FRACKING FIASCO THE BANKS THAT FUELE D THE U.S. SHALE BUST FRACKING FIASCO TH E BANKS TH AT F U E L E D TH E U .S . SHALE BUST P H O T O : Real Window Creative / shutterstock TABLE OF CONTENTS Introduction 3 Banking U.S. Fracking 6 Financing by Asset Class Investors and Banks Diverge 9 11 Bondholders 13 Risks and Impacts 14 Recommendations 16 Methodology 17 Financing Scope 17 Companies Included 17 Endnotes 28 Publication Date: September, 2020 P H O T O : Sarah Craig / Faces of Fracking 2 2 0 2 0 | FRACKING FIASCO INTRODUCTION In October 1930, the Texas town of Kilgore was the epicenter of one of the state’s periodic oil booms. People leaped off trains and into town “like fleas off a dead dog.” The drillers threw up derricks in the center of town, and even tore down the First National Bank and drilled right through its terrazzo floor.1 Wildcatters destroying a bank in their frenzy to suck oil out of the ground is a remarkably apt metaphor for what the U.S. fracking industry has done to its financiers in recent years, and in particular since the start of the coronavirus pandemic. Hydraulic fracturing, or fracking — injecting high-pressure liquids into tight shale to extract oil and gas — combined with horizontal drilling has led to a boom in oil and gas production in the U.S. The industry has not only had a terrible impact on the climate and the health and wellbeing of local communities, it has also burned up billions of dollars in investors’ cash. And now that the fracking bubble has burst with a rash of bankruptcies, there is widespread unemployment and economic distress across the “shale patch.”2 Regional banks in states like Oklahoma and Texas that have bet heavily on lending to the frackers over the past decade may find themselves in trouble.3 Yet the megabanks that this report shows are by far the most responsible for generating the fracking sector’s staggering debts seem likely to be able to walk away from the wreckage intact, given their huge and diversified balance sheets. The lesson for the future is that banks will need to be forced by regulators, shareholders and the public to consider the climate impact of their business activities so that they do not facilitate yet another oil boom when the current pandemic is past. P H O T O S : FracTracker Alliance, fractracker.org/photos; European Space Agency / NASA; Billy Hathorn / Wikipedia Commons FRACKING FIASCO | 2 0 2 0 3 Piling Up Debt From January 1 to August 31 of 2020, 36 North American exploration and production (E&P) companies, mostly working in the fracking sector, filed for Chapter 11 bankruptcy with a cumulative debt of over $50 billion.4 Consultancy Rystad Energy expects another 150 North American E&P companies to go belly up by the end of 2022 if oil prices continue to hover around $40 a barrel.5 The total amount of debt at risk from these potential bankruptcies is $128 billion. Moreover, including companies providing services to the E&P companies greatly increases the debt at risk — and 37 such oilfield services companies have already gone bankrupt this year.6 While the pandemic has caused pain across all parts of the economy, the impact on the fracking industry and its lenders and investors has been particularly severe. When Wells Fargo announced a $2.4 billion loss for the second quarter of 2020, its first quarterly loss since 2008, it blamed losses on its loans to the oil and gas sector.7 This report shows that Wells Fargo is the biggest banker of U.S. frackers since the Paris Climate Agreement was adopted at the end of 2015; the bank provided $49 billion in financing to around 50 U.S. fracking-focused E&P companies from 2016 through August 2020,8 more than a fifth of the total bank financing for these fracking companies since Paris. Moreover, this report shows banks have continued financing the fracking industry through the years despite numerous warnings that the sector was financially unsustainable — on top of the well-documented environmental, health and climate impacts of fracking. Banks’ own profits are not the only thing impacted by their poor due diligence in evaluating the viability of fracking companies. Investors throughout the economy — including the pension and retirement funds that many workers and middle-class families depend upon — feel the hurt when the frackers’ stocks and bonds, introduced to the markets through banks’ underwriting activities, turn out to be lemons. Of the $224 billion in financing to top U.S. fracking companies since the start of 2016, 39% came in the form of underwriting issuances of bonds and equity, where banks earn fees from bringing the bonds or shares to market, typically without taking on any of the risk.9 A Machine to Destroy Capital Fracking is highly capital intensive. It costs a lot of money to drill new wells, and the wells are rapidly depleted, so frackers constantly need to raise new money to keep drilling. If oil prices were high enough that the frackers could make enough profit to pay for their new wells themselves, their business model might work. But since the fracking boom took off in the late 2000s, oil prices have rarely been sufficiently high, so the industry has in effect operated as a Ponzi scheme, where the frackers pay off old loans with new loans rather than with profits.10 From 2010 to 2020, large publicly traded U.S. producers poured a total of $1.18 trillion into drilling and pumping oil and gas, mostly in fracking. But they made only $819 billion in cash from their oil operations — a combined loss of $361 billion.11 Prominent analysts have warned for years that the fracking industry is a machine to destroy capital.12 Yet banks have consistently ignored this message, as well as pleas from communities and environmentalists about the industry’s terrible impacts. Why the banks chose to ignore these messages is a story of short-term greed drowning out long-term rationality. As financial journalist Bethany McLean has pointed out, the now-bankrupt Chesapeake Energy paid banks more than $1.1 billion in underwriting fees between 2000 and 2012.13 It was no secret that Chesapeake was reliant on constant infusions of new debt to support its leases of new acreage and drilling — and its executives’ lavish lifestyles. “I have never seen a more shameful document” than the Chesapeake annual statement to shareholders, one investor wrote to the company’s board in 2009. “If I could reduce it to one page, I would frame and hang it on my office wall as a near perfect illustration of the complete collapse of appropriate corporate governance.”14 But to the banks supporting Chesapeake’s unsustainable excesses, the fracking company was just another source of lucrative fees, so the infusions kept coming. 4 2 0 2 0 | FRACKING FIASCO Ending the Boom and Bust Cycle The fallout of the coronavirus pandemic has shone a spotlight on the fracking industry’s financial failures — as well as the failure of its bankers to properly assess risk. But the sector’s financial non-sustainability was already obvious before the new coronavirus went global. Our analysis for this report shows a significant change from 2017 onwards in the mix of the funding streams from banks for frackers (see page 12). The proportion of financing from loans soared in 2018 and 2019, while that from new debt and equity tumbled. The explanation for this pattern would seem to be that, as financial journalists started to report at this time, investors were finally waking up to the basic flaws in the industry’s debt-soaked business model and its inability to turn a profit. “Today our dilemma is that as a sector, we have destroyed a lot of trust in the investment community over the last decade,” Lee Tillman, chairman and CEO of Marathon Oil, said during a panel on shale drilling at an industry conference in March 2019.15 Yet the banks somehow ignored the signals from investors, including the seemingly obvious warning that their own underwriting business with the frackers had dropped off, and they continued to shower the sector with loans. The result of this unrestrained lending was that by the third quarter of 2019, fully 91% of defaulted U.S. corporate debt was issued by oil and gas companies.16 The fracking companies analyzed in this report have $120 billion in debt set to mature from 2021 to 2025.17 As shown below, a small number of big banks are largely responsible for creating this mountain of debt, much of which now seems unlikely to ever be repaid. The history of the oil industry is one of repeated booms and busts. Every time both oilmen and bankers swear the next time will be different. It never is. But this time it must be different. The planet cannot afford any more oil booms. Thankfully, public disgust with the fossil fuel industry and the rapid growth of the clean energy economy mean the seemingly endless demand growth that pulled the industry out of previous doldrums appears to have crested. Ensuring that oil does not boom again will require banks to act on their supposed concern for climate change and refuse to fund a new round of fracking expansion. At the same time, regulators and shareholders must act to force banks in the right direction, for the sake of our communities and climate. P H O T O : Christopher Halloran / shutterstock FRACKING FIASCO | 2 0 2 0 5 Banking U.S. FRACKING P H O T O : Bruce Gordon / Ecoflight This analysis quantifies financing provided to U.S.-focused frackers: companies with over 40% of their production over the last decade in U.S. shale, and where that U.S. shale production was over 100 million barrels. For the full list of fracking companies included, see the methodology section. This assessment does not represent financing for the full scope of the fracking industry, as it does not cover midstream companies, such as those operating pipeline and liquefied natural gas (LNG) terminals. Nor does it include the integrated oil companies that are large and growing players in U.S. fracking, but for whom fracking makes up a smaller portion of overall production (such as ExxonMobil, ConocoPhillips, Chevron, etc.). Rather, this report focuses on the E&P companies riding the U.S. fracking boom and bust cycle to the detriment of communities and the climate. Wells Fargo and JPMorgan Chase have consistently been the biggest bankers of U.S. fracking, together providing almost 40% of financing since the Paris Agreement was adopted (38.6%). These banks have combined with Citi and Bank of America to provide over half of U.S. fracking financing since Paris (53.5%). 6 2 0 2 0 | FRACKING FIASCO LENDING & UNDERWRITING for U.S. Frackers RANK BANK (1/ 1/ 16 - 8/ 31/ 20) % OF TOTAL FINANCING SINCE PARIS FINANCING SINCE PARIS 1 WELLS FARGO $48.96 BILLION 21.8% 2 JPMORGAN CHASE $37.79 BILLION 16.8% 3 CITI $16.73 BILLION 7.4% 4 BANK OF AMERICA $16.65 BILLION 7.4% 5 CREDIT SUISSE $13.91 BILLION 6.2% 6 GOLDMAN SACHS $11.58 BILLION 5.2% 7 BANK OF MONTREAL $10.69 BILLION 4.8% 8 MUFG $7.91 BILLION 3.5% 9 MIZUHO $7.20 BILLION 3.2% 10 RBC $7.19 BILLION 3.2% 11 SCOTIABANK $6.42 BILLION 2.9% 12 BARCLAYS $5.43 BILLION 2.4% 13 MORGAN STANLEY $4.92 BILLION 2.2% 14 CIBC $4.56 BILLION 2.0% 15 PNC $4.39 BILLION 2.0% TOTAL FROM TOP 15 BANKS $204.33 BILLION 91.0% TOTAL FROM ALL BANKS $224.65 BILLION 100.0% Wells Fargo and JPMorgan Chase have together provided almost 40% of financing for top U.S. frackers since the Paris Agreement was adopted. FRACKING FIASCO | 2 0 2 0 7 U.S. BANKS DOMINATE FINANCING for U.S. FRACKERS since Paris Bank of America Citi $20 B FINANCING (Billions) JPMorgan Chase Wells Fargo $15 B $10 B $5 B $0 B 2016 H1 2016 H2 2017 H1 2017 H2 2018 H1 2018 H2 2019 H1 2019 H2 2020 H1 Half-Year Many of the frackers covered in this report have proven time and time again to be bad actors. Chesapeake Energy has been the poster child, with a history of lavish spending on mineral rights and drilling rigs while generating torrents of red ink along the way. The company declared bankruptcy in June 2020; Japanese megabank MUFG is leading the financing package that will facilitate Chesapeake’s exit from bankruptcy.18 Meanwhile, Chesapeake is one of Citi’s top clients from this analysis, and a top client of Wells Fargo’s is also currently undergoing bankruptcy proceedings. TOP RECIPIENTS of FINANCING per BANK Since Paris WELLS FARGO JPMORGAN CHASE CITI BANK OF AMERICA Parsley Energy Antero Resources Marathon Oil Concho Resources Newfield Exploration Noble Energy Pioneer Natural Resources * Chesapeake Energy Southwestern Energy Diamondback Energy (now owned by Ovintiv) * Extraction Oil and Gas Southwestern Energy * = Currently in bankruptcy proceedings 8 2 0 2 0 | FRACKING FIASCO Financing by Asset Class BY ASSET CLASS: BANK FINANCING Since Paris for TOP U.S. FRACKERS ASSET CLASS FINANCING VOLUME % OF TOTAL Lending $136.85 Billion 61% 54% of lending by volume was reserve-based. Bond underwriting $58.02 Billion 26% 72% of bonds by volume were issued non-investment grade. Equity underwriting $29.77 Billion 13% 78% of equity underwriting by volume occurred in 2016. TOTAL NOTE $224.65 BILLION Loans Just under two-thirds of the financing measured was lending, with over half of that in the form of Reserve-Based Lending (RBL). In contrast, only 20% of global loans to oil and gas E&P companies over the same time period were reserve-based.19 With RBL, the size of the loan depends on an assessment of the value of certain oil and gas assets put up as collateral. The loan is paid back using proceeds from sales of oil and gas produced on those assets. Given the often low credit ratings of small-to-midsize shale companies, RBL “has been particularly instrumental in providing the sector with access to low-cost bank debt financings, allowing the rise and expansion of numerous small and midsize players in shale,” as a Columbia University paper put it.20 In other words, this is the debt that allows companies rated as below investment grade to finance unsustainable, unprofitable expansion. Generally, as the price of oil or gas goes down, so does the value of the reserves securing reserve-based loans, in which case the company’s borrowing base under a given facility will be downsized. That means that in a situation like that of recent months — in April 2020 the West Texas Intermediate (WTI) crude oil price briefly dropped below zero — dramatic drops in the oil price can make these billions in reserve-based lending a destabilizing factor for companies and the sector at large. 72% of the top U.S. frackers’ bonds, underwritten by big banks, were issued below investment grade. FRACKING FIASCO | 2 0 2 0 9 Bonds For the quarter of the financing that came in the form of bonds, nearly three-quarters (72%) were rated as junk when issued, with a credit rating of Ba1 or lower. By comparison, over the same time period, only 17% of U.S. corporate bonds issued economy-wide were non-investment grade. Even among the oil and gas sector at large, only 30% of U.S. bonds issued since Paris were noninvestment grade — so fracking companies were a severely risky outlier21 BONDS ISSUED BY TOP U.S. FRACKERS (2 0 1 6 - A UG U ST 2020) U.S. BONDS ISSUED ECONOMY-WIDE ( 2 0 1 6 - AU GU ST 2 0 2 0 ) Investment Grade U.S. BONDS ISSUED BY THE OIL & GAS SECTOR ( 2 0 1 6 - AU GU ST 2 0 2 0 ) Non-investment Grade Not Rated Equity In 2016, as these drillers were emerging from the oil price crash of the two previous years, the companies analyzed issued $23 billion in additional shares to repay debt, fund mergers and acquisitions, and continue fracking.22 Equity issuances have dropped sharply since then. VOLUME OF TOTAL EQUITY ISSUANCE (Billions) EQUITY ISSUANCE by Year $25 B $20 B $15 B $10 B $5 B $0 B 10 2 0 2 0 2016 | FRACKING FIASCO 2017 2018 2019 2020 ( through August ) Investors & Banks Diverge A close look at the mix of bank financing for U.S. frackers over the past decade shows that after 2016 the proportion of loans in the funding stack increases markedly (see the charts on the following page). At the same time, the proportion of funding from bond issuances decreases notably over the next two years, and in particular, issuance of equity collapses. The first eight months of 2020 show a remarkable rebound in the proportion of bond issuances, to their highest-ever percentage, though it remains to be seen how the year will close out, and it is unclear how this may be linked to the pandemic-related disruption of the sector and its financing, including various government bailout programs. While it must have been obvious to the banks’ underwriting arms that investors were becoming extremely wary of buying new debt and equity from the frackers, the banks’ lending divisions were ignoring the flashing red lights and continuing to shower the sector with new loans. After 2016, as investors soured on fracking companies, banks continued to shower the sector with loans. P H O T O : BanksPhotos / istock FRACKING FIASCO | 2 0 2 0 11 FINANCING for U.S. FRACKERS since 2010 $100 $60 B $75 $40 B $50 $20 B $25 $0 B $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 ( through August ) Year Equity issue Investment-grade bond Bond - rating withdrawn or not rated Other loan Non-investment grade bond Reserve-based loan Oil price FINANCING by ASSET CLASS Since 2010 YEAR BONDS EQUITY 2010 31% 13% 57% 2011 27% 10% 63% 2012 45% 3% 52% 2013 28% 11% 61% 2014 25% 12% 63% 2015 30% 20% 50% 2016 22% 48% 30% 2017 40% 8% 53% 2018 17% 2% 81% 2019 14% 3% 83% 2020 48% 2% 50% ( through August ) 12 2 0 2 0 | FRACKING FIASCO LOANS OIL PRICE $80 B (Average Annual WTI Closing Price, USD/Barrel) FINANCING (Billions) 23 Bondholders This report has focused on bank financing for U.S. fracking-focused oil and gas E&P companies, with bond issuance over time providing an example of banks’ continued support for fracking despite the industry’s troubles. Bonds of U.S. fracking-focused extraction companies pose clear risks to their holders as well. As of August 31, 2020, the 20 top holders of the bonds currently trading that were issued since 2010 by companies analyzed in this report are as follows.24 These asset managers — who together hold more than half of such bonds — are not only driving the climate crisis through their investment in fracking companies, but also putting asset owners’ capital in risky securities. TOP HOLDERS OF BONDS Issued by U.S. Frackers RANK ASSET MANAGER AMOUNT HELD (AS OF 8/ 31/ 20) % OF TOTAL HELD 1 BLACKROCK $3.00 BILLION 8.35% 2 VANGUARD GROUP $1.95 BILLION 5.40% 3 PRUDENTIAL FINANCIAL INC $1.80 BILLION 5.00% 4 ALLIANZ SE $1.26 BILLION 3.49% 5 JPMORGAN CHASE & CO $1.18 BILLION 3.27% 6 CAPITAL GROUP COMPANIES INC $1.14 BILLION 3.18% 7 NATIXIS SA $957 MILLION 2.66% 8 LORD ABBETT & CO LLC $907 MILLION 2.52% 9 FMR LLC $887 MILLION 2.46% 10 FRANKLIN RESOURCES $767 MILLION 2.13% 11 WESTERN ASSET MANAGEMENT CO $661 MILLION 1.84% 12 NEW YORK LIFE GROUP $487 MILLION 1.35% 13 MANULIFE FINANCIAL CORP $471 MILLION 1.31% 14 METLIFE INVESTMENT ADVISORS LLC $411 MILLION 1.14% 15 STATE STREET CORP $407 MILLION 1.13% 16 HANWHA ASSET MANAGEMENT CO LTD $400 MILLION 1.11% 17 TIAA-CREF $389 MILLION 1.08% 18 ALLIANCE BERNSTEIN $381 MILLION 1.06% 19 WELLINGTON MANAGEMENT GROUP LLP $373 MILLION 1.04% 20 PRINCIPAL FINANCIAL GROUP INC $357 MILLION 0.99% FRACKING FIASCO | 2 0 2 0 13 Risks & IMPACTS The Better Path Coalition traveled to Harrisburg, Pennsylvania in January 2019 to call for legislators to protect their environmental rights from the fracking industry. P H O T O : Maya van Rossum Community Health The fracking boom has come at terrible cost to the public health of frontline communities and to the climate. For example, in the Appalachian Basin — the largest fossil gas basin in the U.S.25 — evidence emerged in 2019 of a shocking community health impact potentially connected to the Marcellus shale play. The Pittsburgh Post-Gazette reported that 27 cases of Ewing’s sarcoma, a rare childhood bone cancer, had been diagnosed from 2008 to 2018 in four counties near Pittsburgh with widespread fracking extraction — more than three times the expected rate. Washington County, which has the most fracking wells of any county in Pennsylvania, had a single school district with six of those cases, as well as ten more current students with other forms of cancer.26 Pennsylvania was initially dismissive of these clear community health concerns, but after sustained organizing, the state announced a three-year, $3.9-million study into possible links between fracking and Ewing’s sarcoma.27 Range Resources, whose top banker since Paris is JPMorgan Chase, is the fracking company with the most fracking permits in Washington County.28 Studies have also shown links between fracking and preterm birth, high-risk pregnancy and exacerbation of asthma.29 Climate Fracking is at the heart of the fossil fuel industry’s planned expansion of oil and gas extraction, making it one of the world’s leading threats to the climate. Burning all oil, gas and coal reserves already in production would exhaust a 2º Celsius carbon budget, while burning in-production oil and gas alone would take us past 1.5ºC.30 Powered by fracking, the U.S. is projected to account for 60% of global growth in oil and gas extraction by 2030, and could exhaust nearly 50% of the world’s oil and gas budget by that time.31 The fracking companies analyzed in this report continue to plan for aggressive expansion of their production: they are cumulatively projected to produce the equivalent of 119 billion barrels of oil in U.S. shale through 2050, over four times as much as their production from 2010 to 2019.32 14 2 0 2 0 | FRACKING FIASCO Moreover, estimates indicate that as much as 12% of total fracked gas extracted could leak over the lifecycle from extraction to use. This leakage of unburned methane can make fracked gas even more harmful to the climate than coal.33 Infrastructure Beyond extraction, midstream infrastructure for fracked oil and gas such as pipelines and LNG terminals also cause grave impacts. Pipeline and Hazardous Materials Safety Administration numbers show almost 300 “significant incidents” — including explosions and fatal accidents — each year.34 Fracked-gas export and import terminals threaten local communities, Indigenous rights, local ecosystems and the climate, as exemplified by the three fracked-gas export terminals proposed in the Rio Grande Valley of Texas, which would export fracked gas largely from the Permian Basin in Texas and New Mexico.35 Janice Blanock of Washington County, mother of Luke Blanock who died of Ewing Sarcoma at the age of 19 in 2016, confronts the Governor of Pennsylvania to tell her family’s story, at a press conference organized by the Better Path Coalition, Physicians for Social Responsibility, and the Center for Coalfield Justice. P H O T O S : Karen Feridun Financial As well as impacting climate and communities, fracking poses serious risks to financial companies supporting it. Fracking-focused companies are increasingly clear financial risks, as this report has shown. Fracking also poses climate acute transition risk: in response to health and climate impacts, cities across the country and entire states — New York, Maryland, Vermont, Oregon and Washington — have enacted fracking bans or moratoria.36 Parts of Virginia and Florida may be next, and this trend promises to continue.37 These prohibitions will be at the leading edge of a broad, and likely abrupt, policy response moving away from fossil fuels, threatening to crater the value of fracking companies. FRACKING FIASCO | 2 0 2 0 15 Recommendations P H O T O : Moms Clean Air Force The coronavirus pandemic has served as a stress test for the entire fossil fuel industry — one which it is failing. Nowhere is that more clear than among U.S. fracking-focused oil and gas extraction companies. But it has been obvious for a decade that the sector is extremely risky, as well as having terrible — and growing — impacts on community health, environmental justice and the climate. Despite the clear risk, banks have backed the U.S. fracking sector every step of the way, as this report has shown. Banks must urgently cut ties with this troubled sector, and key stakeholders should hold banks accountable to their climate commitments and push for stronger action. Banks should: » As key steps toward aligning policies and practices with the 1.5ºC aim of the Paris Agreement:38 » Prohibit all finance for fracked oil and gas extraction and infrastructure projects, and companies expanding fracked oil and gas extraction and infrastructure. » Commit to phase out all financing for all companies with fracking operations. » Immediately end support for clients implicated in abuses of community health. » Refrain from taking ownership stakes in troubled fracking companies in which they hold debt. » In fracking company bankruptcy proceedings in which they have a stake, ensure that worker and environmental obligations take precedence over creditor obligations. Investors and asset managers should: » Engage with banks to establish a fracking policy per the guidelines above, as one step toward aligning the banks’ policies and practices with the 1.5ºC aim of the Paris Agreement. » Divest from the fracking companies analyzed in this report.39 » Pressure oil majors and other companies involved in fracking to withdraw from the sector, including through divestment. 16 2 0 2 0 | FRACKING FIASCO Lawmakers and regulators should: » Condition recovery programs to ensure financial companies receiving public money must commit to phase out fossil financing, while ensuring a just transition to a zero-carbon economy. » Reform bankruptcy law to ensure banks and other creditors take their proper place in line: fossil fuel companies entering bankruptcy must pay lifetime benefits to workers, restore environmental damage and discharge any regulatory obligations before resolving other claims. » Repeal the authority for banks to own commodity companies that explore, drill, refine, transport or export fossil fuels, specifically including such fossil fuels as crude oil, fracked gas and coal, or physical assets like oil refineries, pipelines, tankers, power plants and coal mines and trade commodities. » Incorporate climate risk into prudential regulatory and supervisory frameworks, including mandating climate risk and impact disclosures and stress testing for financial institutions and the financial system as a whole, as well as issuing regulations to address and mitigate those risks and impacts.40 Methodology Financing Scope This analysis aggregates financing provided to the shale E&P companies in scope (see below) from all banks worldwide since the Paris Agreement was adopted: between January 1, 2016, and August 31, 2020, inclusive. Some pieces of the analysis look back to January 1, 2010. Financing includes lending, as well as the underwriting of debt and equity issuances. Transaction data were sourced from Bloomberg Finance L.P., where the value of a transaction is split between leading banks.41 Bondholding data were also sourced from Bloomberg Finance L.P. All amounts in this report are expressed in U.S. dollars unless otherwise indicated. Companies Included This analysis quantifies financing provided to U.S.-focused frackers: companies with over 40% of their production over the last decade in U.S. shale, and where that U.S. shale production was over 100 million barrels. Production information was sourced from Rystad Energy in July and August 2020, and aggregates production based on the historical company as it existed at the time of production. Thus, 51 historical companies are included; since some have since been acquired by others on the list, this amounts to 48 current companies. FRACKING FIASCO | 2 0 2 0 17 TICKER OR CURRENT OWNERSHIP U.S. SHALE PRODUCTION, 2010-2019 (M ILLIO N BO E ) % OF TOTAL PRODUCTION FROM U.S. SHALE, 2010-2019 EXPANSION: PROJECTED PRODUCTION OF U.S. SHALE, 2020-2050 (MILLION BOE) AETHON ENERGY PRIVATE COMPANY 139.89 68% 1,016.16 ALTA RESOURCES DEVELOPMENT PRIVATE COMPANY 103.3 100% 1,145.57 ANTERO RESOURCES AR 906.28 100% 5,497.44 ASCENT RESOURCES PRIVATE COMPANY 355.2 100% CABOT OIL AND GAS COG 931.27 94% ACQUIRED BY CALLON PETROLEUM 161.93 100% CHKAQ 2,397.97 95% 6,063.60 CHIEF OIL & GAS PRIVATE COMPANY 236.28 100% 1,358.64 CIMAREX ENERGY XEC 490.71 74% 5,821.20 CNX RESOURCES CORPORATION CNX 384.05 67% 4,648.62 COMSTOCK RESOURCES CRK 180.88 87% 5,945.18 HISTORICAL COMPANY CARRIZO OIL AND GAS CHESAPEAKE 18 2 0 2 0 | FRACKING FIASCO 2,477.23 CHAPTER 11 BANKRUPTCY STATUS FILED JUNE 2020 COMPANY CREDIT RATING ( M O O DY’ S LO N G T E R M R AT I N G AS OF 9/14/20) TOTAL BANK FINANCING SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N ) B3 $4.40 B JPMORGAN CHASE: $3.260 B CITI: $541 M CREDIT SUISSE: $460 M $7.17 B BANK OF MONTREAL, BARCLAYS, CREDIT SUISSE, GOLDMAN SACHS, GROUPE BPCE/NATIXIS, JPMORGAN CHASE: $1.196 B EACH $2.51 B BANK OF AMERICA: $1.087 B JPMORGAN CHASE: $1.087 B CITI: $337 M $3.62 B CITI: $1.281 B WELLS FARGO: $1.172 B CAPITAL ONE: $983 M TOP BANKS SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N , M = M ILLI ON) WELLS FARGO: $2.630 B GOLDMAN SACHS: $2.146 B BANK OF MONTREAL: $1.855 B WITHDRAWN $15.63 B Baa3 $2.50 B JPMORGAN CHASE: $838 M WELLS FARGO: $838 M MUFG: $213 M US BANCORP: $213 M B1 $6.83 B MUFG: $1.907 B CREDIT SUISSE: $1.476 B JPMORGAN CHASE: $1.476 B B3 $4.72 B BANK OF MONTREAL: $2.619 B BANK OF AMERICA: $419 M WELLS FARGO: $365 M FRACKING FIASCO | 2 0 2 0 19 TICKER OR CURRENT OWNERSHIP U.S. SHALE PRODUCTION, 2010-2019 (M ILLIO N BO E ) % OF TOTAL PRODUCTION FROM U.S. SHALE, 2010-2019 EXPANSION: PROJECTED PRODUCTION OF U.S. SHALE, 2020-2050 (MILLION BOE) CONCHO RESOURCES CXO 532.39 92% 5,695.59 CONTINENTAL RESOURCES DLR 777.91 92% 3,238.19 DEVON ENERGY DVN 1,467.66 69% 5,626.98 DIAMONDBACK ENERGY FANG 256.98 95% 3,703.23 ACQUIRED BY DIAMONDBACK ENERGY 139.28 63% ERF 158.34 50% 423.46 PRIVATE EQUITY 429.7 72% 5.25 EOG 1,773.28 78% 8,310.38 EPEGQ 319.84 74% 31.99 EQT CORPORATION EQT 1,157.96 93% 7,118.20 EXCO RESOURCES EXCE 232.78 89% 15.81 HISTORICAL COMPANY ENERGEN ENERPLUS CORPORATION ENERVEST EOG RESOURCES EP ENERGY 20 2 0 2 0 | FRACKING FIASCO CHAPTER 11 BANKRUPTCY STATUS COMPANY CREDIT RATING ( M O O DY’ S LO N G T E R M R AT I N G AS OF 9/14/20) TOTAL BANK FINANCING SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N ) Baa3 $7.85B BANK OF AMERICA: $2.314 B JPMORGAN CHASE: $1.714 B WELLS FARGO: $1.262 B Ba1 $2.50 B BANK OF AMERICA: $542 M MIZUHO: $542 M MUFG: $542 M Ba1 $7.34 B GOLDMAN SACHS: $1.488 B BANK OF AMERICA, CITI, JPMORGAN CHASE, MIZUHO, RBC, SCOTIABANK, WELLS FARGO: $836 M EACH Ba1 $18.96 B PUBLICLY TRADED SUBSIDIARY FILED MARCH 2018, EMERGED JUNE 2018 A3 FILED OCTOBER 2019 Ba3 FILED JANUARY 2018, EMERGED JULY 2019 TOP BANKS SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N , M = M ILLI ON) WELLS FARGO: $9.648 B CREDIT SUISSE: $2.728 B JPMORGAN CHASE: $2.120 B $1.63 B CREDIT SUISSE: $384 M BANK OF AMERICA, BBVA, JPMORGAN CHASE, REGIONS FINANCIAL CORPORATION, WELLS FARGO: $250 M EACH $3.18 B CIBC: $3.000 B BANK OF MONTREAL: $89 M RBC: $89 M $0.35 B JPMORGAN CHASE: $173 M WELLS FARGO: $173 M $4.50 B CIBC, CITI, JPMORGAN CHASE, SCOTIABANK, WELLS FARGO: $600 M EACH $4.03 B CREDIT SUISSE: $1.415 B JPMORGAN CHASE: $730 M CITI: $415 M $10.00 B JPMORGAN CHASE: $1.307 B BANK OF AMERICA: $1.103 B WELLS FARGO: $1.103 B $0.33 B BANK OF MONTREAL, JOHNSON RICE, KEYCORP, RAYMOND JAMES, RBC, TRUIST SECURITIES: $54 M EACH FRACKING FIASCO | 2 0 2 0 21 EXPANSION: PROJECTED PRODUCTION OF U.S. SHALE, 2020-2050 (MILLION BOE) HISTORICAL COMPANY TICKER OR CURRENT OWNERSHIP EXTRACTION OIL & GAS XOGAQ 112.66 98% 743.09 GEOSOUTHERN ENERGY CORPORATION PRIVATE COMPANY 136.63 100% 834.24 GULFPORT ENERGY GPOR 356.07 95% 1,655.46 INDIGO MINERALS PRIVATE COMPANY 105.31 72% 2,241.63 LPI 177.38 98% 1,139.41 PRIVATE COMPANY 162.21 59% 98.8 MARATHON OIL MRO 736.48 42% 2,740.79 MATADOR RESOURCES MTDR 109.66 95% 861.13 MESQUITE ENERGY PRIVATE COMPANY 158.94 100% 58.38 MEWBOURNE OIL COMPANY PRIVATE COMPANY 325.94 94% 1,312.84 MR 109.46 99% 834.08 LAREDO PETROLEUM LEWIS ENERGY GROUP MONTAGE RESOURCES CORPORATION 22 % OF TOTAL PRODUCTION FROM U.S. SHALE, 2010-2019 U.S. SHALE PRODUCTION, 2010-2019 (M ILLIO N BO E ) 2 0 2 0 | FRACKING FIASCO CHAPTER 11 BANKRUPTCY STATUS COMPANY CREDIT RATING ( M O O DY’ S LO N G T E R M R AT I N G AS OF 9/14/20) FILED JUNE 2020 Caa1 B1 TOTAL BANK FINANCING SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N ) TOP BANKS SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N , M = M ILLI ON) $5.48 B WELLS FARGO: $3.429 B BARCLAYS: $512 M GOLDMAN SACHS: $512 M $6.84 B SCOTIABANK: $2.135 B KEYCORP: $1.596 B PNC: $1.494 B $0.38 B BANK OF AMERICA: $188 M WELLS FARGO: $188 M $1.28 B BANK OF MONTREAL: $247 M WELLS FARGO: $247 M GOLDMAN SACHS: $207 M $1.50 B BBVA, CAPITAL ONE, CITI, MUFG, WELLS FARGO: $300 M CITI, JPMORGAN CHASE, MORGAN STANLEY: $2.488 B EACH Baa3 $12.36 B B2 $2.41 B RBC: $778 M SCOTIABANK: $559 M BANK OF MONTREAL: $346 M $1.64 B TRUIST SECURITIES: $357 M CITI: $262 M JPMORGAN CHASE: $262 M $1.13 B BANK OF MONTREAL: $699 M KEYCORP: $199 M CAPITAL ONE: $167 M FILED AUGUST 2019, EMERGED JUNE 2020 B2 FRACKING FIASCO | 2 0 2 0 23 TICKER OR CURRENT OWNERSHIP U.S. SHALE PRODUCTION, 2010-2019 (M ILLIO N BO E ) % OF TOTAL PRODUCTION FROM U.S. SHALE, 2010-2019 EXPANSION: PROJECTED PRODUCTION OF U.S. SHALE, 2020-2050 (MILLION BOE) NFG 214.88 84% 4,150.20 ACQUIRED BY OVINTIV 460.84 67% NOBLE ENERGY NBL 609.38 47% 4,371.97 OASIS PETROLEUM OAS 202.57 100% 1,027.90 PE 171.72 100% 3,482.32 PDCE 194.69 91% 722.1 PIONEER NATURAL RESOURCES PXD 592.03 66% 5,007.64 QEP RESOURCES QEP 334.89 57% 1,018.19 RANGE RESOURCES RRC 722.39 81% 5,079.07 ACQUIRED BY EQT CORPORATION 204.08 100% ACQUIRED BY NOBLE ENERGY 113.36 97% HISTORICAL COMPANY NATIONAL FUEL GAS NEWFIELD EXPLORATION PARSLEY ENERGY PDC ENERGY RICE ENERGY ROSETTA RESOURCES 24 2 0 2 0 | FRACKING FIASCO CHAPTER 11 BANKRUPTCY STATUS COMPANY CREDIT RATING ( M O O DY’ S LO N G T E R M R AT I N G AS OF 9/14/20) TOTAL BANK FINANCING SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N ) Baa3 $2.72 B BANK OF AMERICA: $724 M JPMORGAN CHASE: $624 M WELLS FARGO: $454 M Ba1 $6.80 B JPMORGAN CHASE: $3.067 B CIBC, CITI, RBC, TD: $800 M EACH Baa3 $9.65 B CITI, MIZUHO: $1.783 B EACH BANK OF AMERICA, DNB, JPMORGAN CHASE: $1.171 B EACH B3 $3.91 B WELLS FARGO: $2.242 B GOLDMAN SACHS: $568 M JPMORGAN CHASE: $415 M $20.69 B WELLS FARGO: $15.561 B CREDIT SUISSE: $1.891 B MORGAN STANLEY: $656 M TOP BANKS SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N , M = M ILLI ON) Ba2 $3.63 B JPMORGAN CHASE: $2.115 B BANK OF AMERICA: $565 M BANK OF MONTREAL, WELLS FARGO: $414 M EACH Baa2 $7.22 B BANK OF AMERICA: $1.766 B WELLS FARGO: $1.362 B JPMORGAN CHASE: $1.264 B B2 $2.55 B DEUTSCHE BANK: $575 M BANK OF MONTREAL, JPMORGAN CHASE, WELLS FARGO: $385 M EACH B2 $3.25 B JPMORGAN CHASE: $2.535 B BANK OF AMERICA, BANK OF MONTREAL, CITI, WELLS FARGO: $135 M EACH $3.33 B WELLS FARGO: $1.887 B BARCLAYS: $887 M GOLDMAN SACHS: $561 M FRACKING FIASCO | 2 0 2 0 25 TICKER OR CURRENT OWNERSHIP U.S. SHALE PRODUCTION, 2010-2019 (M ILLIO N BO E ) % OF TOTAL PRODUCTION FROM U.S. SHALE, 2010-2019 EXPANSION: PROJECTED PRODUCTION OF U.S. SHALE, 2020-2050 (MILLION BOE) PRIVATE COMPANY 147.62 100% 563.7 SANDRIDGE ENERGY SD 164.57 67% 10.95 SM ENERGY SM 469.7 95% 1,798.95 SWN 1,508.73 98% 6,951.76 ACQUIRED BY PRESIDIO PETROLEUM 112.18 100% PRIVATE COMPANY 157.3 100% 3,375.31 WLL 389.32 87% 857.36 HISTORICAL COMPANY SABLE PERMIAN RESOURCES SOUTHWESTERN ENERGY TEMPLAR ENERGY VINE OIL & GAS WHITING PETROLEUM 26 2 0 2 0 | FRACKING FIASCO CHAPTER 11 BANKRUPTCY STATUS COMPANY CREDIT RATING ( M O O DY’ S LO N G T E R M R AT I N G AS OF 9/14/20) TOTAL BANK FINANCING SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N ) TOP BANKS SINCE PARIS, 2 0 1 6 -A UG UST 2 0 2 0 (B = BILLIO N , M = M ILLI ON) FILED JUNE 2020 $1.85 B JPMORGAN CHASE: $611 M BANK OF AMERICA: $461 M BANK OF MONTREAL, BARCLAYS, CAPITAL ONE, CREDIT SUISSE, RBC, TD: $111 M EACH FILED MAY 2016, EMERGED OCTOBER 2016 $1.63 B RBC: $1.175 B BARCLAYS, GROUPE BPCE/NATIXIS, TRUIST SECURITIES: $150 M EACH Caa1 $3.42 B WELLS FARGO: $1.661 B BANK OF AMERICA: $386 B JPMORGAN CHASE: $386 B Ba2 $9.25 B JPMORGAN CHASE: $2.968 B BANK OF AMERICA: $1.409 B CITI: $1.034 B Caa3 $0.91 B CREDIT SUISSE, GROUPE BPCE/NATIXIS, HSBC, MORGAN STANLEY, SOCIÉTÉ GÉNÉRALE: $160 M EACH $2.75 B JPMORGAN CHASE: $2.000 B EACH BANK OF AMERICA, CITI, WELLS FARGO: $250 M EACH FILED MAY 2020 FILED APRIL 2020 FRACKING FIASCO | 2 0 2 0 27 ENDNOTES 28 1. Bernard F. Clark, Jr., Oil Capital: The History of American Oil, Wildcatters, Independents and Their Bankers. 2016, p. 62. 2. See e.g. Pamela Boykoff and John Defterios, “Slumping energy prices translate to layoffs and bankruptcies for Texas oil country,” CNN Business, 10 September 2020; Carrie McKean, “This ‘Big Oil’ Bust Is Killing My Town,” New York Times, 30 April 2020; Peter Eavis, “Fracking Once Lifted Pennsylvania. Now It Could Be a Drag,” New York Times, 31 March 2020. 3. Philip van Doorn, “You should avoid shares of these banks with too much oil and gas exposure,” MarketWatch, 11 March 2020. 4. “Oil Patch Bankruptcy Monitor,” Haynes and Boone, LLP, 31 August 2020. 5. “Even at $40 WTI, about 150 more North American E&Ps will need Chapter 11 protection by end-2022,” Rystad Energy, 21 August 2020. 6. 37 North American oilfield services companies with nearly $34 billion in debt filed for bankruptcy from January 1 through August 31, 2020. “Oilfield Services Bankruptcy Tracker,” Haynes and Boone, LLP, 31 August 2020. 7. Matt Ott, “Wells Fargo loses $2.4 billion in 2Q, first loss since 2008,” The Washington Post, 14 July 2020. 8. This research analyzed financing for 51 historical companies. Since some have since been acquired by others on the list, it amounts to 48 current companies. See the methodology section for details. 9. Banks may take on some risk of the changing value of these stocks and bonds if their own asset management arms buy up some of the securities. 10. See, for instance, Bethany McLean, Saudi America: The Truth About Fracking and How It’s Changing the World, Columbia Global Reports, 2018. 11. Collin Eaton and Rebecca Elliott, “Coronavirus Threatens to Hobble the U.S. Shale-Oil Boom for Years,” The Wall Street Journal, 24 May 2020. 12. See, for instance, McLean (2018). 13. McLean (2018), p. 46 14. Ben Casselman, “Chesapeake Holders Denounce CEO’s Pay,” The Wall Street Journal, 28 April 2009. 15. Tom DiChristopher, “Shale oil drillers gave stock shareholders what they wanted, then investors punished them anyway,” CNBC, 14 March 2019. 16. “Research Announcement: Moody’s – Energy defaults are on the rise again, clouded economic outlook calls for a higher US speculative-grade default rate,” Moody’s, 31 October 2019. 17. Analysis of all active bonds and loans included in this dataset. Researched using Bloomberg Finance L.P. 18. Jonathan Randles, “Chesapeake Energy to Start Tapping $925 Million Bankruptcy Loan,”The Wall Street Journal, 29 June 2020. 19. By volume. Proportion of lending in the form of RBL from the data analyzed for this report was compared to the official Bloomberg league table of global loans, narrowed to include only companies classified as oil and gas E&P companies according to the Bloomberg Industry Classification Standard. 20. Amir Azar, “Reserve Base Lending and the Outlook for Shale Oil and Gas Finance,” Columbia | SIPA Center on Global Energy Policy, May 2017, p. 4. 21. By volume. Ratings of active bonds from the data analyzed for this report were compared to the proportion of high yield and investment grade ratings (as of transaction date) in the official Bloomberg league table of U.S. corporate bonds (debt and preferred securities issued by corporate and financial issuers, denominated in US Dollars, with market of issue as “Domestic MTN”, “Global”, “Private Placement”, “US Domestic”, or “Yankee”). 22. $22.6 billion in additional share offerings, plus one IPO of $728 million. 23. Oil prices from: “Crude Oil Prices - 70 Year Historical Chart,” Macrotrends. 24. Bloomberg Finance L.P. 25. Kelly Trout and Lorne Stockman, “Drilling Towards Disaster: Why U.S. Oil and Gas Expansion is Incompatible With Climate Limits,” Oil Change International, January 2019, p. 28. 26. David Templeton and Don Hopey, “CDC, state officials investigating multiple cases of rare cancer in southwestern Pa.,” Pittsburgh Post-Gazette, 28 March 2019; David Templeton and Don Hopey, “Are the 27 cases of Ewing sarcoma near Pittsburgh a cluster?,” Pittsburgh Post-Gazette, 14 May 2019. 27. Kris Maher, “After String of Rare Cancer Cases, Pennsylvania Investigates Potential Link to Fracking,” The Wall Street Journal, 20 December 2019. 2 0 2 0 | FRACKING FIASCO 28. Based on an analysis of permits issued since 2004, according to the Pennsylvania Department of Environmental Protection’s Permits Issued Detail Report, available at https://www.dep.pa.gov/DataandTools/Reports/Oil%20and%20Gas%20Reports/Pages/default.aspx. Analyzed by Karen Feridun, founder of Berks Gas Truth. 29. “Compendium of Scientific, Medical, and Media Findings Demonstrating Risks and Harms of Fracking (Unconventional Gas and Oil Extraction),” Sixth Edition, Concerned Health Professionals of NY and Physicians for Social Responsibility, June 2019, p. 343; Irena Gorski and Brian S. Schwartz, “Environmental Health Concerns From Unconventional Natural Gas Development,” Oxford Research Encyclopedia, Global Public Health, February 2019. 30. Kelly Trout, “The Sky’s Limit and the IPCC Report on 1.5 Degrees of Warming,” Oil Change International, 17 October 2018. 31. Kelly Trout and Lorne Stockman, “Drilling Towards Disaster: Why U.S. Oil and Gas Expansion is Incompatible With Climate Limits,” Oil Change International, January 2019, p. 6. 32. Projected production of U.S. shale in barrels of oil equivalent, as of August 2020, according to Rystad Energy. See the chart of companies included in the methodology section for a breakdown by company. 33. Robert W. Howarth, “Methane emissions and climatic warming risk from hydraulic fracturing and shale gas development: implications for policy,” Energy and Emission Control Technologies, 8 October 2015. 34. Justin Nobel, “The Hidden Risk in the Fracking Boom: Are pipeline safety regulations keeping pace with the flood of natural gas?” Rolling Stone, 20 February 2019. 35. “Rio Grande Valley: At Risk from Fracked-Gas Export Terminals - 2019 Update,” Rainforest Action Network, Save RGV From LNG, Carrizo/ Comecrudo Tribe, Sierra Club and Les Amis de la Terre, July 2019; Maya Weber, “Rio Grande LNG terminal project could help maintain Permian production: US DOE official,” S&P Global, 25 April 2019. 36. Eric de Place, “Public Opinion Is Moving Against Natural Gas and Fracking,” Sightline Institute, 28 July 2020. 37. Sarah Rankin, “Virginia Senate Panel OKs Offshore Drilling, Fracking Bans,” Associated Press, 21 January 2020; James Call, “Possible Florida fracking ban gains early steam in Senate committee,” Tallahassee Democrat, 5 November 2019. 38. “Principles for Paris-Aligned Financial Institutions: Climate Impact, Fossil Fuels, and Deforestation,” Rainforest Action Network et al., September 2020. 39. Asset managers in particular should exclude the fracking companies analyzed in this report from bond index funds, mutual funds, and exchangetraded funds (ETFs). 40. For additional recommendations for lawmakers and regulators, see “Building Climate-Resilient Finance in the Recovery: Guidelines for Lawmakers and Regulators,” Stop the Money Pipeline, April 2020. 41. The Bloomberg Terminal is an industry-standard provider of financial data available by subscription; see https://www.bloomberg.com/professional/solution/bloomberg-terminal/. Financial research was done using the Bloomberg Terminal’s league table function, which aggregates “creditable” transactions and assigns each leading bank a credit of the deal based on their role, according to the Bloomberg Finance L.P. League Table Standards and Guidelines. P H O T O : Sarah Craig / Faces of Fracking FRACKING FIASCO | 2 0 2 0 29 P H O T O : Christopher Halloran / shutterstock