Oil companies drilling in shale basins like the Bakken have cut back on spending to increase return to shareholders as oil prices are pressured, but investors are punishing the stocks anyway, since it is leading to lower production-growth forecasts.
In recent months U.S. shale drillers have answered investors' calls to tighten their belts, showing they are finally willing to do what's necessary to return cash to shareholders.The latest episode in the American shale revolution shows that shale drillers — and their stock prices — are entering a transition period.
Though it's rallying this week, the SPDR S&P Oil & Gas Exploration and Production exchange-traded fund tumbled 8 percent between the start of the drillers' earnings season in February and the end of last week. During the same time, the S&P 500 rose 1.4 percent. Investors have good reason to be wary. Throughout much of the last decade, shale drillers borrowed heavily to underwrite spectacular production growth. But few companies have proven they can reliably generate free cash flow or meaningful returns for investors.
"I'd say there's a recalibration of stock prices going on with the shale drillers," Hess CEO John Hess told CNBC at CERAWeek.
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