Shale oil drillers give shareholders what they want, then get punished

Investing & Retiring

“It’s very capital intensive, and I think investors started to realize this and said, wait a second, I’m not going to pay you a multiple of 10 for that because I’m never going to see any return. In fact, I’m incentivizing you to grow if it’s a 10,” Hess said.

Shale drillers also face competing priorities from different kinds of investors, said Abib.

“They’re getting a lot of different feedback depending on who that particular investor is. Certainly folks that are more focused on the short-term, generally hedge funds, have a very different perspective than a long-term, value-only fund, and so they’re trying to address all these different constituencies,” he said.

How shale drillers respond to investor demands in the coming years could have major implications for the wider oil market. Not only is shale driving the boom in American output, but the U.S. is expected to deliver about 70 percent of growth in global oil production over the next five years.

Doug Suttles, CEO of shale driller Encana, said frackers certainly need to exercise discipline, but he also turned the message around on investors.

“We actually need discipline coming from investors as well,” he said during the CERAWeek shale panel on Tuesday. “Otherwise what we will create is — longer-term — complete lack of investment in other oil and gas projects that will ultimately be needed at some point in the future.”

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