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Headlines abound about the massive surge in US shale oil production. The energy independence-cheering punditocracy hail this as a great victory. This includes President Trump.
And it would be if this surge in production was built on financially stable ground. But it isn’t. The fracking industry continues to bleed massive amounts of cash. As I pointed out in an article earlier this week, when accounting for this inconvenient truth much of the U.S’s return to dominance in the energy space is a lot of hot air.
Nick - Cunningham - Article - Oilprice - Com
Nick Cunningham’s article at Oilprice.com tells the tale.
Heading into 2019, the industry promised to stake out a renewed focus on capital discipline and shareholder returns. But that vow is now in danger of becoming yet another in a long line of unmet goals.
Quarter - Gusher - Ink - Institute - Energy
“Another quarter, another gusher of red ink,” the Institute for Energy Economics and Financial Analysis, along with the Sightline Institute, wrote in a joint report on the first quarter earnings of the shale industry.
The report studied 29 North American shale companies and found a combined $2.5 billion in negative free cash flow in the first quarter. That was a deterioration from the $2.1 billion in negative cash flow from the fourth quarter of 2018. “This dismal cash flow performance came despite a 16 percent quarter-over-quarter decline in capital expenditures,” the report’s authors concluded.
Lack - Profitability - Engineering - Bull - Market
This lack of profitability is maintained solely through financial engineering and a continued bull market in structured credit in the US due to the needs of pension funds to make a 7.5% yield to maintain their defined benefit payouts.
They aren’t the only ones fueling this fracking boom but it is a major driver of both US equities and the commercial paper market. This is just another consequence of the Federal Reserve’s zero-bound interest rate policy.
Trump - Policy - Achilles
So, why is this Trump’s foreign policy Achilles’...
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