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More than 170 shale companies have filed for bankruptcy since 2015, representing a debt of $ 100 billion, including 8 bankruptcies this year.
By Nick Cunningham, Oilprice.com:
Oil prices have fallen about 20% over the past two weeks due to growing fears of an ongoing economic recession. Products of all types have been hammered by pessimism.
"Fears of a slowdown in global economic growth," said Peter Kiernan, senior energy badyst at the Economist Intelligence Unit (EIU), lamented the energy complex as a whole with fears of ## 147 ## 39, a drop in demand this year. "Prices of coal, natural gas and LNG, and crude oil fell.
"The continued escalation of trade tensions and the widespread decline in manufacturing (…) suggest that downside risks to growth are becoming increasingly important," Morgan badysts said. Stanley in a note.
Another economic downturn could not come at the worst time for American shale drillers, who are struggling to generate profits. Time and time again, shale industry leaders have promised profitability. Years of low-budget drilling have managed to create a tidal wave of oil, but a corresponding wave of profits has never materialized.
Beginning in 2019, the industry is committed to focusing on capital discipline and shareholder returns. But this wish now risks becoming another goal among a long series of unfulfilled goals.
"Another quarter, another scent of red ink," wrote in a joint report on the first quarter results of the shale industry, according to the Institute for Energy Economics and Financial Analysis.
The report looked at 29 shale companies in North America and reported negative free cash flow of $ 2.5 billion in the first quarter. This is a negative cash flow deterioration of $ 2.1 billion recorded in the fourth quarter of 2018. "These poor results were achieved despite a 16% decline in capital expenditures compared to the same period last year. quarter, "concluded the report.
According to them, the persistent inability of the entire sector to generate positive free cash flow equates to an indictment of the entire economic model. Certainly, some companies here and there are profitable, but more generally, the industry is down. "The sector as a whole does not systematically produce enough cash to satisfy its voracious appetite for capital," the report says. The 29 companies surveyed by IEEFA and Sightline Institute spent $ 184 billion more than they had generated between 2010 and 2019, "hemorrhagic liquidity each year".
Rystad Energy said things a little differently, although he came to the same general conclusion. "Nine out of ten American shale oil companies are burning money," the Norwegian consultancy firm said in late May. Rystad studied 40 American shale companies and found that only four of them had positive cash flow in the first quarter. In fact, the numbers were particularly bad in the first three months of this year, with companies posting a combined negative cash flow of $ 4.7 billion. "It's the lowest [cash flow from operating activities] since the fourth quarter of 2017, "said Alisa Lukash of Rystad in a statement.
"The recently released data, which confirmed the dismal results of the first quarter, only served to cement the negative sentiment of the market," Lukash said. "While shale operators continue to focus on improving capital efficiency, investors are exerting extreme pressure on the sector, leaving no room for undisciplined spending in 2019."
According to Haynes and Boone, more than 170 American shale companies have declared bankruptcy since 2015, representing a debt of nearly $ 100 billion. According to estimates, eight bankruptcies have already occurred this year, with a debt of $ 3 billion restructured.
"Frackers' continued inability to generate positive cash flow should be a serious concern for investors," wrote authors from IEEFA and the Sightline Institute. "Until fracturing companies can demonstrate that they can produce silver as well as hydrocarbons, it would be wise for conservative investors to consider the fracking industry as a speculative venture. a weak perspective and an unproven business model. "
The industry has continued to hum in recent years, facing several setbacks due to periodic re-injections of Wall Street's capital. However, investors are starting to mope on the shale drillers. According to IEEFA and Sightline, very little new capital has been raised by shale companies in the form of new issues of equities or bonds since the end of last year.
The industry is now at a crossroads. As financial markets begin to shift away from shale drillers, consolidation is likely to be the direction the industry will take. The best bet for troubled companies is now to find a willing buyer.
But several major oil companies have recently said that shale drillers do not care about asking prices. "Most of the things we see tend to look too expensive, and we tried to keep a cool head," said Jessica Uhl, CFO of Royal Dutch Shell, according to Argus Media. Exxon CEO Darren Woods echoed this statement, saying last week that there was "not always alignment between buyers and sellers." expectations change "will be needed before more M & A can occur.
The new drop in oil prices could inject a dose of reality into the shale sector. With the return of the WTI in the 50 dollars, the pressure on drillers in difficulty could intensify. By Nick Cunningham, Oilprice.com
In its relentless pursuit of oil, the shale industry is burning more and more gas in the air. This wasted gas exceeds the annual demand of countries such as Colombia. Read … The crisis of the gas boom in the American oil field
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