Recent evidence points towards Permian oil companies and fracking to be overcapitalized and unprofitable
Investors and oil company leaders agree: fracking is in trouble. Adam Waterous, the owner and operator of Waterous Energy Fund, has said that the fracking business will peak in 2020. In addition to declining oil production, investors and oil companies are skeptical about financial sustainability. According to the evidence compiled by a wide variety of oil industry groups and business experts regarding Permian oil companies and fracking, the U.S. shale industry has become overcapitalized. This overcapitalization means that there is more debt acquired in fracking than companies have in assets and equity.
“We think we are at or near peak Permian,” said Waterous. “The North American oil market has been grossly overcapitalized, which is not sustainable.”
Simon Casey, a Bloomberg reporter, agrees with Waterous’ assessment. “Predicting peak Permian output for 2020 isn’t a mainstream view. However, evidence is piling up that the U.S. shale industry may indeed be close to peaking as it runs out of the two things required to continue increasing oil production: money and what’s known as ‘tier one acreage.'” Tier one acreage is the highest-yielding area in an oil field, and it seems that the Permian region has less than was originally thought.
Now, an increasing number of Permian oil companies are going bankrupt and out of business because of their inability to produce a profit, and oil patches are providing less oil. As the trend continues, it becomes more evident that fracking is not profitable as it used to be, and methods of obtaining oil and energy need to change back towards a more generalist approach, according to DeSmogBlog[1].
References
- ^ according to DeSmogBlog (www.desmogblog.com)
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