U.S. Oil Shale Debt Bubble Poised for Explosion

Aug. 6, 2019 (EIRNS)—The U.S. oil shale industry is experiencing, in some sectors, severe cash shortages and burgeoning company failures, that could trigger crisis in the bankrupt world financial system.

The oil shale industry, which uses hydraulic fracturing (fracking) to bust open and extract oil and natural gas entrapped in shale deposits, has long overstated its projections of what deposits it can bring to the surface. Its wells are drying up more rapidly than predicted. Still, against its glittering promises, the oil and gas shale industry was lent a mountain of money by Wall Street, investment firms, etc.

The oil and gas industry has $240 billion in debt that matures by 2023, a significant portion of which is that owed by the oil shale companies, reports OilPrice.com, a leading industry news site.

A June 30 New York Times article, “U.S. Oil Companies Find Energy Independence Isn’t So Profitable,” reports a cascade of bankruptcies: “In the last four years, roughly 175 oil and gas companies in the United States and Canada have filed for bankruptcy.” On July 1, Weatherford International, the fourth leading oil services company in America filed a $8.3 billion bankruptcy protection in Houston. There is no let-up in sight. DeSmogBlog, a Canadian blog, whose manifesto is “Slamming the Climate Skeptic Scam,” in its ongoing series on the finances of fracking, reported on the cumulative damage in April 2018, writing “Since 2007, the oil and gas industry has lost $280 billion betting on the shale boom.”

Many oil shale companies expended more, including for debt service, than they take in in revenues, creating a deficit called negative cash flow, or colloquially, “cash flow burn.” The Aug. 1 Wall Street Journal reported, “In the first quarter of this year a basket of seven unconventional oil-focused drillers collectively reported free cash flow of negative $1.58 billion ... more than four times worse than during the first quarter of 2018.”

It is this paradox that is leading so many newspapers and oil industry journals to report that this show can’t continue.