Over the last 10 years, hydrocarbon extraction from shale formations has initially made the United States the world's largest oil and gas producer. For the time being, this industry has numerous high-paying jobs, not only in the oil and gas sector, but also in the technology areas, including software and hardware, heavy equipment manufacturing, transportation, materials, and construction – from pipelines to houses within fields boundaries. So that it "feeds" a significant part of US industrial production.
But the industry has had a negative cash flow since its inception, i.e. revenues have failed to cover expenses. At the initial stage this was overlooked, with compensation packages developed to generously reward any expansion of production with an eye to future earnings. However, the meteoric rise of the shale industry has become its curse at the same time, provoking an oversupply with a subsequent slump of prices. As a result, the decade saw the 40 largest industry representatives spending nearly $ 200 billion more than they earned, making further development for borrowed money with rising rates and falling prices impossible. There were other problems as well – the "cream" has been skimmed off; in quest for oil, companies move to lower-quality areas or drill wells close to each other, which reduces productivity.
The reduction of loan facilities puts many companies at risk and forces them into bankruptcy due to the insufficient cash flow to service the debt. According to the American law firm Haynes and Boone, 192 bankruptcies of oil producers with debts of over $ 106 billion have been registered since 2015, as well as another 185 bankruptcies of oil service companies that owe $ 65 billion. In 3Q 2019 alone, 32 driller operators declared bankruptcy, including the giants Sanchez Energy Corp., Halcon Resources Corp., Bristow Group, PHI, Jones Energy and Rex Energy. Among them is Approach Resources, one of the largest natural gas producers. November 5 witnessed SEC warn about the possible bankruptcy of Chesapeake Energy, one of the leaders both in the oil and gas spheres. It has long been accumulating debt and selling assets to raise money and continue drilling, but its debt still stands at nearly $ 10 billion. Recently, Weatherford International oilfield service company, a leading drilling services provider, informed about preparing for bankruptcy proceedings.
According to Wall Street Journal estimates, in 2020-2022, the amount of debt obligations of shale companies will increase from 9 billion in 2019 to 137 billion dollars by 2022, and bankruptcy process for shale companies will continue.
Investors who has trusted the ongoing hype in the industry are now frequently facing reality of their money being muddled. In 2019, US shale stocks fell by 50-80%, with Unit Corp. (UNT) securities losing 97% of cost. Banks and investment funds pumped twice as little into the industry as in 2017, further undermining confidence in it.
Companies are forced to reduce both production and investment to compensate for the fall in extraction at cleavable structure. Thus, Diamondback Energy Inc., Callon Petroleum Co. and Cimarex Energy Co. that are actively developing the most promising Permian shale field, warned of not intending to promote investment in 2020. Chesapeake Energy and EQT Corp reported a decline in production with an eye to future price increases. As a result, according to Baker Hughes, the number of oil rigs has decreased by 2.4 times since 2014, including the 24.3% in 2019, with the number of gas installations falling to a fresh minimum since October 2016.
Under the current circumstances, shale oil production is slowing down in early 2020, with production falling at all the major fields, except Permian.
According to the IEEFA report, until companies generated by the shale boom prove able both to produce hydrocarbons and raise money, investors will regard the industry as a mushroom enterprise with a shady outlook and an unreliable business model. And, as one of the largest US investment banks, Goldman Sachs, warned, once the trend continues, by 2025 the shale may lose its economic sense because what we have now are "all the symptoms of depletion".