The oil and gas sector was already having problems, but the fear and uncertainty around a global pandemic could end the Texas energy boom.

For the past few years, Texas has reaped the rewards of a huge oil boom centered on the shale formations in the Permian Basin. Companies gobbled up acreage across the region and expanded fracking operations at an unprecedented rate. West Texas became an extraction colony that single-handedly shifted global energy politics.

But what was seen as an economic miracle and a beacon of American energy dominance is now at risk of implosion. The twin threats of a global pandemic and a global supply glut threaten to topple the financial house of cards that the Texas oil boom sits atop.

The country’s energy sector had been on the ropes for several weeks amid a downturn in demand caused by the coronavirus outbreak in China. The Saudi Arabia-Russia price war pushed it over the edge as stock prices fell off a cliff. Now, as coronavirus continues to spread across Europe and the United States—stoking fear and uncertainty along the way—no one knows just how bad things could get.

“It’s been a terrible month capped by a terrible few days,” says Clark Williams-Derry, an analyst at the Institute for Energy Economics and Financial Analysis, calling it a potential “worst-case scenario” for the oil and gas sector.

The rapid rate of expansion in the Permian Basin—and other drilling hotspots in the country—was built on a mountain of debt. While companies successfully fracked oil at an impressive clip, it’s such an expensive endeavor that few have ever been able to make a profit. So they turned to Wall Street banks, taking out tens of billions of dollars in loans to cover the costs of their massive production boom.

Most frack-happy companies couldn’t turn a profit when oil prices were above $50 per barrel, so if the cost of crude stays low, experts warn that there may be a scourge of bankruptcies and layoffs of oil and gas companies in the coming weeks and months. Making matters even worse, much of that debt is coming due in the near term.

“A lot of these companies are already on shaky financial footing, so what’s happened could push them over the edge,” Williams-Derry says.

It wasn’t hard to see this coming. Between 2012 and 2017—a period when oil prices were much higher—the 30 biggest shale frackers lost a combined $50 billion. Over the past two years, however, Wall Street investors grew wary of the sector’s failure to produce profits, and they turned off the once free-flowing spigot of loans. That has put a lot of pressure on struggling drillers to find other sources of financing. (For a good primer on the faulty finances of fracking, read business writer Bethany McClean’s book Saudi America: The Truth About Fracking and How it’s Changing the World or listen to her conversation with Texas Monthly.)

A sustained downturn is likely to worsen the sector’s already weak prospects, and this will have an outsized effect on Texas. The Permian Basin has become the epicenter of the nation’s fracking boom; many of the small rural towns that live and die by the price of crude are bracing for a bust. Already, Texas-based fossil fuel giants are announcing big pullbacks in drilling operations and spending as their stocks have plummeted, and many are bracing for widespread layoffs. As Scott Sheffield, the CEO of Irving-based Pioneer Natural Resources, predicted earlier this week, “There will be many bankruptcies in our industries and tens of thousands of layoffs over the next 12 months.”

“This is going to be painful,” says Kenneth Medlock, the senior director at the Center for Energy Studies at Rice University. “What this has done is expose the sector and accelerate what was coming already.”

On Monday alone, the oil baron Harold Hamm lost nearly $2.5 billion—almost half his net worth. He and Jeffrey Hildebrand, a Houston energy magnate, both lost their coveted spots on Bloomberg’s Billionaires Index. Soon, Hamm—who was an energy advisor for President Donald Trump’s campaign—and other industry executives were calling up the White House, begging the administration to provide some sort of federal support. Trump floated providing low or no-interest loan guarantees, among other policies to aid the industry, but the idea drew widespread backlash, with critics dubbing it a “Shaleout.” Even U.S. Senator John Cornyn, a staunch ally of the oil industry, balked at the idea, saying, “I don’t think they need any bailouts.”

The big problem right now is that there is a massive oversupply of oil on the market, and critics warn that a bailout would likely only incentivize oil companies to keep drilling as they scramble to pay off their debts. As one energy analyst tweeted, “Easy money isn’t the cure for oil and gas companies, it’s the problem.”

For years, oil and gas executives were encouraged to expand their fracking operations as quickly as possible and prioritize production growth over all else—and they got immensely rich doing so. The rapid boom has brought about welcome jobs and money, but it’s also put immense strain on public resources in West Texas communities. And it’s led to a massive increase in methane emissions, as drillers burn off or vent excess natural gas for the simple reason that it’s cheaper than trying to store it.

All along the way, federal and state regulators have turned a blind eye. Perhaps the realities of capitalism will finally force the frackers to face a reckoning.

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