Rising crude prices drove huge profits for US oil industry giants, but key figures in the sector have raised concerns about low investments in exploration and production.
They warn that continued tepid oilfield investment creates the threat of a supply crunch down the road.
As petroleum prices have stabilized over the last year following actions by the Organization of the Petroleum Exporting Companies (OPEC), oil companies have ramped up investment in key US shale regions such as the Permian Basin in Texas.
But activity outside of the US has remained sluggish; evidence of what the International Energy Agency (IEA) called a “two-speed” oil market that it warns could lead to a supply crunch.
The investment restraint “brings an additional cause of concern for global energy security at a time of heightened geopolitical risks in some major producer countries, such as Venezuela,” the IEA said this week.
Oil majors ExxonMobil and Chevron on Friday reported strong first-quarter earnings as they reaped the benefit of higher crude prices.
Exxon’s earnings more than doubled to $4.0 billion on strong profit growth in its exploration and production business.
And Chevron reported $2.7 billion in profits, a far cry from the loss of $725 million in the year-ago period when the industry was mired in a two-year slump. Chief Executive John Watson said the company remains in belt-tightening mode.
The results came as President Donald Trump signed an executive order aimed at opening up more offshore territory to development, including in the arctic. Industry officials praised the action but said any new leasing would not be available until 2019 at the earliest and that production would likely not hit markets for at least decade.
The improved profits were largely expected, as US oil prices were above $50 a barrel for most of the first quarter, after hovering below $40 a barrel for most of the comparable period of 2016.
However, the IEA, which represents governments of oil- consuming countries, said oil discoveries declined in 2016 and final investment decisions on major projects have slipped to the lowest level since the 1940s.
“The key question for the future of the oil market is for how long can a surge in US shale supplies make up for the slow pace of growth elsewhere in the oil sector,” IEA Executive Director Fatih Birol said.
Paul Kibsgaard, chief executive of leading oil services firm Schlumberger, warned that “the continuing underinvestment in new supply is increasing the likelihood of a medium-term supply deficit.”
The company also saw first-quarter earnings swing back into positive territory.
Analysts say increased US shale activity was the first to be triggered by higher prices because projects are smaller in scale and require shorter cycle times compared with ventures in remote areas or offshore.
At the same time, the very speed in which shale production can ramp up has acted as a ceiling on oil prices because of concerns runaway output will flood the market.
Jedd Woodbury, ExxonMobil vice president, said there were “a lot of variables” behind the company’s investment restraint.
While underlying energy demand growth remains solid and OPEC has generally complied with its production limits, Woodbury said, strong growth in North American output and lofty global inventories also factor into investment decisions.
“The macro environment would still indicate the need to be cautious going forward,” he said on a conference call with analysts.

Source: Arab News