TLTP
\nWASHINGTON
\nThe shale revolution may have made the United States and the world\u2019s largest natural gas producer, but it has failed to make the biggest US shale gas drillers any richer.
\nFrackers in the top shale gas basin, the Appalachia, continue to bleed cash, despite the deep cuts in capital expenditures this year as a result of the plunge in gas prices in the first half of 2020 due to mild winter early in the year and depressed demand later on with the pandemic.
\nNine of the biggest shale gas producers in Appalachia cut their capex in Q3 by over one-third compared to the same period of last year.
\nDespite these deep cuts, six of those drillers booked negative free cash flows in the third quarter, while the combined free cash flow of the nine firms was a negative US$504 million, the Institute for Energy Economics and Financial Analysis (IEEFA) said in an analysis last week.
\nIn other words, gas-focused drillers continue to struggle with free cash flows, and some continue to spend beyond their means.
\n\u201cThe shale revolution has turned the US into the world\u2019s most prolific gas producer. Yet in financial terms, the gas production boom has been an unmitigated financial bust, with most fracking-focused companies, including major Appalachian gas companies, regularly reporting negative free cash flows,\u201d IEEFA analysts Kathy Hipple, Clark Williams-Derry, and Director of Financial Analysis, Tom Sanzillo, wrote in the report.
\nThe COVID-19 downturn, less than five years after the previous slump in the US shale patch, laid bare the truth that investors had started to warn about after the 2015-2016 crisis\u2014\u2018borrow to drill\u2019 and \u2018borrow to repay previous borrowings\u2019 is an unsustainable business model if companies want to reward investors and shareholders with better returns and maintain relatively healthy balance sheets.
\nBack in 2017, even Harold Hamm warned his fellow oil and gas producers to be careful as \u201cdrillers don\u2019t want to drill themselves into oblivion.\u201d Some drillers, however, did just that.
\nIn 2020, the crisis and the low natural gas prices claimed as a prominent victim as shale gas pioneer Chesapeake Energy, which filed for Chapter 11 bankruptcy protection in June. Analysts say this particular filing was a long time coming.
\n\u201cIf I were to describe Chesapeake in one word, that word is \u2018excess\u2019 – excess liabilities, excess costs, excess gas in an oversupplied market,\u201d Alex Beeker, principal analyst on Wood Mackenzie\u2019s corporate upstream team, said at the time.
\nThe excess debt and the negative cash flows have made \u201cdebt repayment an ongoing challenge for Appalachian gas producers,\u201d IEEFA said in its recent report.
\nAt the same time, oil supermajors have been fleeing the Appalachia.
\nShell sold in May its Appalachia shale gas assets for $541 million in a transaction that wouldn\u2019t have caught much attention if it weren\u2019t for the fact that the oil and gas major had paid nearly nine times that price when it bought the assets a decade ago.<\/p>\n","protected":false},"excerpt":{"rendered":"
TLTP WASHINGTON The shale revolution may have made the United States and the world\u2019s largest natural gas producer, but it has failed to make the biggest US shale gas drillers any richer. Frackers in the top shale gas basin, the Appalachia, continue to bleed cash, despite the deep cuts in capital expenditures this year as […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-161684","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"\n