The Inevitable Shakeout in the Shale Patch

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.

Suggested reading:

https://stevemaley.com/2011/05/18/oil-company-profits-are-the-solution-not-the-problem/

https://stevemaley.com/2011/06/28/the-new-york-times-says-shale-gas-is-a-giant-ponzi-scheme-erm-no/

https://stevemaley.com/2012/07/03/natural-gas-economics-a-look-under-the-hood/

Advertisements
This entry was posted in Energy, Fracking. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s