In our previous analyses of earnings calls for Exploration & Production (“E&P”) and Oilfield Services (“OFS”) companies, we identified key industry themes, including technological efficiency, capital allocation, and shifts in the natural gas market. While some trends persist, our latest review of fourth-quarter earnings highlights new developments shaping the sector.

Companies are evaluating the trade-offs between optimizing existing assets and pursuing mergers and acquisitions. Capital allocation remains a focal point, with an emphasis on debt reduction and shareholder returns. Additionally, firms are positioning themselves to navigate evolving market conditions, ready to capitalize on emerging opportunities. This analysis offers valuable insight into the strategies industry leaders are employing for the future.

Optimization of Existing Assets vs. M&A

In recent fourth-quarter earnings calls, energy companies highlighted the evolving balance between growth and capital discipline. Some emphasized expansion through new projects and infrastructure investments to drive long-term value and operational efficiency. Others acknowledged the tightening availability of prime opportunities in key regions, signaling a shift toward optimizing existing assets.

• “During 2024, we signed up 8 major new organic infrastructure projects under long-term contracts, encompassing about $150 million of growth capital to be spent across 2024 and 2025. We also added more than a dozen additional bolt-on contracts to the existing assets in the portfolio as well. These initiatives, combined with our recent acquisitions, will provide strong continued growth for the segment in 2025 and well into 2026 as new projects come online and we continue to enhance the broader networking and utilization potential of our infrastructure assets.”
  – John Schmitz, Founder, Chairman, President, and CEO, Select Energy Services, Inc.
• “…We tried to articulate during the announcement of the Double Eagle trade that this was really the last opportunity in the core of the Midland Basin. And if it, in fact, is the last opportunity, then there’s really not much left on a go-forward basis. So — that’s our strategy is to — we took advantage of probably what was among the last meaningful assets in the Midland Basin… not saying we’re never going to do another deal again, but certainly you need to digest here the quality of the inventory that we have. Puts us in a really good position to move more towards the other side of the capital allocation discussion…”
  – Travis Stice, Chairman and CEO, Diamondback Energy, Inc.

Capital Allocation Focuses Remain the Same

In the most recent earnings calls, companies reaffirmed their commitment to disciplined capital allocation, emphasizing a balance between debt reduction, shareholder returns, and strategic reinvestment. Many highlighted their efforts to return capital through dividends and share buybacks, reflecting confidence in their financial strength and long-term value creation.

Others prioritized reducing debt before resuming broader capital return strategies, ensuring financial flexibility amid market uncertainties. Collectively, these approaches underscore a broader industry focus on maintaining strong balance sheets while delivering value to shareholders in a disciplined and sustainable manner.

• “Finally, we remain disciplined in our capital allocation, prioritizing cash flow and return of free cash flow to shareholders. In 2024, we returned $1.6 billion or about 60% of free cash flow to shareholders in stock repurchases and dividends, and I expect we will return at least $1.6 billion of cash in 2025.”
  – Jeff Miller, Chairman, President & CEO, Halliburton Company
• “Our disciplined capital allocation strategy, maintaining a strong balance sheet, while balancing reinvestment in high-return opportunities with shareholder returns, will continue to guide our decisions. In 2024, we meaningfully increased our return of capital, accelerate share buybacks and increasing our dividend to return $337 million to shareholders during the year.”
  – Clay Williams, Chairman, President, and CEO, NOV, Inc.
• “This puts us in a really good position to move more towards the other side of the capital allocation discussion, which is the share repurchases and reducing the enterprise value. And I think at these levels, it’s very obvious that share repurchases is a great use of capital. At $70 oil, this business generates $20 a share of free cash flow in 2025. At our current prices, that’s essentially a 12.5%, 13% yield. So for us, that’s cheap. And our goal is to continue to make our stock look cheap by improving per share metrics. And I think that’s what we’ve laid out here with the 2025 plan.”
  – Matthew Kaes Van’t Hof President & CFO, Diamondback Energy, Inc.
• “In 2025, we intend to use free cash flow to first pay down our credit facility in the remaining 2026 senior notes which as of December 31, 2024, totals just under $500 million. Once this debt reduction has been achieved, we expect to return to our 50-50 debt reduction and capital return strategy via share buybacks. Antero is incredibly well positioned as we enter 2025.”
  – Michael Kennedy, CFO, Antero Resources Corporation

Lying in Wait

Energy companies emphasized the importance of adaptability in response to shifting market conditions. Some outlined a cautious approach to production by closely monitoring industry trends and storage levels before adjusting to activity. Others acknowledged a slower start to the year but remained confident in a stronger second half, driven by strategic investments and financial discipline.

Additionally, the decline in natural gas inventories was highlighted as a key market development, with expectations that the tightening supply could influence pricing and activity levels. Positioned for opportunity, companies lie in wait, ready to act as conditions evolve.

• “The way we think about it, we position the activity set, basically the whole production flat coming through ’24. The activity set is primarily weighted upfront in Q1. We need to wait and see kind of where the industry production levels are coming out of winter. We need to finalize [see where ] storage — what projected storage it’s going to be, and then we’ll make an assessment. But we do want to create that flexibility. If prices stay high or go higher, you could see us accelerate some activity and bring up some more volumes, but it’s too early to tell at this point.”
  – Alan K. Shepard, CFO, CNX Resources Corporation.
• “In summary, 2024 was a great year for Select as we hit a number of key milestones, advanced our strategic initiatives and improved our overall financial performance. And while the first half of 2025 may start out of the gates a bit slower than we would have liked to have seen, more importantly, I believe with our continued organic infrastructure investments, M&A execution and enhanced balance sheet, we are well positioned to see a strong pace of growth into the second half of 2025, and we’ll continue to capitalize on additional opportunities throughout the year.”
  – Chris George, Executive Vice President & CFO, Select Energy Services
• “Since our third quarter conference call, we’ve seen a significant move lower in our natural gas storage balance relative to the 5-year average. At that time, in late October, we were 167 Bcf above the 5-year average. Today, we sit at 111 Bcf below the 5-year average and nearly 200 Bcf below this time last year. We believe today’s low rig count, combined with an upward step change in demand will support a continued tightening of inventories that is likely to fall meaningfully below the 5-year range in the second half of 2025.”
  – Justin B Fowler, Senior Vice President of Natural Gas Marketing, Antero Resources Corporation

Conclusion

Mercer Capital has its finger on the pulse of the upstream market. As the oil and gas industry evolves through these pivotal times, we take a holistic perspective to bring you thoughtful analysis and commentary regarding the full hydrocarbon stream. This includes E&P operators, mineral aggregators, and ancillary service companies crucial to starting and maintaining the stream’s flow. For more targeted energy sector analysis to meet your valuation needs, please contact the Mercer Capital Oil & Gas Team for further assistance.