US shale producers, suddenly enjoying a rare period of profitability thanks to rising oil prices, are starting to worry that “bad actors” in the sector will spoil the rally with another drilling binge. Less than a year after the oil crash forced the heavily indebted industry to slash spending and production, cash flows have turned positive. It comes as operators pledge to prioritize margins oversupply growth and investors over rigs.
But with the US oil benchmark now trading at $53 a barrel, most shale operators can turn a profit. Resisting the urge to start producing more crude may prove difficult, say some executives. “I think it will be easier said than done,” said Matt Gallagher, an executive at Pioneer Natural Resources, a producer in the prolific Permian oilfield in Texas. “There are going to be bad actors [who pursue] growth for growth’s sake.”
Management teams across the shale sector say that last year’s crash has given way to a new era of capital discipline. But trust that all operators will hold the line and keep another price-sapping supply surge at bay is thin. “There will be some,” said Pierre Breber, chief financial officer at Chevron, referring to operators that would reinject extra cash flow into new drilling — to shareholders’ dismay. “It just reinforces the behavior that they’ve seen now for the last 10 years, which has not been rewarding to investors.”