USA Shale In Debt Bomb... Executives Destroying Own Companies

[Economy 52,837]

https://www.google.ca/amp/s/seekingalpha.com/amp/article/4081588-shale-oil-drillers-cannibalize-debt-bombs-loom-horizon

 

Investors that buy stock have been making noise about how the US Shale Oil companies are running the business

 

Most US Shale Companies have been structured in a way that growth in size gets CEOs and High Executives big bonuses. 

 

As a result even tho oil prices since 2014 have barely been high enough to break-even US Oil Production is surging as companies borrow money to pay for expansion

 

Investors say Companies are using up their resource on land they bough too fast at a time when it is not worth expanding so fast  and that the interest on such high debt could prove dangerous. 

 

In addition, companies will have to buy new shale acrage sooner if they depleate the oil in their faster. With high debt that makes future purchases more difficult

 

Investors want Oil Companies to focus on efficiency and dividend payments rather than expansion

[Luc 4,776]

I guess I can see both sides... of course investors want to see more money going towards them while executives want more for themselves and want to expand while shale is still 'new'. But oil is already worth a lot more than a year ago and you never know if it's going to rise even higher so they'd better be prepared. 

[Economy 52,837]

7 minutes ago, Luc said:

I guess I can see both sides... of course investors want to see more money going towards them while executives want more for themselves and want to expand while shale is still 'new'. But oil is already worth a lot more than a year ago and you never know if it's going to rise even higher so they'd better be prepared.

Shale is the fastest cycle oil ever tho. The exact opposite of my Country

 

In my Country Oil Sands take 5-10 years to set up a new project but up to 50 years to depleate the Oil from that area...

 

So u cant let short term price fluctuations affect decisions too much. U gotta see it long term

 

In the US it take only weeks to months to drill for shale and only 2 years to depleate that field enough for production to fall almost 70%... Thats a shorter cycle than Conventional Liquid Oil Driling!

 

So the US is capable of waiting for more certainty. I do think debt binging when ur barely breaking even on your produce is a little risky

[Eighteen 5,430]

if this industry goes bust does that mean a recession or? 

[Economy 52,837]

23 minutes ago, Eighteen said:

if this industry goes bust does that mean a recession or? 

Probably not... i doubt the industry as a whole would collpase because not every company is equally as bad...

 

Only a few more oil Companies will probably go bankrupt without higher prices (over 100 already have since 2014 but the industry as a whole still grew)

 

Whats more likely to happen is that on a contrained budget, oil production growth eventually may stall or production could actually start falling worst case scenario

 

The oil industry is like 2% of US GDP... so even a 20% contraction in oil industry would only shrink US economy by like 0.4% over-all probably not triggering a recession

 

Specific States could feel a squeeze tho like Texas and North Dakota for example