April 25, 2025
Things I Learned This Week Counseling
The Texas Energy Council had their annual meeting this week. It brought together schools of thought that few conferences have. They discussed lithium, geothermal and the outlook for oil and gas. A very interesting group and I appreciated the opportunity to meet some interesting people.
True, But…. Kaes Van’t Hof: “Does $60 Oil Threaten U.S. Production, Permian Rig Activity?” Yes, it does. At $60, you either have to cut your dividend significantly or you will be over your economic line of adequate returns. Capex will be lower than oil at $70. An obvious given. If drilling slows, there will be some impact on production, and it isn’t likely to increase. But it doesn’t gap down because of high decline rates. That lesson was learned with natural gas. Is it sustainable? Most likely not, unless some new amazingly whizbang technology gets invented really soon. I also remember an OFS CEO telling me the market at the time was not sustainable. It only lasted a couple years. So, what has to happen? Oil prices need to move higher. But for the next 18 months, a great focus by the current administration, with whom many are trying to curry favor, wants to keep oil prices low to offset the higher costs of the tariffs. And will it? Again, unless some technology that we don’t have today is invented and in widespread use in the next three years or so… I’ll take the under.
Taking One for the Team. (Excuse the long soliloquy)
At first, I thought I would call us the sacrificial lamb, but that is too final. And this is by no means final. But for now, it is our turn in the barrel. Okay, enough of the sayings. Tariffs are a tax. We can argue who best collects the tax, but it raises costs, which causes inflation. And if inflation spikes over the next 18 months, there would likely be a mid-term election that would change enough to cripple the current administration’s goal. So, how do I get inflation moderated? Low fuel prices! Lower gasoline, lower diesel. The current administration understands that it has 18 months to get things done since the party in power rarely wins seats in mid-term elections. It all makes sense.
I don’t really know if it was planned that way, or if it is just how the economic and energy cycles roll. But it is well known that President Trump wants lower crude oil prices. And it is getting more broadly understood as to why. It helps him politically, at a time when he needs all the help he can get. Yes, he is tightening screws on Venezuela and Iran. But the world is still oversupplied, and OPEC+ seems to be proving that with their acceleration of production back on the market after being shut in for years. So, it isn’t just things Mr. Trump does or says explicitly and it may just be a coincidence of timing, but if low oil prices are politically beneficial to the most powerful person on the planet today, they might tend to stay a bit lower than not.
The good news is that it should only last about 18 months. After that, it is “all bets off” regardless of which party wins. Depending, of course, on the oil markets at the time. Now that might seem like a long time, but I have been told for the last several years by many smart people that oil was going to hit $100 soon. Needless to say, for a multitude of very good reasons, it never got there. Yet the industry still made excellent money, paid down debt, returned cash to shareholders and paid dividends, things the E&P industry never did before this decade. All of that means we are in very good shape to weather the next 18 months. And then there is natural gas. After spending two years in the ditch, natural gas prices have recovered and the people on that side of the business have been happy. And the growing demand for natural gas is as guaranteed as anything could be.
And then there was the quid pro quo. Millions of acres reversed and available out of the Biden plan to put it off limits, increased offshore and onshore lease sales, a fixed permit process, a moderated EPA, a friend in the White House and an increased likelihood of financing. Not bad for 18 months of pain. Not terminal pain for most, but pain. One oil industry CEO said, “I wake up every morning thinking it’s Christmas with this administration.” I told him that not everything the administration is doing is good for us or good for oil prices. He said, “I know, and I still get up every morning thinking it’s Christmas. We rarely get anything we ask for or need, but so far, the improvement in the understanding that our industry will be here for a long time is a present, wrapped nicely.”
Some shops will close. Some people will lose their jobs. And we all hate to see that happen and wish them the best. But we as an industry, are in a much better place this time. Usually, the rug gets pulled out from under us as we are borrowing money to build equipment, expand capacity and do big projects. We fall from very high in the clouds with great trajectory. Not this time. The consensus was that U.S. oilfield activity and revenues would be down about 5% this year with international also down but by less. The year has been expected to be down and will now be down a little more. That is easier to deal with than going from up 40%+ to down anything! So, a little more belt-tightening? Consolidation? We know the drill.
And the equilibrium in this? Continuing development of technology. Ten years ago, with $100+ oil, over 80% of deepwater projects were un-economic. Negative returns. The major oil companies are now focused on growing returns rather than just growing production. And now you are seeing a resurgence in deepwater activity, production and planning. Technology has brought down the cost of drilling, completion and production to the point that deepwater projects are now expected to bring positive returns even in a much lower commodity price environment. Four-mile laterals, U-shaped laterals and applications for nuclear reactors to power operations are all changing the cost structure of the industry and improving workers’ safety, a paramount issue in our industry. And the technology development has not stopped. Every generation feels like everything that can be invented has been. We have proven that wrong for decades and centuries.
So, now what? Our industry has been struggling for years, and for the last few years, we found ourselves shunned and shamed and considered dead. We are now not just a national priority, but a global priority. Oil and natural gas prices will be whatever they need to be to foster a competitive return industry. But the need to continue finding, producing, processing and delivering the two commodities is now much better understood and we stand a chance of coming back and being the hero whose power saved the world!
Oilfield Services First Up. OFS leads the way in the energy companies reporting schedule. In the last week, we have had the big and bigger boys report. Few surprises. We knew activity would be down. Now it’s just down a little more.
Halliburton
Halliburton (HAL/Market Perform): Margins weakened and revenue dropped, leading to a lower outlook. Shareholder return expectations remain the same.
Halliburton Update: Slightly negative. Adjusted EBITDA missed estimates by 3%. Halliburton has held up better than peers, falling 15% since the April 2 tariff announcements (compared to Baker Hughes down 16%, SLB down 18% and pure-play pressure pumpers down 36%).
Operational Achievement: Halliburton completed the world’s first closed-loop, autonomous fracturing operation, which it believes marks a major breakthrough for unconventional drilling.
Stock Reaction: Halliburton shares declined after the company warned about the negative effects of tariffs and weaker North American oilfield activity.
Weatherford
Weatherford (WFRD/Strong Buy): 1Q25 results weren’t as bad as expected, but 2025 guidance came in lower (partly due to asset sales).
Earnings Beat: Weatherford reported GAAP EPS of $1.03, beating estimates by $0.03, with revenue of $1.19 billion in line with expectations.
Stock Performance: On earnings day, Weatherford shares rose 1.5%, while Halliburton shares fell 5.5%.
Lower Guidance: Weatherford now expects 2025 revenue to fall 13% (versus 5% previously) and adjusted EBITDA to be about 14% below earlier consensus.
Valuation: Weatherford now trades at less than 4x the midpoint of its new 2025 EBITDA guidance, below its 3-year average multiple of 5.4x.
Management Update: Weatherford named a new CFO and lowered its 2025 adjusted EBITDA guidance.
Near-Term Weakness: Ongoing challenges in Mexico continue to weigh on Weatherford’s near-term results.
Baker Hughes
Earnings: Baker Hughes reported non-GAAP EPS of $0.51, beating estimates by $0.04, but revenue of $6.43 billion missed by $70 million.
EBITDA and Guidance: Adjusted EBITDA of $1.04 billion beat expectations by 2%, helped by strong IET margins. 2Q25 EBITDA guidance of $1.04–$1.20 billion includes the $1.17 billion consensus.
Full-Year Outlook: Full-year guidance for IET was reiterated, but detailed guidance for OFSE was withdrawn due to market uncertainty.
Market Outlook: International upstream spending is expected to decline by mid-to-high single digits, and North America by low double digits.
Orders: IET orders totaled $3.18 billion in 2Q, up 9% year-over-year and beating estimates by 2%, driven by Gas Tech strength.
Patterson UTI
Earnings: Patterson-UTI beat both revenue and earnings estimates and provided a Q2 outlook.
Market Trends: The company highlighted growing demand for natural gas-powered equipment in Q2.
Strategy: Patterson-UTI believes U.S. shale service providers that focus on value-added services—not just low prices—will be better positioned for sustainable returns.
And Again. German wind output has fallen to the lowest level in four years this winter, with another bout of low wind speeds that threaten profits at renewable power operations expected over the weekend.
Power Up! The Texas Public Utilities Commission has directed ERCOT to increase the electrification and the amount of power available in the area that encompasses the Permian Basin. The plan includes investments in transmission infrastructure, including new and upgraded local projects and the potential for 765-kV import paths to bring power from other regions. That is important because typically it would be only a 345-kV path. The plan itself was approved last year but this was the final decision on scale. This is super-charging the capacity. The buildout is expected to cost about $30 billion and will be done over the next six years. While obviously having no immediate effect, the last Avengers movie was only six years ago too and that feels like last week.
Too Many Boats, Not Enough Cargoes: “LNG Carrier Oversupply Drives Rates to Historic Lows. An oversupply of LNG carriers is putting downward pressure on charter rates, pushing them to historic lows. Newly-built LNG carrier deliveries have been outpacing the construction and permitting of new liquefaction facilities needed to support them.” – JPT
News Headlines (No duh!)
China Allegedly Using the Sea to Hide Its Submarines.
Sharks Win Local Soccer Tournament, 1-1.
U.S. Population to Double By 2050, Babies to Blame.
Number of Dropouts Concerns Local Schools.
It’s Not the Permian. EQT paid $1.8 billion to buy private, and private-equity backed (Blackstone) Olympus Energy, getting 90,000 net acres in the Marcellus and Utica and 500 million cubic feet per day of natural gas production. The numbers are very different for different basins.
Getting Noticed. There was an interview with the head of energy at Texas Capital Bank, Marc Graham, that I saw recently. It was nice to see. A Texas bank willing to bank the oil and gas business. I know there are a few, and TCB isn’t brand new, the push is obvious. I realized at a recent Open House that two of the senior bankers had both worked for me. And could still get a job. Marc - “Banks have had capital returned to them and their overall loan portfolios have shrunk. The number of names they’re lending to have shrunk through the disappearance of all those companies. That makes banks more anxious, or seeking opportunities, to redeploy that capital. The energy reflection of that is we are trying to create a platform through the addition of investment bankers, equity sales, trading and research capabilities. We initiated coverage on 40 publicly listed energy names that were upstream, sort of low beta services, compression names, water handling names and mineral royalty names.” Good luck guys.
Conviction. “We’re assuming (X activity) but this remains a complete guess and subject to where oil prices settle out. Eventually (assuming more 2026), the gas market should add rigs and help offset.”
Coals to Newcastle? Birmingham, the one in the UK, has been the steel town of the country. It is the country’s 2nd largest city and was an industrial superpower at one time. Goodbye. British Steel, which was no longer British, is closing down, making it the only G7 country unable to manufacture its own steel. The Chinese company that ended up owning it, was losing over $800,000 each day. The reason? Green. Replacing cheap and very efficient coal with alternative energy sounds great, and in some cases, it is. But it is also much more expensive, and not reliable 24/7. And higher energy costs can cripple or cancel a project. The predictable part? The Chinese blamed Donald Trump.
Mark Twain Quote. “A clear conscience is the sure sign of a bad memory.”
Consolidation! This needs to continue. Scout Surface Solutions, a leading provider of completions services and equipment to the oil and gas industry across North America and the Middle East, is acquiring Kinetic Pressure Control, an SCF Ventures portfolio company specializing in innovative pressure and flow control solutions. “Scout and Kinetic will be able to offer cutting-edge, patented solutions and systems to its customers for high-value applications such as continuous frac, pressure control, pad automation, and control systems.” Kinetic was represented by PPHB as financial advisor.
Yikes. New York state has a Medicaid-funded program for paying people to stay home with aging relatives. Back in 2014, only 20,000 people were paid by the program. When eligibility rules changed in 2015 during the outgoing Obama administration, the number jumped to 250,000. Today, it is more than 620,000 people. That is 12% of the private sector jobs in New York City according to Bloomberg, and it is all taxpayer funded. California has raised over $6 billion in the last few months to shore up that state’s Medicaid program, which is open and available to everyone.
Recommendation from a Friend. “They should put more wine in a bottle, like so there’s enough for two people.”
Running Out of Gas. Almost 2 years ago, I went fly fishing in Cuba. It was spectacular. It was one of the best fishing trips I’ve been on and the most interesting. We stayed for two nights in Havana at a big AirBnb in the middle of the tourist district. It was an old house from 40-50 years ago, and once you walked in the front door it was like walking into a very beautiful, but very old Spanish home. My first thought was that, if I were a billionaire, I would send them 30,000,000 gallons of paint and a few brushes. Nothing has been painted in 50+ years. Most of the people complained that there was no food, no medicine and no jobs. They didn’t really seem angry with the government. I’m sure some of the very high leaders, and those in the military, live a better life, but there are no obvious signs of rich and poor or class stations. Everybody seems the same. And they’re poor. We went to board a boat and fish during the day. We had lobster every night. Then we found out that the Cubans aren’t allowed to eat steak or lobster. They can only eat chicken and pork because the former are for tourists and the generation of hard currency. The most appreciated tip I gave to the people on the boat was a bottle of ibuprofen. I’ve been trying to come up with a time to go back. But I think I’m too late. You probably saw several weeks ago where the power went out in Cuba for several days. That’s not a neighborhood, that’s a country. There are now stories circulating that their borrowing is running out of steam. Their historical supporters, Russia and Venezuela, are in no position to give more aid, or even keep up the aid it had been giving. Much of Cuba’s fuel supply was given for free from Venezuela. That doesn’t happen anymore. One of the more interesting things I noticed in Cuba was the absence of grocery stores or convenience stores of any kind. When I asked someone about it, they looked at me oddly. It turns out they don’t have grocery stores. Food in Cuba is still rationed. Per person, per month, the rations are as follows: five eggs, one pound of dried spaghetti, a cup of cooking oil, a few pounds of sugar, seven pounds of white rice, less than half a pound of black beans, enough bread for one meal a day and coffee beans ground with dried beans or peas to make it last. It was called a “powder keg” by one observer. Cuba has $40 billion in debt and there appears to be no viable political leader capable of changing anything. It could get ugly. Belize? When you read the above piece on our over-consumption, keep places like Cuba in mind.
Our Future. I was reading an article the other day that said the tariffs and recession fears are undermining oil and gas. I don’t disagree with the statement particularly. I just look at it from a very different perspective. When President Trump got elected, he made energy a national priority and pledged his support for our industry. While he was saying “drill baby drill,” we were asking for permit reform. Everybody is on board. But all of this is the long-term view. We made the observation that many energy stocks need to re-price since DCF models were hitting terminal value much sooner. That is good. But again, it’s longer term. And does a recession help the oil and gas industry? Of course not. Right now, there is too much oil in the world. That pushes prices down no matter who is in charge. We used to hear the argument that the cure for high oil prices is high oil prices. But we aren’t seeing those swings anymore. Now they seem to be confined to a very narrow range, $57-$72? The difference is the $72 now seems bullish.
Snippets.
We have had three oil price crashes in the last 20 years. The 2008-09 Financial Crisis, immediately after the OPEC meeting in October of 2014 and COVID.
In 1980, slot machines were less than 5% of Las Vegas casino gaming revenue. Now it’s 70%, about ~$10B last year and worth more than every other game combined.
ConocoPhillips hired Moelis & Co. to sell the Anadarko Basin assets from the Marathon merger, and is expected to get around $1 billion for them.
Tokyo Gas buys $525 million worth of properties in the east Texas Haynesville.
Bump in the Road. Usually, when one of these “bumps in the road” happen, the backdrop is different. Usually, we are in accelerated capex mode. We are building and adding because we KNOW it will be needed. We are growing, the bottom drops out and disaster follows. Not so much this time. We all fully expected this year to be down. And frankly, most were expecting 2026 to be down again. Not much, but down. Now it is going to be a bit worse. But that is better than thinking we will see 20%-30% growth and then something like this hits. Is it fun? Of course not. Some jobs and workers will be lost. But DOGE wouldn’t find much waste in this business. We will be leaner, and probably a bit meaner, than we expected to be this year, but the attitude of the industry is surprisingly positive. The trek through the desert continues, and it isn’t getting easier, but you know you will make it to the other side. That alone is valuable.
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $62.27 per barrel (down ~2.7% week-over-week) and natural gas is $3.43 per MMBtu (down ~6.3% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.5 MM BOPD (up ~2.7% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~0.2 million barrels week-over-week vs. an estimated decrease of ~0.7 million barrels.
Frac Spread Count: There are currently 200 frac spreads operating in the U.S. (an increase of 5 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 569 drilling rigs operating in the U.S. (an increase of 2 rigs week-over-week).
Focused Use. When some new whizbang technology comes out, the first thing that happens is everybody loves it and dives in using it. Over time, not everyone can make use of it. It is the natural evolution of such things. Immediate widespread acceptance, followed by narrowing down to actual efficiencies. It’s interesting to me that we’re starting to see that already in AI. Johnson and Johnson said that at one point they had 900 different AI projects going on around the company, thinking everything would benefit. They’re now moving to focus that strategy, which of course involves cutting spending, people and many of those 900 projects. They were focusing on the ability to successfully deploy and implement projects that can actually deliver on business outcomes. It is now focusing on drug discovery, supply chains and an internal chatbot to answer questions on company policy. That is a definite narrow down of focus. Our industries have been using early forms of AI and predictive maintenance for equipment and a number of drilling operations for years. And like everyone else, we are immediately assuming that AI will apply to everything we do in our companies. That may be the case, but it will be interesting to see how AI will fit into different business lines and segments. I still think it will revolutionize the geosciences. Clearly, supply chain and logistics will benefit. The three biggest uses of super computers for the last many years have been weather forecasting, airline scheduling and seismic data processing. Those are probably among the first businesses that will benefit most from AI. But we shall see. Like Johnson and Johnson, you start with a shotgun approach and narrow it down to a rifle.
Spain is Drinking Koolaid. Joining Germany. France didn’t shut down any nukes. Belgium decided to wait ten years to decide. Germany shut down many and regretted it fairly quickly. Finland is building a small modular reactor. But Spain? They are shutting down seven reactors responsible for 20% of the power in the country. But don’t worry. We will make it up with wind and solar. It is also closing its last coal plant this year. Natural gas? Only for backup. You know. Reliable. Spain is targeting 81% power generation from renewables by the end of this decade — from just above 50% in the past two years. The first part is easier than the second part. Good luck. Very optimistic.
Politics and Energy. The DoE announced that about $10 billion in funding for “green” projects is likely to be cut. Some of the losers? Exxon and Oxy. Exxon uses hydrogen at an ethaline plant and Oxy has its direct air capture projects. While most investment dollars have gone to that “green” technology, I have been concerned about the economics, even before any potential cuts from government. They use a great amount of energy to run and to build. Under Biden, a number of hydrogen hubs were planned and funded, but even the EPA in its Power Plant Emissions Act, specifically did not include hydrogen. Because, according to the agency, the technology doesn’t yet exist to handle hydrogen safely. Hydrogen corrodes the metal we use in pipes, valves and other equipment. Remember hydrogen embrittlement on bolts in deepwater completions several years back? Four hubs are at risk and three seem likely to go ahead. More than 250 projects tied to electric vehicle charging, wave energy, battery recycling, solar, wind and other technologies also are reportedly at risk.
An Odd Fan. It is great to have supporters, and an article by Axios discusses how natural gas is going to power a number of AI data centers in Pennsylvania. One plant alone will generate 4.5 gigawatts, almost the total energy use of Manhattan. And it obviously wasn’t written by someone who knows our business very well, but that is a good thing. We need more converts to the potential for natural gas. An excerpt:
Pennsylvania produced 7.4 trillion cubic feet of natural gas in 2024, the second-most of any state, trailing only Texas, according to the U.S. Energy Information Administration. Natural gas is often produced by fracking, and the Pittsburgh area is home to heavy concentrations of fracking wells.
The Shape of Things to Come. Liberty, ostensibly a presume pumping company, is “transitioning” to power. Liberty and two other companies are developing an industrial park in PA, anchored by a data center and powered by a Liberty natural gas-fired plant. “Our pipeline of power opportunities across North America continues to grow, including projects in oil and gas, the commercial and industrial space and smaller data centers up to 250 megawatts in size.” This according to Ron G, the CEO of Liberty. The company continues to be one of the largest pressure pumping companies, but it is in a leadership position and is shifting part of its focus to distributed power. And it appears to be working. Take note.
We are embracing AI!!! So, we asked Grok AI “How long can the U.S. hold oil production flat at current prices?” Grok Answered:
Short Term (6–12 months): At current prices ($55–$66/b), U.S. production can likely remain flat for 6–12 months. Existing wells are profitable, and efficiency gains allow producers to maintain output with fewer rigs. However, reduced drilling due to prices below breakeven levels ($65/b) will limit new well additions, setting the stage for declines.
Current Context from Grok: To assess how long the U.S. can maintain flat oil production at current prices, we need to consider several factors: current production levels, oil prices, breakeven costs, technological efficiencies and market dynamics. Below is a detailed analysis from Grok, which is based on available information.
U.S. Oil Production: As of 2024, U.S. crude oil production averaged 13.2 million barrels per day (b/d), with a peak monthly record of 13.5 million b/d in October 2024. The Permian Basin, accounting for 48% of U.S. production, drove most of the growth.
Current Oil Prices: As of April 2025, West Texas Intermediate (WTI) crude oil prices have fallen to around $55–$66 per barrel, with Brent crude averaging around $66–$70 per barrel. These prices are significantly lower than the 2024 average of $77/b for WTI and reflect downward pressure from global trade tensions, OPEC+ production increases and weaker demand forecasts.
Breakeven Costs: The average breakeven price for Permian Basin wells is approximately $62/b in the Midland Basin and $64/b in the Delaware Basin. However, to profitably drill new tight oil wells, U.S. shale firms report needing around $65/b on average, according to the Dallas Fed Energy Survey. The price to cover operating expenses for existing wells (i.e., to avoid shutting in production) is about $41/b.
Market Sentiment: Posts on X and industry analyses indicate concerns about the sustainability of U.S. shale production at current prices, with some suggesting that 40–45% of U.S. oil production could become unprofitable if WTI falls below $55/b. Others note that production has been flat for nearly two years, following the deployment of hydraulic fracturing (fracs).
Key Factors Influencing Sustainability:
At $55–$66/b, many Permian wells remain profitable for existing operations, as the operating expense threshold is around $41/b. However, new drilling activity is challenged. Prices near the $65/b are needed for profitable new wells.
Smaller independent producers, with less financial cushion, are particularly vulnerable to prolonged low prices, potentially leading to reduced drilling, bankruptcies or mergers. Larger firms, like Exxon and Chevron, are more resilient due to capital reserves and efficiency gains.
Efficiency gains (e.g., AI, electronic hydraulic fracturing and automated drilling) have allowed Permian production to grow despite a lower rig count (308 rigs in 2024 vs. 334 in 2023). However, these gains are slowing, and steeper decline curves in shale wells mean producers must “run faster to stay in place.” The Red Queen effect.
Production Decline Rates:
Shale wells, which dominate U.S. production, have rapid decline rates, often dropping significantly within 3–10 years. X posts suggest that production curves show consistent declines after initial high output, with wells becoming uneconomic within a decade.
The EIA notes that legacy production from existing wells declines quickly in tight oil formations, requiring new wells to offset losses. At current prices, reduced drilling could lead to production declines within 4–7 months.
Global Market Dynamics:
OPEC+ plans to increase production by 411,000 b/d in May 2025, up from a previous plan of 135,000 b/d, which could further depress prices. However, overproduction by some members (e.g., Kazakhstan, UAE, Iraq) and compensatory cuts may limit actual increases.
Global oil demand growth is weaker than expected (0.9 million b/d in 2025, down from 1.4 million b/d in 2024), driven by U.S. tariffs, slower economic growth in Asia and reduced fuel consumption in China due to LNG and electric vehicle adoption.
U.S. tariffs on Canada and Mexico (effective April 1, 2025) could disrupt 70% of U.S. crude imports, potentially increasing costs for refiners and indirectly affecting domestic production economics.
Geopolitical and Policy Factors:
The Trump administration’s “drill baby drill” policy, initiated in April 2025, aims to bolster production through regulatory easing and offshore drilling expansion. However, low prices and tariffs on steel and equipment (increasing well costs) could counteract these efforts.
Sanctions on Iran and Russia, alongside the wind-down of Chevron’s Venezuela operations, may tighten global supply, potentially supporting prices in the short term.
Long-Term Outlook:
The EIA projects U.S. oil production to peak at 14 million b/d by 2027, with shale output peaking at 10 million b/d, before total production declining to 11.3 million b/d by 2050.
Sustained prices below $65/b could accelerate this decline, particularly if drilling activity slows. Conversely, prices above $70/b could maintain or even increase production by incentivizing new wells.
Estimation of Timeframe
Short Term (6–12 months): At current prices ($55–$66/b), U.S. production can likely remain flat for 6–12 months. Existing wells are profitable, and efficiency gains allow producers to maintain output with fewer rigs. However, reduced drilling due to prices below breakeven levels ($65/b) will limit new well additions, setting the stage for declines.
Medium Term (1–2 years): If prices remain below $65/b, production could start declining within 1–2 years as legacy wells deplete, and new drilling remains uneconomic. A drop to $55/b or lower could make 40–45% of production unprofitable, potentially reducing output by several million b/d within 4–7 months.
Critical Threshold: If WTI falls to $35–$50/b, significant production cuts could occur within 4–7 months, with output dropping by 2–3 million b/d as companies shut in wells. Conversely, a price recovery to $70–$75/b could extend flat production beyond 2 years by supporting new drilling.
Conclusion:
The U.S. can likely hold oil production flat at current prices ($55–$66/b) for 6–12 months (until mid-2026), supported by existing well profitability and efficiency gains. However, without a price recovery to $65–$70/b, reduced drilling activity could lead to declines starting within 1–2 years, potentially dropping production by 1–3 million b/d by 2027, especially if prices fall below $55/b. Global supply increases, weaker demand and tariff-related costs pose downside risks, while geopolitical supply disruptions or policy support could provide upside potential. Monitoring OPEC+ decisions, tariff impacts and technological advancements will be critical.
Any and all comments, arguments and rebuttals are welcome!
In addition to my association with PPHB, I serve on three private company boards. Merit Advisors is a property valuation company and I have long been a fan of optimizing how a business is run, not just the tools we make. Merit is in the business of savings companies’ money, actual cash, by doing a much more in-depth and realistic view of equipment and reserve valuations and I am very impressed with their work. I am also on the advisory board of Preng & Associates, a leading executive search boutique that specializes in all things related to Energy & Power. Nova is a gas compression company run by a very dynamic CEO with a very strong board and ownership.
I serve on the Advisory board of the Energy Workforce & Technology Council (formerly PESA), the National Ocean Industries Association (NOIA), and the Maguire Energy Institute at SMU my alma mater.
jim
214-755-3914 | james.wicklund@pphb.com
Leveraging deep industry knowledge and experience, since its formation in 2003, PPHB has advised on more than 180 transactions exceeding $11 Billion in total value. PPHB advises in mergers & acquisitions, both sell-side and buy-side, raises institutional private equity and debt and offers debt and restructuring advisory services. The firm provides clients with proven investment banking partners, committed to the industry, and committed to success.
