Shale oil is drowning in debt

[izentrop]

We already know that the American oil industry is highly indebted, but that's only part of its problems. Its debt service is very high and at the current rate of profit on oil, the resource will probably be exhausted before the industry has managed to repay its creditors. Why lend money from the industry in its conditions? Because the finance sector is gaining in the short term and it hopes to pass the debt to others before the bubble burst.

Why are we lending to oil companies?

If the repayment is so uncertain, why is the finance industry lending to the oil companies? Beyond the effects of advertisements and financial prospectuses with suspicious optimism, we can mention four main reasons:

The sector is in deficit as a whole, but about 40% of companies still make some profits. These examples maintain the hope of profitable discoveries for loss-making companies.
The oil companies' bonds offer excellent returns, in a world where fee-based investments are scarce.

Much of the money lent comes not from the capital of the financial sector, but from money entrusted by pension funds or mutual funds - the risk is therefore borne by third parties.
ext ext ...

https://energieetenvironnement.com/2018 ... es-dettes/
The wall is fast approaching.

[Did67]

In the same vein, on German TNT, last night saw German retirees (54!) Who had placed all their savings in a Swiss container company and who discovered that the company has been bankrupt for almost 000 years. Of the 10 containers "sold", therefore paid by retirees, there would be at most 1. Which, fortunately, are rented and bring in a little. They haven't lost everything. But for now, following the bankruptcy, everything is blocked.

Of course, with the development of world trade, container ships, the brochure promised a safe fructification of their investments!

In countries where the pension system is essentially private and funded (in Germany it is a long-time mixed), there will undoubtedly be such surprises from time to time.

We saw a lady of almost 70 years get back to work because her basic retirement was just paying rent!

[Ahmed]

The base of this extractive industry is highly cyclical at the economic level and it is not excluded that the future oil crisis (2019?) Will come, at least temporarily, restore its financial margins. This is probably one of the reasons for interest in this type of speculative investment.

[sen-no-sen]

Oil and shale gas are just financial bubbles ready to implode.
There is no surprise in it, by definition its modes of extractions are based on the principle of Ponzi Pyramid.
As an example for shale gas, it is 80% of the production that is delivered during the first 3 years, which requires a constant renewal of the wells. The bait of the immediate gain has led to a craze for this type of resources via massive investment, the problem is that once launched only the race forward can amortize the initial costs.
And it is the digging of new wells that helps maintain the old, the end is an increase in general debt that can end only by a nice crash!

General aspect of the production of a "tight gas" or shale gas well.
The ordinate is graduated as a% of production in the first year of operation, and the horizontal axis is years of operation.

It can be seen that as early as the 3e year the flow became a small fraction of the initial flow.
https://jancovici.com/transition-energetique/gaz/quest-ce-que-le-gaz-non-conventionnel/

[Ahmed]

This gas bubble (sic!) And oil, ephemeral as it is, will suffice by its massive nature (and its psychological impact) to destabilize oil prices by causing a temporary decline in prices. In my region, it is not uncommon to see heaps of wood energy rotting on the side of the road: intended to be crushed to feed the wood boiler, they were abandoned by the managers of the heating networks to the profit natural gas, cheap and much easier to use.

Note: to understand this possibility of substitution, it is important to know that a heat network consists of a wood boiler (with its feeding system) and a gas boiler. The logic of this implementation is as follows: the wood installation is a costly investment and maintenance, but the price of the fuel is low and offsets the disadvantages over time; so it provides the basic heat. The gas boiler represents an investment and a lighter implementation, a much higher operating flexibility than its neighbor, but a generally higher fuel cost. Its role is to ensure peak power during peak winter consumption, the relay during maintenance or failures of the wood boiler and the production of hot water in summer.

[sen-no-sen]

This gas bubble (sic!) And oil, ephemeral as it is, will suffice by its massive nature (and its psychological impact) to destabilize oil prices by causing a temporary decline in prices.

Temporary decline in prices with disastrous consequences, particularly with regard to the situation in Venezuela (annihilation of oil revenue) and instability in Iran.
To this we can add a decrease in investments in the RES sector due to the relatively low costs of fossil fuels.

[Ahmed]

... This also impacts the Russian trade balance.

I wrote above, that rising hydrocarbons in the near future will restore tentatively the profitability of the marginal extractions sector, such as shale gas or oil and Sen-no-sen explained very well why it will only be temporary. The exploitation of the oil sands responds mainly to a logic that is the ratio between the energy extracted and the energy expended to do so: the EROEI; in the long term, a rise in prices will not be enough to allow it to continue, but it will probably be only after enormous damage.
There is everywhere a technological race that improves the performance of extraction and strives to offset the decline in the wealth and accessibility of deposits. In this perspective, the possible access and soon to the Arctic represents a great opportunity for discoveries in these new territories that are open to oil companies.
As I also like to write, as the increase in productivity leads to a fall in the unit price of goods and consequently to a higher overall production of goods, so the reduction of deposits which are easy to exploit leads to to constantly widen the field of exploration and to multiply the boreholes (the number of these varies with the courses, but this does not call into question the logic of this process), the consequence being a multiplication of the attacks on the environment.
The difference with the goods is that the prices of hydrocarbons can not decrease continuously, because they are primarily products of rent.

Goods are valued primarily by the amount of labor socially required to produce them, but the trend of falling prices is not infinite: two scissors curves clash and profitability collapses when approaching their intersection.

* One represents the unit price of the commodity that is sinking, the other the amount of merchandise needed to offset the decline in value.