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A New Era In The Oil Industry

Shale

Friday November 3, 2017

In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.

Let’s take a look.

1. Oil majors covering dividends

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- BP (NYSE: BP) posted about $1.8 billion in earnings in the third quarter, twice as much as the same quarter in 2016.
- The results allowed the British oil giant to cover both its spending and its dividends with cash flow, a remarkable turnaround from the company that was piling on debt for much of the past three years.
- BP says it can breakeven at roughly $47 per barrel. It also announced an end of its scrip dividend program, as well as the introduction of share buybacks as a way of rewarding investors.
- Other oil majors posted similar numbers – many of them are able, or close to being able, to cover their dividends with cash flow.

2. Anadarko offers a way forward

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- Growing oil production as fast as possible is out, and giving your extra cash to shareholders is in. Anadarko Petroleum (NYSE: APC) announced in September that it would spend $2.5 billion on share buybacks, which led to a spike in its share price.
- That puts Anadarko at “the vanguard” of shale companies who are focusing on a shift in strategy “from growth to value,” as Bloomberg Gadfly frames it.
- Production growth has been the key metric for the shale industry for years. The faster one could grow, the more Wall Street rewarded the company’s stock.
- Anadarko’s CEO said this week that oil production growth is the consequence of its capital-planning process, not the target upon which it bases its spending plans. This is a significant shift in thinking.
- Anadarko will also weigh changes in executive compensation, another issue that will force companies to emphasize profits over growth.

3. WTI at backwardation

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- Brent crude has made headlines in recent months with its shift towards backwardation in the futures market, a situation in which near-term oil contracts trade at a higher price than contracts dated further out into the future.
- Backwardation is a sign of market tightening. The gist is that oil is more precious in the near-term,…




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