Tight supply chains restrain growth in US oil output – Oxy

Al Greenwood


HOUSTON (ICIS)–Tight supply chains are restricting the oil industry’s access to staff, equipment and sand needed in hydraulic fracturing, limiting its ability to increase production amid a surge in oil prices, the CEO of Occidental Petroleum said on Tuesday.

“Supply chains in our industry and every industry in the world are being impacted by the pandemic,” said Vicki Hollub, CEO of Occidental, a US oil and chlorovinyls producer also known as Oxy. She made her comments at CERAWeek by S&P Global, an energy conference.

Exploration and production companies started the year with plans to keep production flat, she said.

“They did not anticipate the need to grow significantly,” she said. “If you did not plan for growth, you will not be able to achieve growth today.”

So far, among the US reserves of shale oil, only the Permian in western Texas has returned to pre-pandemic production levels, Hollub said.

As oil companies continue to increase production, they will also need to offset the natural declines that come with existing wells, she said.

As it stands, the recovery in oil production cannot happen at a level needed for the US and the rest of the world, she said.

Oil companies are dealing with these pressures while investors are demanding capital discipline.

To the investment community, that essentially means that companies avoid investing in growth so producers can return as much cash as possible in the form of dividends or share buybacks, Hollub said.

That said, Occidental has a large inventory of areas around the world, especially shale basins, where the company can investment and generate what Hollub considers to be attractive returns.

The challenge for Occidental is to make those investments while returning money to shareholders and paying down debt.

Ryan Lance, CEO of ConocoPhillips, said that energy companies brought on investor apathy because of a lack of returns. “We have to solve that problem. We have to present value proposition to bring investors back.”

For ConocoPhillips, “We are not trying to compete against our peers. We want to compete against the S&P 500.”

Oil is important to petrochemical markets because they determine feedstock costs and prices.

Producers in Europe and much of the world rely on oil-based naphtha. Moreover, sales prices for petrochemicals tend to follow those for oil.

Chemical producers in the US rely predominantly on ethane and its price tends to rise and fall with natural gas. As a result, their margins tend to rise when oil prices increase relative to natural gas.

CERAWeek by S&P Global runs through Friday.

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