Conoco-Philips started the ball rolling with 3rd quarter reports yesterday and most of the analysts buried the lede. Yes, there was a minor beat on earnings, but that was hardly the story that needed highlighting; it was the continued reduction of capex guidance, down 6% from Q2 reports, that has indicated a very, very critical trend for oil companies and oil’s price going forward from here.
I have written in the past with much frustration about oil companies “lemmings-like” behavior. To quickly recap, oil companies were being rewarded for years by stock analysts and the markets by one measure of progress only – production increases. As oil cratered in mid-2014, oil companies were slow to realign this strategy; Instead, cutting top line spending while maintaining production growth in core holdings, whether those were conventional, non-conventional or off-shore assets.
The theory among oil companies was that the turn down in oil prices was a very temporary one, and when prices inevitably (and quickly) rebounded, they would be on track to be best rewarded (just as they always had) with ever increasing crude oil production. Obviously it didn’t happen in 2015. Suddenly in 2016, oil companies believed that the worst was surely behind them and they prepared to re-ramp capex upwards to ‘pre-bust’ levels. But the markets foiled their plans again – and oil prices couldn’t recover in 2016 either.
This year, oil…