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Rystad Energy

Rystad Energy

Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products. Rystad Energy’s…

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US Shale Won’t Go Bankrupt

Despite a wave of financial adversity that has tormented US onshore E&P companies lately, Rystad Energy does not view this as a harbinger of doom for the shale industry going forward.

“In a nutshell, we do not believe the recent bankruptcies that have beset a number of shale players are indicative of an industry-wide epidemic,” says Alisa Lukash, a senior analyst on Rystad Energy’s North American Shale team.

During the next seven years, the top 40 US shale oil producers are expected to spend about $100 billion on debt instalments and interest unless further debt refinancing is applied.

These drillers, which accounted for nearly half of US shale crude production in 2018, are facing interest payments of between $2.6 billion and $5.1 billion annually, while the maturities schedule totals roughly $71 billion between 2020 and 2026.

During the first half of 2019, this peer group generated $23.7 billion in cash flow from operations (CFO) while spending $28 billion on capital expenditures (capex). Overall we see more than $112 billion in outstanding debt for the considered peer group, with a combined enterprise value of $355.5 billion as of September 2019.

“These numbers indicate a lack of financing to deal with the burden of the obligations. Given the low levels of external capital additions during the past 10 months, the probability of debt refinancing in the coming quarters seems relatively slim,” Lukash noted.

Rystad Energy expects further acreage restructuring and M&A activity in the industry, but emphasizes that many operators have managed to combine production growth with balanced spending and debt reductions.

“One should be careful about extrapolating on the basis of a few distressed companies. The peer group is very diverse both in terms of acreage quality and in capital efficiency,” Lukash remarked.

By Rystad Energy

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  • Mamdouh Salameh on September 25 2019 said:
    Coming from a company which has become the hyper-in-chief of US shale oil and which projected that US shale oil production would be bigger by 2025 at 25 million barrels a day (mbd) than the combined production of Russia and Saudi Arabia, you may discount such claims as self-delusions and excessive zeal to please the US shale oil industry.

    While highly authoritative studies and reports have shown unambiguously that shale oil production is slowing down and that the whole US shale oil is unprofitable and over-burdened with debts estimated at hundreds of billions of dollars, Rystad Energy is alone claiming that US shale won’t go bankrupt.

    The sweet spots in the Permian which accounts for 60%-70% of US shale oil production have been exhausted, hence the drilling of so-called child wells.

    The die is cast for the US shale oil industry. In 5-10 years it will be no more. This is the price the US industry is paying for continuing to be unprofitable year after year. If judged by the standard commercial criteria by which other successful companies are judged, it would have been declared bankrupt years ago. The US shale oil industry has been underpinned by hype and lies.

    The industry has been lying about its break-even price of shale oil, the profitability of shale oil production when it was in effect following the adage of “robbing Peter to pay Paul” and also claiming possession of oil reserves it can’t produce.

    Moreover, the US shale revolution is turning into a disaster not only for investors but also for the environment. Shale oil production has been contributing significantly to the increase in global warming and shale gas is a major player according to a new study by Robert W. Howarth of Cornell University, the author of the study. Howarth concluded that shale gas is a key driver in the increase of methane which is a dramatically more powerful greenhouse gas than carbon dioxide, although it is much more short-lived according to the study.

    Yet, the Trump administration has not only decided to walk away from the Paris Climate Change Treaty but it has also been rolling back regulations on methane. It wants to go further than simple deregulation.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bill Simpson on October 03 2019 said:
    Chevron, Exxon, and Shell didn't jump into the Permian to lose money. They know a bit about oil and gas.
    And a global write off of debt will occur before 2030 just like in the Biblical times. Russia & China are stockpiling gold as fast as they can to get ready for whatever follows.

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