Slow shale oil investment sparks new tensions with White House

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As the Biden administration and its allies strive to get more oil to market through the release of inventories, shale producers are holding back reinvestment, new data shows, a sign of the widening division between American oil companies and Washington.

This restraint has become the last point of friction between oil producers and the White House. President Joe Biden kicked off the Coordinated Oil Stocks Release on Tuesday https://www.reuters.com/markets/commodities/us-set-unveil-emergency-oil-release-bid-fight-high-prices-2021 -11-23 with China, India, Japan and South Korea after failed efforts to coax OPEC and US producers to ramp up production.

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The rate at which U.S. shale producers invested funds from their operations in oil and gas drilling fell to an all-time high in the last quarter, data from consultancy Rystad Energy showed, with the companies returning l money to shareholders in the form of dividends and share buybacks.

The third-quarter reinvestment rate was 46%, below the historic average of 130%, Rystad said in a report this week. Reinvestment could fall further, according to analysts.

NEW LIMITED OIL

U.S. shale companies are targeting stable 5% production growth next year, while private companies and oil majors combined could reach 500,000 bpd by December 2022, Rystad said.

The growth rate has kept US oil production below peak. In October, the United States pumped about 1.5 million barrels per day (bpd) lower than the peak of 12.97 million bpd two years ago, the US Energy Information Administration said. Next year, production is expected to average 11.9 million barrels per day.

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Shale companies contacted by Reuters, including EOG Resources Inc and Diamondback Energy Inc, declined to comment on the coordinated release of oil reserves, which could lower oil prices. But their modest expenses resulting from rising profits show that they will not fall back into their old ways.

“Prolific shale production has been a buffer against market disruption and it is no longer there,” said Kevin Book, managing director of research firm Clearview Energy. He attributes the limited gains to “a more cautious shale area”.

It didn’t help that Biden slammed oil companies for putting shareholders ahead of the economy and called on regulators to check to see if oil companies have pushed gasoline prices to a 7-year high.

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“Biden is getting rid of pipelines and disrupting permits and making it difficult for the business to operate,” said Harris Kupperman, chief investment officer at Praetorian Capital. The administration’s rhetoric of excessive profits only makes producers worse off, he said.

‘BANDAGE’ FOR CONSUMERS

“The release of SPR is strictly a band-aid and the only way to create a lower price and lasting stability is to encourage drilling in North America and create a regulatory environment that makes it economical and sustainable,” Paul said. Mosvold, president and chief operating officer of petroleum. Scandrill drilling company.

The American Petroleum Institute, the industry’s leading lobby group, also blamed the reluctance to invest more on Biden’s rejection of new pipelines and the pause on leasing federal land.

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“When the administration signals that it wants to phase out fossil fuels completely within a foreseeable time frame, it makes funding more difficult,” said Dean Foreman, chief economist at API.

Oil companies have to spend more to keep production stable. Spending this year is up 15% from 2020 to modest increases, estimates investment firm Cowen. Next year’s spending will increase by 20-25%, with some of the gains hampered by inflation.

Higher costs for petroleum services will consume 10-15% of next year’s spending, estimates Jonathan Godwin of energy technology company Enverus.

The decline in the number of wells drilled and awaiting commissioning contributes to lower growth. They fell to a 4-year low this fall.

(Reporting by Liz Hampton in Denver Additional reporting by Stephanie Kelly in New York Editing by Matthew Lewis)

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