US shale oil industry hit by $30bn outflows

US shale producers reported a cash outflow of more than $30bn in the first half of the year, in a sign of the challenges facing the US’s once-booming industry as the slump in oil prices begins to take effect.

The shortfall points to a rise in bankruptcies and restructurings in the U.S oil shale industry, which has expanded rapidly in the past seven years but has never covered its capital expenditure from its cash flow.

Capital spending by listed US independent oil and gas companies exceeded their cash from operations by about $32bn in the six months to June, approaching the deficit of $37.7bn reported for the whole of 2014, according to data from Factset, an information service.

US oil production fell in May and June, according to the US Energy Information Administration, and some analysts expect it to continue falling as financial constraints limit companies’ ability to drill and complete new wells.

Companies have sold shares and assets and borrowed cash to increase production and add to their reserves.

The aggregate net debt of US oil and gas production companies more than doubled from $81bn at the end of 2010 to $169bn by this June, according to Factset.

Terry Marshall of Moody’s, the rating agency, said: “The capital markets have been so strong and so open for these companies that a lot of them were able to raise a lot of debt.”

Capital markets have remained open for US oil and gas companies despite the crude price more than halving in the past year.

However, there are now signs that the flow of capital is slowing. US exploration and production companies sold $10.8bn of shares in the first quarter of the year, but that dropped to $3.7bn in the second quarter and under $1bn in July and August, according to Dealogic.

Similarly, those companies were selling an average of $6.5bn worth of bonds every month in the first half of the year, but the total for July and August was just $1.7bn.

The next hurdle facing many US oil companies is the resetting of their borrowing base: the valuation of their oil and gas reserves that banks use to determine how much they will lend.

Borrowing bases are generally set twice a year, and the new levels, which will typically take effect from October 1, will reflect significantly lower expectations for oil prices than the round agreed in the spring.