US oil is back, and ExxonMobil’s $60 billion deal isn’t even the biggest signal
Workers connect drill bits and drill collars used to extract oil in the Permian basin outside of Midland, Texas.
Brittany Sowacke | Bloomberg | Getty Images
After three and a half years, a tripling in the S&P 500 Energy Index, and many soon-to-be-forgotten culture-war volleys, the U.S. Department of Energy announced Oct. 12 that U.S. crude oil production had hit an all-time high of 13.2 million barrels per day, entirely wiping out Covid-era losses of more than 3 million barrels per day.
The news came a day after a $60 billion deal between Exxon Mobil and independent oil producer Pioneer Natural Resources. The combination of recovering production, sustained pressure from Wall Street for cost containment and high stock dividends, and consolidation like the Exxon-Pioneer hookup is not a coincidence.
The energy sector’s big stock move in 2021 and 2022 was mostly a recovery from a disastrous decade for Big Oil, when tens of billions of cash flow were lost on unprofitable fracking wells, and of a consolidation that was good for company profits, dividends and shareholder returns.
The foundation of the 2010s oil business was cracking when Covid broke it, said Rob Thummel, senior portfolio manager at Tortoise Ecofin in Kansas City, Mo. Monthly production topped out at 13 million barrels per day in November 2019 and hit 9.9 million by February 2021.
“Capital discipline in the U.S. industry hasn’t gone away, and oil is at $85 to $90 a barrel,” he said.
So, what brought Big Oil back, and what’s next?
Here are seven important factors that played into U.S. oil’s recent history and will influence its future.
Why the shale drilling bust ended
Oil broke gradually and then suddenly. The S&P 500 Energy Index lost 40% of its value between 2014 and 2019. But the pandemic drove the fast part of the bust, in part by leading Wall Street to insist on further cuts in capital spending, Thummel said.
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What brought it back was renewed demand and higher prices.
Recessions end, and oil demand has slowly rebounded after the 2020 downturn and lingering supply-chain shock. And rising prices for WTI crude – which careened during Covid to less than $15 a barrel, shot back to $120 in 2022, and is now near $90 – can make previously-unprofitable plays work, he said.
The U.S. production rebound is more concentrated
Big Oil isn’t back all over America: Production is still down sharply in Oklahoma and North Dakota. It hasn’t changed much in Alaska, where production is in a long-term tailspin. And offshore oil drilling in the Gulf of Mexico recovered to 2 million barrels a day, but hasn’t grown.
Instead, the surge is concentrated in the Permian Basin region of Texas and New Mexico, where production costs are among the lowest in the country, said Alexandre Ramos-Peon, head of shale well research at Rystad Energy. Oil from the Permian Basin costs an average of $42 a barrel to produce, he said, with North Dakota in the high $50s to $60.
North Dakota is also hampered by weaker access to pipelines than the Permian Basin, where many producers can use pipelines that lie entirely within Texas, skirting federal regulation of interstate pipelines. That’s only one example of a relaxed regulatory environment in Texas, compared to places like climate-conscious Colorado, the nation’s No. 4 oil producer, where output is still down 3 million barrels per month, said Jay Hatfield, CEO of Infrastructure Capital Advisors in New York.
“There’s this place called Texas that doesn’t really know what energy regulation is,” he said.
Where oil companies have been spending their money
U.S. oil companies cut capital spending to $106.6 billion last year from $199.7 billion in 2014, according to Statista, contributing to the decline in oil production and arguably delaying the recovery. And they put that money to work paying higher dividends and doing stock buybacks, Thummel said.
According to Energy Department data, oil and gas companies paid out about $75 billion per quarter in the last year. The share of oil-company operating cash flow going to shareholders rose to half of operating cash flow from about 20% in 2019, the department says.
The link between Exxon-Pioneer deal and peak barrels
Offsetting the decline in capital spending is higher productivity per well — while all of the U.S. oil production is back, the closely watched Baker-Hughes rig count is barely half of 2018 levels. The average production per rig of new wells just topped 1,000 barrels a day, up from 668 four years ago, according to the Energy Department. So the industry didn’t have to add a ton of new wells or drill in as many new places to recover fully.
On CNBC last week, ExxonMobil CEO Darren Woods said the company did the merger because it thinks its technology and scale can raise the productivity of Pioneer’s fields.
“Their [Pioneer’s] capabilities, bringing in their Tier 1 acreage, our technology, our development approach, frankly, brings higher recovery at lower cost,” Woods said.
That suggests more mergers to come as rivals like Chevron also make plays to boost their presence in U.S. shale, especially in the Permian Basin, Hatfield said. Chevron already has made several shale-related acquisitions in recent years, including $7.6 billion for PDC Energy this year and $5 billion for Noble Energy in 2020. Independent producers are under more pressure than more-stable super-majors to pay very high dividends to justify the risk of oil-price fluctuations, which will mean tighter constraints on their ability to keep up in technology and scaling of operations, he said.
U.S. crude, energy security and Big Oil economics
As a result of the rebound in crude, is American repatriating its oil? A little, says Hatfield. Permian shale right now is much cheaper to produce than offshore oil, comes with much less political risk than offshore drilling in much of the developing world, and takes much less time to make a profit than offshore wells. That’s leading companies like Exxon to bet more heavily on Permian shale than offshore drilling, he said.
“The super-majors are taking capital out of offshore,” Hatfield said. “They are reducing overseas development because it is more risky.”
The biggest part of the equation is that time equals risk, Ramos-Peon said. Global oil producers aren’t squeamish about investing in parts of the world where governments change, but the years-long investment cycles in offshore drilling make the much shorter turnarounds in Texas appealing to companies like ExxonMobil, which is one of the industry’s biggest offshore players.
“In the Permian, you get your capital back in a little over a year,” Hatfield said. “The return on investment is much faster and much higher because the wells begin to produce so quickly.”
What oil’s recent trading and Israel-Hamas mean for gas prices
Gas prices tend to move in tandem with the price of crude oil, which has dropped to about $88 per barrel from $94 in September, driving a 20-cent per gallon drop in the nationwide average price for regular. But the influence of OPEC, whose coordinated production cuts in June have driven prices up 35 cents, often offsets what domestic producers do, Ramos-Peon said. And right now there is the added uncertainty of whether the Israel-Hamas war will result in a slash in production from Iran, whose government supports the Hamas rebels who launched bloody attacks into Israel, he said.
“I believe crude prices will stay around the current level in the short term, and in the long term should trend down,” he said. “If there are sanctions against Iran, that will be bad for consumers.”
Short-term shale plays, oil consumption and climate change
What’s good for oil companies in the short-term doesn’t change the longer-term trajectory of the oil market or carbon reduction.
Meeting climate goals has more to do with long-term shifts in energy use than with short-term production targets, Ramos-Peon said. Rystad expects U.S. production to rise to 13.6 million barrels per day next year and 13.9 million in 2025, he said. After that, forecasts get more difficult because so much can change, but by late this decade oil consumption should peak before beginning to ebb, he said.
Even as more cars go electric, demand from older cars and uses of oil in chemicals will keep the oil business very large, Ramos-Peon said. And the risk that the business will erode will make drillers focus on shale more than offshore drilling, Hatfield said
“In the context of not knowing for sure, why wouldn’t you want a return on your investment in three years rather than 30?” he said.
Short-term, the biggest threat to the rosy scenario is that oil-industry cash flows are falling sharply from a peak last year. The Energy Department says its survey of 139 producers, foreign and domestic, shows a 36% drop in second-quarter operating cash flows from 2022. Profits are narrowing for the first time in two years, the department said.
Then again, the price of crude has risen $16 a barrel since the end of the second quarter. And in the oil business, price rules everything.
Environment
Podcast: how Elon killed Tesla Model 2, global EV sales surge, and Chinese EVs keep killing it
In the Electrek Podcast, we discuss the most popular news in the world of sustainable transport and energy. In this week’s episode, we discuss how Elon Musk killed Tesla Model 2, global EV sales surging, how Chinese EVs keep killing it, and more.
The show is live every Friday at 4 p.m. ET on Electrek’s YouTube channel.
As a reminder, we’ll have an accompanying post, like this one, on the site with an embedded link to the live stream. Head to the YouTube channel to get your questions and comments in.
After the show ends at around 5 p.m. ET, the video will be archived on YouTube and the audio on all your favorite podcast apps:
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Here are a few of the articles that we will discuss during the podcast:
Here’s the live stream for today’s episode starting at 4:00 p.m. ET (or the video after 5 p.m. ET):
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Environment
RadRunner e-bikes from $999, EcoFlow DELTA Pro 3 with solar panels $2,999, Anker Everfrost review, more
Well folks, the weekend is nearly here and before it officially arrives we’ve pieced together the latest roundup of Green Deals. Leading the pack today are RadRunner 2 and 3 Plus e-bikes from $999 as well as an EcoFlow flash sale that takes the brand’s robust DELTA Pro 3 with four 125W solar panels down to a new $2,999 low. We’ve also went hands-on with Anker’s SOLIX EverFrost 2 58L Electric Cooler, and the full review is waiting for you to scope out right here. There are also plenty of other deals from earlier in the week that are still live, so head below and we’ll get you caught up on what you may have missed.
Head below for more and, of course, Electrek’s best EV buying and leasing deals. Also, check out the new Electrek Tesla Shop for the best deals on Tesla accessories.
Rad’s ‘jack-of-all-trades’ RadRunner 2 and RadRunner 3 Plus e-bikes provide utility with mobility at low prices from $999
Having begun back in February, and now continuing with Rad Power’s current Earth Day Sale running through April 23, the brand still has two of its three RadRunner series e-bikes down at the lowest prices in their history, while the RadRunner Plus model has run out of stock. Starting with the lowest priced, you can hop aboard the brand’s RadRunner 2 Utility e-bike for just $999 shipped, bringing costs down from its $1,499 post-2024 tariff pricing. Before this price cut began, things had only ever fallen as low as $1,199 before the summer of last year, with discounts following July only ever dropping to $1,299. But with this shake-up, you’ll score $500 off the going rate for as long as supplies last, gaining a versatile means to commute and run errands at the lowest price we have tracked.
Given the moniker of Rad’s “jack-of-all-trades” model, the RadRunner 2 is an affordable means to get around during commutes, joyrides, errand running, and more. I see them, and their counterparts in the series, parked outside my local grocery store frequently, as more and more folks in Brooklyn seem to be finding them as a solid alternative to owning a car. You’ll get up to 50 miles of travel here with its four PAS levels activated at up to 20 MPH top speeds with its combination of a 750W brushless gear hub motor and the 672Wh battery. Along with the simplified control panel for its riding settings, it also comes stocked with a rear-mounted cargo rack that offers a 120-pound payload, puncture-resistant fat tires, a standard LED headlight, and an integrated taillight with both brake light and flash mode capabilities.
The upgraded RadRunner 3 Plus e-bike, meanwhile, is also still down at it’s newest all-time low of $1,699 shipped, brought down from $2,199. It sports the same 750W motor and 672Wh battery combination for achieving 45+ miles of travel through its five PAS levels at up to 20 MPH speeds. There are some notable differences here, like the Tektro hydraulic disc brakes that provide better stopping power (over the RadRunner 2’s mechanical ones), as well as a 350-pound payload (50 pounds more total), and a longer step-thru design for a more ergonomic riding position. There are also other features like puncture-resistant fat tires, fenders over both wheels, the LED headlight and brake-light capable integrated taillight (with the auto-on functionality), and LCD screen for settings.
EcoFlow’s latest flash sale gives you the multi-capable DELTA Pro 3 with four 125W solar panels at a new $2,999 low, more
As part of its ongoing Mega Sale through April 25, EcoFlow has launched the next round of its flash offers lasting through the rest of the day. The main deal here is the DELTA Pro 3 Portable Power Station bundled alongside four 125W solar panels for $2,999 shipped. Coming down off its usual $4,598 price tag, we’ve only ever seen discounts take it down as low as $3,199 before today. For the rest of the day, you can take advantage of this lower-than-ever pricing to score one of the brand’s newer solar generator packages at a 35% markdown, giving you $1,599 in savings at a new all-time low price. It even beats out Amazon, where it still sits $300 higher.
One of the brand’s newer models that has been quite popular since releasing back in June, the EcoFlow DELTA Pro 3 starts off with an already impressive 4,096Wh LiFePO4 battery capacity with a steady 4,000W of power output that surges up to 6,000W. It comes with some equally impressive expansion capabilities up to 48,000Wh with additional equipment, with its output also expanding up to 12,000W when three of these power stations are connected together, covering major home backup needs. Among the many units under the brand’s flag, this one offers the widest amount of ways to recharge its own battery, with seven solo options and 18 combination options. A standard wall outlet will have it back at an 80% battery in 50 minutes, while also offering other options like solar charging (with a max 2,600W input), EV, automotive auxiliary outlets, dual PV charging, and much more.
It’s been given 14 output ports, divided up amongst seven ACs, two USB-As, two USB-Cs, and three DCs, and offers up the complete array of smart controls accessed through the companion app to monitor and adjust settings as it keeps your devices and appliances running. It was the first unit to be given the latest X-Core 3.0 tech, expanding its surging capabilities and charging speeds while also running at quieter decibels and cooler temperatures, as well as improving upon the battery and smart home management, providing “explosion-proof” battery packs, and upgrading its parallel capacity expansion performance.
The second of today’s flash savings gives you the brand’s 800W Alternator Charger at $349 shipped, coming down from its regular $399 pricing during this sale and its full $599 rate. With this device, you’ll be able to recharge any power station you have via your car’s alternator, juicing the battery back up while on the move – which makes a perfect companion for those who may be taking their setups on the road.
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A lawsuit alleging that Tesla is inflating mileage to avoid warranty claims is already being compared to Dieselgate and referred to as ‘Tesla Odometergate.’
Is Tesla having its own Dieselgate, or is it a nothing burger?
A new class action lawsuit filed in California against Tesla alleges that the automaker is using “predictive algorithms” to inflate mileage at the odometers, allowing Tesla to claim higher mileage past warranty limits.
Lawyers for the plaintiff wrote in the lawsuit:
Rather than relying on mechanical or electronic systems to measure distance, Plaintiff alleges on information and belief that Tesla Inc. employs an odometer system that utilizes predictive algorithms, energy consumption metrics, and driver behavior multipliers that manipulate and misrepresent the actual mileage travelled by Tesla Vehicles. In so doing, Defendants can, and do, accelerate the rate of depreciation of the value of Tesla Vehicles and also the expiration of Tesla Vehicle warranties to reduce or avoid responsibility for contractually required repairs as well as increase the purchase of its extended warranty policy.
The lawsuit refers to patents filed by Tesla regarding its mileage counter, but it primarily relies on the experience of its lead plaintiff.
Nyree Hinton, a data professional from Los Angeles, is the lead plaintiff in the lawsuit and shared his own experience that led to making these allegations.
In December 2022, Hinton purchased a used 2020 Tesla Model Y with 36,772 miles on the odometer. He received Tesla’s Basic Vehicle Limited Warranty, which covers repairs for four years or 50,000 miles, whichever comes first.
Shortly after, Hinton noticed that his vehicle’s mileage increased at an unexpected rate. Despite driving approximately 20 miles per day, based on his own estimate, the odometer indicated an average of over 72 miles per day. This rapid mileage accumulation led to the warranty expiring sooner than anticipated, resulting in Hinton incurring a $10,000 suspension repair bill that he believed should have been covered under the warranty otherwise.
Other than Hinton’s experience, the lawsuit is light on data, but it does cite other Tesla owners claiming to have similar experiences on forums and social media.
Here’s the full lawsuit:
Tesla’s own Dieselgate or a nothing burger
If the allegations in this lawsuit are factual, it would indeed be a significant scandal. However, it is light on proof.
Hinton appears to have closely tracked his own experience, and he has some credibility as a data analyst. We have no reason not to believe him, but the case would need a lot more evidence to move forward.
Electrek reached out to ‘Green’, a well-known Tesla hacker who frequently discovers new features and specifications in Tesla’s software and firmware.
He told us that he doubts Tesla would have been able to hide something like that from him and the broader whitehat hacking community, but he admits they weren’t looking for it.
Green believes that it is likely that Tesla uses predictive algorithms for its odometer, but it could be as simple as accounting for tire wear, since tire rotation is used to calculate odometer mileage.
Odometers are not perfect, and there can be some discrepancies, but the one described by the lead plaintiff in this case is undoubtedly higher than what would be expected or allowed.
Electrek’s Take
I think it’s too light on data and proof right now to make a big deal out of this. I have no reason not to believe Hinton, but it could also be a specific problem with his vehicle rather than a broader issue and active deception from Tesla.
If the lawsuit is allowed to proceed, we may gain more insight, and it could encourage others with similar experiences to join in – resulting in more data.
In the meantime, I’ll remain in the skeptical camp on this one.
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