Key Findings
U.S. fracking-focused oil and gas companies continued their decade-long losing streak through the first quarter of 2019.
A cross-section of small and mid-sized U.S. E&Ps reported $2.5 billion in negative cash flows from January through March 2019.
Negative cash flows have soured investors on the sector, constraining the oil and gas industry’s ability to tap debt and equity markets.
Executive Summary
Another quarter, another gusher of red ink.
Despite investors’ growing demands that oil and gas companies rein in spending, the North American fracking sector once again spent more on drilling than it realized from selling oil and gas.
A cross-section of 29 fracking-focused oil and gas companies reported more than $2.5 billion in negative free cash flows in the first quarter of 2019. These results were even worse than in the fourth quarter of 2018, when the same group of fracking-focused enterprises notched $2.1 billion in negative cash flows.
This dismal cash flow performance came despite a 16 percent quarter-over-quarter decline in capital expenditures. But operating cash flows fell even faster, widening the industry’s cash flow gap.
Free cash flow is a crucial gauge of financial health. Positive free cash flows allow companies to pay down debt and reward equity investors. In contrast, negative free cash flows force companies to fund their operations by dipping into cash reserves, selling assets, or raising new money from capital markets.
In the early stages of the fracking boom, investors tolerated negative cash flows from oil and gas producers, believing that the industry would eventually learn to produce cash as well as oil and natural gas. But most frackers never turned the corner. A few companies can now eke out modest positive cash flows, but the sector as a whole consistently fails to produce enough cash to satisfy its voracious appetite for capital. From 2010 through early 2019, the companies in our sample racked up aggregate negative cash flows of $184 billion, hemorrhaging cash every single year.
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Press release: Sightline/IEEFA update: U.S. fracking sector bleeds red ink in Q1
