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Shale oil’s slower investment sparks new tension with White House

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Chevron Dismantling Site Near Midland, Texas, USA August 22, 2019. Reuters / Jessica Lutz

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November 23 (Reuters) – As the Biden administration and its allies strive to supply more oil to the market through a release of inventory, splitter makers are pushing for reinvestment, according to new data, a sign of a split between U.S. oil companies and Washington.

This restraint has become the last point of friction between oil producers and the White House. On Tuesday, President Joe Biden launched the release of coordinated oil reserves with China, India, Japan and South Korea after efforts to persuade OPEC and the US to accelerate production failed. read more

The rate at which U.S. shale producers bring in cash from oil and gas drilling operations has fallen to a record low in the last quarter, according to data from consulting firm Rystad Energy, as these companies returned cash to shareholders through dividends and repurchases of shares.

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The rate of return on investments in the third quarter was 46%, below the historical average of 130%, Rystad said in a report this week. Return on investment could fall even further, its analysts said.

New oil is limited

U.S. shale companies are aiming for steady production growth of 5% next year, while private companies and oil companies together may total 500,000 bpd by December 2022, Rystad said.

The growth rate kept U.S. oil production below its peak. The United States in October pumped about 1.5 million barrels per day (bpd) less than its peak of 12.97 million BPD two years ago, the U.S. Energy Information Agency said. Next year, output is expected to average 11.9 million. Basis for the day.

Shuttle companies contacted by Reuters, including EOG Resources Inc (EOG.N) and Diamondback Energy Inc (FANG.O), declined to comment on a coordinated release of oil reserves, which could drive down oil prices. But their modest expenditure on profit growth shows that they are not returning to old habits.

“Fertile shale production has been a buffer for market disruption and no longer exists,” said Kevin Bock, CEO of research firm Clearview Energy. He attributes the limited profits to a “more careful shale sticker.”

It did not help that Biden criticized oil companies for putting shareholders ahead of the economy and called on regulators to check whether oil companies had raised petrol prices to a 7-year high.

The administration wants more supplies from U.S. oil producers to reduce pump prices, Energy Secretary Jennifer Greenholm said Tuesday, pointing to an increase in industrial profit. Read more

“Biden got rid of pipes and messed with approvals and made it difficult to operate,” said Harris Kuperman, chief investment officer at Pretoria Capital. Talk of surplus profits only exacerbates manufacturers, he said.

‘Bandage’ for consumers

“Releasing the SPR is purely a bandage and the only way to create a lower price and sustainable stability is to encourage drilling in North America and create a regulatory environment that makes it cost-effective and sustainable,” said Paul Mosbold, president and COO of oil. Scandrill Drilling Company.

The U.S. Petroleum Institute, the industry’s top lobby group, also blamed the reluctance to invest more in bidding Biden for new oil pipelines and delaying the lease of federal land.

“When the administration signals that they want to completely disengage from fossil fuels within an expected period of time, it makes funding difficult,” said Dean Foreman, the API’s chief economist.

Oil companies need to spend more to maintain flat output. Expenditures for the year rose 15 percent from 2020 to reach moderate increases, estimates investment firm Cowen. Expenditure next year will rise between 20% and 25%, with some of the profits being chewed up by inflation.

Higher costs for oilfield services will consume 10% to 15% of spending next year, estimates Jonathan Goodwin of technology energy company Enverus.

The weaker growth is due to decreases in the number of wells drilled and waiting to be lit. They dropped to a 4-year low this fall. read more

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Report by Liz Hampton in Denver Additional Report by Stephanie Kelly in New York Edited by Matthew Lewis

Our standards: The principles of trust of Thomson Reuters.

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