U.S. Oil Companies Remain Cautious As Economic Headwinds Grow

The U.S. shale patch will not help ease what could be a very tight global oil market when the EU embargo on imports of Russian seaborne oil enters into force in just a few weeks. Even if they wanted to, American producers would not be able to boost oil production too much, despite repeated calls and threats from the Biden Administration, which is seeking relief for consumers at the pump.   Inflation, labor shortages, and supply-chain delays in the short term and a lack of certainty over the U.S. energy policy in the medium term are constraining supply growth from the American oil industry, executives at some of the biggest companies said during the third-quarter earnings calls in the past week.  

Add to this the strict financial discipline and the priority to boost shareholder returns, and the U.S. oil production growth is not what it used to be prior to the pandemic when output rose by 1 million barrels per day (bpd) annually in each of 2018 and 2019 

Pioneer Natural Resources CEO Scott Sheffield has said that U.S. oil production growth would likely disappoint this year and next.

Sheffield has forecast that U.S. oil production will add 500,000 bpd this year, but in 2023 the production gains may be lower than this due to constraints, Reuters reported in September.

In its October Short-Term Energy Outlook, the EIA suggests that U.S. crude oil production will average 11.7 million bpd in 2022 and 12.4 million bpd in 2023, which would surpass the record high set in 2019. But the EIA has revised down its growth forecasts since the start of this year, while analysts say its current estimates are too optimistic.   

Exxon slightly lowered its growth forecast for its Permian production this year, although it is still expected at a record high. 

“I expect this year, we’ll probably come in at about 20% up on last year’s growth, which was up 25% from the year before,” Exxon’s chief executive Darren Woods said on the earnings call at the end of October.

“There’s not a lot of capacity as you look across the different steps required to bring on additional production,” he added.

Generally, the industry is constrained, although the capacity to boost production will likely “loosen up a little bit” with time, Exxon’s CEO noted.

The other U.S. supermajor, Chevron, expects its production in the Permian to be at the lower end of the 700,000 bpd-750,000 bpd guidance range.

“We’ll be toward the lower end,” Chevron’s CEO Mike Wirth said on the earnings call, but noted that “we’re not changing guidance for this year or our forward guidance.”

Chevron is seeing production growth rate leveling out, he added.

ConocoPhillips, for its part, said that issues in the short term around labor shortages, supply chain, and inflation are “probably dictating the pace of the industry.”  

“Inflation and supply chain constraints continue across the entire economy and our industry. This is particularly true in the U.S. shale, where rapidly escalating costs, combined with extremely tight supply, are limiting the pace of industrywide production growth,” CEO Ryan Lance said.

Lance also spoke about the U.S. Administration’s energy policy and the importance that this policy is predictable in terms of long-term permitting and fiscal stability.  

“You know, the whole conversation around windfall profits taxes is not a helpful conversation right now,” Lance said.

The lack of certainty in the policy toward the industry—with incessant finger-pointing at oil companies “profiteering” from a windfall of war – has combined with the U.S. shale patch’s focus on rewarding shareholders and paying down debts and labor and supply chain constraints to hold back growth in production this year, and the slower growth rate expected to extend into 2023.