Drill, Baby, Drill Makes Modest Comeback
Oklahoma-based Continental Resources made news this week by announcing it will increase its drilling and production capital budget in response to the new higher oil price environment that has evolved in response to the Iran Conflict.
“Continental is increasing our capital budget, which will increase production,” Lawler said in a statement to Bloomberg. With that reversal of a previously planned substantial cut in capital outlays, Continental becomes the first big shale player in the United States to announce its intention to focus on raising production in response to the current obvious price signal.
The move set off speculation of a looming return to the “Drill, Baby, Drill” shale boom times of the first Trump presidency. But investors and analysts should temper such expectations because times in the U.S. shale patch have changed over the last decade, and the strategic approaches of management teams inside the big shale upstream companies have shifted apace. A price signal as strong as the rise of both the Brent and WTI indexes above $100 per barrel will inevitably draw a supply response. These shifts in shale fundamentals have come in response to several overarching drivers.
First is the maturity of America’s enormous shale formations themselves. When Donald Trump 45 took office in 2017, the various shale plays in states like Texas, North Dakota, and Pennsylvania were in a relatively early stage of the natural life progression seen in every major oil play in history. First comes a drilling boom during which drillers rush to stake out sizable lease positions and engage in rapid drilling programs to build up production and delineate the extent of the targeted formation(s).
Using Texas as an example, the state experienced a major initial drilling boom in the Eagle Ford Shale and then the Permian Basin from 2009 through 2014, when Saudi Arabia and other OPEC countries tanked the price of oil by flooding the market. That was an attempt by those other countries to regain market position, which they saw being reduced as the U.S. shale industry grew.
But the price bust was so intense that those OPEC countries found themselves struggling to fund their sizable social welfare states by 2016, when they combined with Russia, Mexico and other non-OPEC members to form the OPEC+ cartel. Prices were recovering when Trump was sworn into office in January 2017, and his pro-drilling policies helped kick off a second drilling boom that slowly faded by mid-2019, as the various shale plays entered their next, more mature development phase of life.
The second overarching driver comes from investor pressure. During 2018 and 2019, major investors made clear to the upstream companies that they had taken on too much debt to fund their drilling frenzies and needed to refocus their strategies on maximizing investor returns. Even before the COVID pandemic hit the U.S. in early 2020, shale companies were already cutting drilling and exploration budgets in favor of funding stock buybacks and other strategies designed to return a bigger share of profits to their stockholders and lenders. Thus, a boomtime rig count that had approached 2000 active rigs embarked on a years-long decline that endured well into 2025.
The third big driver is the fact that, even with an active rig count that fell below 600, the industry has found itself able to not only sustain overall production levels but continue to regularly set new all-time highs through process improvements and major advancements in technology. This trend led to a multi-year period of high profitability during times of modest drilling programs, supply chain troubles, and marginal commodity prices, a set of circumstances that has been all too rare throughout the industry’s history.
Combine that with the fact that the biggest shale companies like ExxonMobil, Chevron, and Diamondback Energy have succeeded in turning shale into more of a repetitive manufacturing enterprise than the high-risk wildcatting operations of the past. There is little appetite in the industry for a return to another drilling boom.
To be sure, many of Continental’s shale competitors will no doubt also ramp up their own drilling programs in response to a price signal as strong as the current market. So, “drill, baby, drill” will make a comeback, but it will be a modest one.
David Bossie is the president of Citizens United and served as a senior adviser to the Trump-Pence 2020 campaign. In 2016, Bossie served as deputy campaign manager for Donald J. Trump for President and deputy executive director for the Trump-Pence Transition Team.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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