Investing.com — President-elect Donald Trump has promised to encourage more oil production, reigniting debates over the country’s energy policy. However, prevailing trends in the energy sector suggest that such initiatives may face strong resistance, not from regulators or environmentalists, but from the oil industry itself, according to CFRA Research.
US crude oil production has already increased 50% since 2014, reaching 13.2 million barrels per day (mmb/d) in September 2024, just 1.2% below the all-time high recorded in August of the same year.
The United States remains the world’s leading producer of crude oil, surpassing Saudi Arabia and Russia. This production growth has occurred despite relatively modest investments in new drilling. Improved technology has allowed companies to extract more oil from existing resources efficiently, making extensive capital spending less critical.
“Oil producers are spending cautiously because they remember 2009, 2016 and 2020,” CFRA notes.
Companies have shifted their focus from aggressive growth to shareholder returns, with dividends and buybacks accounting for 36% of capital spending by oil-focused exploration and production (E&P) companies in 2024. This figure represents a significant increase from 23% in 2014, indicating a clear shift in priority away from reinvestment in oilfield development.
“If anything, U.S. oil producers are diverting a smaller proportion of cash flow into new production, and production is performing well,” CFRA said in the note.
Despite limited reinvestment, production remains strong, largely due to technological advances.
Fracking techniques have become more efficient, with fewer fractures generating most of the output. This efficiency, while beneficial for producers like EOG Resources (NYSE 🙂 and Diamondback (NASDAQ 🙂 Energy), poses challenges for oilfield service providers like Halliburton (NYSE 🙂), Schlumberger (NYSE 🙂) and hughes baker (NASDAQ:). These companies have seen their revenue per barrel of crude oil produced in the United States decrease by 43% since 2014.
Instead of increasing drilling, many exploration and production companies are turning to mergers and acquisitions to boost production. Recent deals, including Diamondback Energy’s $26 billion acquisition of Endeavor Energy, highlight the industry’s preference for inorganic growth.
“We believe the shift toward inorganic growth is sensible in an environment where investors are penalizing companies that suggest strong organic spending growth,” CFRA continued. Even companies that have avoided major mergers and acquisitions are expected to achieve output growth, albeit at more modest rates.
In conclusion, while Trump’s rhetoric may call for a return to “Drill, baby, drill,” the industry’s focus on capital discipline, efficiency and shareholder returns could temper any increase in new drilling activity. drilling.