US shale companies tighten their belts amid oil price uncertainty

Howdy ya’ll and welcome to Energy Source, coming to you from the heart of Texas.

In another assault on the US renewable sector, the Trump administration slapped a surprise stop-work order on a $1.5bn wind project off the coast of Rhode Island last Friday, sending shares in Ørsted, the world’s biggest wind developer, down to a record low on Monday.

The Revolution Wind project, four-fifths completed, was due to open next year and supply power for 350,000 homes. Now its future, and that of its developer in the US, is on the ropes, according to our Nordic and Baltic correspondent Richard Milne.

President Donald Trump has signalled his dislike of the renewable industry, curtailing tax credits, loans and grants formerly supplied by the Biden administration. Nearly $19bn in clean energy projects have been cancelled this year, my colleague Martha Muir writes.

Today I’m focusing on a strange little phenomena in the US oil patch that at first glance doesn’t make much sense. But dig a little bit deeper, and it becomes obvious why Texas continues to lead the US as the country’s biggest oil producing state.

Thanks for reading — Kristina.

Shale companies gird for tough times

A dead snake can still bite. A dead bee can still sting. Oil executives are taking these Texas sayings to heart and are being cautious, preferring not to make any sudden moves in their drilling programmes until crude prices recover.

A steady drumbeat of supply increases from the Opec+ oil cartel this past quarter have added to the uncertainty across the oil patch, crimping earnings and driving down WTI crude prices by nearly 13 per cent.

“We’re being patient,” said James Walter, co-chief executive of Permian Resources, in Midland, Texas. “We’re in wait-and-see mode.”

US oil companies are trimming expenses where they can to preserve their drilling programmes — and shareholder returns — while they wait to see if lower crude prices are here to stay. The top 20 shale producers, excluding ExxonMobil and Chevron, have altogether slashed more than $1.8bn in capital expenditures in the past two quarters, according to Enverus.

“It’s all about riding the wave and remaining stable,” said Matthew Bernstein, vice-president of North America oil and gas at Rystad Energy. 

But despite that caution, something surprising is happening in the oil patch: production is actually increasing. Shale companies are drilling faster, longer and more efficiently to cut costs and setting drilling records across the Permian Basin — the area in Texas and New Mexico that accounts for more than half of all US output — along the way.

It once took a few weeks to drill a shale well; now it takes as little as a few days.

Diamondback Energy, one of the largest shale producers, drilled the fifth longest well in Texas history this past quarter, at 31,035 feet, or 5.8 miles. For context, the average length of a lateral well is a little over 11,000 feet, according to Novi Labs, an Austin, Texas-based energy analytics firm.

“We’re really pushing the limits of what we know is capable. I don’t know where it’s going to take us,” said Diamondback chief executive Kaes Van’t Hof. 

Those gains in well efficiency are reflected in overall output. US crude production is expected to climb from 13.4mn of barrels a day in July to an all-time high of nearly 13.6mn barrels a day in December, according to the US Energy Information Administration. 

Some companies in the Permian are waiting to defer well completions until prices recover to reduce expenses. Apache Energy and Diamondback are maintaining high levels of drilled but uncompleted wells, or DUCs, they can later tap. Drilling less allows companies to reduce their overheads. Every drilling day Permian Resources skipped saved them about $100,000 during the second quarter.

Oil companies are also sidelining rigs and fracking crews as they reduce their expenditures. The number of rigs drilling for oil dropped to 411 last week, down 15 per cent from the same period last year, according to oilfield services company Baker Hughes.

The number of fracking crews, or those completing wells, has fallen, hitting a four-year low. There are now 165 crews, down by two for the week ending August 22, and down 64 from the same period last year, according to data provider Primary Vision. 

But those efficiency gains are not expected to prop up production for long as more rigs come offline. US crude oil production is projected to fall to 13.1mn barrels a day by the fourth quarter of 2026, according to the EIA.

On their earnings calls, though, shale companies were loath to mention the coming production drop even though all the signs pointed in that direction. Instead, executives preferred to focus on their reductions in capital expenditures and their strong commitment to their shareholders.

“No one wants to be the first to tell [Wall Street] that their production is going to decline and see their stock price suffer,” said Robert Polk, Novi Labs’ research director.

As companies slash their budgets, they remain focused on growing free cash flow to buy back stock, repay debt and maintain dividends.

“Our long-term goal isn’t production. It’s generating free cash flow and demonstrating to the market that we have durability,” said Coterra Energy chief executive Tom Jorden. “We want to be known as a cash flow machine.” (Kristina Shevory)

Power Points

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Kristina Shevory, Tom Wilson, Rachel Millard and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.