A week before Russia began its unprovoked attack on Ukraine, the chief executive of the largest oil and gas producer in the U.S. Permian Basin was telling Bloomberg TV about his commitment to financial discipline:
The apparent steadfastness of Scott Sheffield of Pioneer Natural Resources Co. makes sense in a sector rebuilding its reputation with investors after a decade of excess and loss. Yet Sheffield’s statement is odd in the details. By Pioneer’s own math, all else equal, a move from $90 oil to $150, annualized, would imply a free cash flow yield of almost 20%. Which raises a rather troubling question. If investors really require a 20% yield from one of America’s biggest, best-capitalized shale operators before it’s allowed to drill some extra wells, isn’t that business model broken?