Shale Gas Generating Record Cash Flows In US

By Paul Homewood




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.


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:



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


March 23, 2021 at 12:24PM

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