Shale Producers Finally Paying Off Shareholders

Unlike the previous downturn in 2015-2016, Shale Producers in the United States are exiting the 2020 oil price and demand collapse with their promises to limit production growth and return more cash to increasingly demanding shareholders intact. The first-quarter results and conference calls revealed previously unseen discipline on the part of public shale companies.

While listed producers produced record cash flows, the majority of those funds were not reinvested in drilling. Instead, Shale Producers are using their cash flow to pay down loans and reward shareholders. Despite a 20 percent increase in oil prices in the first quarter, U.S. shale kept its commitments to limit production and prioritize returns.

Although analysts are not shocked that American producers did not increase production this time, unlike at any other time in recent history, some industry observers wonder how long this restraint would last. This, according to most experts, will be a trend for at least the rest of 2021. Most public U.S. shale companies will stick to their new priority of sending cash to shareholders rather than burying it in the ground to chase record production.

At least for a few quarters before global oil demand and supply-demand dynamics return to pre-crisis levels, based on first-quarter earnings calls. According to a Bloomberg Intelligence survey of 31 independent companies, many U.S. Shale Producers produced record-free cash flows in the first quarter. The sector, as a whole, is projected to continue creating more free cash flow.

Chairman and CEO Bill Thomas said on the earnings call that EOG Resources generated a quarterly record $1.1 billion in free cash flow and earned $1.62 per share in adjusted net income, the second-highest quarterly earnings in company history.