US oil, gas companies need to change business models for investment returns, experts say

Many US oil and gas companies need to adjust their business models to improve investment returns, investors and industry insiders have said at the ongoing CERAWeek conference held.

Smaller oil and gas companies in the United States have financed themselves with external borrowing from private equity and other sources of financing, which typically has a time horizon of three to five years.

Under the timeline of those investments, investors are now ready to get their money back and reinvest somewhere else, said Helen Currie, chief economist with oil and gas giant ConocoPhillips.

In fact, Currie noted that it's time for some companies to deliver returns to investors.

As for the investments made amid high oil prices around 2013 to 2014, not much emphasis was placed on investment returns and oil and gas companies focused on increase of production instead, said Linhua Guan, vice chairman and chief business development officer with upstream player Surge Energy.

As investors now intend to pull out, investment returns and free cash flow have increasing importance, said Guan.

The issue has a significant impact on the US oil and gas industry, which faces difficulties in getting new investments, said James Wang, principal with private equity company Ara Partners.

US oil and gas players need to adjust their business strategies and models in a bid to secure financing in the capital market.

Investors in the oil and gas sectors find it hard to exit as a slump in oil prices in 2009 and 2015 have dented the bottom line, said Wang.

A big part of the picture today is the unconventional shale world and it's quite clear that pure growth is not a great strategy today, said Osmar Abib, Jr., chairman of Global Energy Credit Suisse.

"And if you pursue that strategy, you're going to lose (different) types of investors, certainly I think mostly large institutional investors," said Abib at a panel discussion.

"So we're certainly going through a major period of adjustment. But we haven't done this for a long time," Abib added.

However, industry insiders believe that oil and gas companies could adapt to such adjustments, and the output of oil and gas is expected to continue to grow in the coming years.

US oil output will continue to grow in the next 20 years, said Linda Capuano, administrator of the US Energy Information Administration.

"We're optimistic companies are working hard and new reserves or improved technologies would get accessible reserves," Capuano said.

CERAWeek is an annual energy meeting held by the London-based information company IHS Markit featuring prominent speakers from the energy, technology and financial sectors. This year's event was attended by more than 4,500 guests from over 70 countries and regions.