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Unlike sticks and stones that can break bones, the old saying goes, words can never hurt. But it appears they are indeed harming the nation’s oil and gas industry.
“Rhetoric has not helped us recruit talent or attract students to engineering programs,” said Kaes Van’t Hof, president and chief financial officer at Diamondback Energy. “It’s hurt business but not from a financial standpoint.”
Providing the opening address at Hart Energy’s Executive Oil Conference on Wednesday, he said it’s helpful to separate policy from rhetoric. Policies mean rules around methane emissions will be getting tougher, Van’t Hof said.
“At the end of the day, our shareholders are demanding that we do better than the regulations require anyway,” he said. If the proposed regulations are enacted, he said the company should get credit for doing the right thing.
While the Permian Basin’s shale revolution is by no means mature, he said it has been delineated enough that it is time for producers to slow down growth and return cash “to investors who have been waiting patiently for their returns.”
The years of being able to raise cash to fund aggressive drilling and growth programs was not healthy, and slowing growth rates and returning cash will be healthier for the Permian Basin and the industry.
The company, which just announced two acquisitions totaling more than $3 billion in the last month, incorporates the target assets’ environmental footprint in its dealmaking — whether it’s emissions, water use or flaring — Van’t Hof told the audience.
He acknowledged flaring has picked up in the Permian Basin but predicted it will be temporary while takeaway constraints are worked out between the upstream and midstream companies. Flaring, he added, is an issue that must be solved by the entire industry.
“Look at the dollars spent to get facilities up to snuff,” Van’t Hof said. “Even in a private equity-backed world, they do a good job getting up to speed as shareholders demand. The Permian Basin, in general, meets Scope 1 emissions requirements. Those barrels are going to compete on the global marketplace for a long time.”
Van’t Hof expects investors will be returning to the industry because it is healthy, making money, generating free cash flow and returning dollars to investors. Even service companies are on the capital discipline bandwagon and returning money to investors, he noted. Any new equipment won’t be built unless there’s a contract attached, he said.
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