Shale drillers spending most of their cash paying off high debt

HOUSTON — After a credit-fueled energy boom and a punishing downturn, U.S. shale drillers now spend the vast majority of their operating cash flow paying off the debt they took out to expand their drilling.

The U.S. Energy Information Administration says in the second quarter, 83 percent of domestic oil companies’ operating cash flow went to paying off debt balances as their cash piles shrink because of cheap crude.

That compares to 58 percent in the second quarter of 2014 and about 44 percent in early 2012. Over the last five years, oil companies have collected more than $250 billion in risky junk bonds to extract millions of barrels of crude from shale rock in Texas and North Dakota, eventually leading to a global oil glut that has cut the price of oil by more than half.

“Low oil prices have significantly reduced cash flow for U.S. oil producers, and to adjust to lower cash flows, companies have reduced capital expenditures and raised more cash from debt and equity,” the EIA said.

“As the share of debt repayment to operating cash flow increases, a company is left with less cash to use for investment opportunities, dividends or savings for future use.”

Related: More oil driller defaults coming as banks restrict lending

If oil prices stay low next year, it could get worse. North American oil explorers have only hedged about 11 percent of their oil production in 2016. That’s well below the 28 percent of oil production they’ve hedged in the third quarter of this year, according to research firm IHS.

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