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August 17, 2022

Financials Matter

"It's Not Just About Finance"

No Fracking Way

Fracking, in the oil industry, is known as horizontal drilling.

And for nearly two decades, the “frackers” have raised $100’s of billions for drilling shale oil.  At the same time, they’ve lured investors into what could be the catalyst that unleashes the next financial crisis.

You see, all of this Fracking madness would not have been possible if it were not for record low interest rates after the 2008 meltdown.

Historically low rates have allowed these frackers to raise over $200 Billion (as of 2015) which is a 300% increase from the previous decade.  However, interest rate expense increased at half the rate.

Sounds good so far, right?

Wrong!

You see, the problem is these fracking wells have a ridiculously steep decline rate: “The amount of oil they produce in the second year is drastically smaller than the amount produced in the first year.” (quote from an economist at the Kansas City Federal Reserve)

The same economist noted that production at the average well in the North Dakota Bakken region, declines 69% in its first year and over 85% in its first three years.

For Frackers, this means constantly poking expensive holes in the ground to try and offset declines from previous years’ wells.

Do the math.

If you’re a fracker, your lifespan of oil production is a couple years at best.  So, as your revenue declines, how do you service the billions in long term debt?

You can double or triple that liability if oil prices go down.  Now you’re looking at an epic debt time-bomb.

Yet, the boyz in the “Club” continue to make billions in fees by promoting these fracking frackers.

I say “No fracking way.”

Does the name ENRON sound familiar?

Protect yourself from this disaster waiting to happen (HERE).

 

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