The oil industry’s biggest companies launch back into growth.

What’s behind the oil industry’s renewed appetite for growth? It seems to fly in face of reason with the changing energy market mix, forecasts of peak oil demand and the mundane reality of recent experience of under delivery on targets.

After two years cutting costs, investment and dividends, the smart money would be on the industry contracting to focus on value - production growth viewed as anathema, tainted with poor performance, synonymous with low returns and consigned to the past.

But if you’ve got it, flaunt it. That’s always been the motto for independents, whose primary goal is to maximise future value in today’s share price in case of an approach by a bigger competitor. E&Ps in the Permian basin have led the industry into a new growth phase in the last few months, setting aggressive and ambitious production growth forecasts for tight oil.

Now, like boxers up against the ropes, the Majors too have come out slugging.

Fresh from a dismal round of Q4 2016 earnings, replete with weak earnings and balance sheet write downs, come new, raised growth targets from a number of the industry’s biggest players. Among them are ExxonMobil, BP and Eni, setting out their stall for growth and taking advantage of lower costs and capacity in the supply chain.

These companies neatly capture how strategies of the sector’s biggest players are diverging. And how each Major is using the downturn to adapt and reposition its portfolio.

ExxonMobil is enacting a strategic pivot towards US tight oil. Spend on short cycle tight oil and shale gas will rise from 25% in 2017 to over half during 2018-20, displacing conventional or ‘long cycle’ investment. Higher near-term production guidance for the company is based almost entirely on the Permian and Bakken. Tight oil production is set to grow at more than 20% p.a. and reach over 750 kboe/d by 2025.

Our own forecasts, including the latest Bass acquisition, are only marginally more conservative. ExxonMobil’s portfolio and investment opportunities are in fact well balanced across its portfolio. Its Liza giant oil discovery in Guyana is a good example of a low break even conventional oil project. But without tight oil, ExxonMobil’s production to the mid-2020s would be little better than flat. With tight oil there’s 0.5 million b/d of net growth.

BP’s carefully executed portfolio high grading since Macondo has set the scene for gas-driven growth. BP is targeting organic production growth of 5% p.a. to 2021 (on flat organic investment). There are several growth engines for this period.

Our forecasts suggest most growth into the middle of the next decade will be driven by big gas developments in Egypt and Oman.

West Nile Delta, Zohr and Kazzan tight gas will introduce a significant quantum of stable long-life cash flow from domestic gas contracts with minimal oil price linkage.

Gas as a proportion of BP’s production will rise from 42% to 55% by the early 2020s (excluding Rosneft). BP estimates a theoretical production ‘capacity’ of over 5 million boe/d in 2030 (3.2 million boe/d in 2016), underlining the high degree of confidence it has in the portfolio as well as the scale of its ambition.

Eni, the major most focused on conventional assets, has a production CAGR target of 3% to 2020. We think this is eminently achievable, with Egypt again the main engine. The giant Zohr project provides almost all of the net growth in Eni’s forecast period, with Mozambique LNG lying in wait to provide momentum next decade. Gas as a proportion of Eni’s production rises from 48% currently to two-thirds by the middle of the 2020s, as the gas strategy becomes increasingly global.

These companies and their sister Majors are clearly waving, not drowning in the wake of the downturn. But waving at what?

Waving to employees, perhaps to show the business is alive and kicking after a lengthy period under the cosh. But waving also to capital markets to make the case for buying oil and gas shares.

To succeed in that and lure investors back from vogue high growth sectors like tech, two things need to happen. First, companies need to deliver on these bold new targets. Second, growth needs to be achieved with no dilution to returns.