by Wolf Richter • July 30, 2014
Fracking has caused an uproar in local communities and split some in two. It has brought environmentalists to a boil. It allegedly caused tap water to go up in flames. A documentary was made in its honor. It caused earthquakes in Oklahoma and other places. It caused Wall Street to froth at the mouth. And now it is causing the balance sheets of oil and gas companies to blow up.
It always starts with a toxic mix. Now even the Energy Department’s EIA has checked into it and after crunching some numbers found:
Based on data compiled from quarterly reports, for the year ending March 31, 2014, cash from operations for 127 major oil and natural gas companies totaled $568 billion, and major uses of cash totaled $677 billion, a difference of almost $110 billion.
To fill this $110 billion hole that they’d dug in just one year, these 127 oil and gas companies went out and increased their net debt by $106 billion. But that wasn’t enough. To raise more cash, they also sold $73 billion in assets. It left them with more cash (borrowed cash, that is) on the balance sheet than before, which pleased analysts, and it left them with a pile of additional debt and fewer assets to generate revenues with in order to service this debt.
It has been going on for years. In 2010, the hole left behind by fracking was only $18 billion. During each of the last three years, the gap was over $100 billion. This is the chart of an industry with apparently steep and permanent negative free cash-flows