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

The current narrative in the modern shale era mandates a balance of free cash flow distribution and sustainable growth. The rising prices for oil and natural gas in 2021 and 2022 and post-COVID-19 demand increases confirm we’ve seen the light at the end of the tunnel. For some, it can’t arrive soon enough, but in the meantime there’s an important component nearly everyone in the oil patch has their eye on.

Although public E&Ps have emphasized prudent capital plans, private operator rig counts have climbed to nearly 50% of total rigs in the U.S. Lower 48 since the beginning of the year. With limited disclosure on hedging portfolios, executive compensation incentives and varying levels of balance sheet strength, the influence of private companies may be underappreciated. Furthermore, private companies can operate on a shorter timeline for private equity investment, creating an increased urgency to spend dry powder.

Investor sentiment may be shifting away from rewarding long-dated inventory and moving toward cash flow generation—an attainable feat while growing production at today’s prices.

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