David Einhorn, the founder of Greenlight Capital, came out swinging Monday against the fracking industry at the Sohn Investment Conference in New York City.
“We object to oil fracking because the investment can contaminate returns,” he said.
He thinks the business is too expensive and Wall Street helped the industry raise way too much money that it could never pay back.
“The banks are clearly incentivized to help the frac-addicts,” he said.
Back when oil prices were not at historic lows, as they are now, frackers raised a bunch of cash and burned more money, arguing that they were “investing for the future,” Einhorn said.
Now that prices are low, that’s coming back to haunt them.
“Investing for growth is a fiction … here the capex goes to reducing the assets one barrel at a time,” Einhorn said. “The industry wants us to only look at the cash coming out of the business, not the cash going into it.”
Einhorn zeroed in on Pioneer (PXD) — calling the company “the motherfrackers.”
“We think that in the current environment Pioneer has a negative return on capex.”
Basically, Pioneer puts in a bunch of money to extract oil and waits too long to see a return. Even if Pioneer stopped investing and sold its reserves, it still wouldn’t cut it with today’s lower oil prices. The company would make only about $9 a share.
Pioneer’s resource estimates haven’t been spot on either — in its most recent investor presentation, none of its resource estimates had changed for lower oil prices.
“Many businesses could undoubtedly do well if they could sell their wares at above market pricing,” Einhorn said.
Pioneer’s stock is falling on Einhorn’s presentation.