[Editor's note: A version of this story appears in the March 2021 issue of Oil and Gas Investor magazine.]

“How’s it going?” the Dallas Fed asked E&P executives in December 2020. They had a lot to say. It’s a reminder of what Mom always said: “Never ask a lady how she’s doing when she’s short GameStop at $4.”

One producer replied, “Drillers insisting on bringing rigs back and additional production online will continue to destroy investor dollars.”

Comments included “survive” and “zombification of companies.” One wrote that the reserve-based loan “used to be a valuable industry tool until the financial markets all went berserk and gaga over all things and everything Permian or shale.” Money for other basins “and especially for conventional development was just eliminated from the conversation,” an executive said. Other independents, “unless you already had assets or flocked to play the shale world, were and are left out.”

The participants were optimistic about 2021 oil and natural gas prices, expecting more than $45 and $2.40, but mostly weren’t expecting to increase capex this year. Instead, their animal spirits are wilding for market share. Their new friend: President Joe Biden.

Entering 2021, the federal funds rate was between zero and 0.25%, to which it had been slashed in the spring of 2020. Money’s practically free again and one oil and gas financier told Investor he’s seeing high-yield reentering the upstream. Several producers told the Dallas Fed they’re afraid of the crazy money coming back.

“I am too,” the financier told Investor. “Our industry has the habit of overspending and then volumes grow. I can see that cycle happening again. It starts with the high-yield market.”

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