Can Shale Survive Another Bust?
By Paul Takahashi
The shale oil and gas industry faced an uncertain future long before oil markets crashed this week as burgeoning supplies, lackluster prices, dwindling capital and increasing competition from renewable energy squeezed profits, cut employment and pushed some companies into bankruptcy.
The dramatic plunge of crude to around $30 a barrel — half the price at the beginning of year — is likely to accelerate those trends, forcing more layoffs and bankruptcies and delivering another blow to the Houston economy. As with the last oil bust, which stretched from 2014 to 2016, only the strongest, best financed and most efficient companies will survive if prices remain depressed over a long period, analysts said, again reshaping the industry into one that is smaller, leaner and employing far fewer workers.
The S&P 500 Energy Index on Thursday fell to its lowest level in 16 years.
“The energy sector has been a monstrous laggard in the stock market for quite a while now,” said Fred Zeidman with the Gordian Group, an independent investment bank specializing in distressed companies. “Wall Street has gone on to greener pastures.”
Oil and gas companies must now fund exploration and pay back its debts from cash generated from operations. But after oil markets cratered last week, revenues are certain to fall.