After a decade of putting growth ahead of investor returns, publicly traded oil and gas companies are learning a hard lesson about the importance of attracting and retaining value investors, said the CEO of ConocoPhillips.
Ryan Lance offered an assessment of his industry when it comes to rewarding investors. "I think shareholders are a little bit frustrated with the [exploration and production] industry," he said at industry conference CERAWeek by IHS Markit on March 6. "In most cases, it's an industry that has destroyed capital over the years."
Lance said the message became clear after seeing one producer after another get shelled by investors earnings seasons: Start making money or else. Conoco, which was trading at better than $54 per share, dropped as low as $42.10 per share in August 2017 after it announced its second-quarter earnings. "We're marking a path of capital discipline and returns over growth," he said. "I think we're trying to get value investors back. I think they left."
The attitude of many investors was to stay away from energy stocks entirely due to the lack of returns, Lance said. "Most of the ones we talk to are underweight on energy. Not by a little but by a lot."
Lance said Conoco now believes that it should return 20% to 30% of its positive cash flow to shareholders "off the top" and has worked hard to reduce costs to free up even more money.
"We're trying to drive that sustained capital as low as we can. If you get a low sustaining capital, you have a low sustaining price, and that's what we're trying to get to," Lance said. "Our sustaining price is below $40 per barrel, so we can return value to shareholders in a sub-$40 world."
