Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Shale Oil Has A Glaring Problem

Commodities / Shale Oil and Gas Oct 25, 2018 - 04:17 PM GMT

By: OilPrice_Com

Commodities

Oil prices are down a bit, but are still close to multi-year highs. That should leave the shale industry flush with cash. However, a long list of U.S. shale companies are still struggling to turn a profit.

A new report from the Institute for Energy Economics and Financial Analysis (IEEFA) and the Sightline Institute detail the "alarming volumes of red ink" within the shale industry.


"Even after two and a half years of rising oil prices and growing expectations for improved financial results, a review of 33 publicly traded oil and gas fracking companies shows the companies posting negative free cash flows through June," the report's authors write. The 33 small and medium-sized drillers posted a combined $3.9 billion in negative cash flow in the first half of 2018.

The glaring problem with the poor financial results is that 2018 was supposed to be the year that the shale industry finally turned a corner. Earlier this year, the International Energy Agency painted a rosy portrait of U.S. shale, arguing in a report that "higher prices and operational improvements are putting the US shale sector on track to achieve positive free cash flow in 2018 for the first time ever."

The improved outlook came after years of mounting debt and negative cash flow. The IEA estimates that the U.S. shale industry generated cumulative negative free cash flow of over $200 billion between 2010 and 2014. The oil market downturn that began in 2014 was supposed to have changed profligate spending, pushing out inefficient companies and leaving the sector as a whole much leaner and healthier.

"Current trends suggest that the shale industry as a whole may finally turn a profit in 2018, although downside risks remain," the IEA wrote in July. "Several companies expect positive free cash flow based on an assumed oil price well below the levels seen so far in 2018 and there are clear indications that bond markets and banks are taking a more positive attitude to the sector, following encouraging financial results for the first quarter."

But the warning signs have been clear for some time. The Wall Street Journal reported in August that the second quarter was a disappointment. The WSJ analyzed 50 companies, finding that they spent a combined $2 billion more than they generated in the second quarter.

The new report from IEEFA and the Sightline Institute add more detail the industry's recent performance. Only seven out of the 33 companies analyzed in the report had positive cash flow in the first half of the year, and the whole group burned through a combined $5 billion in cash reserves over that time period.

Even more remarkable is the fact that the negative financials come amidst a production boom. The U.S. continues to break production records week after week, and at over 11 million barrels per day, the U.S. could soon become the world's largest oil producer. Analysts differ over the trajectory of shale, but they only argue over how fast output will grow.

Yet, even as drillers extract ever greater volumes of oil from the ground, they still are not turning a profit. "To outward appearances, the U.S. oil and gas industry is in the midst of a decade-long boom," IEEFA and the Sightline Institute write in their report. However, "America's fracking boom has been a world-class bust."

The ongoing struggles raises questions about the long-term. If the industry is still not profitable – after a decade of drilling, after major efficiency improvements since 2014, and after a sharp rebound in oil prices – when will it ever be profitable? Is there something fundamentally problematic about the nature of shale drilling, which suffers from steep decline rates over relatively short periods of time and requires constant spending and drilling to maintain?

Third quarter results will start trickling in over the next few days and weeks, which should provide more clues into the shale industry's health. There is even more pressure on drillers to post profits because the third quarter saw much higher oil prices.

"Until the industry as a whole improves, producing both sustained profits and consistently positive cash flows, careful investors would be wise to view fracking companies as speculative investments," the authors of the report concluded.

Link to original article: https://oilprice.com/Energy/Energy-General/US-Shale-Has-A-Glaring-Problem.html

By Nick Cunningham of Oilprice.com

© 2018 Copyright OilPrice.com - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in