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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The Oil Price Crash Has Taught U.S. Shale A Valuable Lesson

  • The U.S. shale industry has learned some valuable lessons from the last two major oil price crashes
  • U.S. shale drillers are expected to keep 2022 spending plans in check
  • The U.S. oil and gas industry remains wary of Biden’s fossil fuel policies

The massive oil price correction in November 2021, which turned out to be the worst month for crude since March 2020, came just as U.S. oil producers were drafting their capital budget plans for 2022. 

The plunge in prices, which sent WTI Crude from over $80 in early November to $67 in early December, is not so devastating to the U.S. shale patch as it would have been two years ago when producers were drilling at a record pace and were investing most of the cash flows—and even beyond that—into new wells.   

The current price slump is not spooking U.S. oil producers. They are keeping disciplined spending plans and are expected to cautiously raise budgets for next year, keeping in mind that the oil price volatility is here to stay and each new COVID variant could throw the market into panic-selling—as Omicron did last week. 

The American oil industry is not rushing to invest in too much new drilling as it is also wary of the Biden Administration’s policies toward oil and gas, and said Administration’s calls on OPEC+ to pump more while imposing restrictive measures on drilling on U.S. federal land. Oil firms are even under an investigation initiated by the Administration into whether oil companies are allegedly colluding to make gasoline prices the highest in seven years, of course, all of this because of their greed to “profiteer” and engage in “price gouging”, as senior U.S. officials and Democratic lawmakers, such as Senator Elizabeth Warren, have said in recent weeks. 

As oil prices started to rebound this year, the shale patch has been cautious in its future plans, and no one is spending beyond their means. Drilling activity has started to pick up, but it is measured and gradual because oil producers look to reward shareholders first with the record cash flows. 

Some producers may have felt in recent days that they missed a window of opportunity to boost drilling and production at $80 oil, energy analyst David Blackmon argues in Forbes.  

Yet, restraint and returns to shareholders were the right thing to do this year, after oil demand and prices rebounded from the pandemic-driven slump in 2020. 

U.S. oil firms have learned from past mistakes and are not headed to “drilling themselves to oblivion,” as they used to do before last year’s price collapse.  

The rate of reinvestment among shale-focused firms, excluding the majors, hit an all-time low in Q3 and is set to decline further this quarter, Rystad Energy said last month.

“Even with the lack of firm upward revisions for next year, record-high profits in the third quarter and expectations for moderate growth in 2022 are an impressive turnaround for the group,” the research firm also said in November. 

Rystad Energy sees U.S. firms boosting total expenditure by 19.4 percent in 2022 to $83.4 billion, which would be the highest level since the pandemic started. This signals the industry is emerging from a prolonged period of uncertainty and volatility, the research company added. 

Volatility on the oil market is set to remain high as health experts and vaccine makers study the new COVID variant. But U.S. shale producers stand their ground and plan with volatility and rewards to shareholders in mind. 

Yet, it’s not only uncertainty and volatility on the oil market that makes U.S. shale cautious about future plans. The Biden Administration’s planned oil policies—essentially making crude more expensive to produce—are not helping at all. 

After the House approved President Biden’s climate and social bill—which is now headed to the Senate—the American Petroleum Institute’s (API) President and CEO Mike Sommers said, “This bill taxes American energy, restricts access to our own resources and advances the same type of ‘import-more-oil’ strategy that this administration has been promoting as a solution. We urge the Senate to reject these misguided policies and focus on climate solutions that both reduce emissions and ensure Americans have access to the affordable and reliable energy this sector delivers every day.” 

When the Biden Administration intensified calls on OPEC+ to boost production to alleviate surging gasoline prices in the U.S., the American Exploration and Production Council said, “The worst thing an Administration can do to energy prices is restrict supply by implementing policies that make it harder to produce energy.” 


The group also noted that there are domestic solutions to lowering energy prices, including ensuring continued oil and gas production on federal land and waters, reasonable regulations on methane, and not taxing the industry more as increased fees and taxes restrict capital available for investment and drive up costs.

The U.S. shale has not been happy with the Administration’s continued engagement with OPEC+ on oil supply, while there is such—and it is abundant—in America. 

“I think first you, you stay home, you ask your friends, and you ask your neighbors to do it. And then if we can’t do it, you call some other countries,” Occidental’s CEO Vicki Hollub told CNBC last month. 

By Tsvetana Paraskova for Oilprice.com

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  • Lee James on December 11 2021 said:
    -Interesting to contrast the view of the Biden administration, to that of the U.S. petroleum industry. Something seems to be driving Biden et al to preferentially buy foreign oil. It does seem curious.

    Is it possible that in the U.S., a combination of investor exuberance, cheap oil off of public lands, and tax breaks/subsidies drove too much petroleum production for the last couple of years? Something was hyper-driving interest in domestic oil even though production cost was higher here than in other parts of the world.

    I think it well to watch what production cost is doing, and not just market price and volume. Market price is quite a bit set on a world-wide basis. The real production cost is not.

    We need to ask if the apparent cost of producing oil is good relative to the real cost of production. You can away with production cost being out-of-sync with market price, for awhile. . . .

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