Not So Bad -- At Least Not So Far -- June 6, 2020

Note: in a long note like this, there will be typographical and content errors. If this is important to you, go to the source. 

Wow, wow, wow. Exactly what I thought but didn't say anything -- I thought it was beyond the pale, as they say.

How did I miss this story?

I think I follow "shale" fairly closely, but if so, how did I miss this story? It certainly seems it was buried. I've archived it so it isn't lost. It may have been buried because the "final chapter" has not been written.

But here's the link and a few items from the story: US shale outperforms expectations in 1Q20.

It is a summary of a Rystad Energy posted on oilprice.

It begins:

Following the publication of the energy industry’s first quarterly results since the Covid-19 outbreak, a Rystad Energy analysis reveals a surprising contrast. While the oilfield service market has taken a massive hit in earnings and profit margins, US shale operators had an impressive quarter under the circumstances, which even ended up in increased dividends.

A preliminary analysis of 204 service companies finds that revenues are down 6% compared to the same period last year, while impairment charges have skyrocketed.

Profit margins for January through the end of March 2020 were down by almost 90%, and the top 50 public service companies recorded total net losses exceeding $35 billion – far greater than the quarterly losses incurred during the previous industry crisis five years ago.

Now some data points:

• sectors with greatest revenue decreases, the usual suspects
• well services and land drillers in US shale operations
• offshore project delays are also taking a toll on service revenues
• share prices have also been hit hard; falling by almost 50% since the beginning of the year
• offshore drillers hit particularly hard

Then this:

“Although the 6% year-on-year fall in 1Q 2020 revenues appears modest compared to the massive decreases of 30% or more recorded during the last downturn, our analysis indicates that we are witnessing only the beginning. Larger declines are expected in the near term. This is bad news for an industry that still has not fully recovered from the previous crisis,” says Aleksander Erstad, energy service analyst at Rystad Energy.

More data points:

• of the 39 public US shale oil producers analyzed last  year (1Q19), due to mergers, bankruptcy and delayed filings, the group analyzed by Rystad Energy fell to 35 operators in 4Q19 and 29 operators in 1Q20

Then this:

Despite the worsening market, the sector performed much better than what many expected under the circumstances.

More data points:

• 1Q20: a surplus of more than $1 billion in cash from operations compared to capital spend during the period, even though the number of operators that managed to balance out dropped back to 45%

Quote from Rystad Energy:

“It’s the fourth consecutive quarter of positive cash balancing, and the fourth quarter in the history of the shale industry when companies didn’t overspend. This is actually quite impressive, especially for first-quarter results,” says Alisa Lukash, senior shale analyst at Rystad Energy.

More data points:

• fair value changes:
• amounted to a positive $9.6 billion, which is the highest since 2014, followed by 4Q14 at $9.5 billion and 4Q19 at $9.2 billion
• dividend payments:
• surprisingly grew by almost $50 million for the peer group in 1Q20, as operators displayed an effort to shore up plunging equity prices. The ratio of dividends to capex grew to 6.4% in 1Q20, versus 5.6% in 4Q19
• stock buyouts: paused
• debt and interest: increased by $7 billion to $140 billion since Rystad Energy's previous update in late March, 2020