Oil Producers Buying Back Shares After Years of Selling New Stock
February 19 2018 - 8:29AM
Dow Jones News
By Ryan Dezember and Alison Sider
North American energy producers survived the recent oil bust in
large part by selling more than $60 billion of new stock. Now
they're beginning to buy it back.
Several oil and gas producers, including Pioneer Natural
Resources Co. and Anadarko Petroleum Corp., have started the year
by initiating or enlarging share-repurchase programs. The buybacks
reflect oil prices that have climbed enough for them to drill
profitably and shareholders who have urged companies to focus more
on the bottom line.
It also suggests that energy producers think their shares, which
have lagged behind the broader market, are underpriced.
Buying back stock reduces the number of shares in the market,
boosting the value of those remaining. Doing so is a reversal from
the past three years when energy producers pumped new stock into
the market to raise cash so they could pay down debt and keep rigs
drilling.
Newly reduced corporate tax rates aren't behind these buybacks.
Energy producers were already able to write off much of their
exploration and drilling costs and few are expected to produce much
taxable income this year.
They are related to higher oil prices and asset sales. Crude
prices are up more than 45% since June to $61.68 a barrel. While
prices have dropped off 6.74% from January's highs on data
suggesting that shale drillers will produce more oil than ever this
year, they are still in a range not seen since late 2014. At the
time a flood of shale oil had sent prices spiraling from more than
$100 to as low as $26. The crash forced producers to reduce costs
and restructure debt-laden balance sheets.
Companies and investors were prompted to rethink the strategy of
boosting output no matter the cost, which had typified the shale
boom.
"The general tone has changed," said Jake Fells, senior analyst
at BTU Analytics. "You're seeing a focus on shareholder
return."
Pioneer, one of the country's most prolific oil producers, said
it would quadruple its semiannual dividend to 16 cents a share and
buy back $100 million of its shares to negate the dilutive effects
of a similar amount of stock awarded this year to employees. That
is a small amount relative to the nearly $2 billion of new stock it
sold to bolster its balance sheet during the downturn, but some
investors view the move as one made with shareholder returns at top
of mind.
"It's a good sign -- their alternative was to add another rig,
and they didn't," said Craig Bethune, senior portfolio manager at
Manulife Asset Management. "I don't think we need the extra
growth."
Yet there is another view. Sanford C. Bernstein & Co.
analysts say that because Pioneer has proven it can be "solidly
profitable" drilling its West Texas fields, they come down on the
other side of the "return on capital versus return of capital"
debate: "Pioneer has earned the right to reinvest its cash
flow."
Generally, the buyback announcements have been applauded.
Barclays analysts boosted their price target for ConocoPhillips to
$72, from $59, after the company said it would buy back $2 billion
worth of its shares, up from an earlier plan to take $1.5 billion
off the market.
Similar plaudits have followed Anadarko's announcement that it
would boost an earlier announced buyback budget to $3 billion, from
$2.5 billion, as well as Suncor Energy Inc.'s disclosure that it
had authorized a buyback of 2 billion Canadian dollars (US$1.6
billion) to begin in May, when its previously announced repurchase
program of the same size expires.
Anadarko and Suncor produced two of the largest follow-on stock
offerings of the bust, each selling about $2.2 billion in 2016.
Derek Rollingson, an energy portfolio manager at Icon Advisers
Inc., said it is a good time for companies to buy their shares,
which are trading at multiyear lows for some, despite the run-up in
the broader stock market and oil prices. "There's been this
disconnect between the equity prices and the commodity prices," he
said.
Laredo Petroleum Inc. Chief Executive Randy Foutch said last
week that buying back as much as $200 million of the Tulsa, Okla.,
company's stock was the "most compelling and accretive" way to put
money in shareholders' pockets following the sale of its stake in a
Texas pipeline system. Laredo's shares are trading more than 20%
below what the company sold stock for in three offerings during the
downturn.
Noble Energy Inc. and Gulfport Energy Corp. are likely to buy at
even bigger discounts to what they sold shares for in recent years.
Noble said last week it would use proceeds from the sale of its
Gulf of Mexico fields to repurchase $750 million of its stock,
which is trading about 45% below the $47.50 its shares fetched in a
$1.15 billion offering three years ago. Gulfport said it plans to
buy back $100 million of the stock it sold at prices ranging from
$21.50 to $47.75 in four offerings between April 2015 and December
2016. The Oklahoma City company's shares ended Friday at $8.75.
Write to Ryan Dezember at ryan.dezember@wsj.com and Alison Sider
at alison.sider@wsj.com
(END) Dow Jones Newswires
February 19, 2018 08:14 ET (13:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Anadarko Petroleum (NYSE:APC)
Historical Stock Chart
From Aug 2024 to Sep 2024
Anadarko Petroleum (NYSE:APC)
Historical Stock Chart
From Sep 2023 to Sep 2024