In the oil and gas industry, sometimes it is hard to figure out what is real and what isn’t – what is really happening, and what really isn’t happening. I spent 38 years in the industry, and still have a hard time figuring it all out. Here are some good recent examples of stories whose headlines made bold claims that, upon reading the entire stories, turned out to be quite nuanced:
- Are investors really abandoning the shale industry?
- Did the World Bank really cut off funding of oil and gas projects?
- Has the business case for building the Keystone XL pipeline really passed?
All are good questions, all of which have been the subject of multiple media reports in the past weeks, and all have more complex answers than the simplistic media headlines that are all most people actually read. So, let’s clarify some things.
Are Investors Abandoning The U.S. Shale Industry?
We’ve seen many reports alleging that investor funds are drying up for the shale industry during the second half of this year, yet shale producers somehow keep managing to get their business done. Indeed, in recent weeks we’ve seen a series of announcements of major new investments in domestic shale by private equity and institutional investors, and the Fall debt redetermination season passed without noticeable major hiccups.
So, what gives? A look at recent presentations by the CEOs at corporate shale producers, like this one from Encana’s Doug Suttles, shows a focus on responding to demands by investors that these companies dedicate more of their resources towards actions that will increase returns on investment capital, a pressure I wrote about in early November. One result of this investor pressure has been the announcement of a wave of stock buy-back programs since August. Investors are also pressuring companies to change executive compensation programs that have been, in their view, too focused on increasing production at the cost of profits.