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Source: Institute for Energy Economics and Financial Analysis

Fracking-focused enterprises continue to produce glut in gas, not profits

August 19, 2019 (Sightline/IEEFA) ‒ A review of 29 major fracking-focused oil and gas companies revealed meager cash returns in the second quarter of 2019, according to a briefing note released today by Sightline Institute and the Institute for Energy Economics and Financial Analysis (IEEFA).

The report, U.S. Fracking Sector Disappoints Yet Again, notes that only 11 of the 29 companies under review registered positive free cash flows. All told, the 29 companies generated just $26 million in aggregate free cash flows—too little to make a significant dent in the more than $100 billion in long-term debt they owe.

“There were winners and losers this quarter, but overall, the oil and gas sector is still underperforming on virtually every financial measure,” said Clark Williams-Derry from Sightline Institute who co-authored the briefing note.

The analysts found that:

  • S. fracking-focused oil and gas companies registered largely mediocre results during the second quarter of 2019
  • The E&Ps reported only $26 million in free cash flows from April through June 2019, a modest amount compared to over $100 billion in the companies’ long-term debt
  • Investors have soured on the sector, limiting the industry’s ability to tap into debt and equity markets.

“As underwhelming as these results were, they were an improvement over previous quarters,” said IEEFA director of finance Tom Sanzillo. “Still, investors would do well to remain skeptical and view the sector as highly speculative.”

Free cash flow measures the amount of cash generated by a company’s core business minus its capital spending. Sightline and IEEFA consider free cash flow a critical measure of financial health.

“Normally, positive free cash flow gives companies the ability to pay down their debt and reward stockholders, but so far, the fracking sector has been largely unable to achieve this,” said IEEFA financial analyst Kathy Hipple.

Much of the positive cash flow was attributed to one company in particular ‒ EOG Resources ‒ that posted $1.1 billion in free cash flow for the quarter, a turnaround of $1.5 billion quarter-over-quarter.

At the close of Q2 in 2019, the oil and gas sector was near the bottom of the Standard & Poor’s 500. By August 15, the sector hit rock bottom, with drilling, exploration and production and equipment and services leading the decline.

“Even the positive returns from EOG Resources failed to stop the downward slide of the company’s stock price,” said Williams-Derry. “Fracking remains a highly tenuous proposition for investors.”

Free Cash Flow, Selected E&Ps

Apache Corporation APA              96              64            (25)          (265)              53
Anadarko Petroleum Corporation APC          (505)              33            335          (260)          (526)
Antero Resources Corporation AR          (266)          (146)            287              67          (124)
Chesapeake Energy Corporation CHK          (232)            (57)          (126)            (74)          (178)
Continental Resources CLR              11              98            175            (32)            (21)
Cabot Oil & Gas Corporation COG              43            (18)              69            390            101
Callon Petroleum Company CPE            (79)            (41)              (4)          (119)            (16)
Carrizo Oil & Gas CRZO            (59)            (64)          (301)            (46)            (15)
Concho Resources CXO            124            (85)          (198)          (282)            (97)
Denbury Resources DNR              68              60              20            (24)              54
Devon Energy DVN            (48)            236            (78)          (182)            116
EOG Resources EOG            258            540            783          (393)        1,124
EQT Corporation EQT          (327)          (257)          (346)            500              49
Diamondback Energy FANG          (192)          (173)      (1,407)          (411)          (154)
Hess Corporation HES            (68)          (117)            217          (433)              51
Laredo Petroleum LPI            (50)            (37)            (25)            (78)              45
Marathon Oil Corporation MRO            129            194            171          (100)            150
Matador Resources Company MTDR          (162)          (563)          (106)          (157)            (65)
Noble Energy NBL          (499)          (110)          (130)          (235)            (78)
Oasis Petroleum OAS              22            (77)            (74)            (63)            (74)
PDC Energy PDCE            (62)            (58)              45            (90)            (25)
Pioneer Natural Resources Company PXD              64          (104)          (187)          (209)            (43)
QEP Resources QEP          (186)              27            (78)            (87)            (36)
Range Resources Corporation RRC          (113)              20              26              47            (14)
SM Energy Company SM          (275)            (80)          (100)          (131)            (67)
Southwestern Energy Company SWN            (82)            (17)            (30)            184          (227)
Whiting Petroleum Corporation WLL              99            (67)              48            (47)              (9)
WPX Energy WPX            (56)          (129)          (232)          (179)              39
Cimarex Energy Company XEC            (43)            (66)            (50)          (100)              13
Total, selected E&Ps        (2,390)          (994)      (1,321)      (2,809)              26

Authors

Clark Williams-Derry (clark@sightline.org) is Director of Energy Finance for Sightline Institute

Tom Sanzillo (tsanzillo@ieefa.org) is IEEFA’s director of finance

Kathy Hipple (khipple@ieefa.org) is an IEEFA financial analyst

Full Report: U.S. Fracking Sector Disappoints Yet Again

Media Contacts: Vivienne Heston (vheston@ieefa.org) +1 (914) 439-8921

Anne Christnovich (anne@sightline.org) +1 (206) 498-1887

About Sightline

Sightline Institute is an independent, nonprofit research and communications center. More can be found at www.sightline.org.

 

About IEEFA

The Institute for Energy Economics and Financial Analysis conducts research and analyses on financial and economic issues related to energy and the environment. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org

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