Companies Generating OCF from Cash Capex Thrive During the Downturn
With the second anniversary of the oil price downturn nearing, KLR Group decided to take a look at which companies have managed to create value in the downturn and what differentiated them.
Capital yield, also known as the cash recycle ratio, is the clear differentiator of the winners since the price crash. The metric is defined as operating cash margin per unit of production divided by cash capital intensity per unit of production.
Put simply, EBITDA per dollar of cash capital spending. The metric is “consistent across business models so as to provide an objective comparison of E&P asset returns,” in the words of John Gerdes, Head of Research at KLR.
Over the previous two-year time frame, KLR grouped companies by capital yield quartiles and examined their growth in equity value. The XOP ETF was used as a point of comparison.
1st Quartile | 2nd Quartile | 3rd Quartile | 4th Quartile |
Cabot | Apache | Bill Barrett | Approach |
Callon | Anadarko | EP | Consol |
Concho | Antero | EQT | Devon |
Diamondback | Chesapeake | Gulfport | Encana |
Energen | Continental | Hess | Marathon |
EOG | Carrizo | Laredo | Rex |
Parsley | Newfield | Matador | Stone |
Pioneer | Oasis | Noble | SM |
Rice | PDC | QEP | Sanchez |
Range | Synergy | Southwestern | Unit |
RSP Permian | Cimarex | WPX | Whiting |
Since the downturn, the top quartile equities have averaged 1% growth in value while outperforming XOP by roughly 45%. This is good, considering that second, third, and fourth quartile equities dropped 29%, 46%, and 69%, while the XOP dropped 45%.
All companies that have grown in value since the crash were in the 1st and 2nd Capital yield quartiles
Company | Capital Yield Quartile | Capital Yield Percent | Two Yr. Performance |
Callon Petroleum | 1st | 211% | 67% |
Parsley Energy | 1st | 212% | 57% |
RSP Permian | 1st | 183% | 45% |
PDC Energy | 2nd | 141% | 28% |
Diamondback Energy | 1st | 197% | 26% |
Newfield Exploration | 2nd | 131% | 12% |
Concho Resources | 1st | 152% | 6% |
Cimarex Energy | 2nd | 143% | 4% |