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After The Boom, The Big U.S. Oil Bust

Chico Harlan, The Washington Post

The U.S. oil industry, having grown into a giant on par with Saudi Arabia’s, is shrinking, with the biggest collapse in investment in energy in 25 years.

He’d borrowed from banks and investors and retirement funds, all in a frenzied mission to drill for oil and gas, and by the time Terry Swift realized he’d gone too far, this was his debt: $1.349 billion.

His company, founded by his father almost 40 years earlier, had plunged into bankruptcy and laid off 25 percent of its staff. Its shares had been pulled from the New York Stock Exchange. And now Swift was in a company Chevrolet Tahoe, driving back to the flat and dusty place where his bets had gone bust.

Swift was coming to this energy-rich strip of South Texas trying to grapple with how much blame he shouldered for the failure of his company. A low-key and historically cautious oil chief executive who eschews private jets and orders low-fat salads for lunch, he had made what he thought was the best financial move of the past decade — a gamble on rising oil prices — and yet was ensnared in an industry-wide craze of dangerous debt.

“Maybe we were wrong to believe there wouldn’t be a bust this bad,” Swift, 60, said, as the Tahoe rumbled south of San Antonio. “It didn’t even feel risky.”

Swift’s miscalculation has made his company, Swift Energy, a casualty of the greatest wave of financial defaults since America’s subprime mortgage crisis ravaged the U.S. economy. For him, it’s a painful low point in his family’s 111-year journey in American oil, one that started when his great-grandfather set up a series of storage tanks in the plains outside of Tulsa. And it’s a jarring reversal from just a few years ago, when Swift felt as if he’d taken his company to a pinnacle by capitalizing on a massive surge in U.S. energy production — one that promised an era of American energy independence thanks to revolutionary new technologies.

This new wave of bad loans isn’t the same magnitude of the housing bust, but it reflects similar behaviors. Borrowers feasted on what Bloomberg estimates was $237 billion of easy money without scrutinizing whether the loans could endure a drastic downturn. The consequences are far-reaching: The U.S. oil industry, having grown into a giant on par with Saudi Arabia’s, is shrinking, with the biggest collapse in investment in energy in 25 years. More than 140,000 have lost energy jobs. Banks are bracing for tens of billions of dollars of defaults, and economists and lawyers predict the financial wreckage will accelerate this year. […]

America’s great energy boom resulted not simply from gains made by the established giants — ExxonMobil and Chevron — but rather from the rise of hundreds of smaller companies. And those smaller companies grew with debt, using it to drill 8,000 feet into the earth’s crust and 10,000 feet across, renting equipment, pumping in millions of pounds of sand, and creating fractures that released oil and natural gas.

This was hydraulic fracturing, or “fracking,” the technology that, in the middle of the last decade, allowed companies to reach oil and gas that was previously inaccessible. Companies had a choice: either borrow to enter the fracking race or stay on the sidelines and risk losing out.Most, including Swift, chose to frack.That decision, multiplied across hundreds of producers, has caused U.S. oil production to nearly double since 2007. And while politicians and executives celebrated that new capacity — dramatically reducing America’s dependence on foreign oil — few discussed the dangerous financial risks.

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