The combined oil and gas production forecasts from a dozen companies that reported second-quarter results in recent days are barely changed from three months earlier, down 0.6%, despite US crude prices going up to $120 a barrel this year after Russia invaded Ukraine. The companies have increased their capital budgets by 7% because of higher diesel, steel, chemical and labor costs.
The world's oil market has lost its two biggest growth engines because of the unwillingness to boost production by shale executives. The Organization of Petroleum Exporting Countries admitted to having limited capacity this week, and said that little can only be tapped with great caution. US drillers have concluded that record profits and cash flows are better spent on share buybacks and dividends rather than deploying more rigs.
There is no oil out there, said Kaes Van t Hof, chief financial officer of Diamondback Energy Inc., during a conference call with analysts. US oilfields currently pump about 12 million barrels a day, 8% higher than a year ago, but still 1 million barrels a day below the pre-pandemic all-time high. Exxon Mobil Corp. and Chevron Corp. are the only American companies that plan to expand output, and family-owned operators such as Mewbourne Oil Co.
Even the jump in oil prices after Russia invaded Ukraine and pleas from President Joe Biden for supply hikes haven't lured the US shale drillers back to the growth mode that was long their modus operandi. After back-to-back crude-market crashes, they are finally learning discipline, said Bill Smead, who manages $4.8 billion at Smead Capital Managemen Inc.
Why would you do anything to help the people that hate you? Bill Smead of Smead Capital Management was a spokesman for Bill Smead.
They got castrated in 2016 and slaughtered in 2020, and then got demonized for ruining the environment, said Smead, who is Continental Resources Inc.'s largest independent investor and top 20 shareholder in Occidental Petroleum Corp. Why would you help the people that hate you so much? Noah Barrett, lead energy analyst at Janus Henderson, said that explorers are unwilling to invest beyond current drilling plans because of deteriorating efficiencies and cost inflation.
Barrett said that they're thinking more like investors and less like engineers. Shale drillers are reaping huge profits at the moment. The group is on track to report a record $26.4 billion in free cash flow with over half of the 35 independent drillers tracked in BloombergNEF having posted quarterly earnings. The majority of the money will be given to investors through buybacks and dividends.
Rick Muncrief, CEO of Devon Energy Corp., said that it seemed like a long punt for us right now. We're not getting that feedback from our investors. It s getting harder to be a woman in America.