Fracking turns out to be a bad bet – The Wall Street Journal

DUBLIN — The much-vaunted fracking boom in the US has been powered less by profit than it has been by debt. Fracking is an expensive way to produce oil and gas (even ignoring the negative externalities it creates). Setting up a fracking operation requires a lot of upfront capital and many fracking sites are only really productive for a year or so – the rate at which they produce tends to fall dramatically after 12 months and keep declining. As a result, most fracking operations need fairly high oil prices to be profitable. In some cases, they need very high prices. As oil prices have moderated over the last eighteen months, many marginal businesses have sustained themselves with capital infusions as they wait for higher oil prices. Wall Street has, so far, been happy to provide loans – in today's low interest rate environment, banks are looking for yield wherever they can get it. But now it looks like the tide is turning. As profits fail to materialise at fracking companies, investors are becoming less willing to lend. It's early days, but this dynamic may pose a threat to the US oil boom. – Felicity Duncan

Frackers Face Harsh Reality as Wall Street Backs Away

By Bradley Olson and Rebecca Elliott

(The Wall Street Journal) The once-powerful partnership between fracking companies and Wall Street is fraying as the industry struggles to attract investors after nearly a decade of losing money.

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