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OPEC is “back in the driver’s seat” as the world’s most powerful swing producer, Hess Corp CEO John Hess said on Thursday at a Miami conference.
According to Hess, U.S. crude oil production will average 13 million bpd over the next few years, where it will plateau, as investors pressure U.S. oil companies to focus on returning money to shareholders instead of investing in aggressive growth strategies.
It’s what we’ve been hearing for most of the year; U.S. oil companies are skittish about spending what has been a significant influx of cash this year on ramping up production—not only in an uncertain regulatory environment but in an environment where shareholders continue to demand prudence—and cash—not more investments, which was tolerated in years gone by.
U.S. crude oil production averaged 11.975 million bpd in August this year--the latest data available from the Energy Information Administration. This is up from 11.277 million bpd last August but down from 2019, before the pandemic had cut deeply into crude production.
While U.S. production has ticked up from the 10.457 million bpd in October 2020—one of the lowest points for the U.S. oil industry in years—it is still well below the 13.0 million bpd peak in November 2019. But even more importantly, this year’s failure of the U.S. oil industry to ramp up production in response to dwindling domestic inventories has been a testament to its ability to ramp up at all—stripping it of its swing producer title.
In its absence, OPEC has assumed this role by default. “Shale was thought of as a swing producer, the Saudis and the OPEC have waited this out. Now, really OPEC is back in the driver’s seat where they are the swing producer,” Hess said, pointing out that OPEC lacks some spare capacity to boost production easily.
“We are in the resource business and if you are going to grow future cash flow, you have to grow your resource,” Hess said.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.
In the 40's and 50's, a new invention was used to develop new DOMESTIC industries as corporate America developed them to the fullest. Starting in the early 60's, corporate greed led to short-sightedness and companies increasingly turned over long-term CEO planning to the accountants for near-term quarterly reports to excite stockholders, and America sold or licensed our inventions to lower cost labor, to the extreme with a COMMUNIST nation that hates us. China Now, it's good that shareholders are seeing nice payouts for a change from our oil producers. But, just like a farmer would tell you, "It's rarely a good idea to consume your seed crop" as shareholder demands are currently exploiting. If we've learned nothing else this past year or so, it's that Fossil Fuels are FAR from done and "green" lacks dependability. And geo political issues can turn on a dime (See: Feb 24) and I think a lot of folks in many nations will agree to that in spades this winter, as they go broke trying to maintain survivable heat. We need to strike a balance, and Big Oil cannot and must not continue to cave to shareholder greed. A decent amount of these profits need to be plowed back into developing new wells, new resources. Lest we forget, even our Tax Code gives oil breaks because what they produce is a DEpreciating asset that must be continually replaced. And this is especially true since one man at our helm decided to place all of America at serious risk by depleting our Strategic Oil Reserve built slowly over decades, in less than a year, to save seats of his party in Congress and the Senate. This is the height of irresponsible, self-serving dangerous, miscalculations. Keep exploring and start drilling, fellas. You don't have to go crazy, because I also appreciate that the same man who depleted our own reserves and went hat in hand to our enemies (in some cases) to increase THEIR drilling and building pipelines, while he shots off leasing and drilling at home and kills our pipeline, and has thusly made nearly every energy decision during his short term in office, the WRONG ones for America, you must balance everything with not going overboard as he cannot be trusted to not throw Big Oil under the bus because of his hatred for it. BALANCE is the key. The pendulum has, as it often does, swung from one extreme (heavy drilling) to the other (paying out the lion's share to demanding shareholders. I am a significant shareholder, and I say, strike the balance, some payouts, but more drilling, while we still can and have strong markets. Time to let the CEO run things again, not the CFO who only looks short-term at the next Quarterly Earnings.