RE:RE:RE:RE:RE:RE:RE:Played outThat's exactly what I am trying to say. We are agreeing with each other, but saying it differently.
I know he doesn't mean for the companies to buy themselves. He's trying to show FCF expressed in terms of their share price and debt. This is the crux of it which maybe I haven't explained well. I will try again.
For a high debt company, the debt suppresses the share price and the percentage free cash flow increases at a much steeper rate than a low debt company as oil prices rise. So using arbitrary numbers, TVE might see a 2% increase in FCF with a big move in oil, but a more highly levered name will see 7% increase in FCF with the same move. So the share price of the levered company will respond appropriately with more torque.
Leverage cuts both ways though. As oil prices fall, levered companies are punished more severely. This is the relationship of risk and reward.
mylar1 wrote: riski, the time period to pay off debt and buy back shares was intended to illustrate the FCF potential. Buying back all shares was never an expectation nor was paying off all debt. Remember too that as the price of oil rises above $60 (as Nutall used in his illustration) FCF rises too.