Steve Schlotterbeck, who led drilling company EQT as it expanded to become the nation’s largest producer of natural gas in 2017, arrived at a petrochemical industry conference in Pittsburgh Friday morning with a blunt message about shale gas drilling and fracking. “The shale gas revolution has frankly been an unmitigated disaster for any buy-and-hold investor in the shale gas industry with very few limited exceptions,” Schlotterbeck, who left the helm of EQT last year, continued. “In fact, I’m not aware of another case of a disruptive technological change that has done so much harm to the industry that created the change.” “While hundreds of billions of dollars of benefits have accrued to hundreds of millions of people, the amount of shareholder value destruction registers in the hundreds of billions of dollars,” he said. “The industry is self-destructive.” Schlotterbeck is not the first industry insider to ring alarm bells about the shale industry’s record of producing vast amounts of gas while burning through far more cash than it can earn by selling that gas. And drillers’ own numbers speak for themselves. Reported spending outweighed income for a group of 29 large public shale gas companies by $6.7 billion in 2018, bringing the group’s 2010 to 2018 cash flow to a total of negative $181 billion, according to a March 2019 report by the Institute for Energy Economics and Financial Analysis. But Schlotterbeck’s remarks, delivered to petrochemical and gas industry executives at the David L. Lawrence Convention Center in Pittsburgh, come from an individual uniquely positioned to understand how major Marcellus drillers make financial decisions — because he so recently ran a major shale gas drilling firm. Schlotterbeck now serves as a member of the board of directors at the Energy Innovation Center Institute, a nonprofit that offers energy industry training programs. His warnings on Friday were also offered in unusually stark terms.
‘Destroyed on Average 80 Percent of the Value of Their Companies’
“The technological advancements developed by the industry have been the weapon of its own suicide,” Schlotterbeck added, referring to the financial impacts of shale gas drilling on shale gas drillers. “And unfortunately, the industry still has not fully realized how it’s killing itself. Since 2015, there’s been 172 E&P company bankruptcies involving nearly a hundred billion dollars of debt.” “In a little more than a decade, most of these companies just destroyed a very large percentage of their companies’ value that they had at the beginning of the shale revolution,” he said. “It’s frankly hard to imagine the scope of the value destruction that has occurred. And it continues.” At the Friday conference, he displayed a slide showing the stock prices of eight major Marcellus shale gas drillers: Antero, Range Resources, Cabot Oil and Gas, Southwestern Energy, CNX Gas, Gulfport, Chesapeake Energy, and EQT, the company that Schlotterbeck ran until he resigned in March 2018. Seven of the eight companies saw their stock prices fall between 40 percent and 95 percent since 2008, the slide showed. “Excluding capital, the big eight basin producers have destroyed on average 80 percent of the value of their companies since the beginning of the shale revolution,” Schlotterbeck said. “This is not the fall from the peak price during the shale decade, this is the drop in their share price from before the shale revolution began.” “The fact is that every time they put the drill bit to the ground, they erode the value of the billions of More recently, shale gas producers have begun to feel the heat from investors who are pushing to see signs that the gas can be produced not just in high volume, but also at a profit. “As a result of investor pressure, all these companies have committed to lower growth rates and to live within cash flow,” said Schlotterbeck. He noted that the drillers had slashed their gas production growth forecasts from over 20 percent down to 11 percent this year. “Yet both the gas commodity market and the equities market are saying this is not nearly enough of a cut.” “Over the past year or so, most of the producers have shifted away from the phenomenal growth rates of the past to more moderate growth projections,” Schlotterbeck said. “The market is clearly telling them that they haven’t slowed down enough.”
Frackers Projected Returns ‘Should Not Exist’ — and Don’t
“Reality indicates to me that there’s a lot of these companies that still don’t get it,” he said. “They still think they’re gonna earn 40, 50, 60 percent returns on their investment, even after six years now of saying that and getting negative returns.”