The real inflection point came when conventional oil production in the United States continued to wane though the early 2000s, and prices went up. Drillers were accordingly able to fetch more money for their products, allowing them to justify costlier extraction methods like fracking. Then, after the Great Recession, interest rates dropped to almost nothing as the Fed sought to stimulate the economy. Wealthy investors found themselves with lots of cash and were eager to find places to stash it. Some poured funds into companies like Theranos and WeWork. Others funded fracking, encouraged by similarly enterprising and unscrupulous salesmen. For a time, shale drillers’ success was judged by how much they could drill, not by how much money they made. Frackers struggled to turn a profit for nearly a decade, drilling as much as they could, as quickly as they could. That rapid-fire drilling, to which the FTC alludes, helped to drive down the price of crude oil and, in turn, gas prices. Contributing to that was the fact that producers were still mostly barred from exporting crude oil abroad.
The economics of fracking, though, rely on higher prices. Drillers that don’t—who rely on cheaper, conventional production—saw an opportunity. In November 2014, OPEC decided to maintain its members’ existing production rather than cut it, as is customary when prices get too low. That’s arguably because Saudi Arabia—the most dominant producer in that alliance—could afford to weather lower prices, and cared more about not losing too much market share to U.S. producers. Smaller frackers buckled as prices dipped below the “break-even” levels needed to justify their expensive production habits, at least on paper; larger drillers (ExxonMobil, Shell, etc.) had bigger and more diversified balance sheets that could take the hit. Congress’s decision to repeal the crude oil export ban in 2015 offered a lifeline and “allowed U.S. crude oil producers to charge higher prices relative to comparable foreign crude oil,” the U.S. Government Accountability Office explained.
In the years that followed, investors who’d spent years letting frackers burn through their cash started to get frustrated. Wall Street and corporate managers eager to protect themselves against future volatility wanted to get their own balance sheets in order, cutting back on costly drilling binges and delivering more cash to disgruntled shareholders. The onset of Covid-19 and ensuing travel restrictions—when the world’s demand for oil and gas dropped considerably—cemented that trend. Companies eager to stay in business through future booms and busts embraced “capital discipline,” focusing on efficiency and bringing the boom times to an end.
