After a decade of losses, shale oil producers have finally ushered in their best period in history this year, benefiting from the epidemic and the conflict between Russia and Ukraine, with record profits and cash flow in the second quarter after a strong performance in the first quarter.

Shale oil producers are making a lot of money, puffing up in front of investors, not only increasing dividends and share buybacks, but also speeding up the repayment of their drilling frenzy.

In any case, however, shale producers are reluctant to increase production, even after the government has asked for more exploration.

Out of debt, out of danger

The balance sheets of US shale oil producers have changed dramatically as oil prices soar and investment shrinks. Its debt burden has been lighter and lighter since the first quarter of last year.

By calculating the weighted average market capitalization of 22 companies in the S & P super comprehensive oil and gas exploration and development index, Bloomberg found that at the end of the second quarter, the net debt of some independent drilling companies was only 0.56 times their annual earnings before interest and tax. much lower than 1.67 times in the same period last year.

In response, Bloomberg analyst Spencer Cutter said:

「Many exploration and production companies have reached or are rapidly achieving their debt repayment targets. "

Energy companies have come a long way in repairing and strengthening their balance sheets and are now in a better position to deal with another fall in commodity prices than they did in 2015 or 2020. "

Debt pressures have eased further, coupled with record cash flow, giving it more room for dividends, share buybacks and acquisitions.

A mountain of cash, dividends and cramps.

American shale oil producers have accumulated a lot of cash flow so far this year.

Data compiled by Bloomberg showThe total free cash flow of the top 28 large independent oil producers in the United States will exceed $25 billion in the second quarter.In the 10 years before the COVID-19 outbreak, the top 28 companies lost about $115 billion.

For all of 2022, the free cash flow of the top 28 companies is expected to exceed $100 billion, twice as much as in 2021 and nine times as much as in 2018-2020, according to Bloomberg.

Greg Hill, chief operating officer of Hess, the US shale oil producer, said the company's core shale oil business in the Bakken basin, one of the top three shale oil producing regions in the US, in North Dakota, generated a lot of cash flow.

Hill representsEven at $60 a barrel, Hershey generated more than $1 billion in free cash flow.

Us shale oil giant Devon Energy reported that it generated $1.9 billion in free cash flow in the second quarter, above expectations of $1.75 billion.

The company also raised its fixed and variable dividends to $1.55 a share, up 22 per cent from the previous quarter. In the second quarter, through dividends and share buybacksDevon Energy returned more than $1 billion in cash to shareholders.

Diamondback Energy reported that the company generated $1.3 billion in free cash flow in the second quarter, up 35% from a month earlier.Continue to set new highs.CEO Travis Stice said:

"at the beginning of this quarterWe promise to return at least 75% of free cash flow to shareholders.。」

Diamondback also doubled the size of its buybacks from $2 billion to $4 billion. It is reported that the company is developing unconventional onshore oil and gas resources in the Permian Basin, the largest shale oil producing area in the United States.

Increase production? Over my dead body!

At present, shale oil producers are focusing on rewarding shareholders and reducing debt pressure, with little willingness to increase production.

Oil production in the United States is currently 12 million barrels per day, although it is up 8% from the same period last year.But it is still 1 million barrels less than the all-time high before the outbreak.The companies currently planning to increase production significantly are usually large oil companies, such as ExxonMobil and Chevron Corp, or family-owned companies such as Maybourne Oil.

Meanwhile, mergers and acquisitions in the US shale oil industry fell 65 per cent year-on-year to $12 billion in the second quarter, according to Enverus, an energy analyst.

Against the backdrop of the recent sharp fall in oil prices, shale oil producers are cautious about increasing production.

Recently, WTI crude has fallen below the $95 mark, down nearly $40 from a high of $130 in March. In this regard, Enverus Research Director Andrew Dittmar believes that in the environment of increased oil price uncertainty, buyers and sellers have serious differences on the value of assets.

Higher production costs caused by soaring inflation may also be one of the reasons for their reluctance to increase production.

Noah Barrett, chief energy analyst at asset management giant Janus Henderson, said shale explorers were reluctant to invest outside existing drilling plans because of lower efficiency due to rising costs.

In addition, compared to the outputShale producers may be more concerned about value.

According to media reports, Devon Energy recently bought Validus Energy, a shale gas company, for $1.8 billion, which focuses on developing Eagle Ford oil and gas resources in one of the major shale oil producing areas in the United States. Upon completion of the acquisition, Devon Energy's net exploration and production area in Eagle Ford will increase by 42000 acres.

Dittmar said that the assets recently acquired by Devon Energy are mature assets, in other cases, such assets will not be the first choice for shale oil producers.

In addition to the above factorsNot wanting to make the same mistake again may also be one of the considerations of shale oil manufacturers.

After 2015, many manufacturers fell into a cycle of "oil prices rebounding-increasing production-increasing supply-falling oil prices-forcing production cuts", and then negative oil prices in 2020 led to the bankruptcy of dozens of enterprises, seriously damaging the confidence of the shale oil industry to increase production.