As Oil Prices Drop And Money Dries Up, Is The U.S. Shale Boom Going Bust?

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The shale oil boom that catapulted the U.S. into being the world’s largest oil producer may be going bust. Oil prices are dropping amid weakening demand, bankruptcies and layoffs are up, and drilling is down — signs of a crisis that’s quietly roiling the industry.

That has a lot to do with the business model of U.S. shale, says David Deckelbaum, an analyst at investment bank Cowen. “This is an industry that for every dollar that they brought in, they would spend two,” he says.

Today, shrinking global demand for oil is driving the price down once again. What’s different this time around? Investors no longer seem willing to write the industry a blank check.

I think now you’ve seen a lot of pressure of, ‘We want you to be a real business. Your cost structure’s too high, you have too much debt, I’m not funding your drilling anymore with external capital. You have to live within your own means,’ ” Deckelbaum says.

Without access to new cash, many producers are pulling back on exploration. The number of rigs drilling for new oil is at its lowest point in two years.

He’s not the only one feeling the pinch. Halliburton, one of the biggest players in U.S. shale drilling, has laid off nearly 3,000 workers. In the Permian Basin, the country’s most prolific oil field, employment has almost completely stalled out — after growing more than 11% last year.

Meanwhile, many of the smaller producers who piled up debt are struggling to pay it back. That has led to a wave of bankruptcies — nearly three dozen so far this year.

“I think as an industry we’re going to be OK,” he says. “But I think there’s a lot of people that are kinda holding their breath.”

Article URL : https://www.npr.org/2019/11/20/780879474/as-oil-prices-drop-and-money-dries-up-is-the-u-s-shale-boom-going-bust

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