“The model has totally changed,” he said.
Oil executives also claim that they spend a lot of money on new oil and gas production, but that inflation undercuts their efforts. Expenditure on exploration and production will increase by more than 20 percent this year, but about two-thirds of that increase will go to paying higher prices for labor, materials and services, among other costs, according to RBN Energy, a Houston-based research firm.
“It’s a bit of a sticker shock because we’re seeing inflation across the sector,” Jeff Miller, CEO of Halliburton, which drills wells and performs other services for oil companies, told analysts at a recent conference call.
Smaller private companies, financed by private equity, are responsible for a large part of the new activity. According to the Dallas Fed study, the average growth rate for companies producing less than 10,000 barrels a day was projected at 15 percent this year, compared to just 6 percent for companies producing more than 10,000 barrels a day.
Larger oil companies are complaining that even if they wanted to invest more, it would be difficult because Wall Street is not keen on financing new fossil fuel projects. Some investors, concerned about climate change, are choosing instead to invest in renewable energy, electric cars and other businesses.
It is not the case that investors have become environmentalists. Many have run the numbers and concluded that the recent jump in fossil fuel prices will be short-lived and they are better placed to invest in companies and industries that they believe have a brighter future.
“If you are an investor, has your view on the next five to 10 years changed? I think the answer is no, ”said Amy Myers Jaffe, CEO of the Climate Policy Lab at Tufts University’s Fletcher School. “History tells us that oil shock accelerates a shift to alternative energy, not the opposite.”
Many oil executives also complain that the future of their industry is blurred by political and regulatory uncertainty. They acknowledge that Mr Biden has encouraged them to produce more, but they fear that his administration will go back to stressing the need for less oil and gas when prices fall.