After years of plowing money into boosting production and thus depressing oil prices, the U.S. shale patch emerged from the pandemic-inflicted slump with unwavering capital discipline which, combined with $100+ oil, is paying off with record cash flows for American oil producers. The largest shale producers have left years of bleeding cash behind, focusing on returning capital to shareholders from the record cash flows they have been generating for several months now. As they report first-quarter figures these days, public companies vow continued disciplined spending and only modest production growth as “drill, baby, drill” is no longer shale’s primary goal.
Investors, in turn, are rewarding the discipline—most of the 20 top-returning firms in the S&P 500 year to date are oil companies, including Occidental, Coterra Energy, Valero, Marathon Oil, APA, Halliburton, Devon Energy, Hess Corporation, Marathon Petroleum, ExxonMobil, ConocoPhillips, Chevron, Schlumberger, EOG Resources, and Pioneer Natural Resources.
As a result of the highest oil prices since 2014 and capex discipline, the shale patch is on track for massive free cash flows of a combined $172 billion in 2022 alone, per Deloitte estimates cited by Bloomberg. By 2020, the shale industry had booked $300 billion in net negative cash flow in the 15 years since the first shale boom, Deloitte estimated back then.
Unlike in the previous upcycles, U.S. producers are now directing a large part of the record cash flows to boost shareholder returns with higher dividends, special dividends, and share buybacks.
U.S. producers do not plan to abandon the newly-found capital discipline and will grow production only modestly, the top executives at most public shale producers said during the Q1 earnings calls this week. Many firms acknowledged the supply chain, inflationary, and labor constraints that could result in slower American oil production growth than the increase the EIA and analysts expect. Producers are also wary of the Biden Administration’s calls for only a short-term ramp-up in production amid otherwise negative comments on the oil industry, which undermines the firms’ visibility and willingness to plan higher investments in the medium term.
“To say bluntly, the administration’s comments are certainly causing a lot of uncertainty in the market, both in the terms of regulatory taxation, legislation, and negative rhetoric toward our industry. And that creates uncertainty in our owners’, our shareholders’ minds about what the future of this industry really is,” Diamondback Energy’s CEO Travis Stice said on the earnings call this week.
Diamondback Energy will keep its current oil production levels of 220,000 net barrels of oil per day, Stice said.
“While we believe that efficiently growing our production base is achievable over the long term, we do not feel that today
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It’s official, Trump signed executive orders that will make it easier for TransCanada to construct the Keystone XL pipeline and for Energy Transfer Partners to build the final uncompleted portion of the Dakota Access pipeline ,according to which the US will renegotiate terms on the two pipelines.
Trump said “if the US build pipelines, the pipes should be made in the US” and added that “order streamlines cumbersome manufacturing regulations.” He called the regulatory process a “tangled up mess.”Trump told also told reporters in the Oval Office that the moves on the pipelines will be subject to the terms and conditions being renegotiated by the U.S.
EX President Barack Obama killed the proposed Keystone XL pipeline in late 2015, saying it would hurt American efforts to reach a global climate change deal. The pipeline would run from Canada to U.S. refineries in the Gulf Coast. The U.S. government needs to approve the pipeline because it crossed the border.
The Keystone XL would bring oil from Alberta, Canada, to Nebraska, where it would connect to an existing pipeline to bring the crude to Illinois. Former President Barack Obama refused to approve the cross-border project, saying the environmental review was not adequate in light of its route through the Sandhills ecosystem in Nebraska.
Keystone XL pipeline route, source: TransCanada
More details from Bloomberg:
Keystone was rejected under former President Barack Obama. Trump’s move on Energy Transfer Partners LP’s 1,172-mile Dakota Access project aims to end a standoff that has stalled the $3.8 billion project since September, when the Obama administration halted work on land near Lake Oahe in North Dakota.
The moves, taken on Trump’s fourth full day in office, mark a major departure from the Obama administration’s handling of the controversial oil pipelines. The steps vividly illustrate Trump’s plan to give the oil industry more freedom to expand infrastructure and ease transportation bottlenecks.
source: http://www.cnbc.com/ Legal challenges ahead
Both projects could still face challenges, according to Bruce Huber, an associate professor of law at the University of Notre Dame who specializes in environmental, natural resources and energy law.
The Keystone XL pipeline requires state approval, and Nebraska landowners fought a yearslong legal battle with TransCanada over the project. The company withdrew its application with the state’s Public Service Commission in November 2015 after the State Department decision.
Nebraska activists are likely to renew their protests, Huber said.
Trump has less room to maneuver when it comes to the Dakota Access pipeline, he added. The executive order “directs agencies to expedite reviews and approvals for the remaining portions of this pipeline,” White House press secretary Sean Spicer clarified during Tuesday’s news briefing.
Should the Army Corps of Engineers’ current environmental review pave the way for a new route, that plan will likely to face a lawsuit, Huber said.
“Any time you make an environmental analysis there’s always room for a lawsuit on whether the review was complete enough,” he said.
“If he truncates the process or speeds up the process, it just means that lawsuit will happen faster.”