While the oil boom continues into 2018, investors who got into shale in time for the jump are anxious about their future payout – a payout that doesn’t seem to be coming any time soon. The shale patch keeps producing huge amounts of oil, yet only a few drillers seem to churn out a profit. Investors are anxious to know what’s happening and why their money is still tied up as production soars.
The shale oil boom had many investors excited back in 2014 - everyone wanted to see it curb the country’s dependence on outside suppliers. Shale has spent billions to boost output, but their profits have not reflected their efforts - as one rises, the other seems to fall further and further.
It’s not just retail investors, Wall Street now also wants to see a payday and has voted to return some of the E&P spending to buybacks and dividends. This would help shale producers focus on making their investors money instead of putting it back into the business, the usual move on the part of shale producers.
Oil producers have seen prices going up along with their output, but as investors demand payouts, they risk slowing down production expansion. This has spurred a debate on what would be the better move - let shale continue to spend money on itself or pay out dividends and prove it can be profitable? The latter could either leave investors moaning that they were bought out too soon or jumping for joy at the sight of their massive profits. Related: Shale Drillers Are Supersizing Fracking
According to a report from Reuters, shale companies showed a mixed reaction on this investor call for action. Five of the biggest, independent shale firms decided to pay or raise quarterly dividends. Six others never offered dividends and continue to keep budget cuts in place. Those cuts were necessary back in 2014, but the market has changed, though some are choosing to play it safe.
Two companies that fall into the former group are Anadarko Petroleum Corp (APC) and Pioneer Natural Resources Co (PXD). Both chose to put their efforts into dividends. Anadarko raised dividends by 20 percent and added $500 million to an existing buyback program. The move made their shares jump up 4.5 percent. Pioneer also put its efforts into dividends, quadrupling them for their investors and made sure to post their better-than-predicted fourth quarter earnings.
However, other companies resisted raising dividends. Four out of six saw their valuations take a dip in the market thanks to their decision not to pay.
Noble Energy (NBL), Parsley Energy (PE), Devon Energy Corp (DVN) and Cimarex Energy Co (XEC), saw their valuations drop at least 19 percent in the past year. Only one group, Continental Resources Inc. (CLR) went up from a year ago. Related: Is $65 The Ceiling For WTI?
After a big jump in January, WTI is now trading at around $63 a barrel. This is 17 percent higher than last year helps E&P’s improve their cash flow. Spending plans include putting a lot more money into drilling, something certain investors will definitely encourage.
“If oil is $65 by Easter,” said Mike Beard, energy analyst at Hodges Capital Management in Dallas, “investors are going to go to the companies and say, ‘Why don’t you borrow more money and drill more wells?'”
Investors that want to take on more risk will follow the companies who aren’t afraid to bump capex as oil prices rise. More conservative companies that choose to curb capital expenditure, budgeting for no more than $55 a barrel, would get left behind in such a rush.
By Lindsay Redifer for Oilprice.com
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