The challenge facing US shale companies as oil prices recover: Produce more crude or more cash?

As oil prices recover from the lows of 2014, US shale producers face a choice: continue to invest in record production or start returning cash to investors who helped them weather the downturn. It used to be that investors rewarded US upstream operators that could quickly grow production. More crude output growth per quarter separated oil patch E&P champions from the rest of the pack. That paradigm came under pressure starting in 2014, when prices plunged and common wisdom said producers would curb output and ride out the storm. But nimble US shale companies surprised everyone, finding ways to slash costs, drill more efficient wells, and pour cash back into drilling and production. Onshore producers have added nearly 4 million b/d of production since 2011. Their innovations pushed US production over the 10 million b/d mark in November for the first time since 1970—earlier that the US Energy Information Administration had expected. And even as their wells turned out higher outputs, their profits went back into drilling and production growth. Overall, they were not generating free cash flow for shareholders, who in recent months have sent a strong message to oil executives that they want to see more of it.… continue reading

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Source: CTRM Center

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