Going Broke In The Shale Patch – – Debt Service Rises From 40% to 80% Of Operating Cash Flow In Last 3

Times are tough for U. S. shale-oil producers – and the situation could get even tougher next month when lenders are set to reassess oil-and-gas loans.
The pressure isn’t a shock given the sharp drop in oil prices CLV5, -5.22% since mid-2014. Throw in already high debt levels for U. S. onshore oil producers, who leveraged up to ramp up production as oil prices soared, and the recipe is complete for a squeeze. The chart below from the U. S. Energy Information Administration, based on second-quarter results from 44 companies, illustrates the growing chunk of cash flow that goes to servicing debt. From July 1, 2014, to June 30, 2015, 83% of the companies’ operating cash was devoted to debt repayments – the highest since at least 2012, the EIA found.

This post was published at David Stockmans Contra Corner on September 18, 2015.