New Mexico is just one state whose fracking boom appears poised to fall off an economic cliff amid the pandemic.Richard Hamilton Smith / Getty Images

By Dahr Jamail, Truthout

It has always been known that the oil and gas industry only survives by way of debt financing. Fracking is capital intensive, and very few companies involved ever actually even turn a profit in excess of the cost of capital.

Instead, they have always operated by dependency on cheap money from Wall Street banks to finance their drilling and operations.

Fred Nathan is the executive director of Think New Mexico, an independent nonpartisan statewide think tank whose mission is “to improve the quality of life for all New Mexicans, especially those who lack a strong voice in the political process.” Nathan said that the contraction of the oil and gas industry in New Mexico is a “cause for deep concern” for the state budget, because every time the price of a barrel of oil drops $1, the state’s general fund.

“More than 40 percent of New Mexico’s general operating budget for the state comes from oil and gas revenue,” Nathan told Truthout. “Last session many legislators from both parties acknowledged that we have to be mindful that this is a volatile industry and we cannot rely on the price of oil and gas to remain stable.”

And this is also the case for many other states, such as Texas, California and Colorado, which have attached so much of their budget to revenue from allowing fracking within their borders.

Attorney, author and CPA Greg Rogers wrote the seminal book, Financial Reporting of Environmental Liabilities and Risks, as well as being a fellow and adviser to the Master of Accounting Program at the University of Cambridge in the U.K. “If the golden goose is going to die, it’s really important that you know that so you can anticipate it,” Rogers warned. “When do you get out of that game? You’d better be close to the exit door.”

Oil companies owe billions of dollars in asset retirement obligations (AROs) to the state, which are the oil and gas companies’ financial obligations to clean up and close their wells. But it is looking increasingly likely that, instead of the oil companies paying for the AROs, these are what states will be stuck with as companies file for bankruptcy […]

Via https://truthout.org/articles/could-covid-19-spell-the-end-of-the-fracking-industry-as-we-know-it/