http://www.bloomberg.com/news/2014-04-30/shale-drillers-feast-on-junk-debt-to-say-on-treadmill.html#disqus_thread
There is this commonly used analogy that because A) shale wells have dramatically declining production compared to initial rates, and B) because many drillers have negative free cash flow that C) the whole thing is a scam and all these companies will eventually be bankrupt. This is very simplistic and faulty reasoning, although I do agree that owning the high yield bonds of some of these smaller companies sure seems like a really bad idea at 5%.
The old "peak oil" website called theoildrum.com used to call "the treadmill" the "the red queen" 's race, from the Lewis Carrol story. Drilling more and more wells just to maintain production. It is true that a lot of the shale gas companies made uneconomic investments, but by and large this was for two reasons. The first reason was that there was a race to get and hold acreage. The second reason was that there were huge investments in gas when it was at $5-12 per mcfe, and then the price of gas crashed. As the land grab phase recedes, I think the economics of the various plays will become more clear, and will continue to improve.
There is this commonly used analogy that because A) shale wells have dramatically declining production compared to initial rates, and B) because many drillers have negative free cash flow that C) the whole thing is a scam and all these companies will eventually be bankrupt. This is very simplistic and faulty reasoning, although I do agree that owning the high yield bonds of some of these smaller companies sure seems like a really bad idea at 5%.
The old "peak oil" website called theoildrum.com used to call "the treadmill" the "the red queen" 's race, from the Lewis Carrol story. Drilling more and more wells just to maintain production. It is true that a lot of the shale gas companies made uneconomic investments, but by and large this was for two reasons. The first reason was that there was a race to get and hold acreage. The second reason was that there were huge investments in gas when it was at $5-12 per mcfe, and then the price of gas crashed. As the land grab phase recedes, I think the economics of the various plays will become more clear, and will continue to improve.
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