The reinvestment rate among a group of 18 public shale companies hit 72% in Q2 2023, the highest since Q2 2020, driven by rising capital expenditures and declining cash flow amid inflation and subdued oil prices.
The group’s reinvestment rate was 72% in the second quarter of the year, up from 58% in the first quarter and the highest since the 150% seen in the second quarter of 2020. The reinvestment rate is the ratio between capital expenditure and cash flow from operations . However, we expect this trend to reverse by the end of 2023. As inflation eases and global oil prices tick up due to ongoing tight supply, our forecasts predict a declining reinvestment rate before we reach 2024. The vast majority of operators have spent more than 50% of their guided 2023 budgets during the first two quarters, with several having only 45% or less to invest. Earnings call guidance from management also suggests that cost deflation across the board is imminent.