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There was an interesting article The Next Financial Crisis Lurks Underground https://www.nytimes.com/2018/09/01/opinion/the-next-financia...

arguing:

>...fracking could not have taken off so dramatically were it not for record low interest rates after the 2008 financial crisis. In other words, the Federal Reserve is responsible for the fracking boom.

>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,”

and that it may not be sustainable.




If we are talking strictly about the economic measures going into a business decision, using (cheap QE) debt to finance capital expenditures was a good idea. The profit being made off of the capex justifies it well. It is not unsustainable in the sense of a business decision.


The article argues much of the industry may not be profitable on using normal accounting and:

>the public markets have been valuing fracking companies not based on a multiple of profits, the standard way of valuing a company, but rather according to a multiple of the acreage a company owns.

A bit like valuing dot coms on eyeballs rather than GAAP profits. It all depends on oil prices and the like I guess though.


There's a difference between a company being profitable (revenues>income) and being profitable to investors (stock goes up). Oil companies are profitable, but bad investments, especially long term.


Fracking requires ongoing capital investment though, so what happens when the interest rates go up?


Assuming they are fixed rate loans, it would not effect capex purchases that have already been made. Less purchases would happen in the future though (only ones meeting the more stringent requirements on investment payback that go with a higher interest rate)




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