Sunday, January 5, 2014

Farmers: Beware of the Shale-Gas Bubble!

"It won't be long, before I'm gonna need somebody to lien on."
 -- Aubrey McClendon sings Bill Withers


A farmer signs a lease with Chesapeake,
but not yet in a spacing unit.

He goes to refinance his property (wants to buy a new truck)
and he gets a BIG surprise!

AS YOU KNOW if you've been reading my blogs,
there is ZERO cash in shale-gas exploitation

(cf. Chip Northrup1, Deborah Rogers2, David Hughes3  ... see footnotes for links).

None of the majors are making any money.
All of the drilling is being financed by Wall-St credit lines
("funny money").

Here's one way they do it:

  1. SIGN Farmer Bob whose property is an outlier--
    not in a "sweet spot", but near enough.
  2. Convince CitiBank, Goldman Sachs, Barclays, or CapitolONE, etc
    to underwrite a $500M line of credit based
    on Farmer Bob's FUTURE O+G production,
  3. Take a lien on Farmer Bob's property without his knowledge.
  4. Drill a few wells with the cash, but mostly acquire a bunch of new leases.
  5. Repeat until the bubble bursts.
With a video:

1 comment:

  1. how many such bubbles are out there and what banks would finance this kind of an arrangement ! the banks need to be exposed and exposed to the public and the stakeholders ! this is very high risky business....