Seeking Alpha - The Death Of U.S. Shale Is Greatly Exaggerated, But It's Crippled For Life

Summary

• A discussion on US oil production often falls into two extreme camps.
• The truth is often something in between, but because of a fundamental change in how credit is going to be provided for US shale producers going forward, it's crippled for life.
• There also are enormous implications for inflation. Since 2010, US oil production has been the key growth driver in the non-OPEC group.
• With US shale oil crippled, this source of growth is gone, and as a result, will result in much higher oil prices going forward, which will boost inflation.

https://seekingalpha.com/article/4371775-death-of-u-s-shale-is-greatly-exaggerated-crippled-for-life

Rystad Energy - Even at $40 WTI, about 150 more North American E&Ps will need Chapter 11 protection by end-2022

The Covid-19 pandemic has added severe financial strain on a North American upstream industry that was already reeling under billions of dollars of debt. With WTI climbing past $40 a barrel, most exploration and production firms (E&Ps) have been able to keep their head above water, but unless prices strengthen further about 150 more E&Ps will need to seek Chapter 11 protection through 2022, a Rystad Energy analysis shows.

So far this year, according to Haynes & Boone, 32 E&Ps have already filed for Chapter 11, recording a cumulative debt of about $40 billion. On the oilfield services (OFS) front, 25 companies have filed for Chapter 11. If WTI remains at $40, Rystad Energy estimates 29 more E&P Chapter 11 filings this year, adding another $26 billion of debt at risk.

https://www.rystadenergy.com/newsevents/news/press-releases/even-at-$40wti-about-150-more-north-american-eps-will-need-chapter-11-protection-by-end-2022/

Reuters - How a Texas shale supplier's founders made fortunes as the firm failed

Aug 13 (Reuters) - On July 7, the board of directors at Texas fracking sand supplier Hi-Crush granted nearly $3 million in bonuses to four top executives, including $1.35 million for CEO and founder Robert Rasmus.

Five days later, the company declared bankruptcy.

The payout marked the latest in a series of board decisions that allowed the oilfield supplier’s top executives and founders to rake in tens of millions of dollars as shareholders saw the stock price plummet to pennies.

https://www.reuters.com/article/usa-oil-hicrush-deals/rpt-insight-how-a-texas-shale-suppliers-founders-made-fortunes-as-the-firm-failed-idUSL1N2FF0PD

World Oil - Funding for shale drillers dries up as lenders leave the sector

NEW YORK (Bloomberg) --One of the key sources of funding for American shale is evaporating, just as the the sector needs it more than ever.

Banks lending against the oil and natural gas reserves of hundreds of independent U.S. drilling companies have pulled back from the sector at an unprecedented rate this year after energy prices slumped. There’s every indication they’re not done: Many in the industry expect further reductions to credit facilities in the fall, with higher costs and more stringent protections for lenders.

All that comes at a time that could scarcely be more challenging for shale. Weakened by poor returns to shareholders, it was getting shut out of the bond and equity markets even before the Covid-19 pandemic decimated global demand. With crude prices staging a limited recovery in the last two months to around $40 a barrel, shale operators face an uncertain future, one where they must to drill to generate cash flow while facing a higher cost of capital.

“As long as oil prices stay at $40 or less and gas stays at $2 or less, I think banks are going to continue to be very cautious and continue to pull back,” said Spencer Cutter, an analyst at Bloomberg Intelligence. “It’ll be the end of shale if oil stays below $40.”

https://www.worldoil.com//news/2020/7/23/funding-for-shale-drillers-dries-up-as-lenders-leave-the-sector?id=31307113

JPT - Are Half the Companies in Shale Really Superfluous?

Judgment day has arrived for companies of the oil shale boom and many are looking superfluous.

That is label used by Deloitte to describe 50% of the companies in its shale universe, representing nearly half the production.

The dictionary defines superfluous as more than is needed or wanted. The accounting firm describes them as “companies with a high-risk profile, making them unnecessary bets in the current environment.”

During the current deep funk in the oil business, these companies with low grades for financial strength and operational efficiency are in jeopardy.

“The grim financial position of many companies and weak economic outlook could trigger deep consolidation in the US shale industry,” Deloitte wrote in a recent report.

Note the use of the qualifier “could” in that sentence.

https://pubs.spe.org/en/jpt/jpt-article-detail/?art=7348

World Oil - California driller files Chapter 11 on $6.1 billion of debt

HOUSTON (Bloomberg) --California Resources Corp. filed for bankruptcy, kicking off what could turn into the next wave of collapses among oil drillers and the businesses that depend on them.

The company joins more than 200 oil explorers that have filed for court protection since 2015, and more may be coming in a matter of weeks. Denbury Resources Inc. and Noble Corp. missed their July debt payments, and Chaparral Energy Inc. asked lenders for more time, setting them on course for a possible default.

With oil prices hovering around $40 a barrel, the industry simply isn’t able to support debts taken on when prices were near peak levels. California’s biggest crude producer has been weighed down by massive borrowings since its spinoff from Occidental Petroleum Corp. in late 2014, right at the start of the previous downturn in the crude market.

https://www.worldoil.com//news/2020/7/16/california-driller-files-chapter-11-on-61-billion-of-debt?id=31307113

OilPrice.com - $40 Oil Isn’t Enough To Prevent A Wave Of Shale Bankruptcies

The coronavirus pandemic and the oil price collapse are accelerating the pace of bankruptcy filings in the U.S. shale patch this year. The number of filings had already started to trend up in 2019 after a drop in prices in Q4 2018, but this year, the U.S. energy industry is setting some grim records as indebted cash-strapped producers face a day of reckoning from the borrowing exuberance of the past years.

So far this year, bankruptcies in the U.S. energy industry have exceeded 20 filings from companies with more than US$50 million in liabilities. This is the highest number of first-half filings for protection from creditors since the first half of 2016, during the previous oil price collapse, according to data compiled by Bloomberg. In June alone, seven oil and gas companies filed for Chapter 11, matching the record from the monthly peak in bankruptcy filings set in April 2016.

https://oilprice.com/Energy/Energy-General/40-Oil-Isnt-Enough-To-Prevent-A-Wave-Of-Shale-Bankruptcies.html

Capriole Energy - Caught in a trap: most US E&Ps are burdened in debt, unable to generate free cash and replace decline, even at “normal” oil prices

A couple of months ago I wrote a piece on my website about the five brutal facts that the US oil industry and energy makers must confront while planning for the post-coronavirus world. One of the most brutal facts was that the sector had struggled to make money over the last decade and at oil prices less than $50/bo offered little prospect of doing so in the future. I offered some options to move forward in a progressive way within the energy transition, a ”build back better” plan if you like, starting with a radical re-basing and cost optimization of the US upstream industry. I expected some companies, particularly those with the less attractive assets, to cut their losses and merge with equals, some to try to grind it out through cost-cutting and refinancing with the hope of higher prices in the rebound, and the rest to seek safe haven in Chapter 11 restructuring.

https://www.capriole-llc.com/news/2020/4/20/qt22aqcei7jqbyb7nnhci6xugx961v

World Oil - Chesapeake’s fate marks the end of an era in U.S. shale

HOUSTON (Bloomberg) --It will go down as wildest of the shale wildcatters, the overreaching pioneer of fracking techniques that minted vast fortunes and, now, have left behind ruin.

At long last, financial reality has caught up with Chesapeake Energy Corp., avatar of the boom and subsequent bust of North American shale.

Chesapeake’s spiral toward oblivion accelerated this week with executives said to be preparing for a potential bankruptcy filing, signaling the imminent end of Chief Executive Officer Doug Lawler’s 7-year campaign to turn around the troubled gas explorer. For a company that’s been skirting disaster for most of the past decade, the Covid-19-driven collapse in world energy prices merely added one more exclamation point to a tale of risk, hubris and debt.

https://www.worldoil.com//news/2020/6/12/chesapeake-s-fate-marks-the-end-of-an-era-in-us-shale

Hart Energy - Shale Pioneer Chesapeake Energy Considers Bankruptcy Filing

Chesapeake Energy Corp. said May 11 it was unable to access financing and was considering a bankruptcy court restructuring of its over $9 billion debt if oil prices don't recover from the sharp fall caused by the COVID-19 pandemic.

The announcement follows last month's statement by the pioneering shale gas producer that it was in talks to line up bankruptcy financing and was in talks for a loan to run its operations through the court proceedings.

Company filings showed it had a combined debt of more than $1 billion by way of debt maturities and interest expenses, of which $250 million in senior notes were due this year.

https://www.hartenergy.com/news/shale-pioneer-chesapeake-energy-considers-bankruptcy-filing-187521