The renewed optimism in the oil markets and the $55-plus WTI prices may have warranted frenzied production growth across the U.S. shale patch, if it wasn’t for the 2015-2016 downturn.

U.S. oil and gas companies are surely happier now than they were in June this year when WTI prices dropped to below $43 a barrel, but they have been preaching spending-discipline as the sting from the oil price plunge is still fresh.

However, investors are not buying the ‘discipline’ narrative, and fear that the higher the WTI price goes up, the more U.S. shale drillers will want to return to growing production. Investors have also grown increasingly wary of the fact that they have received meager returns so far for their investments in U.S. oil firms and will not be too willing to pour in new financing just to see drillers grow production and not grow returns to shareholders.

This investor impatience over the lack of meaningful returns could lead to less funding and less appetite for mergers across the U.S. shale patch next year, Bloomberg’s Alex Nussbaum says.

This year, equity issues by U.S. oil and gas firms have halved, and after a strong start to the year, mergers and acquisitions and initial public offerings (IPOs) have started to wane going into the second half of 2017, data compiled by Bloomberg shows.

Related: Oil Price Boom Keeps Lid On Natural Gas Prices

While last year equity issues from U.S. energy firms neared a record, with $41 billion worth of stock issues, this year the share offerings have halved to $19.9 billion and are on course to post an eight-year-low. While companies have halved the amount for which they are tapping shareholders for share issues, they have nearly doubled the debt taken via bond issues, to more than $50 billion, according to data crunched by Bloomberg.

In mergers and acquisitions (M&A), the frenzied start to this year with drillers grabbing Permian acreage has worn off, and the values of the deals have decreased in the second half of 2017.

In October, PwC said in its Q3 2017 quarterly US Oil & Gas deals report that although the number of oil and gas deals in the U.S. rose in the third quarter, their total value dropped substantially as companies seek smaller, bolt-on acquisitions to fine-tune and rationalize their portfolios after the period of big transformational mega-deals.

The appetite for acquisitions just for the sake of adding more wells to drill is tapering off, Bobby Tudor, chairman of Houston-based investment bank Tudor Pickering Holt & Co, told Bloomberg.

Before this sentiment turns, investors will want a couple of quarters in which companies show fiscal discipline and boost cash flows, according to Tudor.

“The equity window is closed,” Tudor told Bloomberg. “The market is basically saying, ‘No, I’d rather you grow less and actually give me back some money,” he said.

There is a drive among the U.S. shale patch to heed investor concerns and prioritize value over volumes, and profits over production.

Oil billionaire and Continental Resources CEO Harold Hamm has been one of the most vocal preachers of ‘discipline’ this year, and has been warning fellow drillers not to repeat the pre-crash strategy of growing production at any cost.

When WTI was in the mid-$40s at the end of June, he told CNBC:

“While this period of adjustment is going on, producers don’t want to drill themselves into oblivion. Back up, and be prudent and use some discipline.” Related: Gas Shortage Has China Backtracking On Coal Ban

Then last week, just after OPEC rolled over the production cuts until the end of 2018 when WTI was over $56, Hamm said that the U.S. drillers would not return to the lavish spending days from before the downturn, because companies are now much more disciplined in their finances and looking to boost profits.

“That’s not the deal anymore, and finally the analysts and everybody else caught on. Shareholders caught on and said, ‘We’re not going to put money in there just for growth’s sake. We want a return, a good return on capital employed,’” Hamm told CNBC.

“That new dynamic has entered into the market, and it’s affecting everybody out here, and thank God it’s there,” Hamm said.

So next year much of the focus of the U.S. oil industry will likely be on growing cash flow rather than growing production, and producers will be less likely to “drill themselves into oblivion”.

By Tsvetana Paraskova for Oilprice.com

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