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Tariq Siddiqui's picture
COO Upstream EP Advisors LLC

Oil & Energy | Business Development | Capital Projects | Offshore Wind -  Proven leader in offshore development and operations, with 25+ years’ expertise in managing business through cycles...

  • Member since 2021
  • 125 items added with 82,765 views
  • Aug 12, 2021
  • 927 views

U.S. exploration and production companies have changed their priorities quite dramatically. The U.S. oil industry continues to show capital discipline previously missing before the oil crash.

WHAT HAS CHANGED

No one is drilling for the sake of production growth as demand is still recovering from the 2020 decline. But everyone wants to attract shareholders and reward existing stockholders with more dividends and healthier balance sheets.

WHATS HAPPENING?

  • Oil companies are generating record free cash flows in recent high oil prices $60 – $70 
  • No longer plowing the cash flows into new drilling or even borrowing to spend beyond their cash flows
  • Oil companies are paying down debts and postponing debt maturities by issuing new bonds. 
  • Oil and gas firms are taking advantage of the high oil prices and historically low-interest rate to seek financing
  • Wall Street is willing to lend; it  has seen capital discipline; companies aren’t using the money to increase drilling activity
  • U.S. shale has issued as much as $42 billion in new bonds in the first half of the year.
  • Currently, it’s as cheap for the U.S. companies to raise new debt as it was seven years ago, when oil was $100 per barrel
  • Debt reduction and shareholder returns continue to be key priorities for U.S. shale for the rest of the year.

BOTTOMLINE

  • In the new E&P model, where more capital discipline through commodity cycles provides a platform for ratable repurchases over time
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