Attracting investors back: What model for US E&Ps?
Even before the latest demand downturn, the US E&Ps were facing the dual challenge of poor returns and investors dissatisfaction with the business model. In this CERAWeek Conversation, Mark Viviano from Kimmeridge Energy Capital Management discuss the need to align management and investors interests to help recapitalize the US oil and gas industry. His argument ids that the business model of shale was based on a premise of resource scarcity, which then drove capital allocation decisions, executive compensation schemes and valuation methodologies He believes that the sector now has to strongly favor returns vs growth, and that re-investments have to be capped in order to reduce the cyclicality of returns, and provide shareholders a horizon for returning capital throughout dividends and buybacks. He remains optimistic that despite the crisis the US shale business is facing right now, future returns can be attractive if the appropriate actions are undertaken by the industry.