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U.S. oil producers could see their free cash flow swell by 68% this year, Deloitte has calculated, thanks to higher oil prices.
The increase in cash flow will come despite a much more moderate increase in actual production, Reuters noted in a report on the news.
As already repeatedly indicated by industry executives, production growth is not among their top priorities even though the federal government has spared no effort in urging drillers to drill, so retail fuel prices could fall.
Instead, according to a sample of 100 oil companies surveyed by Deloitte, top priorities include returning cash to shareholders and paying off debt.
The latest Deloitte calculation of free cash flow for U.S. oil drillers is an upward revision of an earlier forecast that saw free cash flow doubling this year to $1.4 trillion.
At the same time, the increase in free cash flow will have little effect on capital expenditure, Deloitte noted, saying capex in the U.S. upstream industry this year is expected to increase by 29% to $108 billion.
The latest attempt of the White House to make oil drillers drill more was to offer them fixed-price contracts for their oil when it starts replenishing the strategic petroleum reserve. The administration plans to do that when prices fall to between $67 and #72 per barrel.
“It’s a little bit more [complex] than this,” Schlumberger’s CEO Olivier Le Peuche told the WSJ in comments on the proposal.
In fact, the industry has criticized the Biden administration for using the SPR as a price-control tool, discouraging investment in more production in the process precisely because the SPR releases lower prices over the short term, the WSJ noted in a recent report on the topic.
Expectations for this profit season are that oil companies will maintain their current priorities with some maybe boosting dividends and stock repurchases further.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com