EIA: Oil & Gas Cos Take on Debt, Sell Assets to Boost Cash Flow

Hess To Form MLP For North Dakota Oil, Gas Transport Assets
Oil and gas companies are taking on debt and selling assets to make up for the shortfall between operational cash flow and cash being spent, according to a recent EIA report.

Oil and gas companies are taking on debt and selling assets to make up for the shortfall between operational cash flow and cash being spent, according to a recent report from the U.S. Energy Information Administration (EIA).

Cash flow from operations at major oil and gas companies has flattened in line with flat crude prices, which are experiencing the lowest volatility in years, EIA said in a July 29 report. Cash from operations for 127 major oil and gas companies totaled $568 billion for the year ending March 31, 2014. Major uses of cash during that period totaled $677 billion, nearly $110 billion higher than cash flow.

While average cash from operations from 2012 through first quarter 2014 rose $59 billion, or 12 percent, compared to the 2010-11 average, major uses of cash grew by $136 billion from an average of $548 billion in 2010-11 to $684 billion in the 2012-14 period.

The gap between cash from operations and major uses of cash has widened in recent years from a low in 2010 of $18 billion to $100 billion to $120 billion during the past three years.

Companies filled the gap with a $106 billion net increase in debt and $73 billion from asset sales. Capital expenditures accounted for most of the increase; cash spent for share repurchases grew $39 billion on average. According to the EIA analysis, net share repurchases were a source of cash for the 2010-11 average, changing to a net use of cash in mid-2011.

Some companies on their quarterly earnings webcasts mentioned share repurchase programs are activities they plan to continue but could end at any time and without notice. Noting that the Today in Energy is a net number, some companies have raised cash through the issuance of company shares, while others have spent cash on repurchase programs, said Jeffrey Barron, EIA economist, in a statement to Rigzone.

“It just so happens that lately, more money has been spent on repurchasing open shares. Each company has its own reason for repurchasing outstanding shares but likely involves some combination of satisfying shareholder demand as well as making a statement about its shares being undervalued,” said Barron.


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