Frackers Increase Spending but See Limited Gains

Frackers Increase Spending but See Limited Gains

Frackers are set to plow more cash into oil fields this year compared with last, but it isn’t expected to unleash the flood of crude that past spending binges in the shale patch have. 

EOG Resources Inc.

EOG -4.41%

said it would spend about $1.4 billion more than last year, but that its oil production would rise by only about 3% in 2023.

Pioneer Natural Resources Co.

PXD -4.14%

said it would augment its budget by nearly $1 billion, but its production would increase by less than 7% from 2022. And

Marathon Oil Corp.

MRO 0.43%

said that although its expenses would jump by up to 35%, its production would remain flat. 

The disconnect between spending and production gains makes for a murky outlook for oil and gas producers in 2023, analysts said. It comes after many producers rode high oil prices following Russia’s invasion of Ukraine to record profits in 2022, but suggests their ability to grow is limited.

EOG reported this week that its yearly profit jumped $3 billion to $7.7 billion. Pioneer said it netted $7.8 billion last year, almost four times what it made in 2021.

Diamondback Energy Inc.

said its net income more than doubled from 2021 to $4.5 billion. These three companies churned out more than $20 billion in free cash flow last year, compared with $11.1 billion in 2021.

Those profits may be difficult to replicate. The industry is dealing with inflation, which has sent the price of equipment, labor and materials to new heights, analysts said. Drillers are also warning they will have to splurge more to extract the same volumes of hydrocarbons, in part because shale fields from North Dakota to Texas, the oil basket of America, are maturing.

Russia’s invasion of Ukraine last year caused oil prices to jump.


Bayne Stanley/ZUMA Press

Shale companies in the past decade capitalized on low-cost debt to fuel explosive growth in the oil patch, which contributed to a glut of supply and a collapse in oil prices in 2014 to 2016. The free-spending led to multibillion-dollar losses and angered investors. 

Drillers eventually pledged to rein in spending and focus on capital returns and showered their investors with cash last year. According to energy research firm Wood Mackenzie, through the third quarter of 2022, a group of 38 shale companies distributed $42 billion to stockholders through dividends and buybacks—slightly more than what these companies spent on production over the same period. 

The fact that companies have moved to funnel most of their cash back to shareholders, and not into squeezing out new molecules, has become a source of pride for oil bosses. Marathon Oil Chief Executive

Lee Tillman

told investors earlier this month that his company had “the lowest reinvestment rate in our peer group, a full 10 percentage points below the S&P 500 average.”

The companies’ frugality has attracted investors: In the past year, the S&P 500 Energy stocks increased by more than 26%, even as the broader index fell 5%.

The industry is now reversing its austerity measures. Investment bank Evercore ISI estimated in December that shale companies’ budgets would increase by 46% in 2023, putting U.S. spending on par with levels last seen in 2009—about half its historical peak. That rise follows a 30% increase in spending last year from 2021, according to Wood Mackenzie. In 2022, the 51 largest U.S. shale companies spent $52.6 billion on oil fields, the firm said.

Drillers say they are spending more to keep production roughly flat. Their budget increases in 2022 resulted in a 4% increase in oil production for the group, according to Wood Mackenzie’s models. Companies largely attributed their ballooning budget in 2022 and this year to inflation, which raised the cost of labor and materials by around 20%, as well as to one-time items, such as well maintenance. 

In addition to productivity troubles, frackers face an existential predicament: fewer sweet spots to drill, analysts said. Shale executives privately concede the problem and in earnings calls this month tried to reassure investors they had ample running room, pointing to recent acquisitions that added to their inventories of drilling locations.

But some frackers, such as Pioneer, have said they have been dealing with capricious wells. The driller last year said its Permian Basin wells had disappointed, and that it would reshuffle its drilling portfolio to generate higher returns in 2023. “We expect to deliver a much more productive program this year,” Pioneer Chief Financial Officer

Neal Shah

told analysts on Thursday.  

Marathon’s Mr. Tillman, for instance, said the company bought Ensign Natural Resources, in the Eagle


region of Texas, last year as it looked for “assets or opportunities that would also have a net positive effect on inventory life.” 

Arjun Murti,

a senior adviser at energy consulting firm Veriten, said many midcap companies have no more than three to seven years’ worth of top drilling locations. “What do they do beyond that?” he said. 

Because shale companies are chewing through their top inventory, they have few choices other than acquiring rivals to beef up their reserves, analysts said. Executives and industry experts say they expect the oil patch to see more M&A this year as a result, especially now that producers are flush with cash. 

But the combination of a nearly 40% drop in U.S. oil prices since mid-2022 with inflation and new taxes means that shale’s returns have likely peaked, analysts said. Now that shale companies are profitable, they can no longer defer taxes, which the companies did when they were losing money. 

Companies still expect to derive healthy profits from crude sales this year, with some executives such as Pioneer Chief Executive

Scott Sheffield

expressing hope that demand from China will help push back oil prices to $90 to $100 a barrel this summer. 


What is your outlook on the shale industry? Join the conversation below.

Some buyers might also find that shopping options are limited. In the Permian Basin, the most active U.S. oil field in New Mexico and West Texas, much of the premium acreage has already been consolidated, according to a recent report by consulting and accounting firm Deloitte Touche Tohmatsu LLC. Even with oil prices averaging more than $90 per barrel last year, operators paid under $15,000 per acre in 2022, down from more than $20,000 in 2021, according to Deloitte. 

“A lot of these companies are now in a position where they can’t grow,” said Doug Leggate, an analyst at

Bank of America Corp.

Write to Benoît Morenne at

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Author: Shirley