The High Cost of Cheap Gas

Thursday, June 25, 2015 | Blog

The hydraulic fracturing industry (aka “fracking”) has been instrumental in increasing oil production and US energy independence.  However, for some firms the breakeven point in dollars per barrel was passed with oil in the $75-100 range.  New well fracks have been decreased as the economies no longer make sense.  With a lot of equipment still in the field, these companies need to generate revenue or preserve capital to make interest payments and have slashed spending on most CAPEX and instituted huge layoffs.

This year alone, oil and gas companies have accounted for 1/3 of the corporate-debt defaults worldwide. Companies like SandRidge Energy Inc., and Halcon Resources Corp. have had to issue new asset secured debt, which will make it difficult for unsecured bondholders to be repaid if the companies are in default.

Oil related layoffs are reaching 100,000 since the turn in oil prices. These oil jobs were good paying jobs, far above average labor or construction jobs with some paying $75,000 and more. Using an average of $50,000 in wages per year, 100,000 jobs lost translates to $5 billion in lost income to these workers.

Being able to go to the pump and keep an extra ten dollars is a huge win for the working-middle class, however the greater impact it has on the overall economy dwarfs the fact that you and I get to keep an extra ten bucks at the pump.

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