Amid lower oil prices this year, the U.S. shale patch is in a wait-and-see mode, expecting to ride the price decline with minimal tweaks to strategies. U.S. oil producers are trimming capital expenditure budgets, relying on efficiency gains from current drilling activity to keep output levels.
American oil production is rising, due to the lag between oil price slides and drilling, but large shale producers are already calling the peak of oil output, despite the Trump Administration’s best efforts to support the fossil fuels industry.
“We’re Being Patient”
The administration’s iconic ‘drill, baby, drill’ slogan has been wishful thinking this year as U.S. benchmark crude prices, WTI, have lingered in the low to mid-$60s per barrel for months, about 13% below year-ago levels. The additional supply from the OPEC+ group and the Trump Administration’s inconsistent tariff and trade policies have reduced investors and speculators’ confidence that oil prices could stage a rebound soon.
U.S. oil producers aren’t panicking, yet. They are reducing drilling activity and deferring well completions to save on expenditures in the current lower oil price environment. At the same time, efficiency gains are helping to produce more oil with less spending.
“We’re being patient, we’re in wait-and-see mode,” James Walter, director and Co-CEO of Permian Resources, said on the Midland-based company’s Q2 earnings call.
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With the market chaos and volatility in the second quarter, Permian Resources executed on its so-called ‘downturn playbook’ and repurchased shares in April when market values were low when oil prices crashed.
Efficiency gains helped Permian Resources set new company records for the fastest well drilled, the most feet drilled per day, and the lowest completions cost per foot, Co-CEO Will Hickey said.
Devon Energy boasted continued efficiency gains and effective supply chain management, which allowed it to outperform expectations, with capital spending 7% below guidance, CEO Clay Gaspar said on the earnings call.
For the second consecutive quarter, Devon Energy raised its oil production outlook while lowering capital spending by $100 million.
“Our drilling and completion teams are leveraging artificial intelligence to drive capital efficiency while our production teams continue to innovate lift techniques to sustain production levels,” Devon’s CFO Jeff Ritenour told analysts.
“With the capital efficiency improvements and as new wells come online and optimization initiatives take effect, we expect lower capital costs compared to the first two quarters.”
Occidental Petroleum also reduced its capital budget for 2025, betting on efficiency gains.
“Continued momentum in operational efficiencies across our Permian assets has enabled us to further reduce our 2025 capital guidance range by $100 million without impacting total company production,” Oxy’s Senior Vice President and CFO, Sunil Mathew, said on the Q2 earnings call.
Oxy managed to achieve enough operating cost reductions to offset the operating costs associated with the incremental 180,000 barrels of oil equivalent per day of production in the first half of the year compared to the same period last year, president and CEO Vicki Hollub said.
Peak Shale?
Efficiency gains, as well as synergies from the Endeavor merger and lower service costs, allowed Diamondback Energy to reduce its 2025 capital budget by another $100 million, or about 3%, from the prior midpoint, to $3.4 – $3.6 billion.
“With volatility and uncertainty persisting, we see no compelling reason to increase activity this year,” CEO Kaes Van’t Hof told shareholders in a letter in early August.
Diamondback dropped four rigs in the second quarter, reducing activity from 17 rigs to 13 rigs. The company currently expects to run 13 to 14 rigs and five completion crews for the rest of this year.
Due to capital efficiency improvements on the drilling side and better-than-expected volume performance, Diamondback expects to drill about 30 more gross wells and complete around 10 fewer wells than the previous update.
“This results in a smaller than expected DUC drawdown and allows us to keep a DUC balance that provides for operational flexibility and the ability to increase production quickly when the oil market inevitably calls for growth barrels,” the executive said.
Since the Q1 letter to shareholders, Diamondback “Continue to believe that, at current oil prices, U.S. shale oil production has likely peaked and activity levels in the Lower 48 will remain depressed,” Van’t Hof said.
The U.S. oil-directed rig count has declined by approximately 60 rigs this year, including 59 rigs in the second quarter alone, and the Permian Basin active completion crew count has declined to around 70 active crews, down by over 25% from 2024, the executive added.
At depressed oil prices, efficiency gains could sustain oil production in the U.S. shale patch, but not for too long. The drop-off in operating rigs and frac crews will show up in a few months’ time.
Current growth in well productivity will push U.S. crude oil production to an all-time high near 13.6 million barrels per day (bpd) in December 2025, the U.S. Energy Information Administration (EIA) said in its latest Short-Term Energy Outlook (STEO).
However, as crude oil prices fall, the EIA sees U.S. producers accelerating the decreases in drilling and well completion activity that have been ongoing through most of this year. As a result, U.S. crude oil production is set to decline from a record-high 13.6 million bpd at the end of this year to 13.1 million bpd by the fourth quarter of 2026. On an annual basis, the EIA now forecasts crude oil production will average 13.4 million bpd in 2025 and 13.3 million bpd in 2026.
If oil prices remain at current levels or lower, U.S. shale drillers will further slow activity levels, as their main goal these days is preserving cash and returning it to shareholders, not boosting production at any cost.
By Tsvetana Paraskova for Oilprice.com
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