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Page added on May 17, 2018

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Oil’s at $70, but Frackers Still Struggle to Make Money

Production

American shale drillers are still spending more money than they are making, even as oil prices rise. Of the top 20 U.S. oil companies that focus mostly on fracking, only five managed to generate more cash than they spent in the first quarter, according to a Wall Street Journal analysis of FactSet data. Shale companies have helped propel U.S. oil output to all-time highs , surpassing 10 million barrels a day and rivaling Russia and Saudi Arabia. But the top 20 companies by market capitalization collectively spent almost $2 billion more in the quarter than they took in from operations, largely due to bad bets hedging crude prices, as well as transportation bottlenecks, labor and material shortages that raised costs. Many of the producers did better to start this year than at any point since 2014, when oil prices began a crash that the industry is fully recovering from […]

wsj.com



33 Comments on "Oil’s at $70, but Frackers Still Struggle to Make Money"

  1. MASTERMIND on Thu, 17th May 2018 11:35 am 

    Oil Is Above $70, but Frackers Still Struggle to Make Money

    Most of top 20 shale-oil producers spent more than they made in first quarter

    American shale drillers are still spending more money than they are making, even as oil prices rise.

    Of the top 20 U.S. oil companies that focus mostly on fracking, only five managed to generate more cash than they spent in the first quarter, according to a Wall Street Journal analysis of FactSet data.

    Shale companies have helped propel U.S. oil output to all-time highs, surpassing 10 million barrels a day and rivaling Russia and Saudi Arabia. But the top 20 companies by market capitalization collectively spent almost $2 billion more in the quarter than they took in from operations, largely due to bad bets hedging crude prices, as well as transportation bottlenecks, labor and material shortages that raised costs.

    Many of the producers did better to start this year than at any point since 2014, when oil prices began a crash that the industry is fully recovering from only now. Still, the companies spent about $1.13 for every $1 they took in. Oasis Petroleum Inc. OAS +3.62% spent $3.27 for every $1 it made in cash, while Parsley Energy Inc . spent almost $2 for every $1 it made in cash, according to FactSet.

    While many shale operators have positive net income this year, many shareholders have begun paying closer attention to how much the companies are spending, as they seek to compel them to live within their means and begin to produce stronger returns.

    Hedging played a big role in companies’ underwhelming cash generation. Seeking stability after years of wild fluctuations in crude prices, many operators entered into derivatives contracts in late 2017 that effectively ensured they could sell some of their 2018 output for $50 to $55 a barrel. Now that prices have risen to more than $70 a barrel, many are failing to capture the value of the rally. WPX Energy Inc. reported an adjusted net loss of $30 million last quarter, which it said was driven by $69 million in losses on its hedges due to higher oil prices.

    Some companies are already adjusting their strategies because of higher oil prices. Parsley Energy, which is focused on the Permian Basin, the oil field in Texas and New Mexico that is currently the center of U.S. shale-drilling activity, hedged most of its 2018 production. It plans to change that going forward, and expects to generate more cash relative to spending in coming quarters.

    “Early signs of labor tightness motivated Parsley Energy to increase drilling and completion activity significantly last year when rigs and crews were easier to come by,” said Parsley Chief Executive Bryan Sheffield. “[N]ow that we are operating at a steady development pace, we should continue to generate increasing cash flow.”

    Continental Resources Inc., which is primarily active in shale formations in North Dakota and Oklahoma, didn’t hedge its oil production for 2018. It raked in almost $258 million in cash after expenses in the first quarter, best among its peers.

    If U.S. crude prices stay at about $70 a barrel for the rest of 2018, energy consultant Wood Mackenzie estimates that hedging strategies would reduce annual revenue by an average of 7% for six companies focused on the Permian basin.

    Investors remain broadly hopeful that shale companies’ performance will improve in 2018 due to rising oil prices and global demand. But concerns about the companies’ ability to manage expenses linger.

    “These companies have done well this year and they are saying the right things,” said Tyler Rosenlicht, a senior vice president at Cohen & Steers, which manages about $60 billion in assets. “But a lot of investors were so burned down in the past that there will be a longer pause before they feel fully comfortable again.”

    EOG Resources Inc., the biggest U.S. shale producer, reported first-quarter profit of $638 million, a more than twentyfold increase over the prior year. But its cash surplus compared with spending was $110 million for the period. Its stock has risen about 9% this year, while U.S. crude prices are up 17% in that time.

    Shale producers failed to generate cash even as one of their primary obstacles to profitability in past years, oil-field-services costs, rose only modestly.

    While trucking and labor shortages in the Permian are already vexing many companies, some costs related to drilling contractors have increased by 15% or less because rates were locked in last year when oil prices were low. But those costs could climb further later this year, analysts say.

    Shale companies’ profitability may also be threatened by rising costs for the immense amounts of sand and water needed for fracking. Modern fracking jobs now require 500 tons of steel pipe, enough water to fill 35 Olympic swimming pools and enough railcars filled with sand to stretch for 14 football fields, according to Rice University’s Center for Energy Studies.

    Many companies may be forced to choose between hitting production targets, and promises to investors to keep spending in check, said James West, an analyst at Evercore ISI.

    “Service pricing is going to hit them like a brick wall,” he said. “I’m personally not convinced [they will] stick to capital discipline. In their heart of hearts, they just want to grow.”

    https://www.wsj.com/articles/oils-at-70-but-frackers-still-struggling-to-make-money-1526549401

  2. rockman on Thu, 17th May 2018 12:50 pm 

    And once more comments from a fool who knows nothing about petroleum economics. Let’s make a simple model: Company A is just starting so zero revenue from previous drilling. Attractive opportunities so it spends 1 billion during Year 1. Obviously it’s revenue during Year 1 is less the 1 billion even though every well drilled is successful.

    Good times continue and it spends 1 billion during Year 2. But total revenue during Year 2 is still less than 1 billion. Even a successful/profitable can take 24 to 30 months to produce its total cost…we call it reaching payout. And note that when a well reaches payout it has not yet generated one dollar of profit. Those wells drilled during Year 1 might not generate their first dollar of collective profit until the end of Year 2…or even the beginning of Year 4.

    But that would be just the profit from Year 1 investments. But an addition investment of another 1 billion was made in Year 2. So while the Year 1 wells might have recovered 100% of the Year 1 investments in 24 months obviously they haven’t recovered the 2 billion invested during Year 1 AND Year 2.

    I could carry the model forward but if someone doesn’t understand the cash flow/profit dynamics by now I doubt they ever will.

  3. MASTERMIND on Thu, 17th May 2018 2:53 pm 

    Rockman

    Your complicated jargon is laughable. Shale is a ponzi created by the feds ponzi economics. It will never make any money. They are not in business to make money, they are in business to get money.

    Hedge fund star David Einhorn calls fracking companies a joke
    http://money.cnn.com/2015/05/04/investing/david-einhorn-oil-fracking-terrible-investment/index.html

    Wall Street Tells Frackers to Stop Counting Barrels, Start Making Profits
    https://www.wsj.com/articles/wall-streets-fracking-frenzy-runs-dry-as-profits-fail-to-materialize-1512577420

  4. Anonymouse1 on Thu, 17th May 2018 4:02 pm 

    Narrativeman farts this out..

    “And once more comments from a fool who knows nothing about petroleum economics”.

    To clarify, are you talking about the fools@ the wall st urinal, or yourself? Hard to tell one from other.

  5. Davy on Thu, 17th May 2018 4:07 pm 

    Weasel, was it a fart when you said Canadian tarsands are American?

  6. twocats on Thu, 17th May 2018 7:26 pm 

    so many people pointed to the shale companies “locking in” those contracts at $50/barrel as a reason these companies would survive. oh lordy. Locked and loaded and pointed right at their collective heads.

    Fluuuuuuusssssshhhh!!!! WAY DOWWWWN BELOW THE OCEAN!!

  7. Boat on Thu, 17th May 2018 10:22 pm 

    Shale makes no money. Unless you bought hundreds of acres for $2,000 per acre and sold it for 20,000 per. The rancher probably bought that desert waste land for $300 per acre.
    Do we want to talk about all the equipment that nobody makes money on. How about the manufacturers of all that equipment.
    There is an entire chain of venders and buyers all ran by employees getting paid. Americans workers are the ones getting paid for every barrel of imports they avoid, all up and down the chain.

  8. Boat on Thu, 17th May 2018 10:24 pm 

    Mm

    Rocks comment was very simple to understand. You play chess?

  9. kanon on Thu, 17th May 2018 11:55 pm 

    Rockman’s explanation only works if the wells actually reach payout and continue to produce for a decent time afterwards. If the frackers stopped drilling today, would the existing wells pay the expenses and eventually retire all debts? That is a rhetorical question because we know the “red queen syndrome” doesn’t allow for stopping. I guess things are tough for high cost producers.

  10. rockman on Fri, 18th May 2018 10:04 am 

    MM – “Your complicated jargon is laughable.” Sorry, in the future I’ll try to keep the verbiage to one syllable for your benefit. LOL. Exactly as I said: if doesn’t understand the model and SIMPLE terms I used they’ll never understand the cash flow dynamics of the petroleum production. You’ve just proven that point better then I ever could.

    Just out of curiosity what word or phase do you consider “complicated jargon”? I’m sure many here are also wondering.

  11. rockman on Fri, 18th May 2018 10:58 am 

    Kanon – “If the frackers stopped drilling today, would the existing wells pay the expenses and eventually retire all debts?” Finally a very valid question…thanks. Yes: the answer is that the vast majority of shale prospects aren’t loosing money. Stopping drilling has no effect on wells already drilled. Hopefully that wasn’t too complicates jargon for MM to understand. LOL.

    Of course, that’s the answer for any well drilled…shale or conventional. Now a question for you: how do you know that that the vast majority of shale wells drilled during the boom haven’t paid out? Have you studied the individual production histories of those wells as I have? Or are you just repeating the UNDOCUMENTED OPINIONS of others?

    Some time ago I posted a summery of the production of all the shale wells completed until then. Those wells certainly weren’t much to brag about but the majority did payout. Less impressive was the fact that post-payout they were producing very little positive cash flow. Of course, that was do to the hyperbolic decline of fracture production. Which also means those wells generated an unimpressive rate of return. But they did return some profit.

    Also, I think you misunderstand the term “red queen” as I’ve seen most use it. It hasn’t meant keeping profits or even cash flow up. It refers to keeping the increased production rates up. Again, due the hyperbolic declines new wells have be drilled at a faster rate to keep those record production rates increasing. But that implies nothing about payout periods or profitability. In fact, when oil prices crashed companies had to cull out the less promising locations and drill just the best spots they had left to compensate for those lower oil prices. IOW the average recovery per well during that period would have increased.

    And one more time folks needs to drop ponzie scheme. Not that there weren’t some unethical operators that sucked greedy investors into projects with little chance of profitability. But they were done under a process that WAS NOT designed as a pozie structure. And actually the dishonesty the Rockman witnessed during this last boom was minor compared to what was seen in the late 70’s boom. Remember compared to the 2,000 or so rigs running recently back during the 70’s the count topped out over 4,500. I won’t take time to describe this other scam structure but in the oil patch we refer to it as “over promoting”. We all understand exactly what that entails.

    And one last thought. Go head and keep insisting that the shale wells are money losers. But it will be up to also explain why, AFTER TEN YEARS, the majority of those companies are still in business and the pros on Wall Street are still buying their stock.

  12. Antius on Fri, 18th May 2018 11:27 am 

    “Also, I think you misunderstand the term “red queen” as I’ve seen most use it. It hasn’t meant keeping profits or even cash flow up. It refers to keeping the increased production rates up. Again, due the hyperbolic declines new wells have be drilled at a faster rate to keep those record production rates increasing. But that implies nothing about payout periods or profitability. In fact, when oil prices crashed companies had to cull out the less promising locations and drill just the best spots they had left to compensate for those lower oil prices. IOW the average recovery per well during that period would have increased.”

    That does make a lot of sense. The higher the price, the larger the resource base, just like any other resource. I would imagine that oil price volatility is a pain in the bum for these people. They make an investment in a marginal resource when oil price is $100/barrel, only to find that by time it reaches maturity, oil price has sunk back down to $50/barrel. Knowing where the oil price is heading must be of paramount importance if your wells have high depletion rates.

  13. MASTERMIND on Fri, 18th May 2018 11:45 am 

    Alabama Congressman Blames Sea Level Rise On Rocks Falling Into The Ocean

    https://www.al.com/news/huntsville/index.ssf/2018/05/alabama_rep_mo_brooks_hit_for.html

  14. Go Speed Racer on Fri, 18th May 2018 12:52 pm 

    Hi Mr Rockman,

    Thanks for explaining the fracking companies.
    Sure, I can see what you’re saying about their
    profitability model.

    Sorry to see that Mastered Mind is trying to ruin your relaxing morning of coffee and
    scrambled eggs and buttered biscuits.

    NOW maybe what’s missing in that dynamic
    is you’re still describing companies that
    aren’t very profitable.

    A lot of what they do seems close to break even.

    LAST there is one other issue. Fracking
    companies are in the business of drilling
    dry holes. So after a few years, they gotta
    drill the well again.

    When you’re justifying the fracking lack
    of profit, it almost seems like you’re
    describing a company that drills conventional
    oil wells. I’m just sayin because regular
    wells have long period of profitable pumping
    but frack wells do not.

    So that also works against profitability.

    Bottom line?
    Even if they aren’t going outta business,
    it sure doesn’t look like they are making
    very much money ??

    Yo Mr. Mastered Mind,
    it turns out Mr Rockman is a real live
    oil driller. So whose opinion is more
    valuable, his or yours?

    And Mr Rockman has even got his
    picture posted on the internet,
    here it is:
    http://www.seriouswheels.com/pics-1970-1979/1976-Cadillac-Eldorado-Dukes-Hazzard-BR-BH-1280×960.jpg

  15. Anonymouse1 on Fri, 18th May 2018 3:25 pm 

    the narrativeman is shill. He just loves posting his same boring shyt ectures over and over. But when you strip out all his Heartland and API talking points, it all comes down to this:

    The sun is always shining, in and on, the uS oil cartel.

    The real takeaway is (supposed to be)
    Don’t go trying to poke any holes in the hokey, feel-good fables about the uS oil cartel that narrativeman loves to spin.

    This is why narrativeman always jumps all over stories, and comments that hightlight or question the fundamentally dodgy nature of the uS oil cartels ‘financing’. Or why he always whines about discussions centering around oils declining net energy. It helps explain why he has a fit every time the role the uS petrodollar system plays in maintaining its global hegemony is mentioned. A system, he goes out of his way to pretend does not exist, and wouldn’t matter if it did.

    So, the next time the dodgy financing behind the miraculous high-tech uS ‘fraking’ industry is brought up. A little alarm will go off in narrativemans trailer, letting him know its time to head off to the internet, once again, to let everyone know its all roses and puppies in the uS frak patch, and that anyone suggesting otherwise clearly has no idea what they are talking about.

    Well see how my prediction hold up.

  16. rockman on Fri, 18th May 2018 3:26 pm 

    Racer – “Sorry to see that Mastered Mind is trying to ruin your relaxing morning of coffee…” You misunderstand: look forward to MM’s responses almost more than anyone else. LOL.

    About that low profitability. Been a while since I’ve made this point. Hear me out before you write me off: for the vast majority of the shale drilling companies WERE NOT PRIMARIALLY MOTIVATED BY PROFIT. Yes, profits were important…to some degree. But the big goal for those PUBICLY TRADED COMPANIES was to show an increase in booked reserves y-o-y. Even for savvy stock market players it’s very difficult to tell how profitable a company might be. But proved reserve values, as audited by independent third parties, are PUBLISHED every year as per SEC regulations.

    In reality if all the wells drilled by a pubco depleted just as they recovered their investment (IOW no profit but no loss either) but the company increased booked reserves from the previous year the board of directors would be satisfied. But that also shows you how dumb Wall Street can be. A very REAL example I’ve shown before. And real because I was part of the company that did it 25 years ago. We bought an old field in Louisiana state waters. Had some old vertical wells producing NG at slow rates. So I drilled 4 horizontal wells that took company-wide rate from 10 million cubic feet per day to 50 million cfpd. And DID NOT increase proven reserves at all: just getting it out of the ground faster. Which was exactly what our SEC filings showed.

    So how did Wall Street respond? Stock price rose from $0.75/share to $5.00/share. And on paper we actually lost money when one calculated the net present value of the increased production. Increased production that cost us the price of those 4 wells: $24 million. Increased production that did not increase proven reserves 1 cf. And understand: this was in 1994.

    See how many privately owned companies you can find that drilled shale wells. My privately owned company started in 2008 and we could have drilled 40 shale wells: we spent $230 million drilling our first 3 years. But not one shale well. And we could have drilled profitable shale wells. But my billionaire owner didn’t make his money investing in profitable projects with low profit margins. I started drilling horizontal wells 20 years before the 2008 shale boom began. And those were wells in a carbonate shale…the Austin Chalk. I was very experienced in horizontal drilling long before that 2008 shale boom began. The majority of geologists/engineers at the beginning of the recent shale boom had little or no experience in the method.

    My ending my career with a privco and not a pubco WAS NOT an accident. And my income was not going to be based upon adding to our reserve number but on profits. And only on significant profits. A very different motivation then most managers with pubcos. Their rewards would be based upon increased stock prices. Which might explain to you why they borrowed capital so aggressively: once they cashed in their stock options repaying debt would not have been much of a concern for them, would it?

    I’ve played this game for more then 40 years. I learned how it works long ago. LOL.

  17. rockman on Fri, 18th May 2018 3:36 pm 

    You see why A gets so frustrated. He doesn’t have the experience the Rockman has to explain all the dirty little secrets of the oil patch. He knows something isn’t right but won’t take the time to educate himself in such matters. In fact, half the time he can’t even tell the Rockman has provided the evidence he lacks. And his responses, like MM’s, the Rockman never passes up. I just take their words as part of the comic relief this site provides. LOL.

  18. MASTERMIND on Fri, 18th May 2018 4:33 pm 

    THE U.S. SHALE OIL PONZI SCHEME EXPLAINED

    https://www.youtube.com/watch?v=E_He0650klE&t=

  19. Davy on Fri, 18th May 2018 4:49 pm 

    “the narrativeman is shill.”

    Rockman = respect and intelligence

    weasel = immaturity and pricking

    Who is the shill?

  20. MASTERMIND on Fri, 18th May 2018 5:52 pm 

    Its true..Rockman is an idiot who post links from the daily caller as his sources. He is no better than stupid clogg who always links to the dailymail..And usually Rockman posts zero sources, so technically you have no reason to believe anything he says..

  21. Boat on Fri, 18th May 2018 6:25 pm 

    Mm

    Like AT&T giving Trump’s lawyer $50,000 a month for inside information and access which got the CEO fired. This wheeling and dealing isn’t covered in your peer reviewed studies.
    The Rock gives you inside information from hands on experience. But your dumbass dosent have a small base of knowledge that will allow you to understand what he offers. Go Google and catch up.
    Meanwhile quit being a dickhead.

  22. Davy on Fri, 18th May 2018 7:54 pm 

    Mm, rock doesn’t need to post sources. He is a source. Get a grip boy, if you ever finally get a job, do something, and in the process gain experience maybe you can be a source. Currently you are a source of noise.

  23. MASTERMIND on Fri, 18th May 2018 8:14 pm 

    Davy

    Rock doesn’t need to post sources. No we don’t need reasons to believe things. You have turned into the dumbest person on this board. Take a bow!

  24. MASTERMIND on Fri, 18th May 2018 8:15 pm 

    The world is past peak oil

    Regardless of the Permian peak, there is little or no chance that world production will ever exceed the Nov. 2016 high of 82,410.939 bpd.

    https://www.eia.gov/totalenergy/data/browser/?tbl=T11.01B#/?f=M&start=199312&end=201701&charted=0-12

    Every oil region in the world (save a few) are well past peak. Among the OPEC-14 members, only Iraq, UAE and possibly SA are not past peak. These are the preeminent oil exporting countries.

    Algeria in 2005
    Angola in 2009
    Ecuador now
    Equatorial Guinea in 2005
    Gabon in 1997
    Iran in 1970
    Kuwait in 1970
    Libya in 1970
    Nigeria in 2009
    Qatar in 2010
    Venezula in 1998

    All the major oil regions (with the possible exception of Russia but can we trust them to say?) have peaked. OPEC, North Sea, North Slope, Bakken, Deepwater GOM, offshore GOM, Brazil deep water ETC ETC ETC. All peak or peaking right now. Peak is in the rear view mirror. I said it first. I said it here. Congrats for being a member of a very select historical group.

    You can tell your grandchildren all about it. If you haven’t eaten them already

  25. Go Speed Racer on Sat, 19th May 2018 6:11 am 

    Does this mean I don’t get to keep
    driving my 1978 Ford LTD Royal Brougham?

    With the deep soft carpets, moon roof,
    electric antenna, and power seats?
    With genuine Freon 11 air conditioner that
    blows snowflakes into my face?

    Such cars are sacred. It’s blasphemy
    to say that we won’t always have lots of
    gas to push them down the road.

    This is a religious matter. Don’t say there
    isn’t enough oil and gas. The Lord will
    always provide plenty of gasoline for
    my 1978 Ford LTD Royal Brougham.

    Jesus says there is no peak oil.

    http://www.curbsideclassic.com/wp-content/comment-image/176810.jpg

  26. Anonymouse1 on Sat, 19th May 2018 6:22 am 

    ‘the’ narrativeman, is a source alright exceptionalturd. A source for all your Heartland, CATO, and API talking points.

  27. Davy on Sat, 19th May 2018 6:28 am 

    weasel, you are not a source expect of pricking noise just like mm. You and mm seem so much alike is he your puppet? Another board SCUMBAG trash.

  28. Outcast_Searcher on Sat, 19th May 2018 2:41 pm 

    Good old Minimind. A VERY simple example of cash flow dynamics is “complicated jargon”.

    So much for all the brave talk about knowing what is going on and all the (dim-witted) doomer economic forecasts you constantly spew.

  29. MASTERMIND on Sat, 19th May 2018 2:50 pm 

    Outcast

    If you want to believe Rockman based on no evidence (reason) go right ahead..It doesn’t really matter anyways. Shale makes up only fiver percent of world supplies. And it cant make up for all the world declining mature fields. Peak oil is now. per the IEA and Saudis..

    https://imgur.com/a/pYxKa

  30. Boat on Sat, 19th May 2018 3:23 pm 

    Mm

    Peak oil now is correct. Every record peak production is followed by yet another peak in production. The biggest idiots squeak the loudest during record breaking peak oil production. How is that possible. Demand is still growing, expect mm to squeak at a slightly higher pitch. Hope is bearings hold up.

  31. Boat on Sat, 19th May 2018 3:28 pm 

    At least 11 countries have the oil for adding production. At today’s prices or higher….. add more countries. Mm how many can you name.

  32. MASTERMIND on Sat, 19th May 2018 5:31 pm 

    Boat

    When the oil shortage hits soon..the collapse will be rapid. Think world trade centers…

    Are We Sleepwalking Into The Next Oil Crisis?
    https://oilprice.com/Energy/Energy-General/Are-We-Sleepwalking-Into-The-Next-Oil-Crisis.html

    Imminent peak oil could burst US, global economic bubble – study
    https://www.theguardian.com/environment/earth-insight/2013/nov/19/peak-oil-economicgrowth

    German Military (leaked) Peak Oil study: oil is used in the production of 95% of all industrial goods, so a shortage of oil would collapse the world economy & world governments
    http://www.energybulletin.net/sites/default/files/Peak%20Oil_Study%20EN.pdf

  33. Boat on Sat, 19th May 2018 6:52 pm 

    China to buy more US shyt. Does XI fear Trump or is it a sign these two biggest trading partners know their decisions chart the course for the world.

    https://www.google.com/amp/s/www.cnbc.com/amp/2018/05/19/china-agrees-to-bolster-purchases-of-us-goods-in-move-to-substantially-reduce-trade-gap.html#ampshare=https://www.cnbc.com/2018/05/19/china-agrees-to-bolster-purchases-of-us-goods-in-move-to-substantially-reduce-trade-gap.html

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