Shale producers don’t seem to be getting the message.
That’s the take from Houston-based Tudor Pickering Holt & Co., which had a few choice words for U.S. oil explorers that are hiking capital budgets at a time when investors are begging for discipline.
“We’re struggling to comprehend why, when buy side, sell side, talking heads, and taxi drivers are saying not to, companies press on with budget increases and accelerated growth plans,” Tudor Pickering analysts said in a note Wednesday. “The market could not be any more clear on this topic and to quote Indiana Jones, ‘Only the penitent man shall pass.”’
The note, titled ‘DON’T RAISE YOUR BUDGET,’ wasn’t directed at any company in particular. But the day before, Continental Resources Inc. and Concho Resources Inc. said they outspent their guidance for the first quarter, and CNX Resources Corp. boosted its capital budget and outlined faster growth plans. CNX shares dropped 14 percent Tuesday and declined another 4 percent the next day.
Concho executives later said their budget for the year was “front-end loaded,” and CNX told analysts on an earnings call that drilling efficiencies in Pennsylvania would “substantially improve accuracy on capital allocation and rates of return” moving forward. Continental “remains disciplined” and maintained its 2019 budget “in spite of first quarter 2019 being above the average for the year,” Rory Sabino, vice president of investor relations, said in an email.
“It’s going to be a long two weeks (let alone the next year) if E&P names make growth and outspend the theme for 2019,” Tudor Pickering said.
“Please, for the love of God, don’t do it.”