IEEFA U.S.: Frackers continue to underperform

Investor wariness grows on weak third-quarter results

Dec. 5, 2018 (IEEFA) — While oil prices rose and production increased, U.S. oil-and-gas fracking companies continued nonetheless to bleed money in the third quarter of this year, according to a research brief published today by the Institute for Energy Economics and Financial Analysis.

The brief—“More Red Flags on Fracking: Weak Third-Quarter Results as Cash Losses Persist Even With Production and Price Increases”—examines financial data from a cross-section of 32 companies representative of the U.S. fracking industry.

Key Findings:

  • Even with a production boom and the highest prices since 2014, U.S. fracking-focused oil and gas companies continued their nine-year losing streak.
  • The 32 mid-size U.S. exploration companies included in the review reported nearly $1 billion in negative cash flows through September.
  • Falling oil prices and rising interest rates will pose additional financial challenges to the industry in Q4.

“The inability of fracking-focused companies to generate consistent free cash flows, even with soaring production and higher oil prices, raises a critical question,” said Kathy Hipple, an IEEFA energy finance analyst and lead author of the brief. “Will these companies ever produce enough cash from oil and gas sales to cover their capital outlays? Only when they do that will the industry have any hope of paying back its sizable debts—or of producing robust rewards for equity investors.”

Hipple added, “Until the fracking sector as a whole can reliably produce cash, money managers should view industry as a risky and highly speculative investment.”

The brief notes several persistent challenge facing the debt-driven U.S. fracking industry, not the least among them rising interest rates. Other difficulties: the recent sharp drop in oil prices and a wave of bankruptcies that have swept up more than 160 fracking companies since 2014.

Hipple said many investors are already “keenly aware of the financial risks facing fracking companies,” as evinced by the performance of VanEck Vectors Unconventional Oil and Gas Fund exchanged-traded fund, which trails the S&P 500 by more than 20 percent this year.

“Investors would do well to continue to regard the oil and gas industry with a wary eye,” she said.

Full brief: “More Red Flags on Fracking: Weak Third-Quarter Results as Cash Losses Persist Even With Production and Price Increases”

Media Contacts: Karl Cates [email protected] 917 439 8225

About IEEFA:

The Institute for Energy Economics and Financial Analysis (IEEFA) conducts global research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.


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