American Oil and Gas Reporter - July 2023 - 35

the capital markets, Harbour allowed,
and something that should be acknowledged.
Historically, energy companies
have accounted for 10%-13% of the
S&P 500, with occasional slips into
6%-8%, he observed. However, the industry's
Covid-era downturn trimmed
that range to 2%-3%, reaching all-time
lows. " An 'imperfect storm' unfolded,
including investor ESG mandates coupled
with the lack of returns and free
cash flow generation by both service
providers and E&P companies in the
lower 48, " Harbour assessed.
" For a long time, investors rewarded
companies for top-line or, in the case
of operators, production growth, versus
returns and free cash flow. " He added.
" Alongside the aversion to hydrocarbons
and the increase in weighting for technology
companies . . . made it easy for
investors to move capital away from
traditional energy. "
Had oil and gas companies adopted
their post-Covid business models in
2015, Harbour reflected, more investors
might have remained. Moreover, he
noted, oil and gas companies have
begun implementing operational efficiencies,
such as reducing flaring and
adopting cleaner burning pressure pumping
technologies, resulting in both improved
economics and reduced environmental
impact. Although not all investors
are supportive of hydrocarbons,
he shared, those who prioritize returns
are most likely to come back.
" Ultimately returns attract capital;
historically this has been a self-fulfilling
prophecy, " he maintained. " The
market is looking for the traditional
energy industry to continue to re-build
trust over a prolonged period of years
by continuing to prudently allocate
capital, focusing on returns and free
cash flow, and returning capital to
shareholders. Under a prolonged scenario,
through commodity and activity
cycles, of attractive relative returns,
the industry could witness an increase
in investor interest and, ultimately,
capital flows. "
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American Oil and Gas Reporter - July 2023

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