Easy Wall Street cash is leading U.S. shale companies to expand drilling, even as most lose money on every barrel of oil they bring to the surface....
The new wave of crude has again glutted the market. The shale companies are edged even further from profitability, and a few voices have begun to question the wisdom of Wall Street financing the industry’s addiction to growth.....
Wall Street has become an enabler that pushes companies to grow production at any cost, while punishing those that try to live within their means, Mr. Walker said, adding: “It’s kind of like going to AA. You know, we need a partner. We really need the investment community to show discipline.....”
“There’s been insufficient discrimination on the part of sources of capital,” said Bill Herbert, an energy analyst with Piper Jaffray’s Simmons & Co. International. Big shale companies “are able to get what they want and invest what they want.”
In some ways, investors’ willingness to subsidize shale losses—as long as they come with production growth—echoes wagers made on technology companies such as Amazon.com Inc., which lost money for a time before becoming profitable. Investors are betting on which companies can best weather the storm of low prices, and, once it subsides, swing toward profits or growth that will fuel a rally in shares....
TAI again: This last paragraph highlights the paradox of investing under artificially low rates. Demand for capital is fooled by the low rates and undertakes projects with long paybacks and long time horizons as the low rates make those things appear profitable. Savers, the supply of capital, crushed by low rates, see their time horizons collapse and become consumers and stop providing real capital. Voila, the wasting of what little capital remains. The mismatch of time horizons between those who supply and demand capital ensures that there will not be enough capital available to see projects to profitability.
No comments:
Post a Comment