Members of President Donald Trump’s cabinet have a new catchphrase for how they see the future role of the US: not just “energy-independent”, but “energy-dominant”. As Ryan Zinke, the interior secretary, put it at an industry conference in Houston last week: “Dominance is what America needs.”
It would be tempting to dismiss that talk as hype, except that every week the US energy sector is coming up with evidence to justify that ambition. The latest round of earnings reports from US exploration and production companies, the leaders of the shale revolution, has shown fresh evidence of their resilience and growth potential.
The resurgence of the US shale industry after the oil slump of 2014 was a key factor in how crude prices fell sharply last week, to back below $50 per barrel. The market is concerned about whether efforts by Opec, the producers’ cartel, to tackle a supply glut by curbing output will be undermined by reinvigorated US shale companies.
These companies are proving that they are able not just to stay in business, but increase production as well, with oil prices close to today’s levels of about $47 per barrel for benchmark US crude.
The great weakness of the shale industry has always been that the companies have typically not generated enough cash to pay for their capital spending, and have relied on debt and equity sales to finance their growth. But producers have typically cut their costs by about 40 per cent in the past three years, and many are now at or close to the point where they are covering their spending from operating cash flows.
Before the oil crash of 2014, Harold Hamm, the billionaire majority owner and chief executive of Continental Resources, used to say that prices below $70 per barrel could not be sustained for any length of time, because neither Saudi Arabia nor the US shale industry could bear it.
Now Continental is planning for 20 per cent annual production growth financed by its own cash flows with oil at $50 to $55, and says it can invest enough to keep output stable even with crude in the low $40s.
Mr Hamm told analysts on a call last week: “The United States has retaken its place as a world energy leader, and we will compete effectively in this new regime.”
Across the shale industry, drilling activity is increasing even faster than it did in the final stages of its first boom, up until 2014.