Many Shale Operators in Quandary
How to service debt and pay out dividends? That is a question vexing more than one-half of large U.S. publicly held shale exploration and production (E&P) firms, according to Rystad Energy.
In a recent study analyzing the 33 largest shale operators in the United States, Rystad found that many of the E&Ps spent the second half of 2018 reducing their leverage ratios. Moreover, the Norway-based independent energy research and consulting firm predicts that many of the companies will barely have enough free cash flow to cover this year’s debt service payments.
Then there’s the matter of paying investors.
“Shale E&Ps struggle to please equity investors and reduce leverage ratios simultaneously,” Alisa Lukash, Rystad senior analyst, said in a written statement emailed to Rigzone. “Despite a significant deleverage last year, estimated 2019 free cash flow barely covers operator obligations, putting E&Ps on thin ice as future dividend payments remain in question.”
Rystad observed that interest rates hovering near zero percent since the financial crisis have motivated shale players to repeatedly turn to debt markets to finance their growth. The consultancy’s analysis of the E&P companies’ debt maturity profiles shows that more than one-half – 52 percent, to be exact – of the firms’ debt and interest payments are due within the next seven years. As a result, Rystad predicts that dividend payments will fall by nearly $4 billion – with initial projections of $6.3 billion shrinking to a probable level of approximately $2.3 billion.
“The obvious gap in expected versus likely dividend payments confirms the industry’s inability to deliver sustained investors’ payback while simultaneously deleveraging,” said Lukash.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
- How Likely Is an All-Out War in the Middle East Involving the USA?
- Rooftop Solar Now 4th Largest Source of Electricity in Australia
- US Confirms Reimposition of Oil Sanctions against Venezuela
- EU, Industry Players Ink Charter to Meet Solar Energy Targets
- Analyst Says USA Influence on Middle East Seems to be Fading
- Russian Ships to Remain Banned from US Ports
- Brazil Court Reinstates Petrobras Chair to Divided Board
- EIB Lends $425.7 Million for Thuringia's Grid Upgrades
- Var Energi Confirms Oil Discovery in Ringhorne
- Seatrium, Shell Strengthen Floating Production Systems Collaboration
- An Already Bad Situation in the Red Sea Just Got Worse
- What's Next for Oil? Analysts Weigh In After Iran's Attack
- USA Regional Banks Dramatically Step Up Loans to Oil and Gas
- EIA Raises WTI Oil Price Forecasts
- How Likely Is an All-Out War in the Middle East Involving the USA?
- Venezuela Authorities Arrest Two Senior Energy Officials
- Namibia Expects FID on Potential Major Oil Discovery by Yearend
- Oil Markets Were Already Positioned for Iran Attack
- Is The Iran Nuclear Deal Revival Project Dead?
- Petrobras Chairman Suspended
- Oil and Gas Executives Predict WTI Oil Price
- An Already Bad Situation in the Red Sea Just Got Worse
- New China Climate Chief Says Fossil Fuels Must Keep a Role
- Oil and Gas Execs Reveal Where They See Henry Hub Price Heading
- Equinor Makes Discovery in North Sea
- Macquarie Strategists Warn of Large Oil Price Correction
- DOI Announces Proposal for Second GOM Offshore Wind Auction
- Standard Chartered Reiterates $94 Brent Call
- Chevron, Hess Confident Embattled Merger Will Close Mid-2024
- Analysts Flag 'Remarkable Feature' of 2024 Oil Price Rally