Shale Making Too Much Money to Rescue Biden

Shale Making Too Much Money to Rescue Biden
U.S. oil explorers are making more money than at any time since the shale revolution began over a decade ago, according to Deloitte LLP.

America’s right-leaning oil industry has little political will to help President Joe Biden lower energy prices by raising production. But there’s another reason why Texas wildcatters are refusing to help: the status quo is just so profitable. 

U.S. oil explorers are making more money than at any time since the shale revolution began over a decade ago, according to Deloitte LLP. And this may just be the beginning. Free cash flow, the key metric watched by investors, probably will increase by 38% next year, presuming oil prices remain elevated, according to Bloomberg Intelligence. 

After effectively subsidizing consumers through the 2010s with break-neck drilling that depressed global oil prices, the shale industry appears to have struck a winning formula: moderating production, limiting reinvestment in new wells and shaving debt. Crucially, executives now understand that any output growth must be carefully measured, and not take market share from OPEC and its allies, for fear of sparking repeats of the bruising price wars of 2014 and 2020. 

U.S. oil production remains about 12% below where they were in February 2020 in the early days of the pandemic, according to Department of Energy data. That’s equivalent to removing the U.S. Gulf of Mexico’s entire output from global markets. 

“Public-company investors just don’t want to see companies spend a ton of money only to slam the price,” said Nick O’Grady, chief executive officer of Northern Oil & Gas Inc. “It becomes self-defeating. And that’s the experience of public investors for the last 10 years.”

The Democratic Party’s green agenda and anti-fracking platform upset many in the oil patch and the critics now are keen to point out the irony of a president who restricted drilling at home only to ask Mideast nations and Russia to increase crude production. 

Biden’s Build Back Better Act includes “clean energy fantasies” that would “make America more reliant on foreign nations to provide reliable energy,” Wayne Christian, a Republican oil regulator in Texas, said last week. 

But in truth, there are no regulatory or legislative hurdles standing in the way of U.S. shale oil drillers from increasing supplies. Private oil producers, unburdened by investor demands, have expanded rig fleets at a startling pace this year and now account for most of the country’s growth in crude production. 

Publicly traded companies, meanwhile, are unwilling to budge from austerity programs popular with investors. There’s no upside in gifting the Biden administration with inflation-easing supplies.

“I don’t think they realize what’s changed in the U.S. is our investors want cash back,” Pioneer Natural Resources Co. CEO Scott Sheffield said on Bloomberg TV this month. “Investors do not want us to grow anymore. If he wants us to change he’s got to change that investor mindset.”

--With assistance from Gerson Freitas Jr..

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