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Shale business likely to be slow to recover after last quarter’s spending cuts

December 21, 2020

Argus Media:

Oil prices are rising and cash flow growing in the US shale sector. But producers say they will remain focused on cutting costs and rebuilding corporate balance sheets after sharply reducing spending in response to this year’s oil demand and price shock. “Going into 2021, our view of the macro situation is we will still largely be at an oversupplied market next year,” EOG Resources chief operating officer Billy Helms says. “So we do not anticipate growing volumes next year until we see the market conditions improve.”

Independent shale-focused oil and gas firms cut capital expenditure (capex) to its lowest in over a decade last quarter, the US-based Institute for Energy Economic and Financial Analysis (IEEFA) says. Capital spending was down by 58pc year on year in the quarter for a group of 33 producers tracked by the IEEFA, following a 44pc decline in the second quarter when oil prices slumped. But higher prices in the third quarter and even deeper spending cuts yielded “the strongest cash flow results since the dawn of the fracking boom”, the IEEFA says (see graph). Free cash flow — cash generated from operations minus capital investment — measures a company’s ability to pay down debt and reward shareholders. 

[David Long]

More: US shale producers keep tight grip on purse strings

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