Shale companies are on track to spend a little more money pumping oil next year, but most aren’t opening up the spigots, even as prices top $80 a barrel.
Capital investments in U.S. oil patches this year are projected to come in at the lowest levels since 2004, years before the fracking boom made America the world’s top oil producer. Next year, oil companies are set to boost domestic spending 15% to 20%, analysts said. However, that will still be less than they plowed into drilling before the pandemic, and far less than the last time U.S. crude prices reached their current heights in 2014.
That’s because the pressure Wall Street put on American frackers to keep a lid on spending and oil production is still holding, analysts and executives said. Before the pandemic, whenever crude prices climbed to high levels, U.S. producers would flood the market with more barrels, but they ultimately spent more money than they made.
Investors and banks have now pressured oil companies to live within their means, pushing them to pay off debts run up during the shale boom and return extra cash to shareholders. They have also pressed companies to rethink future drilling plans and address their carbon footprints in response to environmental, social and governance, or ESG, concerns. Investors’ retreat from the sector has undercut the U.S. sector’s role as a reliable stopgap for global energy markets at a time when participants are worried oil supplies will tighten as demand recovers from the pandemic.
“Too much investment led to too-poor returns. I don’t think there’s any scenario where you go back to drunken-sailor spending,” said Chris Wright, chief executive of hydraulic fracturing company Liberty Oilfield Services LLC.
Many oil producers will still generate extra cash next year even with the bump in spending, given the higher prices, Mr. Wright said.
Oil companies had cut U.S. spending to an estimated $55.8 billion this year, compared with $60.8 billion last year and $108 billion in 2019, according to the investment bank Evercore ISI. U.S. oil-field investments peaked at about $184 billion in 2014.
Next year’s spending isn’t likely to lead to significant increases in production, in part because inflation and labor shortages are raising drilling costs. This year, shale companies have run through a large chunk of the dormant wells they had drilled but hadn’t yet completed and brought into production. Many will have to restart more drilling rigs just to keep output flat, which will require contractors to hire more people and increase costs, analysts said.