• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 7 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 6 days They pay YOU to TAKE Natural Gas
  • 3 days How Far Have We Really Gotten With Alternative Energy
  • 3 days What fool thought this was a good idea...
  • 6 days Why does this keep coming up? (The Renewable Energy Land Rush Could Threaten Food Security)
  • 20 hours A question...
  • 12 days The United States produced more crude oil than any nation, at any time.
Memorial Day Travel Expected to Near Record High

Memorial Day Travel Expected to Near Record High

Around 43.8 million Americans are…

Easing Inflation Sparks Bullish Sentiment in Oil Markets

Easing Inflation Sparks Bullish Sentiment in Oil Markets

Easing Inflation Sparks Bullish Sentiment…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Premium Content

U.S. Shale Is Reluctant To Drill Despite Rising Oil Prices

  • The U.S. shale industry has changed its primary focus from production growth to capital discipline, influenced by capital efficiency concerns, federal government policies, and shareholder interests.
  • There are contrasting reports about U.S. oil production, with the EIA suggesting a decline in shale oil, while Rystad Energy predicts an all-time high by year-end.
  • Several industry leaders and analysts, including those from Goldman Sachs, anticipate oil prices to soar even further, with potential challenges ahead for U.S. shale production and the Biden administration's energy strategies.
Drill

The U.S. shale oil industry is in a wait-and-see mode and likely to remain there for the foreseeable future despite rising oil prices on international markets.

While up until two years ago, production growth was priority number one, now things have changed, and they have changed for good. It’s capital discipline that is the number one priority now.

Earlier this month, the Wall Street Journal reported that capital efficiency, funding challenges, and shareholder outflow were among the top concerns of the industry that prompted it to be careful with its money and its drilling activity.

In addition to these, there seems to be a pervasive sense of hostility from the federal government that is also affecting decision-making in the shale patch.

“The US is blessed with amazing natural resources but we are walking away from them,” the chief executive of Canvas Energy, Chuck Duginski, told the Financial Times.

“The Biden administration is waging a war against oil that makes it far more difficult to invest in drilling that would boost production and bring down prices,” Duginski said.

He is not the only one. Continental Resources’ Harold Hamm has accused the federal government of wanting to put oil and gas companies out of business even if it wasn’t the best course of action for their own voters.

“It’s political power. They believe that is what their base wants. But, I’m sorry, a lot of those people want to buy gasoline at decent prices and heat their homes,” Hamm told the FT.

The government itself does not accept the accusations. On the contrary, the White House insists it is doing everything in its power to keep energy affordable for Americans. 

“The President is not holding back US energy production — there remain thousands of approved but unused federal permits, and US production remains strong,” a spokesperson told the New York Post.

“The President is committed to lowering prices at the pump for Americans and maintaining a stable and secure energy supply, while delivering on the most ambitious climate agenda in history,” the spokesperson also said.

The thing is, as the oil industry has noted, that this most ambitious climate agenda is at odds with strong growth in oil and gas. Take the latest noise around offshore oil and gas leasing: the Department of the Interior made waves when it announced it would only schedule four offshore lease sales for the next five years, compared to an average of above ten historically. And the reason it was only going to hold lease sales at all was that they were stipulated as a condition for holding offshore wind tenders.

Yet even in this environment, oil and gas companies are, in fact, boosting production. The information is quite confusing. According to the EIA, production of crude oil from the shale patch is on the decline, most notably in the Permian. But according to Rystad Energy, U.S. oil production is set to top 13 million barrels daily by the end of the year—an all-time high.

The confusion dissipates with a closer look. A record-high production rate sounds impressive, but a lot of it actually goes into maintaining a flat production rate, Bloomberg reported this week, citing S&P Global senior analyst Raoul LeBlanc. According to LeBlanc, some 4 million bpd in production goes into maintaining a flat level.

Then, there is the issue of inventory quality. There have been warnings from the industry that U.S. shale is running out of sweet locations, meaning low-cost, high-quality acreage. So operators are being cautious with what remains of their inventory and not rushing to exploit it. High prices cannot motivate a change of mind in the current environment, at least not until they move even higher, and then only maybe.

Perhaps we will see soon enough whether high enough prices can motivate a change of mind among U.S. shale executives. A growing number of analysts are forecasting a return of Brent crude to $100 per barrel and possibly even higher.

Goldman Sachs recently forecasted that oil would get to $100 and stay there because of tight supply, especially in the U.S. where the strategic petroleum reserve is at the lowest in four decades.

ADVERTISEMENT

“At this point, US energy policy has fewer bullets left. It has less levers left in its policy toolkit,” Goldman’s head of oil research, Daan Struyven, told CNN.

Some in the industry are also expecting even higher prices: Continental Resources’ CEO, Doug Lawler, said last month that crude could jump to $150 per barrel without new exploration. He also warned output in the Permian could soon peak.

With so many challenges, it is not that hard to see why U.S. shale is keeping its output flat. It also seems no amount of persuasion can change that, at least for the time being. The Biden administration will have to find another way to keep prices at the pump low.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:


Download The Free Oilprice App Today

Back to homepage





Leave a comment
  • Mamdouh Salameh on October 05 2023 said:
    If US shale oil drillers are reluctant to drill despite rising oil price, this has little to do with capital discipline and far more to do with the fact that the most lucrative and cheap to produce spots have already been exhausted forcing drillers to move to poor and costly to produce ones thus causing production costs to rise and production to decline.

    Don’t believe the hype by the US Energy Information Administration (EIA) in cahoots with the IEA, Rystad Energy and the Financial Times about US production figures hitting 13.0 million barrels a day (mbd).

    The IEA broke the record for hype in 2019 when its Executive Director Fatih Birol projected that by 2025 US production at 25.0 mbd will be bigger than the combined Saudi and Russian production.

    US shale oil is a spent force. Even veterans of shale oil development have told the EIA to tone down its figures but to no avail. I estimate US production at no more than 10.0-11.0 mbd.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News