"Shale boom’s allure to Wall Street tested by bear market."

Bloomberg: “Falling oil prices are testing investors’ commitment to the Wall Street-funded shale boom.”
“Energy stocks led the plunge earlier this month in U.S. equities and the cost of borrowing rose. The Energy Select Sector Index is down 14 percent since the end of August, compared with 3.8 percent for the Standard & Poor’s 500 Index. The yield for 190 bonds issued by U.S. shale companies increased by an average of 1.16 percentage points.
Investors’ sentiment toward the oil and gas industry has “certainly changed in the last 30 days,” said Ron Ormand, managing director of investment banking for New York-based MLV & Co. with more than 30 years of experience in energy. “I don’t think the boom is over but I do think we’re in a period now where people are going to start evaluating their budgets.”
What distinguishes this U.S. energy boom from the way the industry operated in the past is the involvement of outside investors. In 1994, drillers funded 42 percent of their own capital spending, according to an Independent Petroleum Association of America member survey. Today, shale companies are outspending their cash flow by 50 percent thanks to borrowed money, according to the IPAA. They’re selling more than twice as much equity to the public as they did 10 years ago, according to Tudor Pickering Holt & Co., a Houston-based investment bank.
“After the tech bubble and then the real estate bubble, Wall Street had to put its money somewhere, and it looks like they put a lot of it into domestic onshore oil and gas production,” said Michael Webber, the deputy director of the Energy Institute at the University of Texas at Austin, who advises private investors.
Between the S&P 500’s record high on Sept. 18 and its five-month low on Oct. 15, energy companies led the index down 14 percent, more than any other industrydata compiled by Bloomberg show. When the market rebounded on Oct. 16, energy again took the lead, gaining 1.7 percent.
The drop wiped $158.6 billion off the market value of 75 shale producers since the end of August, according to data compiled by Bloomberg.”
….“It was a credit boom just as much as it was a shale boom,” Eric Cinnamond, who manages the $691 million Aston/River Road Independent Value Fund, including $20 million in the shares of three shale producers, said by phone from Louisville, Kentucky.
The shale boom has also been a boon to investment banks, which have made $5.2 billion in adviser fees from U.S. oil and gas companies’ share sales since 2009, second only to the haul from the financial industry itself, according to data compiled by Bloomberg. Oil and gas also accounted for $676.8 billion in completed U.S. mergers and acquisitions, trailing only non-cyclical consumer businesses such as food and drugs, the data show.
….“External money has flowed to shale plays like it never flowed to conventional exploration,” saidMichelle Foss, an energy economist at the University of Texas at Austin.
Last year, domestic onshore producers spent $38 billion more than the $19 billion of cash flow they generated, compared with $1 billion versus $18 billion a decade earlier, according to data from Tudor Pickering Holt, which specializes in energy.
….“Everyone loved the shale boom,” said Cinnamond of Aston/River Road. “People got carried away.”