Two WSJ Articles On The Shale Boom

The new winners and losers in America's shale boom.

A new breed of energy company is a hit with investors using a mantra long scorned in the oil-and-gas business: Small is beautiful.

When the U.S. energy boom began almost a decade ago, the companies leading the way believed bigger was better. They amassed huge land holdings so they could drill thousands of wells—and then struggled as the glut of natural-gas freed through hydraulic fracturing pushed down prices.

Like their bigger rivals, the upstarts frack to tap previously untouchable oil and gas deposits in dense shale formations. But these companies have focused on the right property instead of the most property—and raked in big stock paydays as a result.

In shale oil, leases aren't what matters.

The companies at the forefront of hydraulic fracturing consistently have spent more cash leasing land and drilling than they made selling oil and gas. Now, with the U.S. shale boom in its ninth year, they are trying to end that streak.

Value over volume—the idea that spending wisely is more important than pumping lots of fuel—has become the refrain on Wall Street and in board rooms across the oil patch.

The era when energy executives cared more about rapid growth than cash flow is over, says Arun Jayaram, a Credit Suisse energy analyst. The companies were run in the early days "by a group of teenagers," he says, "and now they've grown up to be real adults."

The 20 largest U.S. exploration companies—those that drilled wells, but didn't operate refineries—outspent their cash flow by a combined $11.5 billion last year, according to an analysis of CapitalIQ financial data. A year earlier the companies had $29.9 billion in negative cash flow.

Many of these companies, promise they soon will become cash-flow positive. Reining in spending has been tough, however.

Only a handful, mostly those with international operations, already are running in the black, including Anadarko Petroleum Corp. and ConocoPhillips. For EOG Resources Inc., one of the largest U.S. oil producers and a leader of the energy boom, last year was its first of positive cash flow since 2005. The economics of fracking are starting to improve, making positive cash flow attainable for some companies.

The competitive—and expensive—sprint to lease land in promising shale formations has ended as the best prospects have been scooped up.

A cold winter pushed natural-gas prices higher, helping producers generate more cash after several years of overproduction depressed prices. And the costs of fracking wells—injecting sand, water and chemicals to crack open shale and free oil and gas—is falling as companies have gotten better at it. Perhaps most important, investors and activist shareholders are putting pressure on executives to be more conservative about spending.

In part that is because successful shale companies have matured from microcapitalization companies, those with teeny market values that are expected to be risky but hold the prospect of stunning growth, to midcap stocks, which investors expect to have more reliable value.