Published on 20 Feb 2023 on Hart Energy via Yahoo Finance

Column: M&A Critical Path to E&P Value Creation

Investors are increasing their attention toward E&P companies’ well performance and the longevity of shale inventory as public companies enter 2023 with tailwinds of dramatic broader market outperformance in the year prior amid weakening commodity pricing.

In 2022, the public E&P sector outperformed the S&P 500 by 69% and yet, it continues to maintain superior free cash profiles of roughly 7% at strip versus 5.1% for the S&P, underscoring the dramatic transformation driven by massive deleveraging, cost cutting and consolidation since the COVID-driven lows of early 2020.

Thematically, focus has shifted from ESG/climate concerns and historically poor returns of/on capital to the sustainability of free cash payouts in a world where service costs continue to creep, supply chain issues constrain timing, many companies maintain low hedging balances and questions around inventory arise. To further positive investor sentiment, E&P companies will undoubtedly begin differentiating themselves via reserve and resource quality and longevity, and shifts seen in year-to-year well performance, particularly as these performance changes make their way to the Permian Basin.