US Shale Boom to Bust?
The US shale revolution has not only transformed the country into the world’s largest oil and gas producer, but has made it the leading exporter as well. The reduction of regulatory hurdles has expanded production and increased competitiveness. The enormous profits experienced by many companies seem like nothing more than a distant past with the oil and gas supply glut to go with crashing prices.
Source: EIA.
One of the behemoth players in the industry, Chevron (CVX), posted a $6.6 billion dollar loss for the 4th quarter of fiscal year 2019 on January 31. This largest quarterly loss for the company in over 15 years was due largely to $10.4 billion worth of write-offs related to shale oil and gas production.
Fossil Fuels Have Fallen Out of Favor
It seems much of the general public and investors alike have turned on fossil fuels. Pension funds and money managers around the world have sold their positions and many have even said they are ‘done with fossil fuel’ stocks. Fracking and the dangers of environmental destruction and climate change have been a hot topic of late and not for good reason. The push to go green and seek out alternative sources of energy have pushed to the forefront. Chevron has been a poster child for fossil fuels and has been feeling the wrath for sometime now.
One doesn’t need to luck much further than the energy sector’s weight in the S&P 500 Index to notice a disturbing trend. As the S&P 500 has continued to make new all-time highs, oil and gas stocks’ importance has waned.
Pessimistic Outlook
The near term outlook for Chevron does not look very hopeful and longer term prospects may be even more dire. The shale boom has led to overproduction and lower prices, while public perception and investor confidence has turned on the oil and gas industry. This appetite for destruction keeps CVX in our Icarus category, reserved for one-time stars that have burned out.
February 21, 2020.