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I was up late last night reading @bethanymac12 "Saudi America".. Awesome book so far, here are some of my highlights
"The most vital ingredient in fracking isn’t chemicals, but capital, with companies relying on Wall Street’s willingness to fund them. If it weren’t for historically low interest rates, it’s not clear there would even have been a fracking boom."
“If companies were forced to live within the cash flow they produce, U.S. oil would not be a factor in the rest of the world, and would have grown at a quarter to half the rate that it has.”
4) "The fracking boom has been fueled mostly by overheated investment capital, not by cash flow."
"Einhorn’s firm had looked at the financial statements of the 16 largest publicly traded frackers, which included companies like Pioneer and EOG. Einhorn found that from 2006 to 2014, the fracking firms had spent $80 billion more than they had received from selling oil and gas
Even when oil was at $100 a barrel, none of them generated excess cash flow—in fact, in 2014, when oil was at $100 for part of the year, the group burned through $20 billion."
"The key reason for the terrible financial results is that fracked oil wells in particular show an incredibly steep decline rate. According to an analysis by the Kansas City Federal Reserve
the average well in the Bakken declines 69 percent in its first year and more than 85 percent in its first three years, while a conventional well might decline by 10 percent a year"
"Einhorn also pointed out that presentations by frackers like Pioneer can be quite misleading. A typical presentation, like the ones by Pioneer, would claim that their wells generate internal rates of return of 40 to 100 percent, which are spectacular numbers. And yet,
Pioneer reported negative earnings every quarter through 2015, as did many other companies. Turns out, the financial results from an individual well don’t include corporate expenses, such as the money that is spent acquiring land or leases. They also exclude the ongoing capital
that needs to be spent in order to maintain production. And that capital literally disappears into a hole in the ground. “Once you extract the oil from the ground,” Einhorn said, “That’s it. Poof! It’s gone.”
It’s been an interesting read so far... definitely recommend it
