X

Sign Up To Our Free Newsletter

Join Now

Thanks for subscribing to our free newsletter!

ERROR

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

  • 3 minutes Texas forced to have rolling brown outs. Not from downed power line , but because the wind energy turbines are frozen.
  • 7 minutes Scientists Warn That Filling The Sahara With Solar Panels Is A Bad Idea
  • 11 minutes United States LNG Exports Reach Third Place
  • 15 minutes Joe Biden's Presidency
  • 9 hours America Makes Plans to Produce Needed Rare Earth Minerals Domestically
  • 2 hours IS SAUDI ARABIA SENDING A MESSAGE TO BIDEN
  • 9 hours U.S. Presidential Elections Status - Electoral Votes
  • 2 days Texas forced to have rolling black outs, primarily because of large declines in output from fossil fuel power plants
  • 2 days Former BP Exec "Biden not in war against oil" . . Really ?
  • 2 days Texas Supply Chain Massacre
  • 2 days Here we go - again: plug-in hybrids cost motorists more than what they were told
  • 5 hours Top Conservative Lawyer Says Trump Can Stand Trial
  • 6 hours “Cushing Oil Inventories Are Soaring Again” By Tsvetana Paraskova
  • 2 days An exciting development in EV Aviation: Volocopter
Turkey’s Perfectly Timed Gas Discovery

Turkey’s Perfectly Timed Gas Discovery

Turkey’s Sakarya gas discovery couldn’t…

Qatar Looks To Be World’s Top LNG Producer For Decades

Qatar Looks To Be World’s Top LNG Producer For Decades

Qatar’s major expansion of its…

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

Shale’s Debt-Fueled Drilling Boom Is Coming To An End

The financial struggles of the U.S. shale industry are becoming increasingly hard to ignore, but drillers in Appalachia are in particularly bad shape.

The Permian has recently seen job losses, and for the first time since 2016, the hottest shale basin in the world has seen job growth lag the broader Texas economy. The industry is cutting back amid heightened financial scrutiny from investors, as debt-fueled drilling has become increasingly hard to justify.

But E&P companies focused almost exclusively on gas, such as those in the Marcellus and Utica shales, are in even worse shape. An IEEFA analysis found that seven of the largest producers in Appalachia burned through about a half billion dollars in the third quarter.

Gas production continues to rise, but profits remain elusive. “Despite booming gas output, Appalachian oil and gas companies consistently failed to produce positive cash flow over the past five quarters,” the authors of the IEEFA report said.

Of the seven companies analyzed, five had negative cash flow, including Antero Resources, Chesapeake Energy, EQT, Range Resources, and Southwestern Energy. Only Cabot Oil & Gas and Gulfport Energy had positive cash flow in the third quarter.

The sector was weighed down but a sharp drop in natural gas prices, with Henry Hub off by 18 percent compared to a year earlier. But the losses are highly problematic. After all, we are more than a decade into the shale revolution and the industry is still not really able to post positive cash flow. Worse, these are not the laggards; these are the largest producers in the region. Related: Iraq: The Next Great Threat To Global Oil Markets

The outlook is not encouraging. The gas glut is expected to stick around for a few years. Bank of America Merrill Lynch has repeatedly warned that unless there is an unusually frigid winter, which could lead to higher-than-expected demand, the gas market is headed for trouble. “A mild winter across the northern hemisphere or a worsening macro backdrop could be catastrophic for gas prices in all regions,” Bank of America said in a note in October.

The problem for Appalachian drillers is that Permian producers are not really interested in all of the gas they are producing. That makes them unresponsive to price signals. Gas prices in the Permian have plunged close to zero, and have at times turned negative, but gas production in Texas really hinges on the industry’s interest in oil. This dynamic means that the gas glut becomes entrenched longer than it otherwise might. It’s a grim reality plaguing the gas-focused producers in Appalachia.

With capital markets growing less friendly, the only response for drillers is to cut back. IEEFA notes that drilling permits in Pennsylvania in October fell by half from the same month a year earlier. The number of rigs sidelined and the number of workers cut from payrolls also continues to pile up.

The negative cash flow in the third quarter was led by Chesapeake Energy (-$264 million) and EQT (-$173 million), but the red ink is only the latest in a string of losses for the sector over the last few years. As a result, the sector has completely fallen out of favor with investors.

But gas drillers have fared worse, with share prices lagging not just the broader S&P 500, but also the fracking-focused XOP ETF, which has fallen sharply this year. In other words, oil companies have seen their share prices hit hard, but gas drillers have completely fallen off of a cliff. Chesapeake Energy even warned last month that it there was “substantial doubt about our ability to continue as a going concern.” Its stock is trading below $1 per share.

Even Cabot Oil & Gas, which posted positive cash flow in the third quarter, has seen its share price fall by roughly 30 percent year-to-date. “Even though Appalachian gas companies have proven that they can produce abundant supplies of gas, their financial struggles show that the business case for fracking remains unproven,” IEEFA concluded.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • joel bellmay on December 05 2019 said:
    The fracking discussion is devoid of reference to the Export factor. A pipeline to mexico, four LNG export terminals under construction, and more to follow; compressed gas exports will increase. Underground gas pipelines are a major infrastructure project well underway in the US.
    I know people do not like the environmental aspects of fracking, but that bias may not be enough to offset the global market forces that will see Hedge Fund do a happy feet dance.
  • Seth D on December 05 2019 said:
    The IEEFA is a Think Tank biased against fossil fuels and their mission is a transition to a sustainable economy, a noble cause. However, their analysis should be taken with a healthy dose of salt.

    Once again, a "woe is me" article about Shale Oil and/or Gas and how things are slowing down, unprofitable and highly and predictably negative. All one has to do is look at any number of charts showing the revolutionary spike in U.S. gas and oil production, and projected increases over the next few decades.

    I drive an electric car, I hope in my lifetime solar, wind, hydro and other sustainable energy sources will dominate, but we'll still need oil and gas, we'll need fossil fuels indefinitely including as a feedstock for plastics, chemicals, and for all the Vegans in Portland, OR who wear imitation leather belts made out of plastic, which is derived from fossil fuels.

    Oh no!
  • Daniel Williams on January 04 2020 said:
    Fracking is a cancer, and for some reason those who operate rigs and try (fail) to make money out of it have essentially told themselves that destroying the planet wholesale is in some way justified; either out of hatred, indifference, some kind of colonialist throwback or other whackjob reason.

    Its sad to watch the planet essentially go into fan-oven mode as the ocean heats up, storms increase in intensity ($300 billion just in insured losses from Maria, Harvey and Irma), millions of square kilometers of forest now burning on every continent, and sea levels predicted to rise by 2 meters by 2100; thus conclusively ending any kind of functioning coastal economy.

    Its time for some people to admit that stopping now must be elevated to their primary focus.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News