Drilling for oil in shale fields picks up

 Oil Price:

After years of plowing money into boosting production and thus depressing oil prices, the U.S. shale patch emerged from the pandemic-inflicted slump with unwavering capital discipline which, combined with $100+ oil, is paying off with record cash flows for American oil producers.

The largest shale producers have left years of bleeding cash behind, focusing on returning capital to shareholders from the record cash flows they have been generating for several months now. As they report first-quarter figures these days, public companies vow continued disciplined spending and only modest production growth as “drill, baby, drill” is no longer shale’s primary goal.

Investors, in turn, are rewarding the discipline—most of the 20 top-returning firms in the S&P 500 year to date are oil companies, including Occidental, Coterra Energy, Valero, Marathon Oil, APA, Halliburton, Devon Energy, Hess Corporation, Marathon Petroleum, ExxonMobil, ConocoPhillips, Chevron, Schlumberger, EOG Resources, and Pioneer Natural Resources.

As a result of the highest oil prices since 2014 and capex discipline, the shale patch is on track for massive free cash flows of a combined $172 billion in 2022 alone, per Deloitte estimates cited by Bloomberg. By 2020, the shale industry had booked $300 billion in net negative cash flow in the 15 years since the first shale boom, Deloitte estimated back then.

Unlike in the previous upcycles, U.S. producers are now directing a large part of the record cash flows to boost shareholder returns with higher dividends, special dividends, and share buybacks.

U.S. producers do not plan to abandon the newly-found capital discipline and will grow production only modestly, the top executives at most public shale producers said during the Q1 earnings calls this week. Many firms acknowledged the supply chain, inflationary, and labor constraints that could result in slower American oil production growth than the increase the EIA and analysts expect. Producers are also wary of the Biden Administration’s calls for only a short-term ramp-up in production amid otherwise negative comments on the oil industry, which undermines the firms’ visibility and willingness to plan higher investments in the medium term.
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With Biden shrinking the supply of oil from US-controlled sites, this shale production is benefiting Texas producers.  When Texas came into the union it offered the mineral rights in what was then state-owned land in return for the US paying off about a million dollars of Republic of Texas debt.  That turned out to be a fortunate move for Texas and Texans. It is also why Biden is unable to do more damage to the US with his ridiculous restrictions on US production of oil and gas.  Those restrictions were a contributing factor in financing Russia's war against Ukraine.