The Mighty U.S. Shale Oil Industry To Lose Another $20 Billion In 2017

Well, it looks like the U.S. shale oil industry is going to chalk up another lousy year of financial losses in 2017.  This shouldn’t be a surprise as the U.S. shale oil industry hasn’t made any real money since 2008.  However, I still read articles suggesting that the United States will still become energy independent by ramping up its Mighty Shale Oil Machine.

Unfortunately, the country’s shale oil industry will never allow the United States to become energy independent, but it will sure go BROKE trying to do so.

According to the article by Nick Cunnigham, Is Wall Street Funding A Shale Failure, he made the following remarks:

Investors hungry for yield are throwing money into companies who then drill more, and the surge in production is hurting the industry as a whole. Despite efficiency improvements, the shale industry is expected to be cash flow negative by a combined $20 billion this year as oil prices sink.

….. Investors are slowly waking up to the idea that they may not be able to make juicy profits by betting on a sharp rebound in oil prices. There is some early evidence that Big Finance is pulling back, with new equity issuance down recently.

As Nick stated in his article, the U.S. shale oil industry is expected to tack on another $20 billion in NEGATIVE free cash flow.  Thus, they spent another $20 billion more than they made in operating cash.  If you have been reading my energy articles for the past several years, this is no surprise.

Looking at the chart below, I estimate the U.S. shale oil industry will produce about 5 million barrels of oil per day in 2017.  This equals about 1.8 billion barrels for the year.  In producing those 1.8 billion barrels of oil, the U.S. shale oil industry lost $20 billion.  Yes, I know, its not a net income loss, rather it’s negative free cash flow.  However, free cash flow is a better metric in determining the health of a company:

In order to stop the negative free cash flow hemorrhaging, the U.S. oil industry decided to cut back on its CAPEX (capital) spending.  According to the EIA report, U.S. Oil Producers Paying Off Debt, But Higher Costs Restrict Cash Flow Growth:

From 2012 through the end of 2015, debt was a significant source of capital for the producers included in the analysis, with the addition of a cumulative $55.3 billion in net debt. Since the beginning of 2016, however, these producers have reduced debt by $1.4 billion.

So, the 58 public oil companies used in this analysis added $55.3 billion of debt from 2012 to 2015, but were able to pay down a net $1.4 billion in the past year?  Does anyone else see something wrong here??  So, for three years, the U.S. oil companies added an average $18.4 billion in debt, but were able to pay down $1.4 billion in the past year??

Sure, we can give the oil industry some kudos for paying down some debt, but how long is it going to take just to pay down the $54 billion of debt added from 2012-2015?

Furthermore, to pay down that $1.4 billion in debt, the U.S. oil companies sold assets, sold shares and cut back on capital expenditures.  This is not a good way to MAINTAIN or GROW production going forward.  This is what I call the CANNIBALIZATION of the U.S. OIL INDUSTRY.

Lastly, another excellent article titled, America’s Firms Don’t Give A Frack About Financials, by an individual who is not suffering from BRAIN DAMAGE, stated the following:

Shale’s second coming is testament to Texan grit. But the industry’s never-say-die spirit may explain why it has done next to nothing about its dire finances. The business has burned up cash for 34 of the last 40 quarters, according to figures on the top 60 listed E&P firms collected by Bloomberg, a data provider. With the exception of airlines, Chinese state enterprises and Silicon Valley unicorns—private firms valued at more than $1bn—shale firms are on an unparalleled money-losing streak. About $11bn was torched in the latest quarter, as capital expenditures exceeded cashflows. The cash-burn rate may well rise again this year.

But the fact that the industry makes huge accounting losses has not changed. It has burned up cash whether the oil price was at $100, as in 2014, or at about $50, as it was during the past three months. The biggest 60 firms in aggregate have used up $9bn per quarter on average for the past five years. As a result the industry has barely improved its finances despite raising $70bn of equity since 2014. Much of the new money got swallowed up by losses, so total debt remains high, at just over $200bn.

So, the biggest 60 U.S. energy firms burned an average $9 billion in cash each quarter for the past five years… even at $100 a barrel oil.  At some point, investors and the market will need to wake up and realize that Shale Energy was nice while it lasted, but it was just another PONZI SCHEME.

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45 Comments on "The Mighty U.S. Shale Oil Industry To Lose Another $20 Billion In 2017"

  1. Hi Steve,

    You can be sure that the Fed will keep the money gushing to their Oil industry favorites
    as it cost them nothing and 20 billion is small peanuts if you can compare the amount
    of credit the Fed has created with the banks who control the Fed. Yes there will be bankrupties but the major players will be kept in life. The shale industry will keep improving and cut there costs to stay afloat.Let us not forget the usd is every year less worth so we could see much higher crude prices.

    • Pieter,

      Yes, the U.S. GOvt could bail out the oil industry. However, the problem in the world isn’t bailing out this or that, it’s the massive amount of debt. Every week we hear about another State Pension Plan that is severely underfunded. Right now, the majority of State pension plans are eating their SEED CORN. Thus, they are not making enough annual yield to pay their pensioners so they are using their ASSETS as payment.

      This is the problem. The Falling EROI is gutting the entire system. By bailing out the oil industry, may buy a bit of time, but the problem gets even worse.

      steve

  2. Steve,

    Your lone voice is slowly becoming a chorus but it has gone beyond brain damage to brain death. Facts no longer seem to matter. Like the Titanic, the band just plays on. One wonders what it will take for the world to wake up.

    SteveW

    • SteveW,

      Yes…. Americans will wake up one day out of the blue and realize THEY WERE SOLD A NASTY BILL OF GOODS. I can tell you that reading some analysts back in the late 1920’s, they knew the huge stock market correction was coming as well as a Depression. However, most Americans had no clue because they were looking away from the real facts.

      When I left the big city back in 2007 and moved to the country, I knew the BIG MARKET STORM was coming. While the Central Banks have propped up the market for nearly 10 years, I don’t see this lasting much longer.

      The next few years are going to be really interesting.

      steve

  3. Chaplain Dave Sparks | July 14, 2017 at 7:01 pm | Reply

    It looks like they’re losing about $10 / barrel on their production. (Would a $10 increase in crude prices bring them to the break even point?) “One” COULD argue that this subsidy would be a small price to pay if it made the USA relatively immune to threats of another Arab oil boycott. Not as the Austrian, free market advocate, that I am of course …

    • It might not matter if the price went up $10.00. The dearth of capital expenditures over the past ~3 years, means they haven’t got the product in the, er, pipeline. Sure there are wells drilled, but not producing, but the Red Queen never sleeps.

    • DisappearingCulture | July 15, 2017 at 8:01 am | Reply

      “It looks like they’re losing about $10 / barrel on their production. (Would a $10 increase in crude prices bring them to the break even point?)”

      I would have to answer no, not even close. I just checked and the crude oil price I saw was $46.75. The industry was losing money when the oil price was twice that.
      “So, the 58 public oil companies used in this analysis added $55.3 billion of debt from 2012 to 2015, but were able to pay down a net $1.4 billion in the past year?

      What oil price would be required to start paying down debt without cannibalization of the industry? $130 per barrel?? And how much more to have cash flow for new exploration, which is another aspect of cannibalization.

  4. Um. They will make up the losses by selling even MORE at a loss? Make it up in quantity?

    🙂

    Keep these great reports coming, Mr. St. Angelo. People are going to be soooo surprised when this Ponzi/Bubble comes to an end.

    KK

  5. Steve,
    Can you provide a list of 3-5 biggest cash losing shale companies? Thanks

    • EMILIO,

      I don’t have the detailed data yet, but when I look into it…. I will make an article out of it. Thanks for the idea.

      steve

  6. Where does all this lead to? Promises are being made all around the world by the west (Led by the U.S.) as though there is a never ending supply of energy. You get the impression that the U.S. is not only the morally correct country in the world BUT is number 1 in everything else including energy. Should we call Washington “Liars Castle”?

    Read the following article, it is contrary to most of what you would read on this site!

    Quote:
    Now, during the recent “red carpet” reception of US President Trump in Warsaw, the Poles fell all over themselves to embrace the US President and to believe his promises to make Poland a rival to Russian natural gas for the EU. In his July 6 remarks to the meeting of the Three Seas Initiative in Warsaw Trump told the leaders present that they should take US energy exports as an alternative to dependence on Russian gas.
    https://journal-neo.org/2017/07/13/the-fatal-flaw-in-washingtons-new-energy-strategy/

  7. Northwest Resident | July 14, 2017 at 8:39 pm | Reply

    Art Berman says that the oil business is in a deflationary spiral. He says that fracking companies aren’t in business to MAKE money, they are in business to TAKE money — from investors, banks, wherever they can get it basically. Great interview, and highlights a lot of what Steve is saying in this article.

    https://www.youtube.com/watch?v=RY4kM1kWaGM&feature=youtu.be

  8. I’m not worried about any of this wind and solar will replace oil and nat gas I read it in a seeking alpha article by a renewable energy expert. Anything to the contrary is nothing but nonsense. Steve’s tireless examination of the decline of net energy is a waste of time bc we will all be driving tesla’s and living on free energy from the sun and wind without any disruption to our current standard of living. (Heavy sarcasm even heavier than tar sands)

  9. What about Alaska North Slope? Could that ever give US control over its energy needs (& maybe even exports to other countries), similar to Russia’s Arctic Siberia oil?

  10. I have a question. The fed isn’t answerable to anyone but it’s owner banks (which we aren’t allowed to know ) and can’t (really) get audited. Apparently they gave $16 Trillion to banks globally after the 08 crash, (in a c “swap”) which we don’t know if they ever got back. https://www.sott.net/article/250592-Audit-of-the-Federal-Reserve-Reveals-16-Trillion-in-Secret-Bailouts
    What if they are already buying stocks, etc ? Can’t they just print trillions, buy stocks and push the market up forever ? If need be, they can just buy treasures, not collect the interest, and at maturity not ask for the $ back from the government ? They can just print the $ and give it to their owner banks, without ever telling us, no ? Who’ll stop them ? I know about Weimar, but it wasn’t the global reserve currency, and didn’t have the military capacity to force most countries to do as it wants. If so, no important bank will ever fail , oil corporations will get perpetually bailed out, and the debt is irrelevant (as they said all along). This would serve the banks, corporations, government, and only the middle/lower classes would have their standard of living gradually decrease – which wouldn’t bother the masters (they have been militarizing the police for a reason). Btw the Canadian govt sold ALL its gold recently, and if pushed, so will the ever subservient Germans, Brits, Aussies etc, so the notion of a physical shortage is far fetched, isn’t it ? It would make my day to get debunked, so anyone, please…

  11. The Dow Jones is currently increasing at an exponential value of 100% every 5 years. If it continues at this exponential rate it will reach 38400 Pts by late 2021. Any one taking bets?

    • DisappearingCulture | July 15, 2017 at 8:06 am | Reply

      I’ll take that bet. The ONLY way the DOW does anything remotely like that is when the monetary creation out of thin air reached the point of hyperinflation.

  12. Emil,
    I actually agree – the only thing I can think of is what Chris Martenson says that, “Debts do matter, because debts are a claim on future production. As we have repeated over the years, GDP growth is now way below past periods of GDP growth — leading us to conclude that future resource constraints will not only prevent the economy from ever again returning to its prior rates of rapid expansion, but force it to face the prospect of shrinking instead.” This also ties in with the shrinking EROEI pie which drives almost ALL economic activity.
    https://www.peakprosperity.com/blog/109715/bad-models-result-terrible-outcomes
    Regards
    R.Marsh
    United Kingdom

  13. Emil,
    Money can be printed and credit created at the push of a button but oil cannot. When finance finally wakes up to the oil industry collapse, the faith that sustains the perceived value of all future promises will crash. Steve has talked about the coming thermodynamic collapse of oil as analyzed in the work of B W Hill and Louis Arnoux. Likely finance will see the handwriting on the wall before the industry collapses. Yes, maybe once investors stop handing over their money to shale companies, the central banks will buy shale company bonds to keep the oil flowing but this cannot halt the eventual point at which it costs so much energy to get energy that there is none left for the economy. If you haven’t seen Steve’s articles on this topic please check them out. This is also a good summary of the problem:
    http://www.credoeconomics.com/using-energy-to-extract-energy-the-dynamics-of-depletion/

  14. Steve, I have a personal question do you own any miners? I’ve personally have steered clear of them bc of all risks associated with them. As of late I’ve been thinking twice about buying some or opening an account with toqueville gold fund.

    • Adam,

      At this time I own no miners. I sold all my miners between 2008 and then in 2012. However, I wouldn’t be against throwing some speculative money at some of the miners. But, only if one didn’t mind losing it all.

      steve

      • Thank you for the response Steve.

        • Virginia in Eastern Oregon | July 16, 2017 at 11:48 am | Reply

          Hey, Adam, I started with Tocqueville Gold in early 2001. Sold in 2010 and went to bullion. Sold that in 2012 to buy land. Back into TGLDX, again. Very good company. IMO, mutual funds safer than ETFs. It’s a crap shoot.

  15. It would be interesting to see a forensic analysis of where the debt instruments for shale are now embedded. Pension funds, 401ks, index funds, private banks, etc.

    • From my personal research a large chunk of it is sitting in pensions. I could be wrong but I Have seen it mutltiply times that pensions having been soaking this garbage up over the years.

  16. Limits to Growth won’t allow us the time needed for our species to evolve intellectually to the point that we alter our behavior. The majority of homo saps are not rational; in fact they take pride in their ignorance, (see deplorables). We must be forced to change by our circumstances, not by our enlightenment.

  17. Thank you shale oil. $20 billion negative free cash flow per year is a pittance relative to consumer savings. Throw a dime in the begging cup for the producers every time you fill up with gasoline to satiate your guilt.

    Assuming US shale knocked the price of oil down from $100 to $50 per barrel, I count $1.5 trillion in global consumer savings per year – 80 million barrels of production per day X $50 per barrel X 365 days.

    • marmico,

      Interesting reasoning, but a shale oil industry that is going broke producing low quality, low EROI is not sustainable. Thus, the global economy will collapse when the market realizes DEBTS aren’t ASSETS.

      By the way… don’t you have enough to do in commenting in response to SHORTY et al at the Peakoil.com blog??

      steve

    • DisappearingCulture | July 15, 2017 at 4:58 pm | Reply

      Negative cash flow; even moderate positive flow, does not fund new oil exploration. We are going to be in a world of hurt from that alone.

  18. Interesting reasoning, but a shale oil industry that is going broke producing low quality, low EROI is not sustainable.

    You write just like Artie ASPO Berman. He has been on the shale retirement party circuit going on 6 years now. The dude must be stuffed with rubber chicken by now.

    http://www.aspo2012.at/wp-content/uploads/2012/06/Berman_aspo2012.pdf

    Shale is such low quality oil that US refiners export 5+ million barrels of refined product per day. LOL

    https://www.eia.gov/dnav/pet/pet_move_expc_a_EPP0_EEX_mbblpd_m.htm

  19. All I know is when the energy shortages hit Gas stations only have around three days worth
    of supplies. And that will be gone in a few hours with Preppers gassing up their Bug Out
    Trucks. And Bankers fueling up their private jets…

  20. I wonder if the shale play is government sponsored in order to keep a lid on hyperinflation. I was looking at this chart from the EIA.
    https://www.eia.gov/todayinenergy/detail.php?id=31952
    It’s a comparison of commodity prices, PMs, base metals, livestock, energy, etc…all the commodities are up except energy. Why isn’t energy up with the rest of the commodities complex? IMO debt subsidized shale energy is brought to market in order to saturate the market place and keep a lid on the energy price. Should energy costs increase then all commodities and finished goods would also increase in price, since all modern finished products and commodities require energy for manufacturing, transport, harvesting, mining, etc. Should shale lose its effectiveness as a price depressant, then I think we could see hyperinflation. There are too many Dollars out there and once hyperinflation gets established we could see monetary velocity increase substantially.

  21. Virginia in Eastern Oregon | July 16, 2017 at 11:57 am | Reply

    Just got a big fire alert from the local Rangeland fire volunteer fire dept. Bad year, too much grass. By August 21, going to be hell conditions. The Eclipse from hell, hundreds of thousands extra idiots here. Buying all supplies, setting fires. Please, G*d, no evacuations.
    Please pray for us.

  22. Steve,

    Picked up this book on Energy in World History today – looks good so far

    https://www.amazon.com/Energy-World-History-Vaclav-Smil/dp/0813319021

  23. Meet The Only Private Equity Fund In History To Raise $2 Billion From Investors And Return $0 (Thanks to Saudi America and the US Shale Revolution)

    https://www.wsj.com/articles/from-2-billion-to-zero-a-private-equity-fund-goes-bust-in-the-oil-patch-1500210002

  24. Better sell that I-toy and buy some preps before it’s to late!

    https://www.reddit.com/r/collapse/comments/6g2d7j/collapse_of_global_civilization_by/

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