Jim Chanos' Kynikos Associates is betting against a number of U.S. shale oil and gas stocks, saying Wall Street analysis of the sector is deeply flawed.
Investors are taking for granted accounting methods that mask problems with the fundamental business model in the U.S. shale patch, Chanos warned during a speech Tuesday at CNBC's and Institutional Investor's Delivering Alpha conference. Their focus on certain metrics is causing them to overlook hidden threats that will leave drillers with skimpier returns than investors are anticipating, he said.
"In our view, people have been looking at this industry through the rose-colored glasses of Wall Street. And this is the inherent problem with the North American shale business," he said.
Chanos is not the first to sound the alarm about accounting and business practices in the sector. Analysts have long warned about drillers' persistent and unfulfilled promises to generate positive cash flow, especially as oil prices remain at less than half of their 2014 peak.