Given that well costs are down and efficiency is up, it seems operating margins, recycle ratios and debt-adjusted production growth is reaching new heights for many E&P companies. If they can watch their tendency to outspend cash flow, things will finally fall into place, and they may then be able to meet the fervent desires of investors who chant, “Show me the money.” Most of these metrics look better now for most E&Ps than they did back in 2014 when oil prices were rising to $100 per barrel (bbl)—ah, the good ole’ days.
John Freeman, research analyst at Raymond James & Associates, said, in a report in the middle of E&P earnings season, that the energy industry is in the midst of a paradigm shift. It appears that growth for growth’s sake is gone, he said, outmoded if not dangerous. Capital discipline, free cash flow (FCF) and returns are inescapable if one is to woo investors back to the sector. Many other analysts, and CEOs for that matter, are echoing these themes.
“We believe a tidal wave of free cash flow is set to engulf U.S. oil and gas companies in 2020. If correct, it would represent … the new gold standard,” Freeman said.