The Oil Industry: Animal Spirits & High Hopes
John Maynard Keynes nailed a key component of human nature when he wrote that, "...a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."
As we begin a new year, the oil industry seems enfused with animal spirits and high hopes. According to the Wall Street Journal today, "Preliminary capital-spending plans released in recent weeks by more than a dozen American shale drillers, including Hess Corp. and Noble Energy Inc., show an average 60% budget increase for the group."
"Wall Street darling RSP Permian Inc., which drills exclusively in West Texas, is boosting this year’s budget by 97% to $600 million. RSP’s stock price has more than doubled in the last year to a recent $42.41 per share."
In short, said one oil executive, “We’re looking at this just being a very high-growth year.”