Gas Fracking: "The Melting Ice Cube Business"Submitted by barracuda_trader on Tue, 05/06/2014 - 23:16
[Edit: In 2010 when I was researching the gas rush in my part of Pennsylvania I predicted that companies would scam investors (stock holders etc.) and pump debt bubbles that would eventually leave investors ripped off and municipalities to clean up the mess following the bust.]
Junk Bonds Fuel the Shale Boom
By Asjylyn Loder
May 01, 2014 | BusinessWeek
Rice Energy , a natural gas producer with a low credit rating, raised $900 million in a bond sale in April, $150 million more than it originally sought. Investors snapped up the bonds even though the Canonsburg (Pa.)-based company has lost money three years in a row, has drilled fewer than 50 wells (most named after superheroes and monster trucks), and said it will spend $4.09 for every dollar it earns (before interest, taxes, depreciation, and amortization) in 2014.
“This is a melting ice cube business. If you’re not growing production, you’re dying.”—Mike Kelly, Global Hunter Securities
The U.S. drive for energy independence is backed by a surge in junk bonds that has been as vital to the boom as the breakthroughs in drilling technology. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown ninefold, according to Barclays. That’s what keeps the shale revolution going even as companies spend money far faster than they make it. “There’s a lot of Kool-Aid that’s being drunk now by investors,” says Tim Gramatovich, chief investment officer of Peritus Asset Management. “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”