@94 Where Money Goes to Die
: How Fracking Blows Up Balance Sheets of Oil and Gas Companies
" In 2010, the hole left behind by fracking was only $18 billion. During each of the last three years, the gap was over $100 billion.[..]Just to maintain production, companies have to drill more and more and incur more and more debt, even as revenues are disappointing. In addition, drillers with heavy reliance on natural gas have faced prices for dry gas that have been so low for years that most wells will never generate enough cash to cover the costs of production. And much of the capital that went into them has been destroyed.
A Bloomberg analysis of 61 companies drilling for shale oil and gas found that debt among them nearly doubled over the past four years, while revenues inched up only 5.6%. And interest payments on that ballooning debt is taking up an ever larger portion of the revenues – even at today’s record low interest rates – with 12 of the companies already paying over 10% of their revenues in interest.
The financial hype around fracking, the limitless, nearly free liquidity provided by the Fed since late 2008, and investors so desperate for yield that they’re willing to incur just about any risks in their vain battle to come out ahead have had Wall Street frothing at the mouth. The sweeps of creative destruction have broken down. Instead, the boundless stream of money has been searching for a place to go, and it went to an economic activity – fracking – where money goes to die. What’s left is debt, and wells, especially gas wells, that will never produce enough to pay off the debt that was incurred to drill them."