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US shale companies enjoy ‘tsunami of cash’ on high oil prices

The oil-splitting oil companies are enjoying a cash bonanza, as rising oil prices and months of capital restraint are changing the capital and balance sheets of a sector that was once notorious for debt-driven drilling trips.

Operators will rake in about $ 180 billion in free cash flow – operating profit less capital and maintenance flows – this year at current crude oil prices, according to research firm Rystad Energy. This is compared to huge losses accumulated during a decade of rapid growth in supply that crashed to a halt just before the plague.

And the amount of cash generated by operators this year will be greater than the total amount it has earned over the past 20 years, according to S&P Global Commodity Insights.

“This is a cash tsunami,” Raul told Blank, head of S&P’s North America oil and gas division. “The companies have almost finished repairing the balance sheet.”

The surge in split profits has led to a recovery in operators ‘stock prices, with U.S. oil and gas producers’ shares opposing wider selling this year.

This happens when Russia’s invasion of Ukraine raised oil and gas prices, prompting talks from the company A white house For shale operators to drill additional wells.

The number of rigs operating has risen in recent months, led mainly by private companies, but the oil output of 11.8 million barrels per day remained well below the peak of 13 million barrels in the day before the epidemic.

Split executives insist they will stay with plans to keep capital spending – and drilling – under control, instead of spending the money on dividends, debt repayments and repurchases of shares.

“What is different today from the past… Is that we allocate capital in a way that maximizes return to shareholders, instead of maximizing [production] Growth, “said Nick Dell’Osso, CEO of Chesapeake Energy, who Filed for Chapter 11 Protection in mid-2020 under the weight of debts accumulated over years of rampant drilling.

Chesapeake, once a A child poster about the surplus of the sectorWent bankrupt in February 2021 – and earlier this month reported a high coordinated quarterly free cash flow of $ 532 million from the first three months of 2022.

It now plans to pay $ 7 billion in dividends over the next five years, equivalent to more than half of its market value on Friday.

A bar chart of upstream spending, a billion dollars shows ... while the split value remains lower

“The industry was built on that [oil and gas production] Growth expectations, and the company’s shares were valued according to growth expectations. It all had to fall apart, “Dell’Osso told the Financial Times.

The “reset” was painful, but management teams would stick with the new model, Dell’Osso said.

Cost inflation resulting from the supply chain and labor constraints also deters companies from further drilling.

“There are a lot of winds against increasing production around the world,” Occidental Petroleum CEO Vicky Holow told analysts last week.

Occidental, who took over Debts of tens of billions for the acquisition of rival producer Anadarko In 2019 – a few months before the epidemic crash – it also made an amazing comeback. It is using cash to reduce its leverage and said it may resume repurchases of shares in the second quarter. Its shares have risen 150% in the past year.

Analysts say that the list of shale producers on the list now earns so much cash – and stock valuations have remained so discounted after years of investor flight – that repurchases of shares may eventually take some of them private.

That comes down to a “pretty phenomenal outcome,” said Matt Portillo, head of research at investment bank Tudor, Pickering, Holt & Co.

“If investors do not return to the space, companies will slowly but surely privatize all their capital stock.”

US shale companies enjoy ‘tsunami of cash’ on high oil prices Source link US shale companies enjoy ‘tsunami of cash’ on high oil prices

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