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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Two Oil Price Crashes Later, Shale Investors Are Finally Being Paid

  • Early investors in the Texas shale patch are now reaping the benefits of sticking with their bet.
  • Much higher commodity prices are set to attract investors back to the Texas oilfields.
  • Institutional investors are more cautious to make big bets on fossil fuels than they were a decade ago.

Some early investors in the Texas shale patch are now reaping the benefits of not giving up on the Permian basin over the past decade and sticking with their bet on oil through thick and thin—two oil price crashes, an increasingly louder global campaign for ditching investments in fossil fuels, and triple-digit oil prices following the Russian invasion of Ukraine. 

Despite early hardships and thoughts of ditching the business of acquiring drilling rights across Texas when COVID crippled fuel demand in 2020, Cody Campbell, co-CEO at Double Eagle Energy, for example, has stuck with his guns, the Financial Times reports in a feature article. 

The Wild Ride Of Investing In Texas Oil  Over the past year, Campbell has made money by selling leasehold assets to shale giant Pioneer Natural Resources and by raising more than $1.7 billion for more lease acquisitions in the Permian.  

Last year, Pioneer Natural Resources bought leasehold interests and related assets of DoublePoint Energy in the Midland Basin for a total consideration of $6.2 billion, including $1.0 billion in cash, issuing 27.2 million shares of Pioneer common stock and assuming $890 million of debt. 

Then this year, DoublePoint Energy raised over $1.7 billion in private equity money to expand its royalty and mineral investments across the Permian Basin.  

“Together with the financial strength of our partnership, our track record of success, and our world-class operating team, we can confidently and aggressively pursue very large acquisitions while continuing to organically assemble smaller opportunities and undertake an ambitious development program,” Campbell and John Sellers, Co-CEOs of Double Eagle, said, commenting on the deal announced in June. 

“It’s been a wild ride, from a bootstrap operation, where we never knew from week to week if we were going to make it, to multibillion-dollar transactions,” Campbell told FT. 

Campbell and other like-minded investors in the Texas oil and gas industry plan to grow their business and operations in the coming years, expecting a shortage of supply and continuous demand for oil and gas in the United States and the world. 

Much higher commodity prices are set to attract investors back to Texas oilfields, although many people seem to be reluctant to bet on oil and gas again, Campbell told FT’s Justin Jacobs. 

Investors Haven’t Given Up On Oil Completely

The hesitancy among investors comes from the U.S. Administration’s pivot to clean energy and the global push for replacing fossil fuels with renewable energy sources. However, in recent months investors seem to have realized that oil and gas – especially such produced in democracies – will play an important role in helping global energy security while major consumers in the West look to ditch Russian energy imports. 

Wall Street and portfolio investors are backing clean energy opportunities in the energy transition, but they haven’t given up on conventional energy as the world grapples with an unprecedented energy crisis and scrambles for energy security after the Russian invasion of Ukraine.  

Energy has been the top-performing sector of the market this year as oil and gas prices surged, Big Oil booked record profits, and investors have come to realize that fossil fuels still make up 80% of global energy consumption and the world needs more of those fuels now to avoid winter rationing of energy. 

So, asset managers and private equity firms are backing both horses in the race toward more secure and cleaner energy sources. Banks are also arranging financing for both oil and gas and renewable energy projects.

“The answer is not either-or,” Megan Starr, global head of impact at Carlyle Group, told The Wall Street Journal’s Amrith Ramkumar earlier this month. 

Year to date, the energy sector has been the top performing sector in the S&P 500 index, according to market data compiled by Yardeni Research. 

Related: Iran And Russia Move To Create A Global Natural Gas Cartel

The energy sector in the S&P 500 had gained 42.4 percent year to date to August 22. In comparison, S&P 500 is down 13.2 percent, and all other sectors except for utilities have also lost ground since January.  

Even some ESG-focused funds are not immediately casting aside oil and gas stocks, as years of underinvestment in new supply, the energy crisis, and the Russian invasion of Ukraine have thrown into sharp relief energy security and affordability. Recent analyses have suggested that some ESG funds now include traditional energy stocks in their portfolios—an unimaginable thing just two years ago. 

Investors are also looking to shift their focus onto actual outcomes instead of on simplified ESG ratings that are based on policy statements. 

For example, BlackRock, the world’s biggest asset manager, said in early May that “many of the climate-related shareholder proposals coming to a vote in 2022 are more prescriptive or constraining on companies and may not promote long-term shareholder value.” 

BlackRock believes that investment in both traditional and renewable energy is needed in the short to medium term in light of the unique dynamics in today’s energy markets after the Russian invasion of Ukraine. 

“This set of dynamics will — at least in the short- and medium-term — drive a need for companies that invest in both traditional and renewable sources of energy and we believe the companies that do that effectively will produce attractive returns for our clients,” the world’s biggest asset manager noted.   

By Tsvetana Paraskova for Oilprice.com

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