Top U.S. Shale Producers Soaring Debt Service Guts Profits

The massive debt accumulated by the U.S. Shale Industry is now decimating company profits.  As company debts and interest rates rise, these shale producers interest expense also continues to increase.  Debt service is not only cutting into company profits, but it also takes a great deal of oil and gas production to cover this expense.

For example, 16 of the top U.S. shale energy companies racked up a hefty $5 billion interest payment.  The company with the highest annual interest expense is Anadarko Energy at a stunning $932 million in 2017:

Devon Energy came in a distant second at $514 million while Chesapeake took the third spot at $425 million.  The 16 shale energy companies shown on the right-hand side of the chart are listed from highest to lowest annual interest expense for 2017.  And, it is a simple rule-of-thumb that the higher the annual interest expense, the higher overall debt on the company’s balance sheet.

Anadarko has such a high annual interest expense ($932 million) because it holds over $15 billion in debt.  Devon Energy had the second highest interest expense in 2017 due to its $10+ billion in debt.  However, Devon has recently sold assets and paid down its debt and lowered its interest expense considerably.  Furthermore, Chesapeake is paying $425 million a year to service its $9+ billion in debt.

It is quite remarkable that these 16 shale energy companies forked out $5 billion to service their debt last year.  The debt service is an expense that impacts the company’s net income profits.

For example, Anadarko posted a loss of $456 million in 2017.  However, they paid $932 million in interest expense last year.  If Anadarko didn’t have an interest expense, their $456 million loss would have been a $479 million net income profit.  So, these 16 companies lost $5 billion in potential profits because they have to service their skyrocketing debts.

Now, if we look at how much energy that needs to be produced just to cover these companies interest expense, it is a huge amount.  Just to pay off a $5 billion interest expense payment, these shale companies had to produce 100 million barrels of oil at $50 a barrel (approximate price these companies received in 2017).

Let me tell you, 100 million barrels is a tremendous amount of oil.  It turns out to be roughly 20 days worth of total U.S. shale oil production at 5 million barrels per day.  Which means, these shale energy companies had to produce nearly one month supply of total U.S. shale oil production to cover the annual interest payment last year.

What happens when U.S. shale oil production begins to finally decline while the interest expense rises or stays the same???  That’s correct, these companies’ interest expense will become an ever-increasing burden for the U.S. Shale Industry.

Watch over the next 1-2 years as U.S. shale oil production peaks and declines.  This will mark the end of the notion of U.S. Energy Independence forever.

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21 Comments on "Top U.S. Shale Producers Soaring Debt Service Guts Profits"

  1. The Collapse of Civilization Manifesto

    https://imgur.com/a/pYxKa

    Capitalism will fail harder than communism did. Yes, you were brainwashed, programmed, and distracted to think otherwise.

    • Conspiracy theorists claim that masonic elites are divided over what to do next. Some of them want to engineer a crisis right now, while others intend to keep it going as long as possible. Anyway, global elites will not be surprised by the coming collapse. They will decide the timing only when they are prepared to get even richer as a result. It is risible when one reads PMs analysts that the cartel is losing control.

  2. Michael Kohlhaas | August 10, 2018 at 4:54 pm | Reply

    Shale oil is a huge scam. Screw them all!

  3. Does Shale Oil still require insane amounts of clean water for extraction ?

    • Rodster,

      Some companies are recycling some of their water, but the majority uses clean water to frack their wells. Furthermore, to make matters worse, as shale oil well production declines, it produces more natural gas and water. If you look at some of the data released by the states, you would be shocked as to how much water is produced.

      We must remember, all that water has to be gathered and disposed of by INJECTING it in DEEP WELLS.

      I just looked at the North Dakota Department of Mineral Resources data for the month of MAY on just one of Continental Resources fields in the Bakken. The name of the field is the BANKS FIELD and Continental Resources has 82 producing wells.

      Continental Resources Banks Field Oil & Water Production MAY 2018:

      Total Oil Production May = 514,377 barrels oil
      Total Water Production May = 538,507 barrels of water

      Continental Resources is pumping more water than oil now from these 82 wells in the Banks Field. From what I have heard, it costs between $3-5 a barrel of water to gather, haul and dispose of this wastewater.

      If we take the average of $4 a barrel, Continental Resources spent over $2 million in May just to dispose of its wastewater.

      • I went back and added up the Total North Dakota Bakken Oil & Water Production for May:

        May 2018 Total Bakken Oil Production = 35,943,309 barrels (1,160,000 barrels oil per day)
        May 2018 Total Bakken Water Production = 48,193,746 barrels (1,555,000 barrels water per day)

        The North Dakota Bakken produced a staggering 48.2 million barrels of wastewater that had to be disposed. Again, if we assume a $4 cost per barrel to dispose this water, it turns out to be a mind-blowing $193 million just for the month of may.

        steve

      • So was the total water production in May of 538,507 barrels of water for Continental, waste water or the water they needed to use in order to produce 514,377 barrels of oil? If they used 538K barrels of water to produce 514K of oil shouldn’t that be considered negative EROEI? I ask cause i’m not an oil person or expert.

        • Waste water. I would assume they don’t haul most of the water, and disposal costs are closer to $2/bbl.

          • Sean,

            You assume wrong. Most of the wastewater is trucked out. While a percentage of wastewater is recycled and a percentage is shipped via pipelines, the majority is still transported by truck and disposed.

            I have seen total estimates from $2-15 a barrel.

            So, $2 a barrel is way too low.

            steve

  4. Northwest Resident | August 11, 2018 at 12:19 am | Reply

    I suspect that before it is all over and done with, American industry and finance will have thrown everything but the kitchen sink at the shale oil industry to keep it going. There is no limit to the debt that will be accrued, no limit to the amount of scams and propaganda perpetrated to reel in all available suckers, no limit to how much new money they will print — no limits, period, to what will be done to keep shale oil production grinding away day by day. Until, one day, the production declines and utter idiocy of it all suddenly becomes insurmountable. And that’s when it all goes down in flames. Up to that point, they’re going to suck as much wealth out of the populace and use up as much capital as necessary, leaving an economic shell of a nation. Not much longer now I’m guessing — another year or two, maybe.

  5. Billy Lone Bear | August 11, 2018 at 6:50 am | Reply

    Steve do you have an estimate/insight as to oil cost of production per barrel?

    • Billy Lone Bear,

      If we are focusing on Shale Oil only, I would say the industry’s total cost is more than the cash they receive from operations. I don’t look at the Net income, because there can be huge impairments that cause billions in losses for the year. So, I look at the Free Cash Flow because the Shale Oil Industry relies upon a massive amount of Capital Expenditures to keep the system going.

      Also, if we consider that Shale Oil & Gas Industry has accumulated $250+ billion, I believe the number is now closer to $280 billion, in debt since it started ramping up production over a decade ago, then the COST to produce that barrel was still higher than the market price… and continues to be.

      While it is true that if the entire Shale Industry stopped drilling new wells, they would be making lots of Free Cash Flow, but production would fall off a cliff by probably 80% within a few years. This would destroy their share prices.

      steve

  6. Things will get nasty when fracking grows around the world. Countries needing income will look the other way when this wastewater gets dumped to anywhere handy. World waterways will be polluted to no end.

  7. Great fracking essay, and the additional comments – I had no idea they’re trucking most of the waster water. Thanks much Steve.

    • dale,

      One more thing. Recycling of wastewater isn’t a viable solution either. Some may have this notion that recycling is more economical than disposing of it in deep wells. Ironically, the recycling of shale oil wastewater can be even more expensive than just gathering it and disposing of it in deep injection wells.

      steve

  8. In the meantime, it is silver producers like First Majestic which are being destroyed and not shale producers : their AISC cost 10% higher silver currently is !
    Abysmal Q2 results…

  9. “The Fracking Industry is Cannibalizing Its Own Production,” discusses how “child wells” accelerate production decline and potentially have other material adverse effects on production, as well as increasing environmental damage.
    https://www.nakedcapitalism.com/2018/08/fracking-industry-cannibalizing-production-increasing-spill-risks.html

  10. And in other news from the WSJ: “Frackers Burn Cash to Sustain U.S. Oil Boom.”
    https://www.wsj.com/articles/frackers-burn-cash-to-sustain-u-s-oil-boom-1534078844?mod=hp_lead_pos5

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