The US political season is in full swing. At the time of this writing there are 98 days left until the next presidential election. As part of this quadrennial dance, both the anti-regulatory hawks and the climate-change zealots are in full flight, with the oil and gas industry central to each of their attentions.
If unregulated, US operators still might not pursue every opportunity available to them, despite their protests to the contrary. Just look at the current number of unused leases. But the freedom to do so would allow them to pursue the best options as efficiently as possible.
At the same time, it’s hard to argue that the industry is somehow getting punished by the current administration when it’s operating at or near record levels of production, earnings, and share prices. And if it’s already going gangbusters and you can help keep a pond or two safe by not unraveling regulation entirely, all the better.
In January 2017, the US produced 8.9-million b/d of crude oil. This had risen to 11.2 million b/d by December 2020 despite the pandemic, a 26% increase. An additional 19% production increase had occurred by December 2023, boosting output to a record 13.26 million b/d, a level the US was only slightly below in the most recent stats (April 2024).
Revenues earned by US-based oil companies increased in 2017-18 but had already turned downwards before COVID-19. Revenues then soared in 2021 and 2022 to reach record levels. According to S&P Global, the Top 5 largest US-based oil and gas companies netted more than $250 billion between 2021 and 2023, substantially above the same companies’ 2017-19 earnings.
Oil prices have also been up and down. West Texas Intermediate (WTI) spot prices started 2017 at $52.36/bbl and ended 2020 at $48.35/bbl. WTI spent July 2024 generally between $80 and $85/bbl.
The at-the-wellhead culmination of higher prices and record production has been heavy free cash flow. Rystad Energy estimates that Lower 48 oil and gas wells have created over $485 billion in free cash flow since 2021, compared with a $140 billion deficit over the previous 10 years.
Slowed down trickledown
The cost of crude is, of course, a double-edged sword. Low oil prices beget low gasoline prices, which are easy to sell on the campaign trail. But high prices are a component of the healthy bottom lines, making the contributor class happy.
A perpetual balance must be struck. Overproduce and prices fall, perhaps taking earnings and stock values with them. At the same time, however, lower fossil fuel prices make it harder for alternatives to gain traction. A perceived good for some. A perceived catastrophe for others.
And the increased financial health of operators hasn’t necessarily transferred to service providers. Efficiency is good for one’s own bottom line, but often means diminished demand for others, from catering and solid-waste removal to drilling rigs themselves.
For the week ending July 26, 2024, a total of 304 rigs were operating in the Permian basin, down from 334 a year ago, 443 five years ago, and 555 as of July 25, 2014. And yet production is near all-time highs.
Another trickledown hardship for the industry, despite current prosperity, stems from the pace of upstream mergers and acquisitions. The industry has been consolidating at a breakneck pace, leading to a seemingly ever-diminishing pool of potential clients for one’s services.
Only the most partisan of hacks could fail to see that the industry has thrived under each of the past two administrations. Whether it did better under one or the other depends largely on what metrics one’s measuring and from what perspective.
We can dive deeper into that as Election Day draws nearer.