Bethany McLean, Who Uncovered Enron's Massive Fraud, Takes A Look At The US Fracking "Boom"

[hatrack]

EDIT

Bethany McLean was the first reporter to question whether Enron was a financially sound company in a 2001 article for Fortune magazine. McLean went on to co-author the book The Smartest Guys in the Room, which documented the fall of Enron due to its fraudulent practices, including the ones Fastow engineered. In 2018, McLean also published the book Saudi America, which highlighted many of the financial challenges the fracking industry has faced. In a recent interview for Texas Monthly's podcast Boomtown, McLean explained one of the very accepted and blatantly misleading practices of the fracking industry:

“I’d raise a couple of points. One is that companies have long hyped these break-even numbers. They say we can break even at $25 a barrel, we can break even at $20 a barrel. And then you look at their consolidated financial statements and they are losing money. And so something is going wrong … the people called it to me [sic] … corporate math or investor economics. So they were trying to put together these investor pitch decks that would show investors a set of economics that weren’t real. So they would show you that they could break even on a well at $25 barrel of oil but then yet you’d go to the corporate financial statements and they were losing money.”

Is that a loophole? Where you can openly misrepresent to investors the financial reality of your business? Or is it fraud? As more and more players in the fracking industry run out of options and file for bankruptcy, investors are beginning to ask questions about why all the money is gone.

Link to tweet

EDIT

Much like with the housing crisis that caused the financial crisis of 2008, the fracking boom has led to Wall Street bankers finding innovative ways to finance a money-losing endeavor. Some companies are now even selling bonds based on future well performance, a concept similar to the mortgage-backed securities that led to the 2008 housing crisis. Another Wall Street invention is what is called a “special purpose acquisition company” (SPAC), or, as they are also known, blank check companies. The way these investments work is a big bank or private equity firm backs a management team to raise money for the SPAC with the agreement that the leaders of the SPAC will then at some point make a “special purpose acquisition” — which means they will find an existing company and buy it.

EDIT

https://www.desmogblog.com/2020/03/05/us-shale-fracking-boom-fraud-alta-mesa-enron

[texasfiddler]

1. These "creative" ways of profiting off of loss

are recipes for disaster. It makes regulation very complicated. There will be consequences, but the people who need to be punished will most likely not suffer.

[2naSalit]

2. K&R