U.S. producers reluctant to drill more oil, despite sky-high gas prices

Consumers mistreated by soaring gasoline prices should not expect relief from the oil industry soon.

Many oil and gas executives say they have little interest in increasing oil production, even at near-record crude oil prices, which makes extraction very profitable for their businesses.

The price of crude oil has been rising steadily since the beginning of last year. It reached $ 100 a barrel in March later Russia invaded Ukraine – The first time in 12 years he broke three digits.

At this price, oil companies would normally rush to buy land and drill new wells. But a sizeable number of oil and gas executives say they will not increase production at any cost, according to a poll released this week by the Dallas Federal Reserve Bank.

When asked what price the West Texas Intermediate oil price should reach to return listed oil and gas companies back to growth mode, 29% of executives said their plans of expansion did not depend on price. Another 9% called a price level above $ 120 a gallon.

"Forty percent of respondents don't think a $ 120 a barrel price, which is very profitable as far as we know about the marginal cost of shale production, is enough to increase production," said Paul Ashworth, an economist at Head of Capital for North America. Economy.

As for why they weren’t drilling more, oil executives blamed Wall Street. Nearly 60 percent cited "investor pressure to maintain capital discipline" as the main reason oil companies no longer drilled despite soaring prices, according to the Dallas Fed's survey.

Only 8% cited environmental, social, or governance issues; 6% said they had difficulty securing funding; 15% cited other reasons.

"Investors in energy stocks have been somewhat rejected by volatility, so they are looking for more energy companies to pay off their debt or return money to shareholders, instead of going to invest in new wells, even if these new wells would be profitable, "Ashworth said.

In other words, many companies choose to enjoy their high profits instead of increasing their oil supply. This is despite the relatively low price of oil they would need to make a profit. In a different question from the Dallas Fed, executives said that oil prices between $ 23 and $ 38 a barrel, on average, would cover the cost of drilling new wells.

“Investors have demanded moderation and capital discipline from their client companies,” a respondent told the Dallas Fed.

Another said: "Discipline continues to dominate the industry. Shareholders and lenders continue to demand a return on capital, and until it becomes inevitably obvious that high energy prices will be maintained, there will be no exploration ".

The price of crude oil is responsible for most of the price of gas. A $ 10 change in the price of a barrel of oil raises the price of a gallon of gas by 25 cents, the Federal Reserve Bank of St. Louis has estimated. Louis.

Major oil companies are also sending $ 50 billion dividends to shareholders, and are on track to repurchase $ 38 billion in shares this year, a move that further increases investors ’coffers by increasing the value of their holdings.

The Dallas Fed survey echoes recent comments from CEOs of fossil fuels, many of whom have pledged not to increase production to preserve profits.

"Whether it's $ 150, $ 200 or $ 100 oil, we won't change our growth plans," Scott Sheffield, CEO of Pioneer Natural Resources, told Bloomberg last month.

Pioneer, along with Devon Energy and Continental Resources, are among the oil extractors that have pledged not to increase their production this year by more than 5%. Devon CEO Rick Muncrief told Bloomberg that the company would be "very thoughtful about increasing activity" after many cycles of ups and downs.

In Exxon’s latest earnings call, CEO Darren Woods emphasized the oil and gas giant’s focus on profitability over oil volume.

“One of the main goals we’ve had ... is less about the volume and volume goals and more about the quality and profitability of the barrels we’re producing,” Woods told investors.

While Exxon doesn't expect to increase the amount of oil it extracts, "earnings per barrel will continue to improve," Woods said. "As we move forward, you will continue to see ... the quality of the barrels or the profitability of the barrels increases."

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