The data in Art’s chart below is proof the shale oil miracle was nothing but a debt driven scam. These companies had NEGATIVE free cash flow of $15.5 BILLION when oil prices averaged $93 per barrel in 2014. They added $10 BILLION of new debt in 2014, bringing their total to $93 BILLION.
So here we are in 2015. Oil prices have averaged between $45 and $60 per barrel. These companies will have free cash flow of at least NEGATIVE $25 billion in 2015. How are they going to service those debt loads? They aren’t. Many of the companies on his chart are going to go bankrupt.
So much for the shale oil miracle that saved America and made us energy independent. I love those stories.
Guest Post by Art Berman in The Petroleum Truth Report
David Einhorn just discovered sex. Too bad that he didn’t ask any adults if they already knew about it.
In a presentation at the Ira Sohn Investment Conference on May 4, Greenlight Capital hedge fund manager David Einhorn revealed that tight oil is not profitable even at oil prices of $100 per barrel.
Mr. Einhorn has apparently just figured out what some of us have been saying publicly for many years.
In a post last month, I wrote almost exactly what Mr. Einhorn said yesterday:
“The financial performance of most companies involved in tight oil plays has been characterized by chronic negative cash flow and ever-increasing debt. The following table summarizes year-end 2014 financial data for representative tight oil-weighted E&P companies.”
Table 1. Summary of 2014-year end financial data for tight oil-weighted U.S. E&P companies. Money values in millions of U.S. dollars. FCF=free cash flow (cash from operations plus capital expenditures); CF=cash flow; CE=capital expenditures. Source: Google Finance and Labyrinth Consulting Services, Inc.
In an earlier post, I stated that tight oil companies had terrible financial results in 2014 when oil prices averaged more than $93 per barrel and that:
“this class of company has become the sub-prime derivative of the post-Financial Crisis period.”
Earlier this year, I provided considerable detail on tight oil and shale gas economics and reserves in a video on my website.
David Hughes, Rune Likvern and others have also echoed much of what Einhorn apparently just discovered.
Mr. Einhorn gets shale gas completely wrong. He stated yesterday that “the natural gas frackers… are globally competitive, low‐cost energy producers with attractive economics.”
The financial results for shale gas-weighted E&P companies are, in fact, much worse than for the tight oil companies, as shown in the table below.
Table 2. Summary of 2014-year end financial data for shale gas-weighted U.S. E&P companies. Money values in millions of U.S. dollars. FCF=free cash flow (cash from operations plus capital expenditures); CF=cash flow; CE=capital expenditures. Source: Google Finance and Labyrinth Consulting Services, Inc.
Sampled shale gas companies’ negative cash flow for 2014 was -$15.5 billion–$5 billion more negative than their tight oil counterparts and $7 billion more negative than it was in 2013. Shale gas debt for 2014 was more than $93 billion, an increase of almost $10 billion over 2013.
What part of these financial results does Mr. Einhorn see as economically attractive and globally competitive?
I give David Einhorn credit for recognizing what few among Wall Street investment firms have publicly stated namely, that tight oil was not profitable for most companies at high oil prices and is a big loser at current prices. It is difficult to understand why he needs to take credit for an insight that is hardly new.
A neighbor of mine who previously was in management at Bechtel during the AK pipeline build-out buys the “tight oil miracle” hook line & sinker. Says his friends at Chevron tell him the U.S. can attain energy independence. While this guy is no schmo, I can’t believe how some otherwise intelligent people can fall for this bullshit. And what happens to the environment left behind by these BK companies. Oh, on the taxpayer’s dime again, I see. And how much is the “real” price of oil?
More “Chicken Little” bullshit from Admin and Art Berman. Get a clue.
Why is the U.S. daily oil production HOLDING STEADY at around 9,370,000? Riddle me that. That’s WITH some oil shale companies going out of business and a fucking 40% DROP in the number of active oil shale rigs just since last fall. How is this possible, you won’t ask?
—-The companies are maintaining their highest quality oil acreage
—-Efficiency in producing oil from these wells has skyrocketed since 2011 due to advanced technology
—-Costs to produce oil are much, much lower than just a year ago: labor, equipment, power, etc
—-Cheap debt has virtually disappeared which has thinned the competition considerably, much to the advantage of “only the strong will survive” in high-capital investment venture
All this is ignored in Admin’s gloom and doom world view of oil shale. And that “not even profitable at $100/bbl” statement is so outlandish that even I’m speechless.
SSS
Ok, so they’re losing money now. They just need to ramp it up a notch … make up the difference in volume.