Only 1/4 of Top Permian Producers Made Money in Q1 - Despite Higher Oil Prices

[Tom Kirkman + 8,860]

Mainstream Media is waking up to the over-hype of U.S. Shale Oil economics.

It is a bit strange to me that the MSM has been paying a bit more attention to U.S. Shale Oil economics, only after the current oil price bull run has made waves of predictions of $100+ oil prices again.

Pay attention to the simple numbers in the Forbes article.  Also note that the Permian is a "sweet spot" for fracking, and it seems pretty likely that the economic numbers for fracking outside of the sweet spots won't fare as well.

Permian Producers Are Struggling To Make Money

The Wall Street Journal recently reported that only five of the Top 20 U.S. oil companies focused mostly on hydraulic fracking generated more cash than they spent in the first quarter of this year. This continues a trend that has been ongoing throughout the fracking boom.

The article doesn’t list the cash flow picture for the entire Top 20, nor did it explain how it calculated cash flow. But based on the numbers they reported and my own analysis, it appears they are defining cash flow as simply the amount of cash generated from operations minus capital expenditures.

The story indicated that overall, companies spent $1.13 for every $1 they took in. It further noted that “Oasis Petroleum Inc. spent $3.27 for every $1 it made in cash, while Parsley Energy Inc. spent almost $2 for every $1 it made in cash.”

[Mike Shellman + 548]

With respect to the WSJ, I don't buy that 1/4 of unconventional HZ operators in the Permian made money 1Q18, or in 2017. A few, maybe, including asset sales and one time tax charges gifted them by Trump's new tax laws. Regardless, it was not ENOUGH to even remotely begin to pay down massive amounts of long term debt accrued in the Eagle Ford, that operators took with them to West Texas and now can't seem to shake, whatever the price of oil is.

[Curtis Stewart + 32]

I have a feeling the wreck has happened. Penn Square occurred in 1982. The full impact did not slam the industry until 1986 along with the savings and loan kerfluffle. When all the debt created for this particular boom is realized to be worthless, all the masters of the universe in New York who have orchestrated this will hope they have enough time to offload this like the last time with real estate. Then the suckers took the hit and that is what they hope happens now. If these MOU's get stuck with this and they cannot offload this, will the taxpayers be willing to bail out oil companies.

Magic 8 ball say's, Don't count on it.

[Guillaume Albasini + 851]

So are we in the shale bubble ?

http://shalebubble.org/

[Tom Kirkman + 8,860]

2 minutes ago, Guillaume Albasini said:

So are we in the shale bubble ?

http://shalebubble.org/

Welp, I'm going to need to take some time to look at all that information.

Thanks for the link, Guillaume.

[cryptocurator + 17]

so no one's learned anything from 2014? What of all the reports that shale producers have become more efficient?

[Tom Kirkman + 8,860]

2 minutes ago, cryptocurator said:

so no one's learned anything from 2014? What of all the reports that shale producers have become more efficient?

U.S. Shale Oil producers "efficiencies" apoear to be mostly squeezing the profit margins of service providers, reducing day rates, reducing rental costs.

So no, it doesn't appear that much has been learned since 2014.  Seems dang determined to ride the price roller coaster again.  But this this time, with more debts from the previous price roller coaster.

[Solanum + 11]

The article states they "lost" 6.9B the same quarter last year vs 669M this year.  They are waiting for some pipeline infrastructure to be completed to provide additional capacity.

The real problem is the actual reporting for the companies, they obviously aren't doing GAAP accounting, which makes valuation highly subjective, then you add the sketchy derivative market.  If you flip the coin, and look at Tesla who lost 1B last quarter, most of their losses are on expansion of their brand and product manufacturing. They are making money on what the products they already have manufacturing for like the X/S, but they are rapidly expanding which is creating losses on the books for this quarter, but should help put them in a position for greater profits in the future like their model 3 manufacturing is ramping up.

Some poorly managed companies could be overridden by debt. But that is a far less likely scenario with high oil prices. The cost of production for fracking is roughly 35-50/barrel. Even if some companies locked in a price for some of their output at 50-55/barrel, It doesn't mean they are actually losing money.