Sustainability Or Growth? E&Ps Face A Difficult Decision

Only 16 E&Ps are expected to grow production and keep spending within cash flow
U. S. unconventional E&Ps often find themselves in a difficult position in the current environment. The environment has long been ‘grow or die,’ with high emphasis placed on companies growing production. Firms that have little growth prospects generally trade at significantly lower multiples.
On the other hand, a different group of investors have much different priorities.
Many investors have begun to place a premium on operational sustainability instead of growth. These investors prefer that companies are able to sustain operations and generate free cash flow, rather than spend beyond their means to keep growing.
Companies, then, are often forced to decide. Is it worthwhile to spend beyond cash flow to grow? The ideal company is able to do both, but most must choose one or the other. A tough downturn and volatile commodities prices have made E&Ps and investors cautious.
Out of 119 E&P companies, 72 are predicted to have average 2017 production exceed Q4 2016 production. Significantly fewer, only 27, are expected to have positive free cash flow in 2017. These two are not mutually exclusive, as a total of 16 companies have both positive free cash flow and production growth.
These 119 companies are plotted below.

This post was published at Zero Hedge on Oct 3, 2017.