Three-Quarter Trillion Shale Losses Since 2015, Getting Worse

Jan. 27, 2020 (EIRNS)—In the U.S. leveraged-lending and junk bond center of Wall Street’s “everything bubble,” the shale oil and gas sector is the number-one place where debt goes to die. Ironically this is the sector making the United States “energy independent” for the first time in nearly a century. The last week’s sudden 20% drop in the price of oil to $52/barrel for West Texas crude, and to a record-low natural gas price, will accelerate the bankruptcies and the threat to debt-holding banks and hedge funds.

Wolf Richter’s Jan. 22 column in his “Wolf Street” website—“The Great American Shale Oil & Gas Bust: Fracking Gushes Bankruptcies, Defaulted Debt, and Worthless Shares”—gives new details. Since 2015, through 400 bankruptcies of shale oil producers/explorers, oil-field services companies, and midstream companies (e.g., transport, storage), $207 billion in debt has gone bust. This is losses of bondholders, which definitely include regional and major banks. But as EIR has reported before, the losses of shale investors and shareholders over that five-year period have exceeded $500 billion. And production in the shale basins is continuing the decline which characterized all of 2019.

One of the largest of the bankruptcies was in July, Weatherford International oil-field services, which in 2014 had 67,000 employees and in July 2019 had 26,000. Some $6 billion debt was wiped out then in a “packaged bankruptcy.” Weatherford attributed its insolvency in part to reduced drilling activity by producers. Now, the price of natural gas has dropped to unheard-of low $1.90 per million Btu. Wolf Street reports that this is significantly due to the failure to build sufficient pipeline or cracking facilities, especially pipelines. That leaves the shale producers, particularly in Texas, dependent on local demand, and therefore prices collapse. This is going to lead to a severe retrenchment in shale gas production, as in the Marcellus basin where there is almost no oil being recovered, only gas.

So the energy revolution in the United States continues to be almost as inefficient and low-productivity, as Germany’s “Energiewende,” as the insane nuclear and fossil fuel exit is known; and both are elements accelerating financial breakdown.