The energy industry’s upstream products — crude oil, natural gas and NGLs — are commodities, so the lowest-cost producers generally do best, especially if they are well-connected to downstream markets. Due in large part to the intensity of competition, finite drilling locations, the constant need for capital investment and the chilling effect of political headwinds, the industry is in the middle of a consolidation cycle that has enabled a select group of top-tier E&Ps to build scale — and longer-lasting inventories — in the most productive parts of the most lucrative shale plays. That scale, in turn, helps these Shale Era winners reduce their costs, gain market share and — important in 2023 and beyond — return a big slice of their free cash flow to investors as dividends and stock buybacks. In today’s RBN blog, we discuss what’s driving that “urge to merge” and what it means for industry players large and small.
Posts from Sean Maher
The Shale Revolution transformed the U.S. oil and gas industry operationally and functionally in the late 2000s and early 2010s, but the most significant changes occurred years later. Through the middle and latter parts of the last decade, E&Ps continued to improve their drilling-and-completion techniques and significantly increased production as they gained experience. This production growth was enabled by — or driven by, depending on the perspective — midstream companies’ aggressive efforts to build out the pipelines, gas processing plants and other infrastructure required to handle higher production volumes and exports. More recently, capital market constraints, the Covid pandemic and a looming ESG narrative have propelled the industry into the next phase of its evolution, highlighted by fiscal discipline, which delivers improved shareholder returns through managed capital spending. But how long will this stage last — and what’s next? In today’s RBN blog, we examine the energy industry’s maturation and the differences between this transformation and those in other industries.