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

Consumers battered by sky-high gasoline prices shouldn’t expect relief from the oil industry anytime soon.

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

The price of crude oil has been steadily rising since the start of last year. It hit $100 a barrel in March after Russia invaded Ukraine — the first time in 12 years it breached three digits.

At that price, oil companies would normally race to snap up land and drill new wells. But a sizable number of oil and gas executives are saying they won’t increase production at any price, according to a survey released this week by the Federal Reserve Bank of Dallas.

Asked what level the price of West Texas Intermediate oil would need to hit to get publicly traded oil and gas companies back into growth mode, 29% of executives said that their expansion plans weren’t dependent on price. Another 9% named a price above $120 a gallon.

“Forty percent of respondents don’t think that a price of $120 a barrel, which is very profitable from what we know about the marginal cost of shale production, is enough to increase output,” said Paul Ashworth, chief North America economist for Capital Economics.

As to why they weren’t drilling more, oil executives blamed Wall Street. Nearly 60% cited “investor pressure to maintain capital discipline” as the primary reason oil companies weren’t drilling more despite skyrocketing prices, according to the Dallas Fed survey.

Only 11% cited environmental, social or governance issues; 8% said they had difficulty getting financing; 15% cited other reasons.

“Investors in energy stocks have been a bit thrown off by the volatility, so they’re looking more for energy firms to pay back down their debt, or return money to shareholders, rather than going and investing in new wells — even if those new wells would be profitable,” Ashworth said.

In other words, many companies are choosing to enjoy their high profits rather than increase the supply of oil. That’s despite the relatively low oil price they would need to turn a profit. On a different Dallas Fed question, executives said oil prices between $23 and $38 a barrel, on average, would cover the cost of drilling new wells.

“Investors have demanded restraint and capital discipline of their client companies,” one survey taker 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 unavoidably obvious that high energy prices will sustain, there will be no exploration spending.”


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The price of crude oil is responsible for the majority 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.

The major oil companies are also sending $50 billion in dividends to shareholders, and are on track to buy back $38 billion in stock this year, a move that further boosts investors’ coffers by increasing the value of their holdings.

The Dallas Fed survey echoes recent comments from fossil-fuel CEOs, many of whom have pledged not to increase output in order to preserve profits.

“Whether it’s $150 oil, $200 oil or $100 oil, we’re not going to 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 who have pledged not to raise their production this year more than 5%. Devon CEO Rick Muncrief told Bloomberg the company would be “very thoughtful in ramping activity up” after many boom-and-bust cycles.

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

“One of the primary objectives we’ve had … is less about volume and volume targets and more about the quality and profitability of the barrels that we’re producing,” Woods told investors.

While Exxon doesn’t expect to increase how much oil it extracts, “the earnings per barrel will continue to improve,” Woods said. “As we move forward, you’ll continue to see … the quality of the barrels or profitability of the barrels increase.”

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