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US energy stocks languish despite shale boom
By: Financial Times | January 28, 2020

• Concerns over environmental impact and business models dominate





US energy stocks have proven to be a disappointment over the past decade, despite a shale boom that has transformed the world’s largest economy into an energy-producing powerhouse. Growth in crude oil output has doubled from 2010 to reach 13.3m barrels a day, according to the US Energy Information Administration.

But all this time, fund managers have been focused more on long-term doubts over the future of the fossil fuel industry, and shorter-term concerns about the ability of a new breed of shale-focused drillers to generate cash. In a clear sign of the market’s distaste, the energy sector now represents about 4 per cent of the capitalisation of the S&P 500 index, down from about 12 per cent in 2010.

“The decade that we just had is probably summarised as ‘industry sowed the seeds of its own demise’,” said Stewart Glickman, an energy equity analyst at investment research firm CFRA.

The big question in the coming decade: whether investors’ interest in energy stocks will rekindle, enticed by attractive dividend yields on offer after the decline in share prices, and signs that US shale producers are beginning to demonstrate stronger financial discipline. The alternative is that investors turn their backs on the sector for good, discouraged by abundant supply — the EIA expects production to climb to 13.7m barrels next year — and an inevitable transition to a lower-carbon world.

“If you would like to have a good reason to be bullish on energy, it’s that this era of abundance is going to be brief because the lack of spending is going to catch up,” said Mr Glickman. “The longer-term risk is whether this happens before renewables really take off.”

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