• 4 minutes China 2019 - Orwell was 35 years out
  • 7 minutes Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 11 minutes Trump will capitulate on the trade war
  • 14 minutes Glory to Hong Kong
  • 6 hours PETROLEUM for humanity 
  • 7 hours Why don't the other GOP candidates get mention?
  • 7 hours Disenfranchised people are angry people - map of global electoral systems
  • 36 mins China's Blueprint For Global Power
  • 5 hours Brexit agreement
  • 2 hours Yesterday Angela Merkel stopped Trump technology war on China – the moral of the story is do not eavesdrop on ladies with high ethical standards
  • 6 hours Bloomberg: shale slowing. Third wave of shale coming.
  • 13 hours ABC of Brexit, economy wise, where to find sites, links to articles ?
  • 16 hours Erdogan Holds All The Cards ... 3.6 Million Of Them
  • 12 hours Spain Is On The Edge...Clashes Between Catalonia And "Madrid"
  • 13 hours 5 Tweets That Change The World?
  • 14 hours Philadelphia Energy Solutions seeks to permanently shut oil refinery - sources
Alt Text

Big Oil Tries To Buy Back Investors

Despite the turbulence in oil…

Alt Text

Oil Prices Fall On Onslaught Of Bearish News

Oil prices saw their worst…

Alt Text

OPEC’s No.2 Prepares For Oil Export Boom

Iraq’s oil export capacity is…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

More Info

Premium Content

Capital Flight Is Killing The US Shale Boom

The growth in U.S. shale production is grinding to a halt as low prices put drillers in a financial vice.

The slowdown has been unfolding for much of 2019, but the latest slide in oil prices is another blow to cash-strapped companies. Share prices for many E&Ps are down sharply. For instance, Devon Energy’s stock is down 20 percent since mid-September; EOG Resources is off by 17 percent and Pioneer Natural Resources is down by more than 13 percent. Many other companies have seen similar declines.

Rig counts have fallen by 20 percent since last year, drilling is down, hotel rates are down, and employment is in decline. “If you can’t wring out any costs savings then you’ve got to buy less stuff if you want to get your costs down, and that’s the phase we’re entering into,” Jesse Thompson, senior business economist at the Houston branch of the Federal Reserve Bank of Dallas, told Bloomberg.

As Bloomberg noted, annualized employment grew only 0.7 percent through August, compared to 11.4 percent for the same period in 2018. The unemployment rate has ticked up from 2 to 2.3 percent. The number of fracking crews has fallen to its lowest level in 30 months.

For embattled shale drillers, there is another imminent hurdle that they must clear. For the first time since 2016, Permian shale drillers could see their access to borrowing slashed. Lenders periodically reassess the borrowing base that they offer to oil and gas producers, a so-called “credit redetermination” period. Related: Oil Prices Tank On Global Recession Fears

According to a survey of financial institutions as well as oil and gas firms by law firm Haynes and Boone, the industry is set to see “a decrease in credit availability for producers and a strong interest in alternative sources of capital.”

In other words, lenders are turning off the spigots.

Interestingly, when respondents were asked when equity markets might reopen for upstream oil and gas companies, only 25 percent said 2020, while 47 percent said 2021. A further 14 percent said 2022 and 13 percent said sometime after 2022. That suggests that the vast majority of industry and financial players see several years of restricted access to credit for the shale industry.

Without capital, shale drillers have to take an axe to their spending budgets, which means less drilling and ultimately lower-than-expected U.S. oil production. It also means that bankruptcies are likely to continue to pile up. Through the end of September, there have been 199 oil and gas bankruptcies in North America since 2015, according to Haynes and Boone, and the number of companies folding this year is at the highest since 2016.

“I think that you’re going to have a big problem when it comes to that redetermination,” Mark Rossano, founder and CEO of C6 Capital Holdings, said on Bloomberg TV. He added that the oil majors can “weather” the storm, but the smaller drillers are going to have a tough time. “The market has told them, ‘don’t come to us for money, because it’s not gonna be there.’” Related: What Would Greta Thunberg's Dream World Look Like?

In just the past week, there were signs of trouble at the company level. Small shale driller Abraxas Petroleum announced that it would suspend drilling operations in the Delaware basin.

Also, American Energy-Permian Basin LLC managed to convince its creditors to restructure $2 billion worth of debt that the company could not pay. The company, backed by private equity and originally founded by the late Aubrey McClendon in 2014, has been struggling financially for a long time. Having already missed an interest payment in May, American Energy told creditors that if they did not agree to a restructuring, the company would file for bankruptcy. This is actually the second time that American energy restructured its debt – the first time was in 2016.

With WTI in the low-$50s, some companies are hovering right around their breakeven levels, or are in negative territory. Even those with lower breakeven prices will feel the effects. Because of the rapid decline in output from shale wells, drillers need to pump capital into the ground on a constant basis, so the fact that investors are souring on the sector is a problem.

With Wall Street cutting off struggling drillers, and oil prices languishing in the low-$50s, the U.S. shale industry is already slowing down and might even be heading for a contraction.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage



Leave a comment
  • David Knight on October 07 2019 said:
    The last time i heard someone speak to world leaders like Greta Thunberg was an Afghan video tape that spoke the same way with the same consequences except the video had a beheading at the end and the speaker is white......


    So her government is dropping $1,000,000,000,000 of american oil stocks and Trump doesnt see this as an attack against america or an act of terrorism.

    they have stood a child in front of them to take the fire........ sort of like strapping a bomb to a child and then sending her into an american establishment.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play