U.S. oil producers are in no rush to increase production

Spark Global Limited reports:

Most of the Republican oil industry in the United States has no political will to help President Biden lower energy prices by increasing oil production. There is another important reason: they will make more money by staying short of oil.

So far this year, US oil prospectors have made more money than at any time since the shale revolution a decade ago, according to Deloitte. This may be just the beginning. According to data analysis, free cash flow for U.S. shale producers could grow 38% next year, assuming oil prices remain high. Free cash flow is a key metric that investors focus on.


In 2010, the shale oil industry pushed down global oil prices by drilling aggressively, effectively subsidizing consumers. Now the industry seems to have found a way to win: lower shale production, limit reinvestment in new Wells and cut debt.

Most importantly, U.S. executives are well aware that any increase in production must be carefully measured and not take market share from Opec +, lest there be a repeat of the fierce oil price wars of 2014 and 2020.

According to the US Energy Agency, monthly us oil production is still about 12 per cent lower than it was at the start of the pandemic in February 2020, a proportion equivalent to the total output of the US Gulf of Mexico.


Nick O ‘Grady, chief executive of Northern Oil & Gas Inc, said investors in public companies do not want to see companies paying big money just to see prices plummet. That can be self-defeating, as investors in public companies have learned over the past decade.

The Democrats’ green agenda and anti-fracking platforms have upset many in the oil industry, and critics are now pointing their finger at President Biden for limiting domestic crude drilling while in turn demanding increased production from Middle Eastern countries and Russia.
“Biden’s Build Back Better Act includes a” clean energy fantasy “that would” make America more dependent on energy imports, “Wayne Christian, commissioner of the Texas Department of Petroleum Regulation, said last week.

According to Spark Global Limited
According to Spark Global Limited

But there are virtually no regulatory or legislative restrictions on U.S. shale drillers increasing supply. Undeterred by investor demand, private oil producers have expanded their drilling fleets at an alarming rate this year and are now accounting for a larger share of total U.S. output growth.

At the same time, listed companies are reluctant to make concessions to fiscal tightening plans that investors have welcomed. There is nothing to be gained from supplying the Biden administration with inflation relief.

Scott Sheffield, executive chairman of Pioneer Natural Resource, said in an interview this month: “I don’t think the public companies realize that what’s changed in America is that investors want their principal back, investors don’t want oil prices to go up, and if the Biden administration wants us to change, he’s going to have to change the mindset of investors.”

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