After years of meager returns and overspending to boost production at all costs, US shale explorers and drillers are finally about to see their share prices rise next year, according to veteran energy investor Shawn Reynolds.
The new wave of a more disciplined approach to spending and the focus on higher returns will benefit mostly the exploration and production companies. Drilling firms and oilfield services providers are also set to benefit, Reynolds told Bloomberg in an interview published on Friday.
Shale companies have already started to realize the need to finally reward their shareholders, and firms are now planning within their means, not just spending to grow production at any cost.
Shale companies now have more growth potential than conventional oil and gas producers, because shale firms face lowered risks in resources extraction, said Reynolds, a fund manager at Van Eck Associates.
“With shale, you have incredible visibility on growth, possibly the best visibility of any industry in the entire market, and lower risk,” Reynolds told Bloomberg.
“The geological risk of shale is virtually basically null,” the fund manager added.
The main $2-billion Van Eck fund has invested about half of its assets in energy stocks and oilfield services companies’ stocks. Reynolds firmly believes that shale stocks are set to grow, and his fund will be therefore keeping its large exposure to E&P shale stocks, the fund manager told Bloomberg.
Reynolds’ top picks across the shale patch are Parsley Energy, Pioneer Natural Resources, Newfield Exploration, Concho Resources, Cimarex Energy, and RSP Permian Inc. All those companies except Concho Resources have seen their stocks drop on the market year to date.
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“You can look at who has the best technology, who has the best sweet spot, and who are focusing on returns, not just growth,” Reynolds said, commenting on his picks.
By Tsvetana Paraskova for Oilprice.com