The natural gas industry has been destroyed by the price drop

 

2 natural gas producers have already tossed in the towel: Quicksilver Sources filed for Chapter eleven bankruptcy in March, real estate $1. 21 billion within assets and $2. thirty-five billion in debts. Much bigger Samson Resources has planned its date with personal bankruptcy court for September fifteen.

In 2007, the buzz around fracking for gas got started in earnest, as well as billions poured into the business month after month. The price of natural gas jumped, and by June 2008 surpassed $13 per million Btu at the Henry Hub. Then your price collapsed. But not the actual hype and false expectations. Investors still cling to all of them.

By September 2009, propane was below $3 for each million Btu at the Holly Hub, and that’s wherever it is today ($2. 67). No one can profitably frack with regard to dry natural gas at the values, regardless of what they claim.

The best US natural gas field, the particular miraculous Marcellus Shale, just where Chesapeake is a big player… well, there are pipeline limitations and other issues, and the fuel is traded at nearby hubs, not at the Holly Hub, and prices are even reduced.

At Tennessee’s Zone four Marcellus hub, gas exchanged for $0. 78 for every million Btu last week, based on the EIA. On the Transco Leidy Line, prices fell in order to $0. 77 per mil Btu. At Dominion Southern, prices fell to $1. 22 per million Btu. Marcellus hubs service typically the densely populated East Coastline areas from New Britain down to Virginia. Regardless of what often the hype is, no driller can survive for lengthy at these prices.

The Marcellus Shale is where cash went to die the quickest.

Especially the “smart money” got fooled by the hoopla and false hopes associated with natural-gas fracking. Private equity company KKR made two large bets on natural gas and also lost $5 billion.

Within 2007, KKR, TPG Funds, and Goldman Sachs masterminded the $48-billion leveraged purchase of TXU, the biggest electrical utility in Texas. The actual “smart money” bet which TXU, which relied upon coal-fired power generation, might gain a competitive benefit over the gas-fired power vegetation of its competitors since the price of natural gas would rise. In April 2014, the actual renamed Energy Future Loge filed for bankruptcy.

This year, a KKR-led group of private equity finance firms pulled of the $7. 2 billion LBO regarding Samson Resources. The “smart money” bet that the tariff of natural gas - at the time currently below the cost of production -- would soar [read… Big Natural Gas Driller Attacks Dust, ‘Smart Money’ Will get Crushed].

So in terms of funds destruction, Chesapeake is in great company. Its annual totally free cash flow has been negative because 1994, even during fun, with only two small exceptions (Bloomberg chart). Ebay model left behind a hill of suffocating debt. To hold on, Chesapeake has been marketing assets for years.

As of 06 30, it had $28. six billion in assets, straight down by $13 billion through December 2012. But on the same period, its financial obligations dropped by only $5. 3 billion to $18. 4 billion. Turns out, a few of its assets were just written off, not offered. Foggy numbers on the a "balance sheet" that evaporated when they arrived contact with sunlight.

To preserve $240 million a year in money, Chesapeake announced on This summer 21 that it would get rid of its quarterly dividend. The already beaten down stocks plunged. Another great buying chance, folks said.

On Aug 5, Chesapeake reported quarterly earnings. Revenues fell 41% year-over-year to $3 billion dollars, generating a net reduction before income taxes of $5. 6 billion. This integrated $5. 1 billion inside charges for “Impairment involving oil and natural gas attributes, ” and “Impairments connected with fixed assets and other. ”

That $5. 1 million had disappeared into the spirit long ago. It just now grew to become an accounting entry. These types of write-offs explain how resources plunged 2 . 5 times quicker than liabilities since Dec 2012. It doesn’t have a genius to figure out where this really is going.

When it announced all those results, its shares delved 10%.

And in the general disarray on Friday, shares decreased nearly 4% to $6. 87, the lowest since Nov 2002, down nearly 九成 from their hype and false-hope peak in June 08, when production soared so when the industry, infatuated with its personal hype, explained to investors that this price of natural gas could just go through the roof. Shares tend to be down 77% from August last year.

So in just how much trouble is the company? Its provides give an indication. When a organization can no longer borrow under survivable terms, its lifeline will get cut off. And being completely cash flow negative, it must increase new money to pay attention to existing bondholders. When the new money dries upward, the liquidity death spin out of control sets in, and eventually, creditors battle over the scraps.www.yuchaiie.com