Play Live Radio
Next Up:
Available On Air Stations

Why oil production isn’t ramping up faster, despite politicians’ calls to increase supply

Pumpjacks in North Dakota's Bakken oil patch extract oil from deep underground. Oil production has grown nationally in recent months to 9.3 million barrels of oil per day.
Even though oil prices are high, many producers are hesitant to invest in drilling, analysts say.

Last week, President Joe Biden announced plans to tap into a record amount of federal oil reserves to help boost supply and temporarily relieve high gas prices amid Russia’s invasion of Ukraine and the volatile global oil market.

While politicians continue to call for changes in federal policy to spark growth in the oil and gas industry, some analysts say the federal government has less of a role in ramping up oil production than political rhetoric would suggest.

Price per barrel reached a 7-year high after Russia invaded Ukraine in late February, and prices at the pump currently top $4 dollars per gallon.

Last month’s $100 going rate for crude oil is a jump from the low prices oil reached two years ago — but given the uncertainty in the industry, higher prices aren't necessarily better, said Alan Olson with the Montana Petroleum Association.

“When you put millions of dollars into equipment, you have to be able to recoup those costs,” he said. “And I just see a lot of hesitation.”

Olson said along with global sanctions against Russian oil, supply chain issues and workforce shortages, members of Montana’s oil industry are also still trying to recover from the bankruptcies, layoffs and the other losses of the pandemic.

“The littler people, if you don’t have the money in the bank, you’re not gonna be drilling,” Olson said.

"The littler people, if you don’t have the money in the bank, you’re not gonna be drilling."

Montana’s oil fleet is mostly the “littler people": Energy company Baker Hughes listed a single active rig in Montana the last week of March compared to North Dakota’s 33, Wyoming’s 15 and more than 300 in oil-rich Texas.

The White House has called on the oil and gas industry to produce more and claims members are sitting on federal lands without drilling on them.

Veteran oil producer Tom Hauptman in Billings said he’s trying to increase production at his sites in Nebraska, Colorado and Utah while prices are high, but said he’s faced barriers including shortages of materials, personnel and equipment.

“Everything from start to finish is in short supply right now, so you have to organize things way in advance,” said Hauptman. “Because the last thing you want is to be is out there with a drilling rig when you’re paying $25,000 dollars a day and you have to wait on cement to show up or pipe to show up or whatever, it becomes very, very expensive, so there’s a lot of logistics involved getting it all done.”

Republicans nationwide — and some Democrats — have called for the Biden administration to reverse policies they say hamper oil production in the United States. Both of Montana’s U.S. senators, Republican Steve Daines and Democrat Jon Tester, have appealed to the Biden administration to increase oil production through policy – including reforming the oil and gas leasing process.

But, said Clark Williams-Derry with the Institute for Energy Economics and Financial Analysis, "there’s a debate in Washington that is completely missing the global dynamics."

He said the federal government actually increased how many permits it processed in Biden’s first year in office.

“The Biden administration has done very little to stop approval of these permits,” Williams-Derry said. “So there’s a lot of talk, but very little action from the Biden administration in terms of curtailing drilling on public lands.”

But even then, Williams-Derry said the majority of drilling happens on private land.

“Really that’s a place where the oil industry has a say," he said. "The oil industry is able to call the shots. It has the permits that it needs to drill. It has control.

"There’s nothing the federal government can do to say you can’t drill here on private land."

So, if the oil and gas industry has the ability to ramp up drilling, why isn’t it?

Williams-Derry said in the fracking boom of the early 2010s, investors put a lot of funding into the oil and gas industry, which flooded the global market with U.S. oil and drove down oil prices globally — so those investors never saw a full return.

He said now with high and unpredictable oil prices, combined with supply chain constraints and a bad couple of years to recover from, companies are strategically sitting tight.

federal reserve dallas oil survey.png

A March survey from the Federal Reserve Bank of Dallas shows a little over half of oil executives think large companies are being conservative due to pressure from investors.

“Now that oil prices are high and they’re drilling less, they are finally generating cash after essentially a dismal decade, a lost decade of financial losses has been followed by a brief period of high prices where they’re finally starting to generate some cash,” Williams-Derry said.

As long as prices remain unstable and unpredictable, Williams-Derry said he expects the industry to remain cautious — regardless of what’s being said in Washington.

Kayla writes about energy policy, the oil and gas industry and new electricity developments.