Shale drillers restrained on market performance in the first quarter

According to the news of the rig zone on May 18, shale prospectors have passed the test so far.

As investors were dissatisfied with the performance of excessive spending and no return, the industry managed to resist a 22% increase in oil prices in the first three months of this year, keeping output almost flat.

A comprehensive data on drilling companies shows that the industry is expected to obtain record free cash flow, and there are signs that this industry has begun to make a difference.

Goldman Sachs Group analyst Neil Mehta wrote in a report to investors on Monday: "We have continued confidence in profitability because the exploration and development business is very self-disciplined in its response to rising commodity prices.

Free cash flow may be the most watched indicator in the shale gas field today.

But it’s not just the largest independent shale gas producers—such as EOG Resources Inc.

In addition to the recovery of oil prices helping their efforts, exploration companies have also increased their cash reserves by avoiding large-scale drilling.

CEO Rick Muncrief told analysts and investors on a conference call earlier this month: "Our scale of business can generate a lot of free cash flow.

　　Although the topic of "free cash flow" has fallen from three months ago, it is still the hottest topic on earnings conference calls held by US oil prospectors and producers.

　　Mercer Capital (Mercer Capital) analyst Justin Ramirez said the market is paying attention to this trend, which shows that "crude oil prices will break out of the abyss and continue to rise.

　　In response to last year's oil crisis, US producers cut capital expenditures in 2020 by nearly half, which means the loss of thousands of jobs.

　　Now, the industry is picking up, and job opportunities are picking up.

　　Companies are once again forced to face increasing debt, this time after the leverage ratio soared to more than US$150 billion at the end of 2019.

　　Hess’ CEO John Hess told analysts and investors on a conference call last month: “As our portfolio generates more and more free cash flow, we will first reduce debt and then pass Increased dividends and opportunistic share repurchases return cash to shareholders".

　　Marathon Petroleum said this month that it will double this year's debt reduction target to $1 billion.

　　Although drilling activities are recovering from last year’s blockade, the number of rigs looking for oil is still about half of the level before the global pandemic hit oil prices severely in early 2020.

　　Qiu Yin compiled from Rigzone

　　The original text is as follows:

　　Shale Drillers Show Restraint in Q1

　　So far, shale explorers are passing the test.

　　The industry, much maligned by investors for excessive spending without returns to show for it, has managed to resist a 22% run-up in oil prices during the first three months of this year, holding output almost flat.

　　A round-up of data on the drillers shows expectations for record free cash flow and signs that the industry is starting to pay its way.
There are also indications of a delicate balance between workers finally returning to the fields, while drilling ramps up at a more moderate pace.

　　“We emerge from earnings season with continued confidence in a disciplined response from covered E&Ps to higher commodity prices,” Goldman Sachs Group Inc.
analysts including Neil Mehta wrote Monday in a note to investors.
While one quarter of discipline may not be sufficient for explorers to prove their commitment to moderation, there are at least signs that they're finally heeding investors' pleas for austerity, the analysts wrote.

　　Free cash flow is perhaps the most closely watched metric in the shale patch these days, and so far, the sector is projected to make more of it than ever before, based on a analysis of 31 independent US oil and gas companies.

　　But it's not just the biggest independent shale producers - like EOG Resources Inc.
which already reported record free cash flow in the first quarter - that are showing investors the money.
Diamondback Energy Inc.
expects to generate a record $1.
4 billion in free cash flow before paying out a dividend.

　　In addition to rebounding oil prices aiding their efforts, explorers are adding to the cash piles by avoiding a huge return to drilling.
Devon Energy Corp.
, for example, plans to cap output growth at 5% in times of “favorable” conditions.

　　“Our operations are scaled to generate substantial amounts of free cash flow,” Chief Executive Officer Rick Muncrief told analysts and investors earlier this month on a conference call.
“With this powerful cash flow stream, I feel it is important to reiterate that we have no intention of allocating capital to growth projects until demand-side fundamentals recover and it becomes evident that OPEC+ spare oil capacity is effectively absorbed by the world markets.
"

　　While talking about “free cash flow” dipped a bit from three months earlier, it's still the hottest topic on earnings calls hosted by US oil explorers and producers.
Over the past 12 months, it's come up 822 times during calls and presentations, an increase of more than 1,000% from the same period five years earlier.

　　The market is taking notice of the trend, which, according to Justin Ramirez, an analyst at Mercer Capital, indicates a ”continued upward trajectory out of the crude abyss.
”

　　US producers responded to last year's oil collapse by cutting 2020 capital spending almost in half, and that translates into thousands of jobs lost.

　　Now that the industry is climbing back, so are the jobs.
But there's still caution in hiring.

　　Although the 9,900 oil-support positions added in March was the largest monthly gain on record, the overall number of US workers in oil and gas remains almost a quarter less than a couple years ago.

　　Companies are once again forced to face their mounting debts, this time after leverage ballooned to more than $150 billion at the end of 2019.
Following up on last year's reduction, explorers are using their out-sized cash this year to do more.

　　“As our portfolio generates increasing free cash flow, we'll first prioritize debt reduction, and then cash returns to shareholders through dividend increases and opportunistic share repurchases,” Hess Corp.
CEO John Hess told analysts and investors last month on a conference call.

　　Marathon Oil Corp.
, in giving up its corporate aircraft program to cut costs, said this month it will double its goal of debt reduction this year to $1 billion.

　　And while drilling is returning from the depths of last year's lockdown, the number of rigs hunting for oil still remains at roughly half the level they were at before the global pandemic wrecked oil prices in early 2020.