Debt Burden Increases for Shale | Russell T. Rudy Energy LLC
“Rigzone” reports that shale debt has doubled over the last four years while revenues have only increased 5.6%. Consequently, many unconventional operators are spending 10% of revenue on interest, compared to ExxonMobil’s .1%.
Fifteen shale producers have already written down $35 billion in assets, and at least one operator, HighMount Exploration and Production, is considering selling its Permian Basin properties at a loss. While some industry observers are predicting a shake-out, most companies involved in unconventional plays are not giving up. Nevertheless, there seems to be agreement that the shale revolution has not been as technically or financially attractive as originally hoped.
According to the International Energy Agency, producers will have to drill 2,500 new wells in the Bakken shale alone, just to maintain current production at 1 million barrels of oil per day. Industry wide, some analysts predict that independent operators will have to spend $1.50 on drilling this year for every $1 of revenue generated. Obviously, this will exacerbate cash flow problems in the short term.
The consulting firm, Energy Aspects, predicts 6 years of worsening financial performance by 35 independent shale operators, who represent 40% of unconventional production. This in spite of a shift from gas plays to higher margin oil prospects.
To read the article in its entirety, please go to www.rigzone.com/news/oil_gas/a/133303/US .
