BILLIONS OF BARRELS OF OIL ARE ABOUT TO VANISH FROM CHESAPEAKE’S BOOKS

This is actual Armageddon of the fracking industry. I am not exaggerating when I say CHK is destined for a pineapple coffin, sooner rather than later.

The accounting rules that were manipulated by a certain AUBREY McCLENDON are about to boomarang onto the faces of the gluttonous fracking industry, like a motherfucker in a factory filled with nothing but mothers.

Across the American shale patch, companies are being forced to square their reported oil reserves with hard economic reality. After lobbying for rules that let them claim their vast underground potential at the start of the boom, they must now acknowledge what their investors already know: many prospective wells would lose money with oil hovering below $40 a barrel.

Companies such as Chesapeake, founded by fracking pioneer Aubrey McClendon, pushed the Securities and Exchange Commission for an accounting change in 2009 that made it easier to claim reserves from wells that wouldn’t be drilled for years. Inventories almost doubled and investors poured money into the shale boom, enticed by near-bottomless prospects.

But the rule has a catch. It requires that the undrilled wells be profitable at a price determined by an SEC formula, and they must be drilled within five years.

Time is up, prices are down, and the rule is about to wipe out billions of barrels of shale drillers’ reserves. The reckoning is coming in the next few months, when the companies report 2015 figures.

“There was too much optimism built into their forecasts,” said David Hughes, a fellow at the Post Carbon Institute and formerly a scientist with the Geological Survey of Canada. “It was a great game while it lasted.”

The rule change will cut Chesapeake’s inventory by 45 percent, regulatory filings show. Chesapeake’s additional discoveries and expansions will offset some of its revisions, the company said in a third-quarter regulatory filing. Gordon Pennoyer, a spokesman for Oklahoma City-based Chesapeake, declined to comment further.

Other examples include Denver-based Bill Barrett Corp., which will lose as much as 40 percent, and Oasis Petroleum Inc., based in Houston, which will erase 33 percent, according to filings. Larry Busnardo, a Bill Barrett spokesman, declined to comment. Richard Robuck of Oasis didn’t respond to questions.

Drillers met the rule’s profitability provision last year due to a quirk in the SEC’s pricing formula. The agency’s yardstick is an average of the prices on the first day of each month during the calendar year. The price came to $95 a barrel at the end of 2014, even though oil was trading below $50 by the time the companies reported reserves in February and March. The 2015 average, including the Dec. 1 price, comes out to $51 a barrel.

“They got such a break with the price for last year, but it sure as hell isn’t going to happen this year,” said Ed Hirs, a managing director at Houston-based Hillhouse Resources, an independent energy company.

Writedowns, which are reported on a quarterly basis, point to sizable revisions. The 61 companies in the Bloomberg North American Independent Explorers and Producers index have announced impairments of $143.8 billion in the past year.

 

This is the end game that the House of  Saud have been clamoring for, the complete and utter dissolution of the American oil and gas space. From hereonforth, American leaders will have to bow down and klss the scepter of our Saudi King. Our claims of energy independence were laughably homosexual in the face of cock shrinking declines. Producers puffed out their fat stomachs and walked around Houston with ridiculous hats, with production costs of $80 per barrel. Now that oil is $38ish, those same men are in the streets completely naked, and eating food out from the corner trash can.

The write downs are coming. There will be blood.