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In article <t17ar6$2ro33$97@news.freedyn.de>
lefty asswipes <lefty-asswipes@disney.com> wrote:

...I spent all night taking it up the ass.

(Reuters) - U.S. oil producers profiting from sky-high prices
are doling out billions to shareholders and building cash
reserves, a strategy irking lawmakers and voters struggling with
record fuel prices while winning over Wall Street.

Soaring fuel prices have boosted inflation to a 40-year record
and are expected to drive up U.S. gasoline by more than a dollar
to $6 a gallon by August. That prospect has some officials
arguing the industry's focus on returns is benefiting a few at
the expense of consumers.

The tradeoff between rising payouts for just a single quarter
and more spending on production has deprived the market of
nearly half a million barrels of new oil daily, based on
Reuters' estimates of potential output if half of existing
investor payouts flowed to new oil and gas drilling.

Earnings from major U.S. shale, which accounts for two-thirds of
U.S. oil output, could hit $90 billion this year, up from $37
billion in 2021, according to consultancy BTU Analytics, a
FactSet Company. Its estimate covers only 32 publicly traded oil
and gas producers.

Executives are facing calls in Washington for windfall levies,
which could cut into energy profits. A group of more than 30
lawmakers recently urged a Congressional vote on a new oil tax.

U.S. President Joe Biden on Friday slammed oil companies, saying
they are intentionally holding off drilling more to pump up oil
and share prices. [nL1N2XX1VP]

"They're buying back their own stock, which should be taxed,
quite frankly," Biden said.

Executives and investors have argued that fuel prices are set by
the market and retailers, not producers. Materials and labor
shortages have limited how fast they can ramp up output, and to
spend a lot more on new drilling would erode capital efficiency
and lead investors to exit.

Though analysts and oil executives do not expect a windfall tax
to pass here, Britain recently imposed a 25% oil profit tax to
offset consumer energy bills, giving hope to some U.S. lawmakers
proposing the tax. And resistance to the tax may shrink as fuel
prices soar and corporate earnings follow.

"If the conservative government in the U.K. can support a
windfall tax, we should be able to pass" a U.S. equivalent, said
Representative Ro Khanna, Democrat of California, and a co-
sponsor of the tax proposal.

The goal is to raise $45 billion a year with proceeds funding
payments to consumers.

But a windfall tax would kill the incentive to drill more, said
oil executives, and take away some of the earnings that fund new
technology advances that led to the U.S. shale revolution which
turned the United States into the world's top producer. It would
also lessen oil firms' ability to raise outside financing.

"This is a terrible idea," said Mike Oestmann, chief executive
of shale producer Tall City Exploration. "If you want less of
something, or some behavior, or some industry, tax it more
heavily."

PUMPING UP OUTPUT, NOT PRICES

Motivating windfall tax advocates is the idea that U.S. energy
companies are holding off production to maintain high prices and
earnings. Companies returned some $9.51 billion to investors in
the first quarter, according to energy consultancy Wood
Mackenzie.

If oil producers had spent half of the $9.51 billion on new
drilling, it would fund some 660 new shale wells, according to
Reuters analysis using energy tech firm Enverus' average costs
of $7.14 million per shale well last year.

Output varies per basin but on average, a new well can deliver
some 672 bpd of oil, according to BTU Analytics. Based on the
additional wells and the average new shale-oil output,
production could be boosted some 450,000 bpd.

Those extra barrels could lift U.S. production this year beyond
the pre-pandemic record of 12.23 million bpd in 2019. The
government projects output to rise 720,000 bpd to 11.92 million
bpd in 2022.

MAKING ENERGY STOCKS ATTRACTIVE AGAIN

Between 2006 and 2019, the top 50 U.S. oil producers spent $170
billion more in capital expenditures (capex) than they collected
from operations, using debt and equity to cover the deficit,
estimates independent oil analyst Paul Sankey.

"Effectively, there were no returns" for shareholders, he said.

Investors last decade shunned energy companies for their lack of
returns and knocked their weighting in the S&P 500, a measure of
shareholder interest, to less than 3% in 2020, from more than
16% in 2008. S&P energy stocks today are 5.1% with burgeoning
earnings on high oil and gas prices.

The change in sentiment came as producers shifted to a strategy
of investing just a third of their cash flow into drilling and
other capital expenses, compared with most of their cash flow
two years ago, according to the latest data from Enverus.

Focusing on shareholder returns over new production is not going
away with the rise in energy prices. U.S. crude prices are up
about 60% so far this year.

"Not one large public (shale producer) increased capex in Q1 for
increased activity," said Kaes Van't Hof, finance chief at shale
firm Diamondback Energy Inc, in a recent twitter post.

That willingness to hold the line on production and reward
investors via dividends and buybacks "is changing the investment
aura,” making energy stocks attractive again, said Matthew
Stephani, president of Cavanal Hill Investment Management, part
of BOK Financial Corp.

The S&P 500 oil and gas sector is up more than 60% year-to-date,
outperforming the broad-market index average, which is down for
the year.

Will investors accept a return to higher spending and lower
shareholder returns? They will not, say portfolio managers and
investors.

"As an investor, I think this is a good balance. The companies
have shown they can’t be trusted," said Chris Duncan, who tracks
shale firms for asset manager Brandes Investment Partners.

(Reporting by Liz Hampton in Denver; Editing by Marguerita Choy)

https://news.yahoo.com/drilling-vs-returns-u-oil-051535642.html

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