Shale Giant Pioneer Explains Why US Drillers Won’t Drill More

Earlier this month, White House top energy adviser Amos Hochstein called shale drillers “un-American” for their refusal to boost oil production despite multiple calls by administrations to that effect. . Now the industry is fighting back. Pioneer Natural Resources CEO Scott Sheffield, one of the most outspoken industry executives, has indirectly explained to the White House that shale drillers won’t drill anymore and that’s it. And he had an excellent reason for it.

Speaking to the Financial Times in an interview, Sheffield said a return to output growth now would cause an outflow of investors and energy shares would plunge to the bottom of the stock market. And that’s why no public oil driller would.

“You have to realize: When you generate a 2 percent return on capital employed, you end up at the bottom of the S&P 500,” Sheffield. saying Stole. “So if we end up doing what he’s asking us to do, we’ll end up at the bottom of the S&P 500 again.”

Investor pressure for higher yields has been one of the reasons given by both industry and analysts for the US shale oil industry’s current unwillingness to start ramping up production as usual. it did in the past when prices went up.

These investors have been watching for years as shale drillers spend their money to make the United States the world’s largest oil producer. Then they had to watch this whole collapse in 2020 with oil prices dipping below zero for the first time in history, albeit the dip was brief.

Related: Yergin: Oil Prices Could Break $120 If China Beats Covid

Now, two years later, things are very different with both oil prices and shale drillers. No company seems to have the ambition to see how much oil it can produce if it puts its mind and resources into it. Instead, shale drillers are relearning capital discipline and putting their shareholders first after, one might say, years of neglect.

As a result, the FT notes in its Sheffield interview story, energy stocks have become the best performers on the stock market this year. It is unlikely that any energy company would risk this performance just to respond to calls from an administration that from the beginning has been against the entire oil industry.

However, there are also purely practical restrictions, as Sheffield pointed out in his chat with the FT. Oilfield services cost a lot more than they did a couple of years ago and there is a shortage of equipment.

“I was criticizing the majors and independents for not growing more. He doesn’t realize that if we wanted to grow more than 5 percent, he would have to call in all the utility contractors; They are going to charge me 30 or 40 percent more; it’s going to take a year to build new equipment; It’s going to take two years to start showing results. At that point, you may experience an oil price collapse,” Sheffield explained.

In fact, the messages from the White House to the oil industry have been remarkably short-sighted, focused on the present, and on the apparent assumption that, with a little goodwill, the industry could add another million barrels a day to the oil industry. production in a matter of seconds. of days.

For now, though, this is physically impossible, and threats of windfall profits haven’t helped put drillers in a more generous frame of mind. Nor was the much softer message that came last week from Energy Secretary Granholm.

“We are looking forward to working with you,” he told an industry association, acknowledging that oil and gas is going to be around for a long time and acknowledging that the energy transition, if it happens too quickly, “could have unintended consequences that harm people, cause a violent reaction.”

This olive branch, like Bloomberg called It could be a positive sign in itself, but it is unlikely to change the minds of shale drillers. There’s just no good reason for them to drill more and the administration can’t give it to them.

By Irina Slav for Oilprice.com

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