After oil prices rose over one-third in the past year, a number of large US shale oil companies have either paid dividends or vowed to pay dividends to their shareholders this year, according to Reuters. Anadarko photo.
US shale firms have used profits to boost output
According to a report by Reuters, nearly one-third of the top 25 US shale oil companies have paid or are planning to pay dividends this year. If the companies follow through on their pledges, this would be the largest number of companies offering returns since the shale boom began about 10 years ago.
Over the past year, oil prices have gone up about one third. This boost will allow many US shale companies to increase their revenue and respond to investors’ calls for better shareholder returns.
So far, despite booming production, investors in shale have seen thin returns because companies have plowed their profits back into production to raise output instead of offering returns to shareholders.
Reuters reports that financial disclosures from seven US shale producers, including Anadarko and ConocoPhillips, show the companies have increased their quarterly dividends this year. Just two years ago, eight of the 25 largest shale firms cut their payouts as oil prices tanked.
“Investors are using a large megaphone as they talk to the industry about returns, and it’s on the minds of a lot of CEOs,” Travis Stice, chief executive of shale producer Diamondback Energy Inc, told Reuters.
Diamondback became the first US shale oil company to start a payout since oil prices began falling in 2014. The company announced a 12.5 per cent quarterly dividend last month, according to S&P Global Market Intelligence.
Since the move, shares in the Permian basin-based company have gone up by about 11 per cent.
“You’re going to see more shale producers focus on dividends,” Leigh Goehring of G&R Associates told Reuters. “Shareholders are demanding it and a trend is forming.”
Since the beginning of the year, 11 US shale producers have announced plans to spend a total of $3.5 billion on stock buybacks.
This week, oil producers are meeting investors at an industry conference in New Orleans. The annual gathering is used by energy companies to outline their yearly production goals and shape investor expectations for first-quarter results.
According to Reuters, more companies will be pressured to offer payouts through dividends or share repurchases. Investors will be looking to discuss production gains and how companies are handling the rising costs of services.
“There does seem to be increasing evidence of financial prudence in the industry,” Andy McConn of oil consultancy Wood Mackenzie told Reuters.
Still, 12 of the 25 major shale firms will not be offering quarterly payouts. The companies are reinvesting their cash into drilling and projects. Reuters reports Parsley Energy and Continental Resources are two companies that say they are focused on driving growth.
However, that could change as more of their rivals focus on payouts to investors.
“Investors are looking for improving results, better returns and operational performance,” Maynard Holt, chief executive of energy investment bank Tudor, Pickering, Holt & Co told Reuters.