Energy market update: More red flags on fracking

By some measures, America’s fracking industry had a banner year in 2018. Shale companies produced more oil and gas than ever, lifting total US output to all-time highs while squeezing the nation’s net energy imports to their lowest point since 1970.

But these results hid a grim irony: record-setting production didn’t lead to financial success. To the contrary, America’s frackers spilled alarming volumes of red ink in 2018.

A cross section of 29 publicly traded, fracking-focused oil and gas companies posted $6.7 billion negative free cash flows in 2018. Said differently, these companies spent $6.7 billion more on drilling than they realized from selling oil and gas. During the fourth quarter alone, this cross-section of publicly traded exploration and production companies outspent their operating cash flows by more than $2 billion. (See Data Appendix.)

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Many investors had predicted that 2018 would be the year when America’s shale industry finally produced cash as well as hydrocarbons. The conditions seemed ripe. By the third quarter of the year, the price of oil had risen to its highest level since 2014. At the same time, the oil and gas industry had spent more than a decade improving its technology, learning to produce more oil at a lower cost. Despite these advantages, the fracking sector still wasn’t able to generate cash. Financial performance varied across the sector, but successes were rare. Only 7 companies in our sample succeeded in generating positive cash flows over the preceding year.

These disappointing results come on the heels of a decade of bleak financial performance. Since its inception, the fracking sector has consistently failed to produce enough cash to satisfy its voracious appetite for capital. From 2010 through 2018, the companies in our sample had an aggregate negative cash flow of $181 billion.

Press release: IEEFA update: Bankruptcies multiply for fracking sector

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