Despite Bankruptcies, US Shale is Not Doomed
While news of bankruptcies among U.S. onshore exploration and production (E&P) companies seems to be more frequent these days, Rystad Energy doesn’t believe this indicates doom for the shale industry.
“In a nutshell, we do not believe the recent bankruptcies that have beset a number of shale players are indicative of an industry-wide epidemic,” said Alisa Lukash, a senior analyst on Rystad Energy’s North American Shale team.
Rystad forecasts that the top 40 U.S. shale oil producers will spend about $100 billion in the next seven years on debt installments and interest unless further debt refinancing is applied.
This group of producers accounted for nearly half of U.S. shale crude production in 2018, according to Rystad, and are now faced with interest payments between $2.6 billion and $5.1 billion annually. Maturities amount to about $71 billion between 2020 and 2026.
A total of $23.7 billion in cash flow from operations was generated in the first half of 2019 with spending being $28 billion on capital expenditures. Rystad sees more than $112 billion in outstanding debt for this group, with a combined enterprise value of $355.5 billion as of September 2019.
“These numbers indicate a lack of financing to deal with the burden of the obligations,” said Lukash. “Given the low levels of external capital additions during the past 10 months, the probability of debt refinancing in the coming quarters seems relatively slim.”
And although Rystad expects more acreage restructuring and mergers and acquisitions (M&A) activity in the industry, they maintain that many operators have combined production growth with balanced spending and debt reductions.
“One should be careful about extrapolating on the basis of a few distressed companies,” Lukash said. “The peer group is very diverse both in terms of acreage quality and in capital efficiency.”
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