Oil prices rose and oil and gas production boomed during the third quarter of 2018. But the US fracking sector continued its nine-year streak of cash losses.
All told, a cross-section of 32 publicly traded fracking-focused companies spent nearly $1 billion more on drilling and related capital outlays during Q3 than those companies generated by selling oil and gas. Only 10 of the 32 companies secured positive cash flows for the quarter, and only eight generated positive cash flows over the trailing 12-month period.
These results may surprise those who incorrectly equate rising output with financial success. US oil and gas production hit an all-time high during the third quarter, even as oil prices rose to $70 per barrel. But even with those advantages, our sample of mid-sized oil and gas producers continued to hemorrhage cash, due to the high cost of drilling and the industry’s seemingly insatiable thirst for capital.
Read more: In financial terms, America’s fracking boom has been a world-class bust
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The inability of fracking-focused companies to generate consistent free cash flows, even with soaring production and higher oil prices, raises a critical question: will fracking companies ever produce enough cash from oil and gas sales to cover their capital outlays?
This analysis of third-quarter results is part of an ongoing analysis of the US fracking industry and is focused specifically on cash flow. This report was created in partnership with the Institute for Energy Economics & Financial Analysis (IEEFA). See the full report below.
As Gail Tverberg puts it, fracked oil is produced via a continuous stream of bankruptcies. It’s like a strapless evening gown: no visible means of support!
The current situation works for a certain kind of entrepreneur, as well as for certain kinds of politicians.
Price goes up, wildcatters go to Wall Street to find fools who want to “get rich” off “the energy crisis.” They fund the wildcatters, who then drill and frack, causing a huge increase in production, which causes a price crash. Then the wildcatters go bust, leaving hundreds of “drilled, but not yet fracked” wells, worth nothing in a low-price world. The majors come in and buy the bankrupt start-ups based on the current market value of their current production, and pump the money out for the typical 18 month lifetime of a fracked well. The wildcatters’ principals walk away with bonuses and golden parachutes, and Wall Street investors take the hair cut.
Then the majors sell off the “drilled, but not fracked” holes to a new bunch of start-ups, run by the same people who cashed out of the last crash. They wait 18 months or so while the fracked wells go dry, then go raise money to frack the dry holes they picked up at a bargain, and drill some new ones that they never intend to frack until the next cycle. Lather, rinse, repeat.
Meanwhile, a bunch of ex-Endrun execs are laughing all the way to the bank for the old pipeline they just gold-plated and then found a bigger fool who thought the durn thing was solid gold all the way through.
Interesting times, indeed. Excuse me while I go take care of the animals that feed us. And everybody better start taking control of their own food supply.
Very interesting, it’s always good to run numbers through and look at the “nuts and bolts” of the economics or other aspects of this. Thanks – PTH
Need to separate oil and gas. Gas from fracking is profitable and to extent it displaces oil and coal reduced emissions. During the deep freeze many people depend on gas to survive in midwest and east. Gas is reliable under all conditions and doesn’t depend on wind and sun.
“Just 17 American oil and gas companies reported a combined total of $25 billion in direct one-time benefits from the 2017 Tax Cuts and Jobs Act. ” The companies’ activities in the United States are made less expensive, thereby encouraging a further expansion of oil and gas operations.” https://psmag.com/economics/tax-bill-oil-company-bonanza
Energy giant ExxonMobil reported $5.9 billion in immediate tax savings as a result of the Tax Cuts and Jobs Act, yielding not only the highest oil industry payout, but also ranking it second only to Apple as the nation’s single largest corporate beneficiary of the GOP tax bill….
Chevron Corp. recently announced a 2018 budget for capital and exploration spending of $18.3 billion. ExxonMobil made $22 billion of capital expenditures this year.
… the new law allows capital expenditures to be deducted in the year of their occurrence. This change will further lower the tax burden for the energy sector while encouraging more capital spending…. refiners are projected to benefit the most
A new report out today by Oil Change International reveals that U.S. taxpayers continue to foot the bill for more than $20 billion in fossil fuel subsidies each year. These subsidies amount to billions of dollars wasted to prop up an industry responsible for a climate crisis that has contributed to lives lost and hundreds of billions in damages this hurricane season alone.
The report, entitled “Dirty Energy Dominance: Dependent on Denial,” lays out a comprehensive analysis of federal and state subsidies supporting the production of oil, gas, and coal. The analysis highlights some $14.7 billion in annual federal subsidies and $5.8 billion in yearly state-level incentives.
I’m just sick of Colorado selling off parcels ” the most ever in Colorado history!” And fracking in places like the Great Sand Dunes..KNOWING the damage it does..now particles from Longmont fracking are being blown over to Boulder causing health problems! 112 didn’t pass and we have a Govenor that was against it..just how much support will we get from him to,limit drilling and fracking?