America’s largest oil and gas producers are limiting supply and defying the Biden administration’s calls to increase production, even as soaring fuel prices from Russia’s war bring huge profits to Ukraine.
Top shale oil and gas producers, including ConocoPhillips, Pioneer Natural Resources and Devon Energy, all announced sharp increases in second-quarter earnings this month as high crude oil and natural gas prices fill the industry’s coffers.
But executives say they remain under pressure from Wall Street to return the windfall to investors through dividends and share buybacks rather than spend big to boost production.
“Unless we have shareholders who come in and say, look, we definitely don’t like these big dividends. We don’t like your share repurchase program. We want you to go back to a growth model,” Rick Muncrief, chief executive of Devon Energy, one of the largest producers of the shale plaster, told analysts. “Until we see that, I see no reason to change our strategy.”
That sentiment was echoed by other shale managers in the latest sign that oil companies and their shareholders are unmoved by politicians’ calls for more oil and gas supplies after Russia’s invasion of Ukraine sent fuel prices soaring. Energy prices have pushed inflation in the US and Europe to levels not seen in 40 years.
President Joe Biden and other Western politicians have attacked the oil companies’ decision to channel profits back to shareholders rather than invest in new production that would help tame prices.
Over the past decade, the U.S. shale industry has become notorious for bending spending that boosted production but inflicted heavy losses on shareholders and plunged companies deeply into debt.
The approach now being taken has slowed the growth of the country’s oil supply compared to recent years when commodity prices were high. The US produces about 12.1 million barrels of crude oil per day, according to the Energy Information Administration. That’s about 800,000 billion a day more than a year ago, but still shy of the pre-coronavirus pandemic highs.
Production growth this year is mainly due to private operators not being under the same kind of shareholder pressure to curtail investment.
Occidental Petroleum says it is still focused on paying off more of the debt it incurred to buy Anadarko Petroleum in 2019 and increasing its dividend. For now, it sees plowing money into its own stock as a better bet than expanding output.
“We don’t feel the need to increase production,” said the company’s CEO, Vicki Hollub. “We feel that one of the best assets right now is to invest in our own stocks.” Berkshire Hathaway, billionaire investor Warren Buffett, has built up a nearly 20 percent stake in Occidental, more than doubling its share price in the past year.
This year marked a reversal in the shale industry’s fortunes after massive losses during the pandemic, although fears of a recession have once again clouded the outlook.
S&P’s exchange-traded fund for oil and gas producers is down about 26 percent from its recent highs in early June, but continues to climb 25 percent this year, marking a high in a bleak year for the broader market.
Still, many oil executives argue that the supply disruption caused by the Russian invasion of Ukraine will put a floor below the oil price, even if economic growth slows.
“What’s a little different this time around is that today the world still seems to have chronically short physical vessels with not much spare capacity to fill that gap,” said Travis Stice, CEO of Diamondback Energy. “The macro situation looks quite positive for energy prices in the coming years, even though I know it will have a recessive effect.”