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US oil producers defy calls to open taps and tame war-driven energy prices

Major oil and gas producers in the US are putting a cap on supply, resisting calls from the Biden administration to increase output, even as rising fuel prices as a result of Russia’s war in Ukraine are generating heavy profits.

upper part Shale oil and gas Producers including ConocoPhillips, Pioneer Natural Resources and Devon Energy all revealed sharp increases in second-quarter earnings this month, as higher crude and natural gas prices fill industry coffers.

But executives say they remain under pressure from Wall Street to return latitude to investors through dividends and share buybacks rather than spending heavily to increase production.

“Unless we have shareholders come in and say, look, we absolutely — we don’t like these big dividends. We don’t like your stock buyback program. We want you to go back to a growth model,” said Rick Moncrief, Devon’s CEO. Energy, one of the largest producers of the shale patch, to analysts. “Until we see that, I see no reason to change our strategy.”

That sentiment was echoed by other shale executives in the latest sign that oil companies and their shareholders are unfazed by politicians’ calls for more oil and gas supplies after Russia’s invasion of Ukraine caused gas prices to soar. Energy prices have driven inflation rates across the US and Europe to levels not seen in 40 years.

President Joe Biden and other Western politicians have attacked oil companies’ decision to return profits to shareholders instead of investing in new production to help tame prices.

Over the past decade, the US shale industry has become notorious for freewheeling spending that has boosted output but translated into heavy losses for shareholders and plunged companies deep into debt.

The approach now adopted has slowed the country’s oil supply growth compared to recent years when commodity prices have risen. The U.S. produces about 12.1 million barrels a day of crude oil, according to the Energy Information Administration. That’s up about 800,000 b/d from a year ago, but still shy of pre-coronavirus highs.

The growth in output this year was mainly due to private operators Not under the same kind of pressure from shareholders to limit investment.

Occidental Petroleum says it is still focused on repaying the debt it took on to acquire Anadarko Petroleum in 2019 and removing its dividend. For now, it sees plowing money into its stocks as a better bet than expanding output.

“We don’t feel the need to increase production,” said the company’s CEO, Vicki Holov. “We feel that one of the best values ​​right now is investing in our stock.” Billionaire investor Warren Buffett’s Berkshire Hathaway has built up a nearly 20 percent stake in Occidental, which has helped Its share price has more than doubled over the past year.

This year has marked a turnaround in the shale industry’s fortunes after heavy losses during the pandemic, although fears of a recession have once again cast a cloud over its prospects.

The S&P oil and gas producer’s exchange-traded fund is down about 26% from its recent highs in early June, but remains up 25% this year, making it a standout in a dismal year for the broader market.

However, many oil executives argue that the supply disruption caused by Russia’s invasion of Ukraine will put a bottom in oil prices even as economic growth slows.

“What’s a little different this time is that the world today still looks chronically short physical barrels with not a lot of spare capacity to fill that gap,” said Travis Stace, CEO of Diamondback Energy. “The macro situation looks pretty positive for energy prices over the next few years, even Despite what I know there will be an effect of a recession.”

US oil producers defy calls to open taps and tame war-driven energy prices Source link US oil producers defy calls to open taps and tame war-driven energy prices

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