Oil is racing towards an all-time high demand worldwide, with some of the smartest minds in the industry forecasting on a ‘$100-per-barrel-crude’ in a matter of months. However, US producers are playing the short game and looking to turn over as much cash as possible to investors.
For the first time in at least a decade, Bloomberg calculations disclosed that US drillers last year spent more on share buybacks and dividends than on capital projects.
Recent growing concern among investors is that demand for fossil fuels will peak as soon as 2030, obviating the need for multibillion-dollar megaprojects that take decades to yield full returns.
According to Mr. John Arnold – a billionaire philanthropist and former commodities trader, oil refineries and natural-gas fired power plants along with the wells that feed them, risk becoming so-called ‘stranded assets’ if and when they are displaced by electric cars and battery farms.
“The investment community is skeptical of what assets and energy prices will be. They would rather have the money through buybacks and dividends to invest in other places.”
Billionaire John Arnold
The upsurge in oil buybacks is helping drive a broader US corporate spending spree that saw share repurchase announcements more than triple during the first month of 2023 to $132 billion – the highest ever to begin a year. Bloomberg disclosed that Chevron Corp accounted for more than half that total with a $75 billion open-ended pledge.
Global Investment In Oil And Gas Supplies
According to Evercore ISI, global investment in new oil and gas supplies is expected to fall short of the minimum needed to keep up with demand by $140 billion this year.
Meanwhile, as reported by US Energy Information Administration, crude supplies are seen growing at such an anemic pace that, the margin between consumption and output will narrow to just 350,000 barrels a day, next year from 630,000 in 2023.
Commenting on the issue of global investment in oil, Mr. John Arnold averred that companies have to respond to what the investment community is telling them to do, otherwise, they are not going to be in charge for a very long time.
“Five years ago, you would have seen very significant year-on-year oil-supply growth, but you are not seeing that today. It’s one of the bull stories for oil — that the supply growth that had come out of the US has now stopped.”
Billionaire John Arnold
Janette Marx, CEO of Airswift – one of the world’s biggest oil recruiters divulged that on top of shareholder demands for cash, oil explorers are also grappling with higher costs as well as lower well productivity and shrinking portfolios of top-notch drilling locations.
Mrs. Marx further communicated that Chevron and Pioneer Natural Resources Company are two high-profile producers reorganizing drilling plans after weaker-than-expected well results.
During an interview, Mr. Dan Yergin – Pulitzer Price-winning oil historian and Vice Chairman of S&P Global noted that demand rather than supply-side actors like the American shale sector or OPEC, will be the primary driver of prices this year.
With the case for higher oil prices building, Mr. Dan Pickering – the chief investment officer of Pickering Energy Partners mentioned that business model is “here to stay.”
“There is going to be a point at which the US needs to produce more because the market is going to demand it. That’s probably when investor sentiment shifts to growth. Until then, returning capital seems like the best idea.”
Mr. Dan Pickering
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