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U.S. frackers slash capital investment to lowest level in over a decade

December 01, 2020
Kathy Hipple and Clark Williams-Derry and Tom Sanzillo
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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.

Press release: IEEFA Energy Finance 2016: U.S. Natural-Gas Pipeline System is Being Overbuilt

Please view full report PDF for references and sources.

Kathy Hipple

Former IEEFA Financial Analyst Kathy Hipple is a founding partner of Noosphere Marketing and the finance professor at Bard’s MBA for Sustainability. She worked for 10 years with international institutional clients at Merrill Lynch and then served as CEO of Ambassador Media.

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Clark Williams-Derry

Clark Williams-Derry focuses on the finances North America’s oil, gas, and coal industries. His areas of expertise include: the long-term financial performance of North American oil & gas companies, particularly fracking-focused enterprises; company- and basin-specific studies of oil and gas production; U.S. LNG exports in the context of global markets; and U.S. and Canadian coal export projects.

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Tom Sanzillo

Tom Sanzillo is Director of Financial Analysis for IEEFA. He has produced influential studies on the oil, gas, petrochemical and coal sectors in the U.S. and internationally, including company and credit analyses, facility development, oil and gas reserves, stock and commodity market analysis, and public and private financial structures. He also examines such areas as community and shareholder activism, institutional investment, public subsidies and Puerto Rico’s energy economics.

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