US drillers are expected to post record second-quarter profits in the coming days.
In the three months to June 30, the top 28 publicly traded US independent oil producers generated $25.5 billion in free cash flow. They will have made enough money to wipe out 25% of what they lost over the previous decade.
Independent oil and gas companies are making a comeback.
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American drillers were able to harvest unconventional resources that had been off limits. The US went from being a declining crude producer to the world's dominant oil and gas source in just over 10 years, but at an enormous cost.
The free cash flow for the sector is expected to top $100 billion for the year, nine times larger than the combined annual takes from the previous two years.
According to estimates, they will have made $85 billion by the end of the second quarter, and the gains are expected to continue through the rest of the year.
The new business model rewards profits over growth. It is a sign that the money-losing drilling projects that ensured years of ample crude and natural gas supplies are over.
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Most companies will report record earnings and free cash flow, according to a New York-based analyst. The amount of free cash flow generated will be amazing even if the cost structure goes up. Even if prices go back to $90 a barrel, this will not change.
After touching $122 in June, West Texas Intermediate crude is currently trading around $95 a barrel. Oil companies are among the top ten stocks in the S&P 500. Warren Buffet has been investing a lot in the company.
Some analysts think energy stocks are overvalued. Matthew Portillo, an analyst at Tudor, Pickering, Holt & Co., said that independent oil stocks are priced as if oil will trade around $55 to $60 in the long term.
He said that the crude fundamentals remain very tight and that the stock market is discounting a recession. The recent selloffs in the stocks will prompt executives to lean into buying back their stock.
Matador Resources posted a fourfold increase in net income and doubled its dividends in the first quarter. It came with a warning in the form of a hike in projected capital spending due to cost inflation and plans to deploy another rig.
The hired hands of the oil patch now have the power to increase the fees they charge to drill and frack wells for their clients, far beyond what it takes to cope with inflation.
Chris Wright is the CEO of Liberty Energy Inc. The cards have mostly been in the customers' hands.
The market for all the gear needed to complete new wells is almost sold out for the rest of the year and customers are already talking about plans for next year.
The effects of higher costs are being felt by the company. The New York-based explorer is not spending much. In the company's primary theater of operations in North Dakota, the cost of drilling and frack is going up.
The burden is manageable because of the free cash flow generated by the wells.
Chief Operating Officer Greg Hill said during a July 27 conference call that the returns are fantastic. The movement in the oil price is out of whack with inflation.
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