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Despite President Trump’s “drill, baby, drill” policies, it will be oil prices and Wall Street that will determine how much U.S. oil production will grow in the near term, shale investors and executives say.
President Trump signed on his first day in office an executive order to unleash America’s energy by easing the barriers to oil and gas extraction and production and revoking a series of climate orders by President Biden.
While the industry applauded the pivot to helping America make greater use of its oil and gas resources, companies are not rushing to dig themselves into another production boost.
The key reason for this is that the nature of the shale business has changed as producers look to return more money to shareholders while the wave of mergers and acquisitions has led to bigger producers becoming even bigger by absorbing smaller ones. Large public companies are not inclined to sink capital in relentless drilling—they prioritize returns to investors.
Moreover, the shale industry has made huge progress in capital discipline and efficiency gains and is getting more bang for its buck. Priorities are now returns to investors and financial frames capable of withstanding oil price volatility.
It will not be the White House but Wall Street that will dictate how much U.S. oil output will grow, according to Wil VanLoh, CEO at Quantum Energy Partners, one of the biggest shale investors.
Investors “don’t have a political agenda. They have a financial agenda,” VanLoh told the Financial Times.
“Prices will be a bigger signal than politics,” Ben Dell, managing partner at Kimmeridge, told FT, commenting on the future incentives for shale producers.
President Trump may not be too much help for U.S. producers in terms of prices. In his first week in office, he already said that he would ask OPEC to lower oil prices.
“I’m also going to ask Saudi Arabia and OPEC to bring down the cost of oil,” President Trump said in an address to the World Economic Forum.
