U.S. frackers slash capital investment to lowest level in over a decade
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Key Findings
33 fracking-focused gas companies slashed capital spending to $5.8 billion last quarter, a 58% year-on-year drop.
Frackers’ quarterly results were buoyed by an uptick in oil and gas prices from their second-quarter lows.
Capital investment hit the lowest level in a decade, signaling production cuts in upcoming quarters.
Executive Summary
A cross-section of 33 publicly traded, shalefocused oil and gas producers slashed capital expenditures (capex) last quarter to the lowest level in more than a decade. All told, these companies spent $5.8 billion on capital investments in the third quarter of 2020, down from $13.9 billion during the third quarter of 2019—a 58% year-over-year decline.
Of the 33 companies, 32 cut capital spending from the prior year. Only National Fuel Gas boosted its capex, after paying more than $500 million to buy Appalachian gas assets from Shell—a transaction described as a “fire sale” because Shell originally purchased the properties as part of a 2010 deal valued at $4.7 billion.
Steep cuts in capital spending allowed these fracking-focused firms to generate $2.6 billion in free cash flow for the quarter—paradoxically, the strongest cash flow results for the sector since the dawn of the fracking boom. Free cash flow—defined as the amount of cash a company generates from its core business operations, minus its capital spending—is a key metric of a company’s ability to pay down debt and reward stockholders.
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