Texas shale pioneers struggle to appease investors

MIDLAND, Texas (Reuters) – Seven years ago, Diamondback Energy Inc went public with a modest parcel of drillable land in the Permian Basin of West Texas. Like dozens of other Permian startups, the firm then pursued a classic wildcatter’s strategy – borrowing to buy up acreage, acquire competitors and quickly boost output in the booming shale field. Today, Diamondback (FANG.O) is the 7th largest producer in the top U.S. oil region, according to researcher Wood Mackenzie. But Diamondback differs from most of its peers in a crucial way – it’s poised to make more cash than it spends. The firm promised to reward investors by buying back up to $2 billion in shares and delivering $750 million in free cash flow next year if U.S. oil prices remain at about $55 per barrel. It started paying shareholders a dividend last year and raised it by 50% this spring. “That’s a big pivot for our industry, living within cash flow and not being part of that ‘drill, baby, drill’ crowd,” Diamondback Chief Executive Travis Stice said in an interview. Only a handful of independent shale firms collect more than they spend. Total overspending by a group of 29 such firms totaled… continue reading

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