Despite the hype of lower breakeven prices, and despite the hype around longer laterals, energy digitalization, and other technological breakthroughs, most shale companies are still not profitable.
In fact, roughly 9 out of every 10 U.S. shale companies are burning cash, according to Rystad Energy. The Oslo-based consultancy studied 40 U.S. shale companies and found that only 4 of them had positive cash flow in the first quarter of 2019. In fact, the number of companies with positive cash flow was lower than it was previously, and total cash flow from the group fell from $14 billion in the fourth quarter to just $9.9 billion in the first.
“The gap between capex and [cash flow from operating activities] has reached a staggering $4.7 billion. This implies tremendous overspend, the likes of which have not been seen since the third quarter of 2017,” Alisa Lukash, Senior Analyst on Rystad Energy’s North American Shale team, said in a press release.
U.S. shale drillers have historically loaded up on debt in order to continue to finance their cash burn. But investors have soured on the sector, finally waking up to the fact that shale drillers by and large are money losers. According to Rystad, no shale company has made a public offering since the collapse of oil prices last year, the longest stretch of time with no public capital issuance since 2014. “Recently released data, which confirmed dismal first quarter earnings, only served to cement negative market sentiment,” Lukash said. Investors are fed up and are “leaving no room for undisciplined spending in 2019.”
[Read more here]
The North American fracking sector once again spent more on drilling than it realized from sales of oil and gas, according to a briefing note released today by Sightline Institute and the Institute for Energy Economics and Financial Analysis (IEEFA).
The brief, Red Ink Keeps Flowing for U.S. Fracking Sector, traces a cross-section of 29 oil and gas companies that combined reported more than $2.5 billion in negative free cash flows during the first quarter of 2019.
“These results were even worse than in the fourth quarter of 2018, when the same group notched up $2.1 billion in negative cash flows,” said lead author of the report Clark Williams-Derry of Sightline. “We are seeing a continuation of the overall downward trend that confirms underlying weaknesses in the fracking business model.”
The dismal Q1 cash flow performance came despite a 16 percent quarter‑over‑quarter decline in capital expenditures. But operating cash flows fell even faster, widening the industry’s cash flow gap.
“These companies keep having to dip into cash reserves or sell off assets to remain afloat,” said IEEFA financial analyst Kathy Hipple who co-authored the report. “Investors are taking notice and it has become increasingly difficult for the companies to obtain capital.”
The Sightline/IEEFA analysis found:
- US fracking-focused oil and gas companies continued their decade-long losing streak through the first quarter of 2019.
- A cross-section of small and mid-sized U.S. E&Ps (Exploration and Production companies) reported $2.5 billion in negative cash flows from January through March 2019.
- Negative cash flows have soured investors on the sector, constraining the oil and gas industry’s ability to tap debt and equity markets.
- “From 2010 through early 2019, the companies in our sample racked up aggregate negative cash flows of $184 billion, hemorrhaging cash every single year,” said Williams-Derry.
[Read more here]
We all know that fracking has been an environmental disaster. It's also been a financial one too. How much longer before the whole Ponzi scheme collapses? Fracking is what keeps US gas cheap. When that stops, gas's replacement by renewables plus storage will accelerate.
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