Making more US oil could net a tidy profit for producers while lowering prices at the pump for drivers. But several issues are stopping these companies from scaling up production.
“They can’t find people, and can’t find equipment,” said Robert McNally, president of consulting firm Rapidan Energy Group. “It’s not like they’re available at a premium price. They’re just not available.”
“They’re more confident we don’t have to worry about a bust, [but] they’re not uncorking the champagne,” McNally said. “2020 is still fresh in their minds….They’re still scarred.”
“Oil and gas companies do not want to drill more,” said Pavel Molchanov, an analyst at Raymond James. “They are under pressure from the financial community to pay more dividends, to do more share buybacks instead of the proverbial ‘drill baby drill,’ which is the way they would have done things 10 years ago. Corporate strategy has fundamentally changed.”
“If someone starts drilling oil wells today, the increased supply might be 6 months, 12 months, even years away,” he said.
When asked about production targets for 2022 during a January earnings call, ExxonMobil CEO Darren Woods responded, “The primary objectives we’ve had in looking at the portfolio is less about volume and volume targets and more about the quality and profitability of the barrels that we’re producing.”
That has become the mantra throughout the oil industry, Molchanov said.
“Because of the industry’s strong emphasis on capital discipline, reaching peak production should be realistic in 2023, but not before then,” he said. “And it’s never going to grow at a rapid rate ever again. The days of US oil supply growing double digits on sustainable basis, those years are gone.”
Looking ahead, the industry is more eager to increase production than it was in the fall, said McNally, in part because they are less concerned about US government efforts to limit fossil fuel production in an effort to fight climate change.
“The Biden administration is suddenly interested in more drilling, not less,” McNally said. “People are more worried about high oil prices than anything else.”