Excellent analysis. I suppose I wonder how much of the 90's can be directly comparable due to: Much higher number of material domestic producers (less upstream concentration), onset of shale (dormant, but there if/when economics dictate) and oil export capability now (not then). Agree, price is not everything and industry is finally forced to maintain discipline.
Thank you Derren. All good questions deserving of elaboration, most likely in follow up notes. Like anything, we are not on track to exactly repeat the 1990s. But the better companies did have much lower reinvestment rates and higher ROCE, something that I think is replicable by the top 2 quartiles of companies this go round. I think shale 1.0, 2010-2020 will be very different than shale 2.0 over the 2020s. For companies with leading acreage, there absolutely is an ability to generate modest growth, high ROCE, and free cash flow. That doesn't seem likely looking at the last decade, but we no longer need small-cap E&Ps to grow at massive rates. The consolidation has helped. and the market de-rating shale volume growth will help liberate ROCE. Its hard to get my point across without a full note but is something I plan to address. The majors did well in the 1990s because they had "legacy" fields and did NOT try to over-grow. That is what is possible by the leading shale companies with the largest positions in the Permian and some other areas.
Excellent analysis. I suppose I wonder how much of the 90's can be directly comparable due to: Much higher number of material domestic producers (less upstream concentration), onset of shale (dormant, but there if/when economics dictate) and oil export capability now (not then). Agree, price is not everything and industry is finally forced to maintain discipline.
Thank you Derren. All good questions deserving of elaboration, most likely in follow up notes. Like anything, we are not on track to exactly repeat the 1990s. But the better companies did have much lower reinvestment rates and higher ROCE, something that I think is replicable by the top 2 quartiles of companies this go round. I think shale 1.0, 2010-2020 will be very different than shale 2.0 over the 2020s. For companies with leading acreage, there absolutely is an ability to generate modest growth, high ROCE, and free cash flow. That doesn't seem likely looking at the last decade, but we no longer need small-cap E&Ps to grow at massive rates. The consolidation has helped. and the market de-rating shale volume growth will help liberate ROCE. Its hard to get my point across without a full note but is something I plan to address. The majors did well in the 1990s because they had "legacy" fields and did NOT try to over-grow. That is what is possible by the leading shale companies with the largest positions in the Permian and some other areas.