In a fascinating report for the Energy Research Forum, Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated? Deborah Rogers has examined the relationship between the shale gas industry in the US and Wall Street investment banks. As she explains (our emphasis):
“As documented in this report, emerging independent information on shale plays in the U.S. confirms the following:
Wall Street promoted the shale gas drilling frenzy, which resulted in prices lower than the cost of production and thereby profited [enormously] from mergers & acquisitions and other transactional fees.
U.S. shale gas and shale oil reserves have been overestimated by a minimum of 100% and by as much as 400-500% by operators according to actual well production data filed in various states.
Shale oil wells are following the same steep decline rates and poor recovery efficiency observed in shale gas wells.
The price of natural gas has been driven down largely due to severe overproduction in meeting financial analysts’ targets of production growth for share appreciation coupled and exacerbated by imprudent leverage and thus a concomitant need to produce to meet debt service.
Due to extreme levels of debt, stated proved undeveloped reserves (PUDs) may not have been in compliance with SEC rules at some shale companies because of the threat of collateral default for those operators.
Industry is demonstrating reticence to engage in further shale investment, abandoning pipeline projects, IPOs and joint venture projects in spite of public rhetoric proclaiming shales to be a panacea for U.S. energy policy.
Exportation is being pursued for the differential between the domestic and international prices in an effort to shore up ailing balance sheets invested in shale assets.
It is imperative that shale be examined thoroughly and independently to assess the true value of shale assets, particularly since policy on both the state and national level is being implemented based on production projections that are overtly optimistic (and thereby unrealistic) and wells that are significantly underperforming original projections.”
Is UK and Northern Ireland policy being led by the same unrealistic projections? Has the Northern Ireland Minister for Enterprise, Trade and Investment considered the implications of this research? To find out how to contact her, visit our What Can I Do? page.
Read the full report here
Image from report.