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

America’s biggest oil and gas producers are curbing supply, defying calls from the Biden administration to increase production, even as rising fuel prices fueled by Russia’s war in Ukraine are providing big profits.

Leading shale oil and gas producers, including ConocoPhillips, Pioneer Natural Resources and Devon Energy, disclosed a sharp increase in second-quarter profits this month as high crude oil and natural gas prices filled the industry’s coffers.

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

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

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

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

Over the past decade, the U.S. shale industry has become notorious for rampant spending that has fueled rising output, but inflicted heavy losses on shareholders and plunged companies deep into debt.

The current approach has slowed the growth of the country’s oil supply compared to recent years when commodity prices were elevated. The U.S. produces about 12.1 million barrels per day of crude oil, according to the Energy Information Administration. That’s up about 800,000 b/d from a year ago, but still well short of peaks before the coronavirus pandemic.

Output growth this year has been driven mainly by private operators who are not under the same kind of shareholder pressure to limit investment.

Occidental Petroleum says it is still focused on paying down more of the debt it took on to buy Anadarko Petroleum in 2019 and increasing its dividend. For now, it sees investing money in its own stocks as a better bet than expanding production.

“We don’t feel the need to increase production,” company CEO Vicky Holub said. “We feel that one of the best values ​​right now is the investment in our own stock.” Billionaire investor Warren Buffett’s Berkshire Hathaway acquired a nearly 20 percent stake in Occidental, helping the stock price more than double last year.

This year has marked a turnaround in the fortunes of the shale industry after massive 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 bleak year for the broader market.

Still, many oil executives say supply disruptions stemming from Russia’s invasion of Ukraine will put a floor under crude prices even as economic growth slows.

“What’s a little different this time around is that the world today still looks like it’s chronically short physical barrels with little spare capacity to fill that gap,” said Travis Stice, CEO of Diamondback Energy. “The macro picture looks pretty positive for energy prices over the next few years, even with what I know will be a recessionary impact.”

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