Shale Pioneer: Fracking is an "Unmitigated Disaster"

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Fracking has been an "unmitigated disaster" for shale companies themselves, according to a prominent former shale executive.

"The shale gas revolution has been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions," Steve Schlotterbeck, former chief executive of EQT, at shale gas giant, said at a petrochemicals conference in Pittsburgh. "In fact, I am aware of another disruptive technological case that has created so much harm to the industry that created the change."

He did not pull any punches. "While hundreds of billions of dollars benefit from hundreds of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars," he said. "The industry is self-destructive."

The message is not a new one. The shale industry has been burning through capital for years, posting mountains of red ink. One estimate from the Wall Street Journal found that over the past decade, the top 40 independent U.S. shale companies burned through $ 200 billion more than they earned. To 2017 estimate from the WSJ found $ 280 billion in negative cash flow between 2010 and 2017. It is incredible when you think about it – despite the record levels of oil and gas production, the hole in the rough by quarter of dollars.

The red ink has been able to lead to more losses in the second quarter.

So, questionable economics is not exactly breaking news when it comes to shale. But the fact that a prominent former shale executive – who presided over one of the largest shale gas companies in the country – called the face-to-face industry, raised some eyebrows, to say the least. "In a little more than a decade, most of these companies have just destroyed a large number of their companies' value that they had at the beginning of the shale revolution," Schlotterbeck said. "It's the frankly hard to imagine the scope of the destruction that has occurred. And it continues. "

"Nearly every American has benefited from shale gas, with one big exception," he said, "the shale gas investors." Related: China Launches World's First Smart Oil Tanker

The industry is a bit of a crossroads The Wall Street Journal reports that Pioneer Natural Resources, often cited as one of the strongest shale drillers in Texas, is a hand -icapped back to shareholders. "We lost the growth investors," Pioneer's CEO Scott Sheffield said in a WSJ interview. "Now weve got to attract a whole other set of investors."

Sheffield has decided to slash Pioneer’s workforce and slow down on the peace of drilling. Pioneer has been bedeviled by disappointing production and higher than expected costs.

But, as Schlotterbeck told the industry conference in Pittsburgh, the problem with fracking runs deep. While shale E & Ps has succeeded in boosting oil and gas production to levels that were unthinkable only a few years ago, prices have crashed precisely because of the surge of supply. And, because wells decline at a precipitous rate, capital-intensive drilling ultimately leaves companies on a spending treadmill.

Meanwhile, the financial scrutiny increases the industry, so does the public health impact. A new reports that studied over 1,700 articles from peer-reviewed journals found harmful impacts on health and the environment. Specifically, 69 percent of the studies found potential or actual evidence of water contamination associated with fracking; 87 percent found air quality problems; and 84 percent found harm or potential harm on human health.

The health impacts have been pending the industry against local communities. The industry largely won the tug-of-war over fracking, beating back federal and state efforts to regulate it. However, the story is not over. Related: Philadelphia Refinery Explosion To Boost Gasoline Prices

In many cases, there is an abundance of anecdotal evidence pointing to serious health impacts, but peer-reviewed research takes time and has lagged behind the incredible rate of drilling. Now, the public health research is starting to catch up. Of the more than 1,700 peer-reviewed studies looking at these issues, more than half have been published since 2016.

One need not be an opponent of fracking to recognize this presents to threat to the industry. For instance, a spike of a rare form of cancer has cropped up in southwestern Pennsylvania recently. The cause is unclear, but some public health advocates and environmental groups are pointing to the finger at the gas drilling, and have called on the governor to stop issuing new drilling permits. The Marcellus Shale Coalition, an industry group, said the request was “ridiculous.” The region is right at the heart of high levels of shale drilling, Time will tell.

In the meantime, poor financials are the largest drag on the shale sector. "And at $ 2 even the mighty Marcellus does not make economic sense," Steve Schlotterbeck, the former EQT executive said at the conference. "There will be reckoning and the only questions is whether or not it is in a controlled manner or whether it is an unexpected shock to the system."

By Nick Cunningham, Oilprice.com

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