In the United States, small players in shale oil are under pressure

At 12 million barrels a day, oil production in the United States continues to set records. At mid-year, 1.4 million barrels more over a year were extracted from the subsoil, according to the latest data available from the EIA, the US Energy Agency.
But if we take a closer look, the shale oil boom

   , at the origin of these records of production, however, conceals fragilities.

Between early January and mid-August, 26 failures were recorded in the oilfield, almost as much as in the whole of 2018 (28), says Haynes & Boone. "We are starting to see more failures in the industry after a relatively quiet year in 2018, and several lower-rated debt issuers are emerging in financial distress," said Thomas Watters, an Oil & Gas analyst at S & G Global Ratings.

Not everyone will be saved

All are small and medium-sized companies, such as Halcon Resources or Sanchez Energy, operating in the Permian Basin of Texas. "It is too early to predict a new wave of bankruptcies based on what has been recorded recently, but is clear that some market players have lost hope that a rise in prices can save everyone among those who were weakened by the fall of prices in 2015, "analysis Haynes & Boone, specializing in corporate restructuring. The trade war between Washington and Beijing weighs particularly on oil prices. The WTI price quoted in New York has dropped below $ 60 since June and is now trading at less than $ 55 per barrel.

Without going to the bankruptcy filing, other companies have seen these last months their share price tumbled after having revised their outlook downward, like Apache or Withing Petroleum. This summer, the Concho Resources price also dropped after the company reviewed a major drilling program in the Permian Basin – due to drilling that was finally found to be too close to each other and therefore less productive.

The economic model of shale oil remains fragile, some analysts point out: the wells being exhausted very quickly, it is necessary to drill new ones permanently to maintain the production, and thus to invest. "Historically, shale companies have relied on bond markets to finance their operations. Without additional funding and debt refinancing, capital spending will have to be cut, "said Rystad in the spring.

Consolidation

While only 10% of the panel of companies monitored by the firm were in positive cash-flow at the beginning of the year, they have obviously tightened their costs and investments: in the second quarter, 35% earned more cash than did not come out. But some doubt that this will be enough. "There will be a significant wave of debt to be repaid or refinanced in the next four years," says Watters.

Failing to attract new financing, production could slow down. She knows a plateau since the beginning of the year, show the figures of the EIA. "Going into bankruptcy is a fairly standard procedure for heavily indebted companies. The underlying trend in
the shale industry

   it's not the balance sheet but the consolidation, "says Alisa Lushak, an analyst at Rystad Energy.