HOUSTON – For decades, elected leaders and corporate executives have chased a dream of independence from unstable or unfriendly foreign oil producers. Mission accomplished: Oil companies are producing record amounts of crude oil and natural gas in the United States and have become major exporters.
Yet the companies themselves are finding little to love about this seeming bonanza. With a global glut driving down prices, many are losing money and are staying afloat by selling assets and taking on debt.
The value of oil and gas stocks as a proportion of the S&P 500 over the past six years has dropped to about 4.6%, from 8.7%.
“It’s really a psychological punch in the gut,” said Matt Gallagher, chief executive of Parsley Energy, which has productive shale fields in the Permian Basin of Texas and New Mexico and has tripled output over the past three years. His company’s shares have tumbled to about $19 a share, from $38 in late 2016. “There’s a lot of risk in this industry, people are working very hard, and we feel we have made the right moves and it doesn’t show up in the share price.”
Domestic oil production has increased more than 60% since 2013, to over 12 million barrels a day, making the United States the biggest producer of oil and natural gas in the world and slashing imports. That growth has also reduced the clout and profits of the Organization of the Petroleum Exporting Countries and Russia, enabling President Trump to impose sanctions on Iran and Venezuela without risking higher gasoline prices or shortages.
Rising tensions with Iran after attacks on two oil tankers and a U.S. surveillance drone have lifted oil prices, but there has been little impact on the supply outlook.
Oil executives say the United States is set to become an even bigger factor because a further 5 million or so barrels of daily crude oil production are on the way in the next few years. Russia would have to drill deep into the Arctic to keep up, a prohibitively expensive proposition, and experts don’t think Saudi Arabia can increase production significantly.
But the share price of Exxon Mobil, the largest American oil company, is barely above where it was a decade ago. In years past, investors might have celebrated 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 about 10% since that deal in early May.
In the past four years, roughly 175 oil and gas companies in the United States and Canada with debts totaling about $100 billion have filed for bankruptcy protection. Many borrowed heavily when oil and gas prices were far higher, only to collectively overproduce and undercut their commodity prices. At least six companies have gone bankrupt this year, and Weatherford International, the fourth-leading oil services company, which owes investors $7.7 billion, is expected to file for bankruptcy protection Monday.
In the early 2000s, experts like T. Boone Pickens warned that world demand for oil would outstrip production and that American output was in a long decline. Exxon Mobil, Chevron, Royal Dutch Shell and BP drilled in deeper waters in the Gulf of Mexico, invested in Canadian oil sands and sent teams to explore in places as farflung as the Arctic Circle, Azerbaijan and Equatorial Guinea.
Investors assumed that fossil-fuel reserves could only become more valuable over time. With energy demand rising in China, India and other developing countries, oil prices rose to over $140 a barrel, and oil stocks soared.
That all changed when companies like Mitchell Energy, EOG Resources and Chesapeake Energy began experimenting with drilling for oil and gas in shale fields. Not only did that reverse the production decline in the United States, but it also encouraged Wall Street investors to shower money on the industry. In 2014 alone, investors lent North American exploration and production companies more than $17 billion, according to IHS Markit, a consultant.