U.S. fracking sector spills more red ink-Again

North American energy companies kept the oil and gas flowing last quarter, but once again failed to produce cash flows to match.

A cross-section of 38 publicly traded oil and gas companies at the center of the U.S. fracking boom reported negative free cash flows in the third quarter of 2019. Collectively, these companies spent $1.3 billion more on new capital projects during the quarter than they realized from selling oil and gas.

The financial disappointment was widespread: 29 of the 38 companies—more than three-quarters of the sample—didn’t generate enough cash to cover their capital expenses.

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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.

The third quarter’s dismal results cap a decade of disappointments for shale investors, who have waited for years for the industry to generate cash to go along with the enormous volumes of oil and gas it produces. Over the preceding twelve months alone, our sample of companies hemorrhaged $4.9 billion in negative cash flows. This consistent cash drain will make it difficult for these shale-focused companies to pay down the more than $117 billion in long-term debt that they owe, let alone compensate equity investors with a robust and sustainable program of dividends or share buybacks.

Press release: IEEFA update: Fracking sector spills more red ink in Q3

Please view full report PDF for references and sources.