Key Findings
A cross-section of North American fracking-focused oil and gas companies reported $2.1 billion in negative free cash flow in 2019.
Over the decade, these companies reported negative free cash flows every year, totaling $189 billion.
Disappointing cash flows have soured investors on the sector, constraining the oil and gas industry’s ability to tap debt and equity markets.
Executive Summary
A cross-section of 34 North American shale-focused oil and gas producers spent $189 billion more on drilling and other capital expenses over the past decade than they generated by selling oil and gas, an IEEFA analysis finds. These results included a disappointing $2.1 billion in negative free cash flows in 2019.
This dismal financial performance came despite rapid growth in North American production of both oil and gas. The shale revolution has propelled the U.S. into becoming the world’s most prolific oil producer. Yet in financial terms, this production boom has been an unrelenting financial bust.
Free cash flow—the amount of cash generated by a company’s core business, minus its capital spending—is a crucial gauge of financial health. Positive free cash flows enable firms to pay down debt and reward stockholders. Negative free cash flows, by contrast, force companies to fund their operations by dipping into cash reserves, selling assets, or raising new money from capital markets.
As a group, these shale-focused companies racked up negative free cash flows in every single year over the last decade. The cash flow losses narrowed in 2019, as the companies collectively trimmed capital spending by nearly $8 billion year-overyear. But even with those capex cutbacks, IEEFA’s sample ended 2019 with negative cash flows for the year.
Looking at quarterly results, IEEFA’s cross-section of fracking-focused enterprises achieved modest positive free cash flows in the second and fourth quarters of 2019. But those gains were outweighed by the losses in the first and third quarters. In the fourth quarter, the companies in IEEFA’s sample recorded aggregate positive cash flows of $848 million, following negative cash flows of $1.2 billion in the prior quarter.
Negative free cash flows might have been expected during the oil price rout of 2015 and 2016. Yet even after oil prices rebounded in 2017, few fracking-focused companies were able to generate free cash flows. Only six companies in IEEFA’s sample reported cumulative positive free cash flows from 2017 through 2019. Even in 2019, when negative free cash flows narrowed to their lowest levels of the decade, only 12 of the 34 companies managed to report positive free cash flows.
