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Frackers could soon face mass extinction

Frackers could soon face mass extinction

An analyst says one-third of the companies could be bankrupt by the end of next year.

Doomsday may finally be coming to the fracking industry.

Despite the big drop in oil prices in the past year, there have been relatively few bankruptcies in the energy industry. That may be about to change. James West, an energy industry analyst at ISI Evercore, says months of low activity have left many of the companies in the hydraulic-fracturing business either insolvent or close to it. He says as many as a third of the fracking companies could go bust by the end of next year.

 “This holiday will not be a time of cheer in the oil patch,” says West.

So far oil and gas exploration companies, while cutting back somewhat, have continued to spend based on budgets set a year ago when oil prices were much higher. But now West says the price of oil is catching up to them, and they may soon have to drastically cut back their spending on services. The catalyst is the banks.

Banks lend to oil exploration companies based on the value of their reserves. But they only audit the value of those reserves every October. Given how much oil prices have tumbled in the past year, many analysts expect banks to greatly reduce in the next month how much they are willing to lend to oil and gas companies. Regulators, worried banks may face losses, have recently been pressuring banks to cut back their lending to oil and gas companies.

On Friday, credit ratings firm Standard & Poors reported that its distressed ratio, which measures the percentage of corporate borrowers that investors appear nervous may not be able to pay back their debt, had reached the highest level since 2011. The oil and gas sector accounted for the largest number of the distressed borrowers, 95 out of 270.

Most of the fracking firms that face extinction are relatively small. But the problems are starting to affect some of the bigger companies in the industry. On S&P’s list of distressed borrowers is Linn Energy, a $1 billion market cap oil and gas exploration company based in Houston. It has nearly 2,000 employees. Shares of Linn LINE -4.71% have dropped 90% in the past year. S&P says the company has nearly $6 billion in outstanding distressed debt.

Also on S&P’s list are publicly traded fracking companies Basic Energy Services BAS -5.40% and Seventy Seven Energy SSE 3.37% .

drilling site getty images

Photograph by Robert Nickelsberg — Getty Images

 

 

Source: Fortune

By: Stephen Gandel    

LINK: http://fortune.com/2015/09/26/frackers-could-soon-face-mass-extinction/

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Stone Energy Shutting in Its West Virginia Production

By Bob Downing Published: September 25, 2015

LINK: http://www.ohio.com/blogs/drilling/ohio-utica-shale-1.291290/stone-energy-shutting-in-its-west-virginia-production-1.627093

From a Friday press release:

Stone Energy Corporation Provides Production, Operational and Conference Update

LAFAYETTE, La., Sept. 24, 2015 /PRNewswire/ — Stone Energy Corporation (NYSE: SGY) today provided a production, operational and conference update.

On September 1, 2015, Stone shut-in its Mary field in Appalachia curtailing approximately 100-110 Mmcfe of production per day, leaving approximately 25 Mmcfe per day producing from the Heather and Buddy fields in Appalachia. Low commodity pricing, including negative differentials in the region, combined with fees for transportation, processing and gathering, reduced the operating margins to an unacceptable level.  As a result, despite being above production guidance for the first two months of the third quarter, production for the quarter is now expected to be below the previously stated guidance range of 39-41 Mboe per day, or 234-246 Mmcfe per day, and is being revised to 37.5-38.5 Mboe per day, or 225-231 Mmcfe per day.  If the Mary field remains shut-in, the annual guidance of 42-44 Mboe per day, or 252-264 Mmcfe per day, will need to be adjusted to account for these curtailed volumes.  Given the low margins in Appalachia, the cash flow impact from the curtailed volumes is not expected to be material for the third quarter.   Higher margin Gulf of Mexico volumes experienced minimal downtime in the third quarter. 

The ENSCO 8503 deepwater drilling rig has completed its scheduled maintenance and has been outfitted with mooring capabilities.  Stone expects to resume rig operations before October 1, 2015 and the rig will be mobilized to Mississippi Canyon block 26 to finish the completion of the Amethyst discovery (100% working interest).  Amethyst will be tied back to the Pompano platform, where first production is expected early in the first quarter of 2016.   After the Amethyst completion, the rig is currently projected to drill the Cardona #7 development well, followed by the Lamprey and Derbio deep water exploration prospects. 

The Vernaccia exploration well, which targets the Miocene interval in a four-way structure, is projected to spud by early October 2015 and is operated by Eni.  After a recent sell down of a portion of its position, Stone now has approximately 4% working interest in the drilling cost of the well and will have an approximate 22% working interest ownership thereafter.  The well is estimated to take three months to drill.

The company also announced that David H. Welch, the company’s Chairman, President and Chief Executive Officer, will be presenting at the Johnson Rice Energy Conference in New Orleans, Louisiana at 2:05 p.m. Central time on Monday, September 28, 2015. A live webcast will be available in the “Events & Presentations” section of the company’s website, www.StoneEnergy.com.  The presentation material will also be available in the “Events & Presentations” section of the company’s website within 24 hours of the presentation.

Stone Energy is an independent oil and natural gas exploration and production company headquartered in Lafayette, Louisiana with additional offices in New Orleans, Houston and Morgantown, West Virginia. Stone is engaged in the acquisition, exploration, development and production of properties in the Gulf of Mexico and Appalachian basins.  For additional information, contact Kenneth H. Beer, Chief Financial Officer, at 337-521-2210 phone, 337-521-9880 fax or via e-mail at CFO@StoneEnergy.com.

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