Skip to content

Shale Gas Generating Record Cash Flows In US

March 23, 2021
tags: ,

By Paul Homewood

 

 

image

The shale industry is making it rain for investors, generating record free-cash-flow (FCF) on the back of pandemic-related cost-cutting and rising oil prices. And the party is just getting started.

Oil prices are expected to continue to rise as the year progresses, and the global economy recovers with Covid-19 vaccinations ramping up. Wall Street bank Goldman Sachs now sees Brent prices averaging $75 a barrel in the second quarter and $80 in the third quarter, up from around $70 now.

U.S. benchmark West Texas Intermediate (WTI) typically trades about $5 a barrel below Brent, and recent WTI prices of $65 have most shale plays firmly in the black, generating strong returns.

This marks a step-change for shale, a sector infamous for its “cash burn” — where capital expenditures exceed cash flow from operations — since its inception a decade ago.

The sector’s newfound profitability has made U.S. exploration and production (E&P) companies darlings with investors in recent months. It could prompt greater access to capital markets if these firms can stay the course and resist the urge to invest in lower-return growth projects. And based on recent Q4 earnings presentations, the leading U.S. shale E&Ps plan to do just that.

The result will be an unprecedented windfall for these companies and their shareholders.

Consultancy Rystad Energy estimates that the U.S. shale industry will generate about $73.6 billion in cash flow from operations this year, up nearly a third over last year, based on a WTI price of $50. 

https://www.forbes.com/sites/daneberhart/2021/03/20/the-shale-party-is-just-getting-started/?sh=425ed5f28b62&mc_cid=39bbe7a200&mc_eid=4961da7cb1

 

This is a strong sign that global demand for oil and gas is already recovering rapidly from last year, and that demand will remain at high levels going forward. Canary in the coal mine is China, where despite the pandemic oil and gas production grew last year by 1.6% and 9.8% respectively:

image

https://chinaenergyportal.org/en/2020-electricity-other-energy-statistics-preliminary/

 

The rest of the world obviously knows something Mark Carney does not.

8 Comments
  1. It doesn't add up... permalink
    March 23, 2021 9:32 pm

    In just 1 week, gas in storage was depleted by 156bcf in the Southern US, and sold for prices of up to $300/MMBtu. That’s an enormous cash flow right there – $46.8bn. How much filters back to producers is an interesting question.

    • March 24, 2021 11:49 am

      None if theyre fully hedged!

  2. March 23, 2021 9:52 pm

    Green Policies restrict oil supplies
    that pushes prices up
    that mean oil corps make more money
    The idea oil corps are the force behind anti-Green is BS.

  3. Mack permalink
    March 23, 2021 10:02 pm

    I see Biden’s working his magic with US gasoline prices too. Since his inauguration, a couple of months ago, and a flurry of ‘climate change’ driven executive policy orders and anti fossil fuel rhetoric from his administration, the national average price at the pump has risen from US$ 2.36 to US$2.95 today. Might not harm the institutional investors too much in the short term but, I dare say, the working classes and fuel voracious businesses might start to feel the pips squeak soon, if they haven’t already. Wasn’t it Obama who said that he wanted energy prices to be expensive so as to wean us off of fossil fuels? Keep up the good work Joe, you’re on the right track.

  4. March 23, 2021 10:32 pm

    ‘The rest of the world obviously knows something Mark Carney does not.’

    Not much of an achievement really 😅

  5. Ian Wilson permalink
    March 24, 2021 10:31 am

    A spokesman for Aviva, I think David Cummings, on the Today business slot boasted about how Aviva will sell their holdings in companies “not doing enough about climate” and how they won’t touch fossil fuels In other words Aviva will bully firms which might be less ignorant about science than themselves. The interviewer then asked him about inflation threats and 2without a hint of irony Mr Cummings calmly cited a 30% rise in oil price this year. That suggests to me there’s life in the stuff yet.
    Aviva (and Legal & General who have made similar comments) look companies to avoid for investments or pensions. Oh, and if you have an auto-enrolment pension, look up Nest’s climate policy – it’s infantile, worthy of a school project for 10-y-olds e.g. puffins supposedly declined by 42% in 5 years due to climate change! Another company to avoid if you want a secure pension?

    • Jack Broughton permalink
      March 24, 2021 12:07 pm

      These CEOs are just repeating the mantras required by BB. Ultimately, they will be judged on financial results and the financial market is not sentimental or likely to be impressed by the fact that the board are less profitable than others. At the moment there is money to be made on nonsense projects like hydrogen and building insulation, so they are not risking much really, while talking the talk.

      • Gerry, England permalink
        March 24, 2021 2:46 pm

        I wonder what the liquidity will be of the green investments when the pyramid starts to collapse?

Comments are closed.

%d bloggers like this: