The financial pressures sweeping the shale oil and gas sector in the United States have led to a sharp contraction in activity.
Oil and gas activity in Texas and parts of New Mexico declined in the third quarter of this year, with a negative reading indicating contraction and a positive expansion, according to Nick Cunningham.
The decline indicates that the rigs have reduced drilling activity over the past three months.
High costs
The slowdown in drilling is a major problem for oilfield service companies, which provide the equipment, manpower and drilling services needed by oil companies.
High costs were problematic for rock excavators, although they were increasing at a much slower rate.
According to the Dallas Fed survey, 42% of executives from 142 oil and gas companies said lower prices were the biggest obstacle to growth.
20% of respondents said that their lack of access to capital is the biggest constraint, while another 13% indicated that the obstacle is investor pressure to provide free cash flow.
In contrast, only a small percentage of managers stated that infrastructure and labor shortages are the biggest barriers to growth.
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The comments were the most interesting part of the Dallas Fed questionnaire, because the executives who concealed their identities were too frank, the writer says.
Pessimistic comments addressed market volatility, trade war fears, operational problems and environmental complaints.
From these comments:
- The capital market has dried up for small oil companies.
No one seems to have the money for oil and gas projects, and the Wall Street Exchange does not offer any involvement in the oil sector.
- Many shale projects fail to meet production expectations.
- We are seeing an increase in supply costs, and sellers attribute the increase to customs duties.
- More than $ 130 billion of "worthless bonds" will be repayable after 2020 over two years for those involved in the drilling business, with wells dropping by 70% in the first year.
- US oil production is on the verge of decline.
- The number of drilling rigs has fallen dramatically in the last year.
- I expect there will be many bankrupt companies looking for help in the next six months.
- With regard to the proposed carbon taxes, this would kill the domestic oil industry in the United States, which made this country ranked first in the world in the list of oil producing countries.
Accumulated debts
This poll contains few optimistic comments, if any at first.
"In fact, this situation does not mean that the collapse of the industry is coming soon."
"In short, we do not believe that the recent bankruptcies that have rocked a number of people involved in oil shale indicate an industry-wide epidemic," he said.
However, it is difficult to ignore the deep sense of despair experienced by many shale executives.
Ristad Energy noted that the top 40 shale companies have $ 100 billion of outstanding debt over the next seven years.