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Page added on October 2, 2015
Frackers Face Mass Extinction
Awareness is gradually seeping into the financial press that the Great American Oil Revolution has been over for months — witness the current Fortune headline,“Frackers Could Soon Face Mass Extinction.” If the general media had any grasp of what was happening in America, or what it meant, CNN would be doing wall-to-wall coverage of the deserted man-camps in North Dakota, the unemployment lines in Texas, the equipment yards stacked with idle derricks, the spreading panic in the junk-bond, bond and stock markets. Instead we get Donald’s beautiful tax plan, Hillary’s elusive emails and Carly’s mythical video tapes.
Today is the last day of the rest of the frackers’ lives. That’s because it is the last day of the third quarter of the year, the day after which banks audit their loans, assessing anew the value of the assets held as collateral.
Frackers pledge their oil reserves, and those reserves are worth today about half of what they were worth a year ago. A year ago, they borrowed everything they could. In about two weeks when the audits are done they’re going to have to give half of it back. Many of the companies don’t have it.
Analysts quoted by Fortune expect a third of the fracking companies to go under.
I expected this to happen at the end of the first quarter, when the banks did the first of their two annual reassessments. But I forgot the old rule of thumb: borrow ten thousand dollars, and the bank owns you, borrow ten million and you own the bank. Back in April, lenders bent over backwards to avoid reclassifying loans, and predatory investors poured money into junk-bond rollovers of expiring junk bonds, because they simply could not believe that the ride was over. Prices would go back up, was the mantra they chanted, and all would be well again.
As I’ve reported here over and over, this disaster would have overtaken the fracking patch even if oil prices had not tanked, because its root problem was the hideous decline rate of fracking wells, most of which are exhausted within four years.
Imagine if they built houses of water-soluble materials. You buy a house for $200,000 or so, and at the end of four years it’s uninhabitable and worthless, and you have to buy another one. You might have been making good money those four years, but enough to set aside $50,000 a year? That’s been the fracking problem from the beginning, and virtually every company in the business has had to borrow heavily – actually, recklessly — to stay in the game.
Which is over. For most. There will always be some operators diligently wringing out the last few drops of combustibles, but the Brave New World of American oil supremacy in a cowed world, the age of American energy security, the renewed American oil economy — all creations of marketing departments in search of the proverbial greater-fool investors and lenders — are toast.
Still can’t believe it? Check out David Stockman, “Going Broke in the Shale Patch;” Oil Price.com, “Is This the End of the Shale Gas Revolution?;” CNBC, “US Drillers About to Start Hemorrhaging;” Bloomberg, “Wall Street Lenders Growing Impatient with U.S. Shale Revolution” and “Junk-Debt Investors Fight for Scraps as U.S. Shale Rout Deepens;” and even the Wall Street Journal, “Fracking Firms that Drove Oil Boom Struggle to Survive.”
Yes, it’s morning in the American fracking patch, but instead of Ronald Reagan’s rhapsodic dawn it’s more like something out of Revelations. Even the staid Fortune Magazine says, “Doomsday may finally be coming to the fracking industry.”
56 Comments on "Frackers Face Mass Extinction"
Davy on Sun, 4th Oct 2015 1:44 pm
MR, you have been around as long as I have are you seeing the cornucopians wither away? I see a clear trend away from the corn porn. Their talking points are diminishing as ours are increasing.
You may think I am joyful well I am not but there is some satisfaction in honesty and appreciation of the truth. I feel it is also pressing we get a message out to prepare and give ways to prepare. The more prepared individuals the less suffering.
I say this often and it is worth repeating. We can change some things. Things we can’t change we can attempt mitigation and adaptation. There is a shitstorm of bad doo doo coming our way and all we can do is endure it as best we can. Many of us here are not going to make it. This is a call to battle for those who hear.
onlooker on Sun, 4th Oct 2015 2:23 pm
Thanks Mr No and Davy. Consider me having heard the battle cry. Let us doomers not rest till their are no cornies on this board or site, how is that for starters. Seriously the truth will come out one way or another.
shortonoil on Sun, 4th Oct 2015 4:32 pm
“short,
Thanks for your version. Here is the IEA version.
http://peakoil.com/business/frackers-face-mass-extinction“
The difference is that the EIA wasn’t capable of predicting the collapse in oil prices:
we were:
http://www.thehillsgroup.org/depletion2_022.htm
By 2020 the petroleum industry will be in its death throes! You may not like it – but the Laws of Physics don’t give a dam about what you like!
apneaman on Sun, 4th Oct 2015 5:38 pm
Davy, is there anyone on this board that has claimed we are all in a trap more than me? And provided reams of evidence to back it? That is my underlying thesis ffs. I just don’t like ff apologists. Especially Texas braggarts who try and tell us we should all be grateful for his existence.
Davy on Sun, 4th Oct 2015 7:28 pm
Yea, Ape Man, you got it covered.
Ape, I got a dog that doesn’t like this other dog down the road. There is no real reason for it I can see. He doesn’t have problems with any of the other dogs. That dog rubs him wrong for his own reasons. You and I are part dog in that respect. You know who rubs me wrong and many on this board don’t understand why. When we don’t like someone and we let it be known
..ruff..ruff..growl..ruff..ruff
makati1 on Mon, 5th Oct 2015 1:14 am
Ah, pity the poor suffering from the Western caused decline. Who gives a rats ass if a few million are ‘suffering’ Nothing new there in the real world. So what if it is kids, old people, handicapped, etc.
Some stats from the real world:
“Stats about deaths occurring every few seconds have been around for years. This latest, the 10-second one, is based on a figure from a very reputable source – The Lancet, an internationally renowned journal which recently published a paper saying that more than three million children died of under nutrition in 2011.”
http://www.bbc.com/news/magazine-22935692
“About 21,000 people die every day of hunger or hunger-related causes, according to the United Nations. This is one person every four seconds, as you can see on this display. Sadly, it is children who die most often.”
http://www.poverty.com/
“Every 3.6 seconds one person dies of starvation. Usually it is a child under the age of 5.”
http://www.unicef.org/mdg/poverty.html
This is why I do not shed a tear for Western kids or families. It is just their turn to live like much of the “unexceptional” world. Or die, as the case may be.