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As oil prices spike, pressure on the U.S. oil industry to step up output is mounting. But don’t expect Wall Street to give American shale drillers the greenlight to surge new production anytime soon.
Most major U.S. shale producers have adopted a strategy, pushed by major shareholders, of capping production growth at much lower levels than the industry has had over the past decade. Instead, producers are putting cash towards new dividends and share buybacks to boost returns.
It has proven popular among investors and a sudden strategic pivot isn’t likely, industry executives and major energy investors said at CERAWeek by S&P Global.
“The industry is still repenting for its sins of the past and so much of the problem has been a reactionary model to the volatility of commodity prices,” said Mark Viviano, managing partner at Kimmeridge Energy Management, a major investor in the shale industry.
“To turn on a dime after companies just announced a budget in February and say ‘in reaction to higher prices, we’re gonna increase spending,’ that’s everything that’s been detrimental for this industry,” he added.
Jeff Ritenour, CFO at Devon Energy, one of the shale patch’s top producers, said he was “not hearing calls yet from investors” to lift output and he didn’t expect the company to start plowing cash into growth.
The extreme uncertainty around oil prices would discourage any major decisions considering that any new investment today wouldn’t yield production for many months, he said.
“I’m of the view that we need to sit tight and see how this shakes out,” Ritenour said.
This article is an excerpt of Energy Source, a twice-weekly energy newsletter from the Financial Times.
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