The coronavirus pandemic has driven a surge of bankruptcies across the US.
Such is the verdict from the Institute for Energy Economics and Financial Analysis (IEEFA), which studied a cross-section of 34 North American shale-focused producers and found they continued a “long-term losing streak” during the second quarter of 2020, spending $3.3 billion (£2.55bn) more money on capital projects than they generated from selling oil and gas.
It notes these 34 fracking companies have cumulatively outspent their operating cash flows by $29 billion (£22.5bn) since 2017 and highlights that they cut capital investment by an average of 45% from 2019 figures, down to levels that hadn’t been seen since the oil price collapse of 2016.
Despite these cuts in spending, many of the firms still ran out of money as low prices and declining sales volumes slashed revenues from $33 billion (£25.6bn) in the previous 12-month period to $11.7 billion (£9.1bn).
Although the report highlights the businesses were heavily hit as the coronavirus pandemic caused oil and gas demand to plunge in early March, it emphasises the industry’s poor financial performance predates the global economic slowdown and says the businesses in question have reported negative free cash flows every single year during the previous decade, a poor sign of financial health.
It states: “While fracking has led to a boom in US oil and gas output, it has consistently burned through more cash than it has produced. The latest results confirm that fracking continues to be a high-risk enterprise with a poor track record, weak financial fundamentals, and an unproven, speculative business model.”
Clark Williams-Derry, IEEFA Financial Analyst and Lead Author of the report, said:“In financial terms, companies in the centre of the U.S. fracking boom have been performing terribly for years. But last quarter was particularly dismal, characterised by low prices, falling revenues, collapsing investment, and declining investor sentiment.”
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