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While every shale driller is cutting spending and pulling back, one prominent company is looking to sell more stock in order to finance heavier drilling.
U.S. oil and gas companies went to equity and debt markets at record rates in early 2015, but that slowed to a trickle as the year wore on. Major investors grew wary of the constant need for fresh capital amid the worst oil market downturn in decades. With oil prices not rebounding, but instead falling to even lower depths towards the end of 2015, access to fresh capital has significantly tightened.
But Pioneer Natural Resources is planning on trying its chances at issuing more equity. On January 5, the shale company announced that it would offer common stock at $117 per share, which it hopes will bring in around $1.4 billion. The price was a 6.5 percent discount on the company’s share price as of January 5. The proceeds will be used to continue to “actively develop its acreage position in the Sprayberry/Wolfcamp play in West Texas while maintaining a strong balance sheet during the current period of low commodity prices,” the company said in a statement.
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Indeed, the Permian basin in West Texas is one of the few places where some companies can still find profitable shale projects. But continuing to aggressively drill through the downturn goes against the current trend in the oil industry. Many of Pioneer’s peers are battening down the hatches by cutting spending and staff in order to quickly reduce spending. Pioneer feels that it can still turn a profit. It is not shutting down any fields this year, and has no plans on scrapping all 18 of the rigs it has contracted for drilling, according to Bloomberg. Doing everything one can to raise production to offset falling revenue from low prices is one way of dealing with the crash. Of course, if every company thought that way, oil markets would remain hopelessly oversupplied for the foreseeable future.
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Meanwhile, 2015 was a dismal year for energy dividends, according to a new analysis from The Wall Street Journal. When looking at the total number of U.S. listed stocks, the level of dividend payouts only increased $38.7 billion in 2015, or 29 percent lower than 2014. The energy industry accounted for the steep decline. In the fourth quarter of 2014, the energy industry made up half of the 142 dividend cuts that were issued.
For now, the largest oil companies are steadfast in their protection of their dividend policies, but the longer that oil prices stay at multiyear lows, the more pressure there will be on oil executives to consider reducing their shareholder payouts.
By Charles Kennedy of Oilprice.com
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Charles is a writer for Oilprice.com