Shale Patch Struggles 5 Years After Crude Collapse



Shale Patch Struggles 5 Years After Crude Collapse
It's been five years since crude started a precipitous drop that eventually saw it hit a low of $26 a barrel and shale producers are still feeling the pain.

(Bloomberg) -- It’s been five years since crude started a precipitous drop that eventually saw it hit a low of $26 a barrel. While prices have recovered some of the lost ground, shale producers are still feeling the pain.

Oil’s 76% collapse from almost $108 a barrel in June 2014 was the worst plunge since the financial crisis of 2008. Below are some data points on how the industry has fared since.

In 2014, oil and gas companies made up almost 11% of the S&P 500 Index. Now, that’s just over 5% as some investors appear to have given up on the sector.

Shareholder antipathy stems at least in part from questions over the profitability of shale drilling. While the five big, publicly traded integrated major producers -- BP Plc, Chevron Corp., Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA -- resumed generating free cash flow as a group in 2017, independent U.S. drillers only became cash-flow-positive (based on an average of 12 such companies compiled by Bloomberg) in 2018 -- and they were back in the red in the first quarter of 2019.

One fundamental difference is that independents get most, if not all, their crude from shale wells, which go through a much quicker drop-off in production than conventional wells. That compels them to constantly spend on new prospects to keep growing. After oil prices dropped at the end of last year, investors doubled down on their demands for drillers to slash capital budgets.

It’s not just capital spending, though. Shareholders are now asking independent producers to trim the fat. General and administrative costs, the bulk of which come from salaries, have been creeping up in the last couple of years.

While the larger players have been able to weather the 2014 crude collapse and another price downturn late last year, some smaller companies weren’t so lucky. The energy sector has made up almost a quarter of all U.S. bankruptcies in the past year.

Still, one area where U.S. drillers have been unarguably successful in recent years is in expanding production.

(First in a series of stories looking at the oil industry five years after prices collapsed.)

--With assistance from Allison McNeely, Catarina Saraiva, Brandon Kochkodin and Joe Carroll.

To contact the reporter on this story:
Rachel Adams-Heard in Houston at radamsheard@bloomberg.net

To contact the editors responsible for this story:
Simon Casey at scasey4@bloomberg.net
Carlos Caminada



WHAT DO YOU THINK?


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Rudolf Huber  |  July 04, 2019
The turmoil the shale sector in the US goes through is a constant workout that makes sure that only the fittest survive and also that those that survive get fitter still. Nothing changes an industry more than a batch of cornered entrepreneurs running for their shirts. It's not important that all survive, hell even if 90% of them bite the dust, the remaining 10% will develop ways of how to deal with every imaginable problem that the rest of the shale world will quickly emulate. In the end, it won't matter much who survives, but rather what the world will look like after the dust settles. OPEC and its friends give shale drillers a good run for their money but this run makes them lean and mean and a harder opponent to mess with.