Borrowing from Equity Markets to Frack For Oil + Lack of Free Cash Flow = UNsustainable just for the US

gasoline Trump

This article,, reads….“Unlike the two previous US-made financial bubbles (dot-com and real estate), the ‘frackers bubble’ is having meaningful positive economic effects on the rest of the world, through lower imports and improved international trade balances”.

This all important story in the wake of Trump’s live energy unleashing press release yesterday explains why frackers have a negative net present value …aka…they cannot extract oil at a profit even with the advances in fracking efficiencies.

Additionally with seismic risks in mind, “….there are also some other technical disadvantages coming from the efficiency gains. As lateral wells have lengthened, the amount of water recovered from the wells has also increased. On average, between 6 and 8 barrels of water are recovered from 1 barrel of oil (the Permian basin has one of the highest ratios). It means that, if you start from the oil production in the Permian as of today (around 2.3 million of barrels/day), the daily amount of water to be disposed in a safe place is around 14 million barrels, which is a considerable amount. And as production grows, it would not be a surprise to see how producers struggle to find proper places to dispose such quantities”. Maybe before they dispose of it they could at least sell the energy from the brine heat to the grid? 

This article sites a company called Diamondback who fracks exclusively for oil to explain the general predicament of the other frackers…..“Despite (Diamondback) being a top-notch producer with the best possible acreage, the company has not been able to generate any cash flows for its shareholders. Even when the oil was around $100 in the good old days of 2013 and 2014 and the company was also able to realise a juicy $4/mcf of gas, it did not generate positive FCF because of the high levels of investment. ‘We are investing for the future’ is the usual answer from the frackers when questioned about such high levels of investment. We will see the same path in other oil producers in a while.

Because the company has burned $4.9B of cash over the period (a staggering amount, by the way, for such a small producer), the arithmetic says that that money must have come from somewhere: in this case, the table shows that the company has been able to tap almost $4B from the equity markets over the whole period. The company closed the 1Q’17 with a net debt of $3.1B, which has been refinanced by its creditors in the past.

But this post is not an investment case to short Diamondback”.

Ready to short the frackers?

Never forget the housing bubble shorts which resulted in the informative movie called, “The Big Short”.



About Kim Triolo Feil

Since TX Statute 253.005 forbids drilling in heavily settled municipalities, I unsuccessfully ran for City Council Seat to try to enforce this. Since Urban Drilling, our drinking water has almost tripled for TTHM's. Before moving to Arlington in 1990, I lived in Norco’s “cancer alley”, a refinery town. It was only after Urban Drilling in Arlington did I start having health effects. After our drill site was established closest to my home, the chronic nosebleeds started. I know there are more canaries here in Arlington having reactions to our industrialized airshed (we have 55-60 padsites of gas wells). Come forward and report to me those having health issues especially if you live to the north/northwest of a drill site so I can map your health effects on this blog. My youtube account is KimFeilGood. FAIR USE NOTICE: THIS SITE MAY CONTAIN COPYRIGHTED MATERIAL THE USE OF WHICH HAS NOT ALWAYS BEEN SPECIFICALLY AUTHORIZED BY THE COPYRIGHT OWNER. MATERIAL FROM DIVERSE AND SOMETIMES TEMPORARY SOURCES IS BEING MADE AVAILABLE IN A PERMANENT UNIFIED MANNER, AS PART OF AN EFFORT TO ADVANCE UNDERSTANDING OF THE SOCIAL JUSTICE ISSUES ASSOCIATED WITH EMINENT DOMAIN AND THE PRIVATIZATION OF PUBLIC INFRASTRUCTURE (AMONG OTHER THINGS). IT IS BELIEVED THAT THIS IS A 'FAIR USE' OF THE INFORMATION AS ALLOWED UNDER SECTION 107 OF THE US COPYRIGHT LAW. IN ACCORDANCE WITH TITLE 17 USC SECTION 107, THE SITE IS MAINTAINED WITHOUT PROFIT FOR THOSE WHO ACCESS IT FOR RESEARCH AND EDUCATIONAL PURPOSES. FOR MORE INFORMATION, SEE: HTTP://WWW.LAW.CORNELL.EDU/ TO USE MATERIAL REPRODUCED ON THIS SITE FOR PURPOSES THAT GO BEYOND 'FAIR USE', PERMISSION IS REQUIRED FROM THE COPYRIGHT OWNER INDICATED WITH A NAME AND INTERNET LINK AT THE END OF EACH ITEM. (NOTE: THE TEXT OF THIS NOTICE WAS ALSO LIFTED FROM CORRIDORNEWS.BLOGSPOT.COM)
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