HOUSTON – For decades, leaders and business leaders have been chasing a dream of independence from unstable or unfriendly foreign oil producers. Mission Achieved: Oil companies produce record quantities of crude oil and natural gas in the United States and have become major exporters.
Nevertheless, the companies find little to love about this apparent bonanza. With a global glut, prices reduce many and lose money by selling assets and taking on debt.
The value of the oil and gas stocks as a share of S & P 500 over the past six years has decreased to approx. 4.6 per cent, from 8.7 per cent.
Domestic oil production has risen by more than 60 percent since 2013, to over 12 million barrels a day, making the United States the largest oil and natural gas producer in the world and slashing imports. This growth has also reduced emissions and profits from the Organization for Petroleum Exporting Countries and Russia, allowing President Trump to impose sanctions on Iran and Venezuela without risking higher gasoline prices or deficiencies.
Oil officers say the US is set to become an even bigger factor because another five million or so barrels of daily crude oil production are coming in the next few years. Russia must drill deep into the Arctic to sustain, an prohibitively expensive proposal, and experts do not believe Saudi Arabia can significantly increase production.
But the stock price of Exxon Mobil, the largest US oil company, is barely over where it was a decade ago. In recent years, investors can celebrate the Occidental Petroleum's proposed acquisition of Anadarko Petroleum, which has some of the most lucrative oil fields in the country. Instead, Occidental's shares have fallen by about 10 percent since the agreement in early May.
Over the past four years, around 175 US $ and US $ Canada oil and gas companies have filed for $ 100 billion in bankruptcy protection. Many borrowed heavily when oil and gas prices were much higher, only for collective overproduction and undercut commodity prices. At least six companies have gone bankrupt this year, and Weatherford International, the fourth leading oil company, owed to investors $ 7.7 billion, is expected to file bankruptcy protection on Monday.
In February, in the conversation with analysts, Weatherford's chief executive, Mark A. McCollum, seemed awful. "I don't spend much time thinking or planning how to fail," he said. "The elephant in the room for the whole sector is that we don't generate returns that our investors expect."
One concern is that industry will be forced to leave oil and gas on the ground, as climate change calls for environmental restrictions on drilling or a change to alternative fuels.
"Psychology has settled," said David Katz, president of Matrix Asset Advisors, a New York investment company that owns shares in shares. "When talking to investors, they are worried that the oil companies are spending money on something that will be in decline. There are several concerns that electric cars and hybrid cars are becoming more and more popular."
It's a tectonic shift from just a few few years ago.
In the early 2000s, experts such as T. Boone Pickens warned that the world's demand for oil would exceed production and that US production was in a long decline. Exxon Mobil, Chevron, Royal Dutch Shell and BP drilled in deeper waters of the Gulf of Mexico, invested in Canadian oil sands and sent teams to explore in places as far as the Arctic Circle, Azerbaijan and Equatorial Guinea.
Investors assumed that fossil fuel reserves could only become more valuable over time. With the energy demand increasing in China, India and other developing countries, oil prices increased to over $ 140 a barrel and oil stocks increased.
It all changed when companies such as Mitchell Energy, EOG Resources and Chesapeake Energy started experimenting with shale oil and gas drilling. Not only did it reverse the production downturn in the US, but it also encouraged Wall Street investors to shower money on the industry. In 2014, investors sold North American exploration and production companies more than $ 17 billion, according to consultant IHS Markit.
Slate production once hit the global oil market dominated by OPEC, and oil prices fell sharply.
Energy Experts say annual global demand for oil is increasing by 1.2 percent, which is not enough for US oil companies to produce more oil profitable. Demand grew about three times as fast in the early 2000s, but greater fuel efficiency and an economic downturn in China have reduced the world's thirst for oil.
This slowdown has been particularly difficult for smaller companies that are not fortunate or smart enough to invest in the most productive fields. Because slate wells fall quickly, managers also resemble this business to run on a treadmill that never stops – they have to drill new wells all the time to maintain production and continue to generate revenue.
"It's a race," said Raoul LeBlanc, director of energy at IHS Markit. "But there's not enough money to grow aggressively and give money back to the shareholders at the same time."
The race is even more difficult with oil prices fluctuating around $ 60 a barrel after rising over $ 75 last year.
Rystad Energy, a consulting firm, found that 36 of the 40 shale oil companies it saw in the first quarter of this year, could not generate enough revenue to maintain their businesses, reduce debt and reward their investors with dividends or share repurchases.
Energy knowledge says that oil companies can come back in the next few years, even if it is only temporary. Advanced technologies can reduce production costs while increasing products. Production in countries such as Venezuela and Mexico can continue to decline so that US companies gain market share.
But the industry faces a long-term challenge from climate change.
Chevron and other major US oil companies are investing in carbon capture and sequestration to bury greenhouse gases or produce new fuels, although such technologies are expensive and untested on a large scale.
Large oil companies, which generate a lot of money and still pay investors quick dividends, can afford such investments. But many smaller businesses, including pioneers in slate drilling, have no money or technical expertise to make similar changes.
Since last year, investors have encouraged companies to cut spending, reduce debt and pay higher dividends or buy back multiple shares. In response, the industry has fallen the number of rigs it requires to drill new wells in recent weeks.
Scott Sheffield, CEO of Pioneer Natural Resources, a major producer in the Permian Basin, says a major industrial consolidation can come.
"Most companies," he said, "can't deliver what investors are asking for."