Shale Industry Is Prioritizing Debt Over New Well Drilling
Despite the increase in U.S. oil demand, big shale producers are focusing on their debt over drilling. They are keeping true to what they've told their investors by cutting costs throughout the whole industry. Contrary to publicly owned shale companies, privately-owned shale producers are now focusing on increasing their productivity, as we mentioned in a previous post.
This is good news for OPEC+, as this will restrain output and drive crude prices higher without unleashing a barrage of supply from U.S. rivals. The U.S. shale industry is slowly coming back, but this new approach will leave oil output below pre-pandemic levels until late next year. Michael Tran, managing director for RBC Capital Markets, stated that publicly traded explorers that remain restrained on output are aiding to keep crude prices up.
Michael Tran also said, "the more restrained shale drillers are this year, the more they can potentially grow production at higher prices next year and beyond". As those crude prices climb during this year and the next, the odds of another shale boom (like that of 2014) rise. Most U.S. onshore operators are careful due to current prices, leaving a vast group of operators (from large public companies to private companies) in a good position to ramp up activity this year.
What are publicly listed shale companies doing to reduce costs? Let's take a look.
Slowing Down on Output
Despite oil prices slowly returning to pre-pandemic levels, companies and producers are still slowing down. Big fracking companies are now focusing on reducing debt and paying cash back to shareholders through dividends. This, in turn, has forced producers to keep their production low.
Some companies like Matador Resources Co. and EOG Resources Inc. have announced plans to boost their output, but unfortunately, have had share prices drop.
Most major shale players are now practicing capital discipline. This means companies exercise discipline and caution in how much money they borrow, raise, and spend to deliver the best returns to their shareholders and guarantee their long-term stability. Exploration and production companies are focused on producing free cash flow and restoring their balance sheets.
Due to the pandemic, many companies have had to merge in order to stay afloat. Companies like Concho Resources Inc. and Parsley Energy Inc., some of the top drillers, have been acquired by larger rivals.
Shale Industry Is On the Right Course
Despite the slowing down on most of its production, shale companies are still on the right track to recovering from the pandemic's effects. The only thing left for these major companies to do is be patient and keep their shareholders happy.
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