Despite all the attention on the energy transition, the U.S. oil industry is booming, extracting more crude than ever from the shale that stretches beneath the ground of West Texas.
After years of losses on horizontal drilling and hydraulic fracturing, the companies that helped make the United States the world’s largest oil producer have managed to turn things around and are generating healthy profits. Shares of some oil and gas companies, such as Exxon Mobil and Diamondback Energy, are at or near record highs.
The sector’s recovery from the steep losses suffered during the Covid-19 pandemic has been largely driven by market forces, although Russia’s war in Ukraine has contributed. U.S. oil prices have averaged around $80 a barrel since the start of 2021, compared with around $53 over the previous four years.
The fact that the price and demand for oil are so high suggests that the transition to renewable energy and electric vehicles will take longer and be bumpier than some climate activists and world leaders had hoped.
Oil companies’ success isn’t just a result of higher prices. Under pressure from Wall Street to improve their financial profitability, companies that survived the 2020 oil price crash have generally abandoned the debt-fueled growth strategy that powered the U.S. shale gas boom.
Many companies have cut expenses and costs by laying off workers and automating more of their operations.
Since 2021, oil and gas wells in the contiguous 48 states have generated more than $485 billion in free cash flow, or money left over after operating expenses and new projects, according to estimates by Rystad Energy, a research and advisory firm. Over the previous decade, the industry spent nearly $140 billion more than it took in.
“People used to call us drunken sailors,” said Steve Pruett, chief executive of oil and gas producer Elevation Resources, based in Midland, Texas, an industrial hub in the Permian Basin. “I hope we’re shaking off that reputation now.”
In a strange twist, the financial success of America’s oil companies has been left politically orphaned, with neither President Biden nor former President Donald J. Trump celebrating the industry’s recent victories.
Mr. Biden has been reluctant to praise oil companies, given his emphasis on combating climate change. But the president and his advisers have taken credit for lowering gasoline prices after they spiked in 2022 when Russia invaded Ukraine.
Mr. Trump has largely ignored the oil industry’s success and portrayed it as a victim that needs saving. If elected, he has promised to reverse Mr. Biden’s climate policies and encourage oil companies to “drill, baby, drill,” which could depress oil prices and corporate profits.
The environmental consequences of the oil industry’s financial recovery are diverse. Producing and burning fossil fuels releases greenhouse gases that warm the planet. But rising oil prices also make cleaner forms of energy more attractive, said Samantha Gross, director of the Brookings Institution, a nonpartisan research group.
“We’re not going to get out of this business because supply is reduced, even though it’s abundant,” Gross said. “We’re going to get out of this business because demand is reduced.”
So far, that’s not the case. While oil is a smaller share of the global energy mix than it was before the pandemic, partly because of the growth of electric vehicles, demand for the fuel has been growing steadily. Global demand hit a record high of more than 100 million barrels per day in 2023, up 2.6% from 2022, according to the Statistical Review of World Energy.
The Permian Basin, a vast expanse of oil pumps and mesquite shrubs that stretches from west Texas to eastern New Mexico, supplies about 6.4 million barrels of crude a day, nearly half of all U.S. production.
Booms and busts are the norm here, with the economy breathing in and out in step with the price of oil.
With oil trading around $80 a barrel, hotels are filling up, highways are clogged with trucks and unemployment is low: 2.4 percent in May in the Midland region. The national unemployment rate in June was 4.1 percent.
Average oil production in the region is expected to increase 8% this year from 2023, according to federal estimates.
“We’re going to be drilling wells like this for the next 40 years,” said Kyle Hammond, general manager of Permian Deep Rock Oil Company, a small operator that is drilling and fracking dozens of horizontal wells beneath the city of Midland. Massive noise barriers shield nearby neighborhoods from the hum of a generator and the honking of trucks backing up.
Many oil companies are betting big on the Permian. Exxon, now the region’s largest producer, hopes to increase its oil and gas output by about 50% by the end of 2027.
“It reflects the fact that there is demand,” said Bart Cahir, who heads the company’s shale division.
Yet the same budget cuts and technological improvements that have made many oil producers more profitable have also taken a toll on the many contractors and suppliers who serve them.
At the end of 2018, companies were operating about 490 drilling rigs in the Permian and pumping about four million barrels of oil a day, according to federal data. Today, they are producing more than six million barrels with about 310 active rigs.
That means less business for companies that operate drilling equipment and provide housing for workers who travel to the oil fields.
“It’s not like the booms of the past where, ‘Katy, close the door and let’s go,’” said John Odette, chief operating officer of Crew Support Services, which manages a dozen mobile home complexes throughout the Permian. “People are a little more reserved.”
The company’s complexes, known as man camps, are about 85% full, but rates are far lower than they were before the pandemic, Odette said. A room that would have fetched $100 a night in 2018 is now fetching $50 to $80, he said.
While oil prices are well above what most companies need to generate a healthy return, natural gas is so abundant here that there is sometimes no place to ship it. Pipeline capacity isn’t always enough to get it to states or countries where demand for the fuel is high.
For several days this month, natural gas prices in West Texas were negative, falling to nearly $4 below zero per million British thermal units, a standard unit of measurement for natural gas, according to S&P Global Commodity Insights. That means that instead of getting paid for the fuel, producers had to pay other companies to buy it.
The price slump has amplified frustration among many executives with Mr. Biden, who this year suspended permits for new natural gas export terminals. This month, a judge ordered the Biden administration to lift that pause, though analysts said the decision would likely have little immediate effect. Even in the best of circumstances, it takes many years to plan, permit and build new terminals.
“We desperately need these terminals right now to create a market for gas,” said Suzie Boyd, a Midland-based consultant who helps producers sell their oil and gas.
Within the industry, the presidential campaign is stoking a simmering anxiety about the future. A large majority of oil and gas executives support Republicans, but some acknowledge that their industries often do better with a Democrat in the White House. Democrats tend to impose stricter regulations that limit production, keeping prices higher than they would be in a more lax environment, the theory goes.
“In the short term, Biden has been better for our industry,” said Chris Wright, chief executive of Liberty Energy, an oilfield services company.
Yet many who make their living pumping oil and gas chafe at Mr. Biden’s climate rhetoric and policies and worry that another term from him or another Democrat could hurt their businesses in the long run.
“A more welcoming investment climate, greater confidence in the future of energy thriving here – all of that is going to impact investment decisions at the margin,” Wright said.
White House spokesman Angelo Fernández Hernández said record domestic energy production under Biden had boosted economic growth. He also noted that the United States is now the world’s largest exporter of liquefied natural gas. “Since day one, the president has led an unprecedented expansion of American clean energy production while working to lower prices for American families,” he said.
Karoline Leavitt, a spokeswoman for Trump’s campaign, said no one has done more harm to the oil and gas industry than Mr. Biden, including by restricting permits for oil and gas drilling on federal lands. If elected, Mr. Trump would pave the way for oil and gas companies to “use the liquid gold beneath our feet to produce clean energy for America and the world,” she said.
Whatever the outcome of the November election, the future of the oil industry hinges on a larger question: What will happen to global demand for crude?
The International Energy Agency (IEA), a multilateral organization based in Paris, predicts that global oil demand will peak before the end of the decade, as more people and businesses buy electric cars and rely on wind and solar power. But many oil executives and the Organization of the Petroleum Exporting Countries (OPEC) believe consumption will grow into the 2030s and beyond.
If the energy agency’s forecast comes true, the world will be awash with crude by 2030, with production capacity exceeding demand by about eight million barrels per day.
In Midland, many agree with Michael Oestmann, a partner in an oil and gas company, Tall City Exploration IV, who is betting that demand for oil will be resilient and that constraints imposed by investors and governments will drive up prices.
“I see long-term demand going to increase and supply going to be limited,” Oestmann said. “We hope to play a role in that.”