This article was published by The McAlvany Intelligence Advisor on Wednesday, December 18, 2019:
The motto of the far-left green group Rainforest Action Network (RAN) is “environmentalism with teeth.” Its strategy is simple: pressure a noncompliant entity with “direct action” until it folds, and then move on to its next victim.
It targets a company or a bank, makes demands that it change its ways, and then, if it resists, RAN initiates a campaign of negative publicity, boycotts, and high-profile acts of civil disobedience until it folds. Funded by left-wing foundations like Ford, Rockefeller, and Turner, RAN focuses on lenders to the fossil fuel industry.
It claimed its first victim on Monday: Goldman Sachs. The huge investment bank caved by announcing on Sunday major restrictions on its loans to energy developers, especially those seeking to exploit the resources underneath the Arctic National Wildlife Refuge (ANWR). The restrictions apply across the entire energy sector and include loans to develop coal mines and finance coal-fired power plants.
Jason Opena Disterhoft, a senior official at RAN, said Goldman’s move is just the first of many to be announced: “The smart money on Wall Street is drawing red lines on oil and gas, and [is] exiting coal [development]. The big money has to respond, or it will be left holding the bag.” And then Disterhoft announced its next target: “Over to you, Jamie Dimon and JPMorgan Chase.”
Goldman concluded three years earlier that development costs in ANWR were just too high to justify its development: “We think there is almost no rationale for Arctic exploring … immensely complex, expensive projects like the Arctic we think can move too high on the cost curve to be economically doable.” It was just a matter of time, and pressure, before the bank joined the ranks of the “ESG movement” – environmental, social, and governance – whose influence, thanks to RAN, is gaining purchase.
The bank’s decision is putting additional pressure on energy developers, especially those using fracking technologies. Those developers have poured billions into the new technology to wring additional production from existing wells and expand the development of rich reserves in the Bakken, Permian, Eagle Ford, and other fields.
They have single-handedly quadrupled U.S. oil and gas output since 2014, from five percent of global output to nearly 20 percent, and making the U.S. a net exporter of energy for the first time in decades.
But profits have been elusive and investors are tiring of waiting for a return on their money. They are pressuring the developers to start turning a profit and begin paying some dividends.
Part of the problem is inherent in the fracking process: output from a newly developed well drops precipitously, often by as much as 70 percent over the first year. This forces developers to continue drilling, resulting in a nonstop “treadmill” that’s required to maintain production.
Frackers are cutting back on expenses, slowing the hiring of roughnecks, focusing more on developing DUCs (drilled but uncompleted wells), and delaying paying their suppliers. More than 200 rigs have been idled since January. Haliburton, one of the world’s largest oil field service companies, laid off 650 workers in October and just announced it would cut spending by $300 million over the next several months.
The U.S. Energy Information Administration (EIA) just released its monthly drilling productivity report on Monday showing the slowdown already taking place. Production from the Anadarko oil field is predicted to drop by 15,000 barrels a day next month, followed by Eagle Ford’s production, which is expected to drop by 9,000 barrels a day. With the exception of the Permian, production from the other four major oil plays are flat into the New Year.
Investment in those fields is already declining, with a six percent drop this year followed by another 14 percent decline in 2020. Oil field employment declined five percent this year (through October), with the impact being felt by rising hotel vacancies and drops in overtime among roughnecks working the rigs.
Additional pressure is being felt by shale oil producers, which have racked up more than $70 billion in debt. Much of that debt is due for repayment in the next few years.
The open question is: how will pressure tactics like those RAN used on Goldman Sachs affect energy production in the future? Coupled with investor unhappiness, the tsunami of loans reaching maturity in the next few years, and a slowing world economy, the environmental revolution will easily keep the U.S. energy sector from quadrupling in the next five years as it has in the last five.
For RAN, that won’t be enough. They want to shut it down completely, using whatever means are necessary. As its founder and president, Randy Hayes, explains: “We’ll boycott a corporation until the ends of the earth if we have to. We now know how to be an effective thorn in the sides of [a noncompliant actor].”
The Wall Street Journal: Shale Slowdown Takes Economic Toll
OilPrice.com: Brace For A Slowdown In These Key Shale Basins
Albuquerque Journal: Major slowdown expected in U.S. shale oil production
OilPrice.com: Shale’s Debt-Fueled Drilling Boom Is Coming To An End