...not even considered in this little bank scenario.

That will fall upon the American taxpayer and American property owners, just as it always has.

It will fall, indeed already to a large degree has fallen, on people who made equity investments that required higher oil prices than we currently have.