RE: BP annual energy report11 Jun 2019 22:18
Londoner - the reality though is that the majority of small to medium players, and remember they make up more than two-thirds of the Permian production, don't have the deep pockets that oil majors do. These companies are sensitive to oil economics and these dictate that the marginal dollar investment, either debt or equity, just won't come into oil companies that aren't FCF generating. And the vast majority of these companies just aren't.
All you need to do is to look at really well managed companies like Continental Resource - https://finance.yahoo.com/quote/CDEV?p=CDEV. This company was founded and run by Mark Papa, the chap who built EOG to the Permian behemoth that it is now (and retired before taking on this challenge). They don't have lots of debt, but at these WTI/WTL prices, they're piling on the debt, even though they're cutting spending. And their stock price is down from $24 in October 2018 to $7 today. That tells you all you need to know about how Wall Street views shale companies. They're killing each other off by producing at these levels and bankruptcies will pile up. I know a few recently that have declared chapter 11 to wipe out shareholders and bond holders then take over. And I'd wager they're a bit more prudent now, standing witness to a potential second wave of busts of shale companies since 2014. Rig counts are reducing, as we all know, and that's a decent enough leading indicator of future production. And the longer that WTI hangs around these levels, the more these counts will move to the downside.
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