Difficulties in Oil Business
The financial dilemma of the US shale oil industry is getting harder and harder to ignore. Oil producers are carrying huge debts, and the boom in shale oil drilling is probably drawing to a close.
OilPrice.com reported on the 4th that a new research report released by the Institute for Energy Economics and Financial Analysis (IEEFA) shows that the seven major oil and gas companies in the Appalachian Mountains burned in the third quarter. Losing about $ 500 million, it has often been impossible to generate positive cash flow for the past five quarters.
Analysis shows that five of the seven players have negative cash flow, namely Antero Resources, Chesapeake Energy, EQT, Range Resources and Southwestern Energy. Only Cabot Oil & Gas and Gulfport Energy have positive cash flow in Q3.
The plunge in natural gas quotations is the main cause of the severe hit in the energy industry. Such losses represent a serious problem for the industry. After all, the shale oil revolution has been in place for more than a decade, and the industry has so far failed to truly create positive cash flow. To make matters worse, the aforementioned players are already the largest manufacturers in the region, not small, backward companies.
Now that the capital market is becoming increasingly unfriendly to shale oil producers, the only way for crude oil drillers to respond is to reduce production. IEEFA pointed out that the drilling license issued by Pennsylvania in October has been reduced by more than half compared with the same period last year. The number of idle drilling wells and laid-off workers also continues to increase.
Chesapeake Energy even warned in November that there were major doubts about the company’s assumptions of continuing operations. Chesapeake’s current stock price has less than $ 1, and it fell 3.18% to $ 0.7194 on December 5. It has plunged 65.74% so far this year.
The IEEFA report states that even though operators in the Appalachian region have proven that they can supply large amounts of natural gas, their financial woes have yet to prove whether drilling shale oil is profitable.