Energy panel member Josh Young noted:
“Scott Sheffield just announced he's retiring from Pioneer Natural Resources, a large leader in shale production in the US and in West Texas in particular. He talked about what it would take for Pioneer to start growing their production organically wasn't just a higher oil price, it was a higher stock price. And I think he was trying to change the understanding the way politicians and investors and others are looking at it. From his perspective, it's less about the single well returns or the capital returns on investment as much as it's also about the cost of capital. If his cost of capital is too high, he's better off buying back stock or returning capital. … And there's been a shift in capital allocation by oil and gas producers because of that sort of signal from the market to return capital.”
I have noted this in the past. If you spend $1 billion developing new reserves, and the market only rewards you with $700 million of increased market cap, you do what oil companies are doing now: replace your depleted production to maintain your share price. (Or if you are Exxon Mobil, you try to buy Pioneer to get exposure to the Permian Basin.)
The oil panel was expectedly bullish, and I know some other speakers will talk about triple-digit oil. Some are outright forecasting $150 oil in 2024. So far, there has not been one discouraging note about commodities and especially the energy space. I've been doing this conference for 19 years and I don't ever remember that unanimity on the commodity space.
Now, what about energy in the kind of recession scenario Rosie and Lacy expect? This is truly a trillion-dollar question. It used to be predictable. Recessions meant less travel, less shipping, and generally lower energy demand which led to lower prices as demand dropped faster than supply. It is not at all clear the same pattern will hold this time.
No comments:
Post a Comment