
“The recent battering of Forest Oil (FST) shows how the borrow-drill strategy can backfire. Forest generated $1.3 billion by selling assets in 2013 to pay down debt and finance its drilling as it focused on its Eagle Ford acreage. In February the company reported disappointing well results. Forest didn’t have enough revenue coming in to keep from running afoul of its debt agreements. Both S&P and Moody’s cut its credit outlook to negative. The way the shale boom is being financed is “a perfect setup for investors to lose a lot of money…The model is unsustainable.’”
“Rice Energy (RICE), a natural gas producer with a low credit rating, raised $900 million in a bond sale in April, $150 million more than it originally sought. Investors snapped up the bonds even though the Canonsburg (Pa.)-based company has lost money three years in a row, has drilled fewer than 50 wells (most named after superheroes and monster trucks), and said it will spend $4.09 for every dollar it earns (before interest, taxes, depreciation, and amortization) in 2014″
