Big Oil Could Do a Lot More
November 30, 2023
Article by Jeffrey Price
You have heard from us about this before, but the right-leaning Wall Street Journal can’t stop pointing out the frustrating facts that the largest oil companies are very content to milk the cash flow from current production which, in turn, is paid out to shareholders. As previously reported, the largest oil companies have tens of billions of dollars in cash available beyond simply paying out to shareholders. Was this resource used to build value through the drill bit? The answer is “well sort of”. Let’s dig down a little.
First, the Wall Street Journal in its September 28th issue chronicled how the big oil companies have reigned in CapEx https://www.wsj.com/business/energy-oil/oil-prices-are-rising-shale-isnt-coming-to-the-rescue-83a672d?st=0cj4ys4iulzbdzc&reflink=desktopwebshare_permalink. We can’t fault them for this discipline – after all, the down cycles over the last half-century have been very painful for them. That’s why in this era of comparatively stable oil prices lodged on a very profitable plateau, we are not seeing rig counts spiraling up, up, and away leading to a bust. To be completely fair, the super-majors, as an example, have modestly increased their CapEx year-over-year, but Exxon has actually released a few rigs recently. Considering that the productivity of a rig has increased dramatically over the last few years, one could argue that real CapEx has increased.
But the second point is that since this article was published, both Exxon and Chevron have made blockbuster acquisitions of two very large “independent” O&G companies(https://www.wsj.com/finance/chevron-and-exxon-might-have-kicked-off-an-oil-land-grab-9b01ca32?st=a4ws8w8ufvwstdw&reflink=desktopwebshare_permalink). That’s where they are deploying their dollars. And does that build value through the drill bit? Well, it doesn’t look like it – unless the acquiror brings a value-add know-how that can unlock production that the acquiree was not capable of doing itself. Or vice versa. In fact, the value-add in the Exxon purchase may very well come from Pioneer which has established an enviable infrastructure to drive down its operating costs to a best-in-class level.
Coincidentally, First Keystone also seeks to provide infrastructure at best-in-class performance. Our warehouses for rent in Pecos are the most cost-effective option in today’s tight market in the Delaware Basin. We also build warehouses to buy serving the Pecos region, at very competitive price points – this is how we are supporting the O&G industry in its quest to build value organically – through the drill bit or productivity improvements.
In closing, as a professional investor, Exxon and Chevron cannot be faulted for buying out their smaller peers – it’s simply an endorsement of the value of the assets within these two acquirees.
The opinions expressed above reflect only those of the author and do not represent those of the First Keystone Pecos Industrial Park organization. First Keystone welcomes responsible fact-based discourses on these topics.