Americans are feeling the pain of high gasoline prices, and the oil industry has not wasted a moment blaming climate activists and the Biden administration for halting new drilling. However, investor presentations analyzed by Documented and reported on by CNN reveal a stark contrast between industry rhetoric and reality.
Oil companies are generating record profits and cash flow. According to one executive, "no one wants to see that shareholder return program put at risk with volume growth."
The oil industry is using Russia’s invasion of Ukraine to push a decades-long deregulatory agenda. Publically, they blame President Biden for stunted production and high gas prices. In private, executives are quietly reassuring investors that production growth will stay flat to protect share buybacks and dividends.
Or, as CNN's Rene Marsh reported:
"U.S. oil production is increasing but it's happening at a very slow pace compared to previous periods of high gas prices.
The fossil fuel companies would like Americans to believe that is because of climate policies, but these calls show that is simply just not the case."
For example, American Petroleum Institute (API) CEO Mike Sommers has been making the rounds on cable news, blaming President Biden for preventing "patriotic" oil companies from drilling. API is the leading trade association for the oil and gas industry.
Documented reviewed dozens of investor calls that tell a different story.
After losing more than $300 billion and burning through their best wells, the shale industry is bending over backward to please investors. For major oil extraction and production companies that means keeping production growth flat and returning record cash flow to shareholders.
The oil price crash in 2020 hastened a reckoning in the fracking world. Dozens of companies slid into bankruptcy and laid off workers, while executives took home bonuses. As prices rebounded, oil investors demanded slow, steady production - a more profitable path forward than growth. As such, reinvestment in new drilling was at a historic low before this conflict began.
API's Sommers can talk about unleashing American energy and cosplay as a Normandy beach stormer, “Like in World War II, America has Europe’s back,” but quotes from investor calls reveal that less is more when it comes to new drilling.
Investor Call Audio
"Our cash flow-driven return of capital framework uniquely prioritizes our shareholders as the first call on cash flow generation, not the drill bit."
"I want to make clear that should commodity prices continue to surprise to the upside, we will remain disciplined and have no plans to allocate production growth capital."
Pioneer Natural Resources
"We expect to generate over $10.5 billion of operating cash flow, which will be a record for the company."
"Long term, we're still in that 0% to 5%. It's going to vary. We're not going to change, as I said. At $100 oil, $150 oil, we're not going to change our growth rate. We think it's important to return cash back to the shareholders."
"As evidenced by our guidance for 2022, we do not intend to grow production in 2022. At the point where it is appropriate to invest in future cash flow growth, we will only do so if supported by long-term demand."
"I can tell you definitively right now, what's being valued by our investors is a shareholder return program. And no one wants to see that shareholder return program put at risk with volume growth, not for Diamondback specifically for our industry in total...
"We've spent the last decade consuming capital and now we've got a little bit of sunshine in us where we can return that capital to our investors that have been waiting patiently and sometimes impatiently for this return."
Oil CEOs cashing in on a crisis
Of course, CEOs are not simply trying to save face with investors. In addition to industry-wide record profits, individual executives have grown their personal wealth. As BailoutWatch recently reported, oil and gas executives have cashed out millions since the start of the war.
"The 18 biggest Big Oil CEOs are worth over $8 billion more than they were on January 20, 2021, the day Joe Biden took the oath of office, thanks to skyrocketing share prices of the companies they control." BailoutWatch
Additional statements to investors
Marathon Oil, Pioneer Natural Resources, Occidental Petroleum, and Diamondback Energy are hardly industry outliers. Their peers are committed to robust shareholder returns, record cash flow, and slow growth.
Devon Energy - February 16th, Q4 earnings call
With this powerful stream of free cash flow, we delivered on exactly what our shareholder-friendly business model was designed for, and that is to leave the industry in cash returns. As you can see on the graphic, we rewarded shareholders with outsized dividends, opportunistic share buybacks, and we took meaningful steps to strengthen our investment-grade balance sheet...
What I was just going to add, remember that we are growing in the Permian. At the same time, we're keeping our overall production flat
Laredo Petroleum - February 23rd, Q4 earnings call
Our capital investments are disciplined and are being allocated to our best opportunities. We are fortunate to have a strong portfolio of high-return oil projects in the U.S.'s premier oil basin. We are maintaining our capital discipline, keeping activity levels flat from 2021, keeping oil production approximately flat from our Q4 '21 exit rate.
APA Corporation - February 22nd, Q4 earnings call
By maintaining capital discipline and investing in a level slightly below our plan, we let the strengthening oil price flow directly through to the balance sheet reducing upstream net debt in 2021 by $1.2 billion. In one year, we accomplished what we thought would take multiple years and made great progress toward our goal of returning to investment-grade status...
With $6.5 billion of projected free cash flow, we will return $4 billion to shareholders under our current framework that leaves $2.5 billion for debt reduction or additional shareholder returns through buybacks and/or dividend increases.
Continental Resources - February 15th, Q4 earnings call
First, thanks to our capital discipline and the strength of our operations and execution, we generated record quarter-over-quarter free cash flow for the last 4 quarters and a record full year free cash flow of $2.64 billion...
we are projecting significant cash flows with over 55% of cash flow from operations available to shareholders in the form of net debt reduction, dividends and share repurchases...
Our projections are based on a flat year-over-year CapEx relative to 2022, delivering a low single-digit compound annual production growth rate. We are targeting significant cash flow and dividend per share growth over this time frame.
Hess Corporation- January 26th, Q4 earnings call
As a reminder, as you've said earlier, we've been consistent in saying that our cash flow compounding, as it does, we intend to return the majority of our free cash flow to our shareholders by further increasing our dividend and also accelerating share repurchases.
EOG Resources - February 25th, Q4 earnings call
2021 was a record-setting year for EOG. We earned record net income of $4.7 billion, generated a record $5.5 billion of free cash flow, which funded record cash return of $2.7 billion to shareholders. We doubled our regular dividend rate and paid 2 special dividends, paying out about 30% of cash from operations...
This period of high oil prices allows us to further bolster the balance sheet. To support our renewed $5 billion buyback authorization and prepare to take advantage of other countercyclical opportunities, we plan to build and carry a higher cash balance going forward...
We don't need more inventory. We are focused on improving our inventory quality.