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Three Things to Watch as Oil Companies Count Costs of the Bust

  • Shale drillers bleeding cash struggle to sell assets
  • Oil's 50 percent drop brings billion-dollar writedowns

More than a year into the worst oil bust in a generation, companies keep tallying the carnage. Most of the industry’s third-quarter results will be reported over the next two weeks. Here are three numbers to watch:

1. Writedowns

Southwestern Energy Co. set the tone on Oct. 22 with a $2.8 billion charge, twice as much as forecast by Barclays Plc. There’s more to come. Barclays predicted $20 billion in writedowns from six companies in an Oct. 21 report. That’s because some producers use an accounting method that requires them to take charges when estimates of future cash flow fall below the cost to acquire land and drill wells. Of the 61 companies in the Bloomberg Intelligence North American Independent Explorers & Producers index, 25 use that approach, including Devon Energy Corp., Apache Corp. and Chesapeake Energy Corp.

2. Cash Flow

During the boom years, shale drillers spent far more money drilling than they earned selling oil and gas, plugging the shortfall with debt. In the second quarter, only five of the 61 companies in the index spent within cash flow. They’ve idled hundreds of rigs and laid off thousands of workers. That may not be enough. “Oil and gas prices remain too low to properly fund operations,” Wells Fargo & Co. said in an Oct. 22 report.

Shale drillers consistently spend more than they make
Shale drillers consistently spend more than they make

3. Asset Sales

Companies have been trying to raise cash by putting assets on the auction block. California Resources Corp. said in an Oct. 13 presentation that it’s considering selling properties to pay down debt. Unfortunately, selling acreage when oil is falling is tough -- no one wants to catch a falling knife. Producers have had to accept lower prices for their properties, and some companies, including Anadarko Petroleum Corp., have lost money on divestitures.

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