RE:RE:RE:RE:RE:Capital allocationHere's the major problem with that scenario.
It takes $20 a barrel for the higher financial leverage to catch up to the higher oeprational leverage.
Oil prices are going to spend FAR less time at $20 then they could spend at say $40.
At 40, company A makes only $5 a small cash flow, whille Company B makes $15.
B's lower debt only becomes an advantage at prices of $20 per barrel and below to maybe 10, which is a very low probability event compared to oil sticking in a 40-60 range. Either way they'd be losing massive amounts on paper compared to A, since their losses start at $10 higher. The market wouldn't much care that they have longer credit runway then they are mowing through it that fast with huge margin losses.
But in reality, the market knows that when prices reach those extremes, sovereign producers like OPEC take drastic measures to cut and boost prices. Or like in Canada where we cut to boost when oil got into the 20 range in the fall.
The muddle along weak prices of 40 have a lot higher probability chance of lasting 10 months than 20 prices lasting 10 months. And that is what the market is weighing, when measuring comaprable valaution.
operating leverage at 40 plays a way higher role than financial leverage at 40