Overall, the earnings season for energy investors has been dour, with stocks down almost 10% from year-end levels over the course of January-February. As one analyst commented, investors have tended to “sell the news,” even in the face of positive outlooks from E&Ps.

Observers point to a variety of factors: profit-taking after a good run late last year; doubts over the durability of the OPEC deal; a couple of dizzyingly high U.S. inventory builds ascribed to OPEC countries’ pre-deal effective date shipments to the U.S.; puzzling low gasoline demand data; weak winter weather; and an E&P production cadence weighted more to the second half of this year.

E&P production and capex guidance has, in some cases, been something of a double-edged sword. An increasing number of E&Ps have offered multiyear guidance in place of guidance for just the current year. This approach typically charts a range of production growth metrics that investors can expect in the next two or three years. However, while ostensibly offering steadier growth, any divergence from consensus expectations for individual years has risked a selloff in an E&P’s stock.

Newfield Exploration Co. is one of many that introduced multiyear guidance. As part of it, Newfield’s domestic capex budget was set at $1 billion for 2017, with 85% allocated to the Anadarko Basin.

From a base of 137,000 barrels of oil equivalent per day (boe/d) in the fourth quarter of last year, Newfield projected its domestic production would increase at a 10% to 15% compound annual growth rate (CAGR) to 190,000 to 210,000 boe/d in the final quarter of 2019. Moreover, production in its key Scoop/Stack play in the Anadarko Basin is forecast to grow considerably faster, at a CAGR of 20% to 25%, rising from 88,000 boe/d to a projected 150,000 to 170,000 boe/d in the final quarter of 2019.

But investors were unsettled by Newfield’s forecast calling for its U.S. production this year to grow by only 3% to 5%, on average, at 142,500 to 145,500 boe/d. The 2017 growth profile is expected to be “back-end weighted” due to the timing of completions of multi-well development pads, said Newfield, noting its fourth-quarter output would climb to 150,000 to 160,000 boe/d, well above the average for the year.

Newfield’s vision for the company is one that “can sustainably post double-digit growth within cash flow,” according to CEO Lee Boothby. However, its goal of cash flow neutrality won’t be met this year, when it plans to use part of its $550 million of cash on hand to fund “a very manageable delta in our estimated cash flow,” said Boothby. And guardrails are in place, with Newfield pledging not to veer beyond a net debt-to-adjusted EBITDA ratio of 1.5x to 2.5x throughout the three-year period.

Analysts at Wells Fargo Securities have warned that E&Ps face deteriorating capital efficiency in the years ahead (i.e., greater capex needed to add a given boe/d of production, due to rising oilfield service costs and other factors). However, capex and production increases rarely move in tandem, meaning that a large part of 2017 capex, for example, is likely to translate into growth occurring in 2018.

Of late, this is partly due to E&Ps’ strategy for optimizing development of unconventional assets.

“Given the choice between near-term production and a more optimized development (drilling out entire spacing units before completing), the trend has been to choose the latter, which means larger pads, bigger fracks and a longer time horizon before production come online,” said Wells Fargo. The strategy “ties up more capital with less production near term, driving lower overall capital efficiency.”

Obviously, a combination of upfront capex increases but drawn out production growth does little for E&Ps trying to live within cash flow.

J.P. Morgan estimates a 2017 year-on-year capex increase of about 60% for the 40 E&Ps it has under coverage. Capital discipline “may wane through the year,” it forecast, with large-cap E&Ps posting “some modest outspend” and smid-cap E&Ps outspending cash flow by 25%, “mostly funded by equity issuance.”

How does higher 2017 capex accelerate momentum for U.S. oil production in 2018?

RBC Capital Markets forecasts growth of 800,000 barrels per day (bbl/d) next year, assuming a $63/bbl West Texas Intermediate price. Simmons & Co. entered 2017 with an oil production growth forecast of 700,000 bbl/d, but said it is entertaining “the possibility” of revising its estimate to 1 million bbl/d growth at strip pricing.

What does the outlook look like if the above production ramp comes to pass?

“Good for the companies; not as good for the macro,” opined Simmons.