Wednesday, July 22, 2015

The pin is near the fracking bubble?

Not everyone is aware of the huge lending support that the various fracking folks have used to push their business model.  When this type of behavior continues, even when the participants show little signs of might be in a speculative bubble.
Well now that the bubble which is China's economy has crashed, dropping the bubble driven demand for basic economic inputs (and gold too recently) we will get to see just how much of a bubble fracking is.
Asjylyn Loder, Bradley Olson, Dawn Kopecki, Bloomberg Business, 20 July 2015 (hat tip: NC)
Bank regulators have issued warnings on the risks involved in lending to U.S. drillers, threatening a cash crunch in an industry that’s more dependent than ever on other people’s money. Wall Street has been one of the biggest allies of the shale revolution, bankrolling thousands of wells from Texas to North Dakota. The question is how that will change with oil prices down by half since last year to $50.36 a barrel.
“Lenders in general are increasing pressure on oil companies either to raise more equity or do some sort of transaction to pay down their credit lines and free up extra cash,” said Jimmy Vallee, a partner in the energy mergers and acquisitions practice at law firm Paul Hastings LLP in Houston.
 This isn't really new news, but it is a data point along the continuum.

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