For oil producers cash is king, and that’s why they just can’t stop drilling

For oil producers cash is king, and that’s why they just can’t stop drilling

Investors sent a surprising message to U.S. shale producers as crude fell almost 20 percent in August: keep calm and drill on.

While most oil stocks have fallen sharply last month, the least affected by the slump share one thing in common: they don’t plan to slow down, even though a glut of supply is forcing prices down. Cimarex Energy Co. jumped more than 8 percent in two days after executives said Aug. 5 that their rig count would more than double next year. Pioneer Natural Resources Co. rallied for three days when it disclosed a similar increase.

Shareholders continue to favor growth over returns, helping explain why companies that form the engine of U.S. oil — the frackers behind the boom — aren’t slowing down enough to rebalance the market. U.S. production has remained high, frustrating OPEC’s strategy of maintaining market share and enlarging a glut that has pushed oil below $40 a barrel. West Texas Intermediate crude was trading at $39.08 a barrel, down 23 cents, at 1:03 p.m. New York time Wednesday Aug. 19.

“These companies have always been rewarded for growth,” according to Manuj Nikhanj, head of energy research for ITG Investment Research in Calgary. Now though, “the balance sheets of this sector are so challenged that investors are going to have to look at other factors,” he said.

Bloomberg_Shale-cant-stop-wont-stop

Output from 58 shale producers rose 19 percent in the past year, according to data compiled by Bloomberg. Despite cutting spending by $21.7 billion, the group pumped 4 percent more in the second quarter than in the last three months of 2014.

 

Source: Bloomberg

Date: September 2015

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economicsinvestmentsoilUnited States

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