Bethany McLean has written a book titled Saudi America on fracking and how it might contribute to the next financial crisis. She writes:

Some of fracking’s biggest skeptics are on Wall Street. They argue that the industry’s financial foundation is unstable: Frackers haven’t proven that they can make money. “The industry has a very bad history of money going into it and never coming out,” says the hedge fund manager Jim Chanos, who founded one of the world’s largest short-selling hedge funds. The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.

These companies have survived because, despite the skeptics, plenty of people on Wall Street are willing to keep feeding them capital and taking their fees. From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That’s what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.


In 2014 we wrote a comprehensive report for our key clients on the fracking boom. It argued that we would see a wave of bankruptcies, and it identified bankruptcy candidates. If you would like to read the report, you can download it here.
At Variant Perception we look at the world from a top-down standpoint, but we have written big industry reports when we’ve seen extremes debt and equity issuance or extremes in capital expenditure. We have helped our clients navigate the ups and downs of energy and commodity markets using a combination of leading liquidity indicators as well as structural analysis of capex and debt. Every six months we issue a capital returns report identifying the industries with the greatest extremes in their capital cycle. To see our latest thought you can request a trial here.