When stock markets are down sharply, a common phrase of encouragement is that “it’s darkest before the dawn.” But what if, as day dawns, the sun sheds little light on the investing landscape? What if historical norms no longer apply, traditional trends are reset and veteran industry players seem to be throwing in the towel?

The month of October suffered a broad selloff in risk assets, including crude. In crude’s case, there was no shortage of factors at work. Key oil producers were trying to fine-tune global supply as Iranian exports declined and trade factors curtailed demand. The aim of blunting an Iranian sanctions-related price spike was vastly overachieved.

A noteworthy factor in October was the unusual degree to which the downdraft in crude was tied to the broader selloff in equities. The correlation tracked about 80%, marking the “highest correlation I’ve seen in quite some time,” according to John Kilduff, founding partner of Again Capital LLC.

Obviously, this backdrop has hardly helped build a base for energy equities. E&Ps are in the main striving to meet investor demands for capital discipline and returns on and of capital. But after years of sector underperformance, energy’s market standing is not going to change overnight in a stock market that is driven increasingly by algorithms linked to prior trends.

Yet some E&Ps are clearly making progress in moving to a more investor-friendly E&P model.

Such a shift in philosophy is exemplified by Parsley Energy Inc., which expects to be generating free cash flow by the end of 2019. Transitioning to a “self-sustaining organic growth model,” Parsley plans to maintain a steady pace of development until it is “in a position to fund incremental activity with operating cash flow,” the company said with its third-quarter earnings.

“We’ve now established a line of sight to significant and sustainable free cash flow. The idea is to get there and stay there at a meaningful scale,” said Matt Gallagher, Parsley president, on the company’s conference call. Citing the many variables that can occur, he said, “The one thing that is constant is volatility in this industry; so it definitely allows you to weather more storms in the future.”

But amidst recent market turmoil, one can only wonder whether much of an audience exists to acknowledge those E&Ps that are actually “walking the walk” and focusing on returns to shareholders over growth. What credit has been given by the market seems limited to mainly larger, more established names, such as Anadarko Petroleum Corp. and Pioneer Natural Resources Co.

Meanwhile, those venturing to expand by acquisition were greeted far from enthusiastically. Through Nov. 1, three combinations had been announced: Denbury Resources Inc. agreed to acquire Penn Virginia Corp.; Chesapeake Energy Corp. to acquire WildHorse Resource Development Corp.; and Encana Corp. to acquired Newfield Exploration Corp.

The larger acquisitions by Chesapeake and Encana resulted in their stocks both trading down by roughly 12% on the first trading day post-announcement. While Chesapeake’s deal with WildHorse helps it become modestly more oily, with room for margins to improve, the Encana combination was viewed by some observers as “head scratching” and “confusing” for investors.

An ostensible 35% merger premium for Newfield quickly melted to much lower levels as investors in Encana—anticipating an imminent inflexion in free cash flow—were disappointed. In addition, some argued that internal rates of return in Newfield’s key acreage in the Scoop/Stack lagged those of Encana in the Midland Basin and the condensate-rich Montney Shale.

An RBC Capital Markets report estimated the acquisition to be 7% accretive to Encana’s 2019 cash flow. Acknowledging some “benefit of the doubt” given to Encana, the report said Encana was “enamored” with the overpressured reservoir in the Scoop/Stack play, with its multiple benches and 6,000 drilling locations. Encana estimated $125 million in annual efficiencies using cube development.

Based on its pre-deal closing price, the acquisition terms implied an ostensible takeout price for Newfield of $27.36 per share. But with Encana shares trading lower as Encana shareholders digested the news, Newfield’s stock slid to $21.88 per share after the first five days of trading. As of mid-year 2018 (June 29 close), Newfield’s share price had stood at $30.25.

If it seems E&Ps are under pressure, or simply unloved, they’re not alone. While oilfield giant Schlumberger held above $60 per share in early 2016, as West Texas Intermediate (WTI) plunged to $26.19 per barrel (bbl), its stock has slid into the low $50s even as WTI stood at $60 to $70/bbl in October-November.

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