Drillers face $43 billion cash shortfall in 2017, study says

North American drillers could face a $43 billion cash shortfall this year even with oil prices on the rise, according to a new study.

U.S. shale drillers and Canadian producers would need oil prices to skyrocket to $80 a barrel oil to finance operations without borrowing more money or cutting spending by a whopping 40 percent, consultancy AlixPartners said in a study released Thursday.

The gap in the cash flow they need to keep operating in shale oil patches across the United States isn’t nearly as large as it was last year, when AlixPartners said the industry lacked $130 billion on much lower oil prices.

But oil companies that haven’t already gone through bankruptcy proceedings or fixed their balance sheet problems by other means are still at a stark disadvantage. These firms have on average $26,000 for each barrel of oil equivalent per day they produce, twice as much as rivals that have already restructured their balance sheets. More than 200 North American oil producers and energy services companies filed for bankruptcy over the past two years, according to Dallas law firm Haynes & Boone.

Despite the influx of optimism in the oil patch, drillers and service companies will likely continue to restructure their balance sheets or sell themselves in mergers and acquisition deals. AlixPartners said companies should behave as if crude prices are still around $45 a barrel, “to keep any surprises on the upside, not the downside.”

“For those companies that take requisite actions, at long last 2017 could be a year of rebuilding,” said Bill Ebanks, managing director of AlixPartners’ oil, gas and chemicals practice, in a written statement.

AlixPartners also said it estimates oil field service companies that operate on land have seen profitability fall 68 percent over the past three years, even as they cut 250,000 jobs around the world. Don’t expect a full recovery this year, but more of a transition to higher demand in 2018, the consultancy said.

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