Oil Industry Reluctant to Invest in Face of Energy Transition

March 11, 2022

Jen Psaki and Peter Doocey becoming a classic couples act, like Lucy and a Stupid version of Desi.


U.S. shale producers expect the oil price spike to be short-term, and shareholders don’t want companies investing capital in robust drilling programs delivering new production in 18 months, Pioneer Natural Resources Co. Chief Executive Officer Scott Sheffield said Wednesday. Oil futures indicate companies would get lower prices for crude that begins flowing in 12 to 18 months. 

The administration’s approach assumes oil producers will turn on a dime in response to pleas from the same people “telling everybody that they are going to be obsolete in 30 or 40 years,” said Benjamin Salisbury, director of research at Height Capital Markets

Investors in shale also have brushed aside arguments that drillers should crank up production because it’s their patriotic duty. Many still bear scars from the last boom-and-bust cycle, when companies chased production growth, ultimately contributing to a glut that drive down prices. 

“The upstream industry is not a public service industry,” said Ben Dell, founder of Kimmeridge Energy Management. “For 10 years we made no money. The industry is profitable for two months, and the argument is that we’re supposed to price down the product or give away margins to support the consumer.”

It typically takes five to six months to drill and stimulate production at a Permian Basin well before oil and gas starts flowing, said Artem Abramov, head of shale research at Rystad Energy

And that’s in the best of times. Right now, inflationary pressures have created headwinds for oil production too. Executives of both ConocoPhillips and Occidental Petroleum Corp. have cited the rising costs of piping, trucks and labor as obstacles to a ramp-up. 

Unused Permits

Three-quarters of America’s oil production and 86% of its gas production happens on private and state land — not U.S. government lands and waters.

Overall U.S. crude production, which averaged 11.7 million barrels per day in January (up 100,000 bpd from the prior month) is on track to reach record-high levels next year, according to the U.S. Energy Information Administration.

“A combination of factors is driving a more disciplined approach to production — one that has made surging production complicated,” said Frank Macchiarola, senior vice president of policy for the American Petroleum Institute.

It’s not only Democrats who face risks from surging oil prices. Consumers could end up blaming oil companies, which might not bode well for the industry’s Republican allies. 

UPDATE: Just because it’s been a long week.

One Response to “Oil Industry Reluctant to Invest in Face of Energy Transition”

  1. rhymeswithgoalie Says:

    I do get the point that the 9,000 permits that the oil companies have might not all be for productive plays, but at least some of them have accessible oil (their geological analysts aren’t stupid). So while the “9,000” number is usefully big for rhetorical purposes, the basic point still stands.

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