For the better part of two years, independent oil and gas producers have attempted to preach their conversion to investors. They have said the days of overspending and growth at the expense of shareholder returns are over; fiscal discipline, increased returns and steady production improvements are in.
Skeptical that their vows would stay firm, investors have bailed out on independents in droves anyway.
"Fiscal discipline and cash discipline are what they want to hear," Andrew Slaughter, the executive director of Deloitte's Center for Energy Solutions, said in September. "I don't think there's enough there yet for them to come back into the sector."
The effect of low oil prices, closed-off debt and equity markets, and that investor skepticism have made for a two-year period for independent stocks that can be described in one word: brutal. Not only have these stocks underperformed the S&P 500, which has increased more than 15% since the beginning of 2018, many have seen their share prices halved during that time period. Any attempt at expansion has been severely punished.
Occidental Petroleum Corp., the largest violator of the unwritten commandment that Thou Shalt Not Acquire when it purchased Anadarko Petroleum Corp. earlier this year for $57 billion, was trading up slightly at $38.82 per share Dec. 6. Those gains, however, came after the company came close to a decade-low close of $37.98 the day before.
Once one of the more highly regarded stocks among independents thanks to its consistent dividend and strong balance sheet, Occidental's shares were selling at $73.98 at the start of 2018 and headed up, surpassing $80 per share in June and September 2018. The crash of oil prices later in the year sent its shares ― along with virtually everyone else's ― plummeting in December.
But the floor truly fell out from under Occidental in April, when it became clear that the company intended to compete with Chevron Corp. for Anadarko. Shares were above $67 on April 11 and have dropped consistently since, with investors ignoring promises from CEO Vicki Hollub that the merger would be beneficial and the company would clean up its debt situation quickly. As of Dec. 5, Occidental's stock had lost more than 48.7% of its value since the first day of trading in January 2018.
Encana Corp.'s $5.5 billion acquisition of Newfield Exploration, completed in February, had a similar effect on that company's stock. Shares were trading at $10.22 on Oct. 31, 2018, the day before the merger announcement; they closed at $8.96 on Nov. 1, 2018, and have continued to slide since. Encana shares closed at $3.93 per share Dec. 5, 2019, a loss of more than 71% of its value since the first days of January 2018.
Permian Basin standout Concho Resources Inc. shelled out $9.8 billion for RSP Permian in March 2018 and promptly saw its stock begin to slide. The addition of subpar returns in 2019 has pushed the stock down further, with it trading in early December for less than 50% of what it did in January 2018.
Some of the more consistent Permian Basin producers, even if they did not make any moves, have seen their stocks battered as well. The struggles of Pioneer Natural Resources Co. may have been somewhat expected as the company overspent in 2018. But the return of CEO Scott Sheffield and a substantial reduction in staffing should have impressed investors in 2019; instead, Pioneer shares fell 25.8% from Jan. 2, 2018, to Dec. 5, 2019.
EOG Resources Inc., whose leadership has boasted that its stock is investment grade and in line with S&P 500 companies, decided it would buck the trend of contracted budgets and announced on its fourth-quarter 2018 earnings call in late February that it would increase spending.
"This is a company run by geologists," Mizuho Americas analyst Paul Sankey said at the time. "[T]he company retained services into 2019, but ask [Pioneer] how excess Q418 spending plays if you want an idea on how EOG will perform today."
Shares, which had already slid 13% since the beginning of 2018 at that point, went into free fall after the Feb. 27 announcement. The company currently finds its shares selling 35.4% below where they started 2018.
Diamondback Energy Inc. made two moves to upset investors during the time period in question. It purchased Energen Corp. for $9.2 billion during the summer of 2018, but its stock slide picked up steam after the company reported poor production totals in the third quarter of 2019, forcing it to lower its guidance for the year. The one-time investor darling finds its share price down more than 37% over the past 23-plus months as the end of 2019 looms.
Only one independent has bucked the trend: ConocoPhillips Co., which was among the very first oil and gas producers to stress fiscal discipline and shareholder returns in the wake of the 2014-2016 price collapse. Having stuck to its promises for several years, investors have been willing to buy in, pushing the stock up 8.2% since the start of January 2018.
"We think dividend growth is the necessary bribe to bring a broader group of investors back to this space. ConocoPhillips is uniquely positioned to deliver on it right now," Sankey said Oct. 29.