"Shakeout threatens shale patch as frackers go for broke."

Bloomberg: “The U.S. shale patch is facing a shakeout as drillers struggle to keep pace with the relentless spending needed to get oil and gas out of the ground. Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent, according to a Bloomberg News analysis of 61 shale drillers.”
“A dozen of those wildcatters are spending at least 10 percent of their sales on interest compared with Exxon Mobil Corp.’s 0.1 percent.“The list of companies that are financially stressed is considerable,” said Benjamin Dell, managing partner of Kimmeridge Energy, a New York-based alternative asset manager focused on energy. “Not everyone is going to survive. We’ve seen it before.”Some investors are already bailing out. On May 23, Loews Corp. (L), the holding company run byNew York’s Tisch family, said it is weighing the sale of HighMount Exploration & Production LLC, its oil and natural gas subsidiary, at a loss.
….In a measure of the shale industry’s financial burden, debt hit $163.6 billion in the first quarter, according to company records compiled by Bloomberg on 61 exploration and productioncompanies that target oil and natural gas trapped in deep underground layers of rock. And companies including Forest Oil Corp. (FST)Goodrich Petroleum Corp. (GDP) andQuicksilver Resources Inc. (KWK) racked up interest expense of more than 20 percent.
….Drillers are caught in a bind. They must keep borrowing to pay for exploration needed to offset the steep production declines typical of shale wells. At the same time, investors have been pushing companies to cut back. Spending tumbled at 26 of the 61 firms examined. For companies that can’t afford to keep drilling, less oil coming out means less money coming in, accelerating the financial tailspin. The drilling spree boosted U.S. oil production to 8.4 million barrels a day, 16 percent more than a year ago and the highest since 1986. Growth has been driven by advances in horizontal drilling and hydraulic fracturing, or fracking, which unlocked crude and natural gas trapped in formations like North Dakota’s Bakken shale or the Marcellus in the U.S. northeast.
….The gains haven’t come cheaply. Goodrich said earlier this month that it’s trying to whittle its well costs in the Tuscaloosa Marine Shale down to $11.5 million apiece. The $1.1 billion company, based in Houston, spent almost $52 million more than it earned in the first quarter.”