Shakeout Threatens Shale Patch as Frackers Go for Broke
The U.S. shale patch is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground.
Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers. A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent.
“The list of companies that are financially stressed is considerable,” said Benjamin Dell, managing partner of Kimmeridge Energy, a New York-based alternative asset manager focused on energy. “Not everyone is going to survive. We’ve seen it before.”
Not a big surprise, but the chickens are coming home to roost, to borrow a phrase. Managing an oil and gas company with a big commitment to shale plays is a balancing act driven largely by the extreme production declines the wells see over the first three years. It leaves little room for error, so a misstep in execution or a lack of acreage in the sweet spot of a play can put a company in a long, slow death/debt spiral. Or a quick one.